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Mr. STARK. Before we go on, there are some questions I have based on your testimony. Perhaps we have some semantic differences.

I like to define or make a distinction between "health” and “medical.” To me, health has a lot to do with a whole lot of things—how you feel when you get up in the morning, whether the sun is shining and where your head is. It is probably more a result of environment, your nutritional training, your education, how you feel about your own femininity or masculinity. It seems to me to have a whole hell of a lot more to do with health than Blue Cross or Blue Shield or the AMA.

Medical, to me, defines the "I hurt,". "My arm is broken,”. “I have the flu," "I am pregnant,” on down the line. That is really what we are discussing.

I think health is really just a function of environment, and if we leave it there, we would be a lot better off. Professor Law. I agree with you. Mr. STARK. I want to keep saying "medical" and not "health.”. Professor Law. Absolutely, yes.

Mr. STARK. Second, I don't think there is any “insurance” outside of perhaps catastrophes where you get some actuarial experience. An insurable event is something different from a prepayment of medical services, although, as you point out, there is some kind of medical progressiveness in saying that those more healthy, they are needing less medical care, pay for those less healthy.

Professor Law. That is not an insurance concept. That is a tax concept.

Mr. STARK. That's right. That is what I am getting at. It is like the progressive income tax, although it does relate to income actually going back. I would like to call these plans bill-payers, because a billpayer director or a bookkeeper, with all the really nice bookkeepers and bill-payers in this world, sounds less impressive than "executive."

Or you can make it four syllables, if you want to really savor the position. That is what I see these intermediaries as being, an extension of the hospitals' or the doctors' accounting offices.

What also is missing here is the passthrough of costs-or that absent from the whole system is any kind of alternative which allows the consumer a choice to do anything but accept and pay for or not have the service. In other words, when you are sick, you don't question the doctor or the practitioner or the chiropractor or the hospital or the blood test person when you're told how much it costs. You pay, even if you are not covered by one of the plans.

You just don't, as a practical matter, have a choice unless you are extremely wealthy, or are a member of the fraternity of professionals where you have the luxury of having several medical professionals to discuss things with.

I keep hearing from my constituents, “The price went up $4 or $5 a hospital visit. Why?” Because it was the practice in your area.

My next question is, whether you have seen a practice within the Blue Shield or Blue Cross system of spreading around rates or comparing rates among physicians?

I wouldn't go so far at this point to say that it is prophetic. But it seems to me if you are a physician and you see what all the other physicians are charging to set a right arm, for instance, and yours

are below that rate, you don't have to be a whole hell of a lot smarter than Mr. Stark's son to say, "I had to raise my rate because that is what the insurance companies are paying an employee.”

Maybe that is OK, but where is the bill-payer who says these rates are too high, and we are going to go out and create an HMO or hire some physicians and set up a public interest medical practice to cut the rates down to bring the business in? Absolutely nowhere in this whole process do I find any incentive to either reduce the amount of services so you will lower the costs.

The rule seems to be, Let's increase them and pass them through. When in doubt, stick him in the hospital over the weekend so we can go play golf on Sunday and come back and operate on Monday.”

Would you comment on where cost-cutting enters into the system?

Professor Law. I think I agree with everything you said except the characterization of Blue Cross as the bill-payer. I think that is true today, but I also think that there is a need for some agency that looks at the budgets of hospitals, just as there is a need for some agency that looks at the budget of Blue Cross. That agency, whether it is called "fiscal intermediary" or the "health services organization" under the Health Security bill, or Blue Cross or whatever, that agency has a very important job to do that is not just paying bills. It is a job that is essentially a job of making social judgments as to how much money you want to spend, and how you want to spend it.

At some level those judgments are made here in the Congress, but at another level those judgments have to be made in a more detailed way and you need an agency to do that.

You are absolutely correct, that you can't expect consumers at the point of illness to make those judgments. But I think you can expect consumers and people in a more general way to be involved in the process that determines whether we are going to get a CAT scanner for this community or whether we are going to spend our money expanding outpatient services.

Mr. STARK. Can those decisions be made on the basis of economic judgment or are they really judgmental? It isn't something that a free marketplace is going to decide, is it?

Professor Law. There is no marketplace. Even if there was a marketplace, I am not sure we would want to allow those decisions to be made by the marketplace because I think, unlike other things that we need as human beings, there is a growing sense in this country that your accessibility of health services shouldn't depend on whether you have the money to pay for it.

It is one thing to say if you want a Cadillac, you go out and get a job so you can buy it. But it is quite another thing to say if your kid is sick and needs medical care, you just earn enough money to buy it or else don't buy it.

Mr. Stark. When you wrote your book, did you receive public assistance in financing?

Professor Law. Yes. At the time that I wrote the book I was staff director of the health law project at the University of Pennsylvania and received funds from OEO, Health Services Administration and the Ford Foundation. I received no profit from the book. The royalties from the book go to maintain the Health Law Project Library, which I think is a very good collection of materials in this area and is what is left of the health law project.

There is a new edition of the book which just came out in paperback this spring that tries to bring things up to date since it was published in 1974 and focuses particularly on efforts that have gone on in various States to attempt to control hospital costs.

Mr. STARK. Has the BCA written another hundred-or-so page critique of the new edition?

Professor Law. No. I haven't seen any response. The new paperback edition hasn't been as widely or favorably reviewed. It hasn't been reviewed at all. So, I think that it may be that they have determined that it is better to let sleeping dogs lie on this new one.

Mr. STARK. I am sure you can find a better characterization than that. Do you have any comments on the critique of the BCA critique of your book?

Professor Law. It is a very interesting document. There are few places where they found out and out mistakes on my part. But in a book with 750 footnotes, I don't feel ashamed that I referred to Mr. Tierney once as Robert Ball. They are mistakes of that level.

Then apart from those things, the nature of the critique is criticizing me for things that are perfectly apparent on the face of the page.

For example, when I say, "Here is an example of an abusive practice," I don't know the degree to which it is universally true, but at least it raises interesting questions.

They criticized me for reasoning on the basis of insufficient data. It is a very interesting document. I think primarily because they don't take issue with any of the fundamental points that I make.

They don't take issue of any of the fundamental points but rather by quibbling away sentence by sentence and word by word they give an overall impression that there is something fundamentally wrong here without ever taking me on with the merits. It gave me a sense that I must have been fairly ballpark close to right on the merits.

Mr. STARK. You are being very kind. You defended the Blue Cross as being more than billpayer and said they have this utilization process.

In your opinion, how well do you think the Blue Cross programsthe Blues, I guess, I should refer to them-provide this utilization review?

How effective are they?

Professor Law. Utilization reviews is a very difficult area because some plans provide more aggressive utilization review and have an impact of shifting costs for services that should never have been provided in the first place from the Blue Cross plan to the individual. So, on some scale those plans do an effective job. Other plans don't do that. So, consequently, the plan bears the cost of unnecessary services.

I know of no plan that provides the individual with any kind of process for challenging the utilization review judgment. I know of no plan that mandates any kind of contemporaneous review of the necessity of the services or advanced review of the necessity of services.

The New York plan in a Blue Cross experiment is now allowing their experience rated subscribers reimbursement for second opinions on elective surgery. It will be interesting to see how that works out. They expect that in only about 5 percent of the operations recommended by a surgeon will subscribers go and get a second opinion. The reasons for that, I think, are fairly clear, doctors are enormously defensive about second opinions. I know of case after case where a patient, upon informing a physician that she plans to seek a second opinion, is told, “If you get a second opinion you get a second doctor, because if you don't trust me, I can't proceed with this operation."

One way to deal with that is to just change the expectation. If Blue Cross says, “We don't reimburse for elective surgery unless the patient has gone out and gotten a second opinion," then the onus is taken off the patient to say to the doctor, "I don't trust you," rather than the system is just saying you shouldn't trust anybody. No one should trust any single opinion in that situation. A doctor shouldn't trust himself in that situation. It is appropriate to have someone check.

Mr. STARK. We talked today about rating the plans or ranking them. I know your quarrel is that we should do more than get them to zero. We should get them into the positive column.

Do you think that there is enough information available for the Federal Government or HEW to do some ranking among the plans, which is the information we have now?

Professor Law. Certainly it is useful to do ranking, just to know where to ask questions, but I am very skeptical about ranking. For example, I think the New York City plan has the highest administrative costs of any plan in the Nation. I also think that the New York City plan has probably done better than most plans in terms of instituting utilization review programs that actually go into hospitals and try to teach doctors to review each other's work.

I am very skeptical that you can take that kind of broad data and draw much in the way of a conclusion from it. Certainly, it would be possible to break that kind of data down further and look at salaries, for example. I think that is more revealing.

Mr. STARK. You are making a stronger case for an effective BCA, although you probably don't like them, than any witness I have heard.

Probably the BCA could. In other words, you make the first case that I have heard that the Blues could do something of a positive nature in improving the system.

As you have just indicated, in New York if they turned their attention to that instead of lobbying for one particular form of national health policy or other, if they would, as an industry association, push for that type of study, rather than the aggrandizement in competing for the better, the lower cost enrollees, I think they would have a better response here.

Professor Law. Sure. BCA is in an impossible situation, particularly now that the Federal Government is talking about contracting directly with the local plans.

BCA is wholly dependent on local plans for its existence. So, BCA can hardly go to a local plan and say, Get your act together, because the local plan will say—and does—and they say it all the time, even in situations like the Richmond situation-Don't bother us. You are a trade association. It is not your role to come and tell us how to run our business.

I think the local plans resent and resist BCA efforts to tell them how to run their business more even than they resist and resent that effort on the part of the Federal Government.

At least the Government has some authority and has some existence independent of the goodwill of the local Blue Cross plan, which is not true in the case of the BCA.

Mr. STARK. Thank you really very much. I find your approach to this very refreshing.

I appreciate your taking the time to be with us today.

For the record, are you still with the New York University Law School?

Professor Law. Yes. I am an associate professor.
Mr. STARK. Thank you very much.
Professor Law. Thank you.

Mr. STARK. We will be having further hearings on this tentatively now planned for early August, the week of August 23.

Our hope is that at that time we will be hearing from the Blue Cross Association and others interested in this subject matter.

Until that time, subject to the call of Chairman Vanik, we will adjourn.

(The following was submitted for the record:) STATEMENT OF Hon. Les Aspin, A REPRESENTATIVE IN CONGRESS FROM THE

STATE OF WISCONSIN Mr. Chairman, I appreciate the opportunity to submit testimony in this hearing on the administrative costs of Medicare contractors. I have followed the course of this investigation particularly closely because of the charges made against Blue Cross of Wisconsin.

As often happens in oversight hearings, the witnesses' testimony and the ensuing discussion raised as many new questions as they answered. I am especially concerned about the uncertainties surrounding Blue Cross of Wisconsin, and about the need to reconsider the appropriate role and level of federal oversight.

Regarding Blue Cross of Wisconsin, I would like to see a number of issues clarified. As Congressman Stark suggests, the auditors may only have hit the tip of an iceberg with respect to irregularities in the administration of Medicare. Blue Cross of Wisconsin may well be guilty of more serious abuses. But it is also possible that the auditors have uncovered the full extent of Blue Cross' error, and thus their reputation may be unfairly damaged if the charges are simply left hanging.

Accordingly, to clear the air, a deeper investigation of the charges is called for. During this hearing, comparisons of Wisconsin were made to other states, particularly Maryland. These comparisons should be carefully evaluated. There appear to be several contradictions in terms of information on numbers of providers involved, geographic distinctions, and the extent of benefits which may influence administrative expenditures. Blue Cross of Wisconsin has also said that administrative costs per claim have steadily dropped over recent years and that its costs are actually less than the national and commercial average. The subcommittee has an obligation to further investigate these claims and publicize the results, or to ask the GAO or HEW audit agency for such an investigation.

A second area meriting additional investigation is the role of federal oversight. I hope that the subcommittee will try to further clarify the questions which the GAO and the HEW audit agency should be answering in their reviews of Medicare contractors. Mr. Tierney's point about the extent to which the federal government should intervene in the operations of private businesses is well taken. Somehow, public pressure for accountability of federal funds must be balanced against the simultaneous public concern for creativity and control at the local level. Since an oft-mentioned solution to “big government" is contracting out various government services to the private sector, standards for monitoring such contracts will need to be defined and strengthened.

I would like to conclude by again commending the subcommittee for raising a number of extremely important issues and urge both a further investigation of Wisconsin Blue Cross and serious consideration of the types of audits we need to be conducting on contracted services.

[Whereupon, at 12:45 p.m., the subcommittee adjourned, subject to the call of the Chair.)

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