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crease in life expectancy, the increase in the quality of life, the increase in the quantity and quality of health care facilities and professionals in this country. I think there are many, many positives which actually outweigh the negatives.

However, I agree that, if we do not correct the cost problem and some of the other related problems, the whole thing can collapse. I have been saying for almost 17 years, that this "blank check," the "reasonable costs” and “reasonable charges” approach to provider reimbursement, which medicare did not invent, but wrote into legislative concrete were time bombs that had to explode. Now we have to correct those deficiencies. But in the effort to correct, let us not throw out the baby with the bath water.

Mr. RINALDO. You also mentioned, and I believe it is in your article, "Rethinking Medicare to Meet Future Needs," the emphasis in medicare on acute care rather than on prevention. Would you explain to us how we would pay for the added factor of prevention and long-term maintenance under medicare, particularly in light of the impending funding gap? And what are your solutions to this funding problem? Mrs.

SOMERS. Well, I did suggest several things. One, no question that fixed rates have to be established in one way or another. I would hope not unilaterally, but through negotiations. Of course, in establishing the new prospective rates for hospitals, a great deal of informal bargaining has gone on between the Federal Government and the American Hospital Association and related organizations. I would like to see that bargaining actually formalized, and done in public view, so we would know where exactly both parties stand.

But, one way or another, provider rates have to be fixed. Since you pointed out, quite correctly, that price inflation is the biggest single factor in the runaway costs, that would help to address that. It will not correct it altogether, but it is a very important beginning.

Second, I have no quarrel with a reasonable amount of patient cost-sharing. I think that has to be used very carefully, selectively, and it should be used, I think, rather deliberately in order to correct the current tilt toward acute care and toward institutional care, as Mrs. Livengood and others have mentioned.

Mr. RINALDO. Could you give us some percentages?

Mrs. SOMERS. I cannot give precise percentages partly because it is a matter of definition. What exactly is acute care? What exactly is chronic care? When a person, who has had a long history of progressive heart failure or coronary heart disease, suddenly gets a heart attack, is that acute or is that chronic? It is actually an acute exacerbation of a chronic condition, but it is hard to be completely precise. What is curative? What is prevention? But we do know that section 1862 of the medicare law specifically prohibits payment for anything which is not diagnostic or treatment, that is, anything which is strictly preventive. We know that a little bit of prevention is reimbursable. Not much, but a little bit. The internist may figure out a way to get his patient with diabetes a little bit of counseling. But in general I guess that about 90 percent of medicare payments go for diagnosis and treatment and only 10 percent at most for prevention.

On the other side, we know the prohibition against "custodial” care. Custodial simply means long-term care. So again a little bit gets into that, one way or another. A little rehabilitation may be done for patients with stabilized stroke conditions. But this is miniscule compared to what we are spending on acute care in the hospital situation. So I would say that 90 percent, 90 percent of medicare benefit expenditures are going to acute care or acute exacerbations of chronic conditions, which are, at least theoretically, preventable.

You asked how would we pay for it. I made two suggestions. A third one, an immediate source, would be to transfer from medicaid, and perhaps other Government programs, to medicare a substantial portion of the $15 billion or so public dollars which are now being spent for long-term care.

Mr. RINALDO. Thank you. I want to get back to Ms. Goldschmidt. I have been looking over the Star Ledger story, and there are a number of cases in which there has been testimony at other hearings, and statements, that I consider rather persuasive.

For example, according to Dr. Harold Slobodien, the president of the medical society of New Jersey, "Physicians are being pressured by hospitals to get their patients out of the hospital as soon as possible. Yes, they are being pressured. It is, Doctor, get your patient out. And if you say the patient still needs care, the patient cannot be treated at home, it is still Doctor, get your patient out.” I think that is a pretty strong statement by a person in an extremely responsible position. And yet the attitude seems to be, well, the reporter did a bad job or the headline writer did a bad job, the statements have not been proven. It seems to me that the people who wrote this article in a number of instances have documented exactly what led to the conclusions that they have drawn. Do you care to comment on that?

Ms. GOLDSCHMIDT. Yes, I would. As you know, there is an incentive for hospitals to reduce expenditures and to reduce length of stay under the DRG system. I believe historically there has been no such incentive, so that now that we are under DRG's, yes, physicians are becoming aware that they should get their patients out, but only when medically feasible, not ahead of time.

A decrease in the length of stay is not necessarily a bad thing. As Mrs. Livengood said, it is those cases where the patients are discharged too early, where they are not medically ready to go home, that could be a problem. The cases where they can go home, then I do not feel that they should be in the hospital having to pay for acute care.

Mr. RINALDO. We are talking about people who are not medically able to go home. We have testimony here before the Senate Special Committee on Aging where Rosemary Caccera, the executive director of Visiting Nurse and Health Care of Union County, testified before Senator Bradley that “Certainly the very acutely ill, some of them do not even make it home in the ambulance, Senator." That does not indicate to me that that person is cured when they do not even make it home in the ambulance. That indicates to me a very, very serious situation, and a situation that perhaps this committee should look into.

Ms. GOLDSCHMIDT. I would like to comment on that one. In order for us to make a really valid judgment, I would have to go back and look at the evidence that they had and find out if this had been a practice prior to DRG's or if that hospital was on DRG's at the time. In other words, what was the actual reason that incident happened.

Mr. RINALDO. So what you are saying then is right now, the fact of the matter is, you do not know whether people are being prematurely discharged or not.

Ms. GOLDSCHMIDT. We have no hard evidence right now.

Mr. RINALDO. We can then say that everything in the article could be absolutely true and the situation could even be worse or it could be better.

Mr. RINALDO. Thank you. I have no further questions. Mr. Smith.

Mr. SMITH. Thank you, Mr. Chairman. This is for Faith Goldschmidt. Just a couple of questions.

The New Jersey DRG system applies to all payers, thereby reducing the effect of cost shifting. How serious do you feel cost shifting would be under prospective payment of medicare hospital coverage, and what additional measures do you recommend to the committee to diminish it in all the other States?

Ms. GOLDSCHMIDT. I think that based upon what we saw in New Jersey before we had all payers on, the potential is quite large. It is the balloon effect, where you have a ceiling and then the rest go up. So I think the potential is quite large for cost shifting. And one thing that could be done is to eventually have all payers under the prospective payment system.

Mr. SMITH. That is the key then?
Ms. GOLDSCHMIDT. I think so, yes.

Mr. SMITH. Can you think of some recommendations you can make to this committee as to how we could encourage other States to follow suit and to make it mandatory?

Ms. GOLDSCHMIDT. You can make it mandatory, but I think if other States take a look at what happened in New Jersey pre- and post-DRG's, it is quite dramatic.

Mr. SMITH. Do you think their best interests will prevail, in other words, look at the facts and probably follow suit?

Ms. GOLDSCHMIDT. I hope so.

Mr. SMITH. Mrs. Somers, I want to thank you for your statement, also, all three witnesses. In part of your testimony, you mentioned consolidation of parts A and B. As you probably know, the Advisory Council on Social Security has that under advisement right now and they have not come up with any specific recommendation. Perhaps you could share any thoughts you might have along those lines, as to how much perhaps could be saved, and why that would be better for administrative purposes, as well as for beneficiaries.

Mrs. SOMERS. I do not know how much would be saved. The administrative costs of medicare are remarkably low now. That is one of the big positives. For part A I think it is a little over 2 percent of total costs. And for part B, where, of course, you have so many more smaller claims, it is a little over 6 percent. Maybe you could bring the entire administrative costs down to something like 3 percent. Obviously there would have to be some savings by avoiding the duplication of having so many different carriers, so many different intermediaries.

It could also provide a psychological lift to the beneficiaries, who are now confused by the complexities of medicare; and maybe also to some of the providers. Some providers would oppose it, of course. I think probably many physicians would oppose it.

There would be other benefits. It might facilitate the use of general revenues, which are already dominant in part B, so you have precedent there. If the two parts were merged, it would make it quite logical to have a certain proportion coming from general revenues. I would hate to see this proportion ever exceed 50 percent. Something like a third might be appropriate, not the 75 percent you have now with part B or the 5 percent-or whatever it isunder part A. Perhaps a third for the combined program would help to ease the immediate deficit problem.

Finally, a merger of part A and B, while it does not make medicare into one big HMO, does have some of the characteristics in that the physicians would be a little more tied in with the institutions, instead of totally separate as they are now. Even tbe DRG system, although it indirectly impacts on physicians as the quote from Dr. Slobodien shows, does not touch them directly.

And it seems to me a little inconsistent for the same administration which is pushing the HMO—not just this administration, but administrations for the past 10 or 15 years-or the idea of tying hospital and physician reimbursement more closely together to continue to sanction and encourage a total separation of the two as the present separation into parts A and B tends to do.

Mr. SMITH. Thank you. Mr. Chairman, I would like to just read into the record for those members of the committee who will read this record, the Advisory Council on Social Security's statement regarding the combination, and it goes like this.

"Combining part A and B would potentially contribute to improved beneficiary understanding, simplify the more effective administration and improve monitoring of the utilization of health care services. Potential problems to be evaluated would include financing considerations for combining benefits with distinct funding sources and complexities of merging different reimbursement systems under part A and B."

It is kind of a summation of what you just said, so I do appreciate your comments.

Finally, I just want to thank you, Mrs. Somers, for again reminding the committee, as you did in your testimony, of the intent of medicare. You know sometimes you have to get back to the basics. And as you said, in reforming medicare, we must be very sure that we do not destroy, but rather protect and strengthen its original goal of providing medical care to the elderly and disabled. So I want to thank you all for your testimony.

Mr. RINALDO. Thank you, Mr. Smith. Do any members of the panel have any suggestion about encouraging assignment among doctors? We have heard quite a bit about that this morning, and was wondering if anyone had any ideas they would like to put forth at this time in that regard.

Mrs. SOMERS. Nothing definitive, but one of the problems with these surveys that were referred to earlier is that apparently what was asked is: "Do you or do you not accept assignment?" Now since the figures cited—50 or 53 percent-do not refer to individual doctors, but refer to claims, a doctor can claim that he takes assignment and yet perhaps have only 1 percent of his claims on assignment.

I am all in favor of publicizing. It seems to me that that is the least the program owes the public. If doctors are permitted not to take assignment, medicare certainly owes it to the public to say which ones do and which don't. But some sort of arbitrary, but reasonable, formula would have to be devised to define a doctor who accepts assignment. Perhaps it should be at least 75 or 80 percent of the time. Something of that sort would certainly be more meaningful in terms of public information.

Mr. RINALDO. I think that is a good suggestion and I want to comment on this entire area. I feel so strongly about assignment that just a few days ago I wrote to Mrs. Heckler, the new Secretary of the Department of Health and Human Services, asking her to improve this information available to medicare beneficiaries about physicians in their communities who accept assignment. I think it should be the policy of Health and Human Services and I am going to continue to push for that policy to be implemented in the proper fashion.

You also mentioned, Mrs. Somers, quite a bit in your testimony about increased life expectancy. Are you advocating in any manner, shape or form, raising the age of eligibility for medicare to correspond with increasing life expectancy? Or do you feel, for example, that there should be a two-tiered age of eligibility, one for preventive care, one for acute care? Because you mentioned all of those things in an interrelated fashion, and I would like to have your position cleared up in my mind.

Mrs. SOMERS. No, I do not advocate raising the age of eligibility for medicare. I would like to see it dropped, if possible. I know that is not realistic, now, but eventually I would like to.

What I did support quite strongly, was raising the age of eligibility for social security. I think these are two very different things. And yet they are related in that the longer we keep on working and the more inducements we have to keep on working, the more we continue paying taxes.

I am well over 65. I am still working. I am still paying taxes. But I am very glad that I have my medicare, and so, I am sure, is my employer! I fear there may be some change now in employer attitudes toward older workers with the new shift in who has the primary responsibility. That is very unfortunate. Because some older people may lose jobs for no other reason except that their employer does not want to be the payer of first responsibility, rather than medicare.

Now, I will say, as we phase in new services, such as preventive services, or long-term care, as a temporary easement of the cost problem, I think it is justifiable to start with, say those over 75, or over 70, or over 80, whatever. These are actuarial computations that would have to be figured out. Obviously the people who need nursing home care most, the people who are being reduced to penury in order to get on medicaid-in those States where they

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