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S. 1470 would create a ponderous, tangled and complex structure of procedures for reimbursing hospitals and physicians which would be intended to curb costs. What it would actually do is create an injustice on hospitals and physicians by bludgeoning them for a situation caused by the very Government that is wielding the club. It would add to the bureaucratic cost of administering these programs. And when this program also failed because it was the wrong answer to the problem, some new controls would be imposed.

The Government has proved it is incompetent and incapable of providing, regulating and paying for health care services to the elderly and the indigent. It is time that this Congress courageously faced up to that indisputable fact and made arrangements to abandon these disastrous experiments in governmental intrusion into private affairs where it does not belong.

Before these programs were enacted, U.S. physicians gave more than a billion dollars of free care to their patients every year. They are willing now as they were then to assure that no one in this country is denied needed medical care solely because of finances. We assure you the elderly and the poor will be denied far, far less than they are now if these programs are recognized as abysmal failures and abandoned.

We urge that this committee not pass 1470 but deal with the question of Government interference in medicare and medicaid, where it is doing more harm than good.

Thank you.

Senator TALMADGE. Thank you, Dr. Dorrity. I certainly agree with you on one thing-we ought not to expand further coverage until we can get a handle on the costs that we are expending now.

Senator Curtis?

Senator CURTIS. I want to say to you, Doctor, in reference to your remarks about inflation and the fact that the chief culprit was unbridled government spending, that you are speaking to receptive ears. The distinguished chairman of this subcommittee, Senator Talmadge, is the author of a constitutional amendment that will compel the Government to go on a balanced budget. He cosponsored mine and I cosponsored his. Mine is slightly different.

He believes that there is much danger in deficit financing. Serious individuals were worried when deficits remained at $2, $3, $4, $5 billion a year. Now we are talking in terms of $50 to $60 billion and it is time to take note; we certainly agree with you. Whether we are talking about hospital expenses or household expenses or anything else, inflation is across the board. The Government cannot escape its responsibilities.

We also believe that, aside from its effect on inflation preventing the continuous rise in national debt, the pay-as-you go requirement will mean good government, because then the Congress will have to consider programs to see which ones are desirable, which ones are absolutely necessary, which ones should have priority and they will have to believe in them enough to say yes, we will raise the taxes to pay for them.

I just wanted you to know that you are speaking to a receptive. audience this morning.

In reference to medicare and medicaid, I am not critical of anybody else, but it just so happens that I did not vote to originate either one of them. At the same time, I feel that the care of those citizens who are unable to get reasonable and adequate medical care from any other source is the responsibility of the Government.

I, however, would like to see that responsibility exercised on the local level and not from Washington. I think that that avoids many problems. It avoids the problems of regulations and control of businesses, operations in the private sector, as well as professional.

My idea of revenue sharing is that you first balance the Federal budget, then you release areas of taxation so that the State can pick it up.

I am convinced that the American people are very thoughtful, intelligent, generous, and good, and on the local level, the handling of many aspects of welfare, including medical care for those who cannot provide it any other way, would result in not only a better program, but I think there would be more compassionate and helpful care to the individuals who must receive medical care at public expense.

Would you concur with that general statement with reference to local control?

Dr. DORRITY. Absolutely. In fact, I think the first responsibility lies with the families. Then, I think if they cannot handle it, the churches; if they cannot handle it, the community; if they cannot handle it, the cities and counties; if they cannot handle it, then the States. But never as far as the Federal level. I go along with that.

I have a couple of other suggestions. I am pleased to hear your comments about the fiscal responsibility. This has bothered me for a long time and I think that our way out of the mess that we are in is if we return to fiscal responsibility, fiscal sanity, with sound money systems, no compromise for 5 to 10 percent inflation per year.

You cannot lose 5 percent of anything 20 times, or it is gone.

At the present time, if we return to sound money, fiscal responsibilitv, constitutional government and the Ten Commandments, we can ride out the storm. If we cannot, we will hit the bottom.

Senator CURTIS. I have no further questions.

You alluded to section 1801 of the act. I would like to have that printed in the record at this point.

Senator TALMADGE. Without objection, it will be. [The material referred to follows:]

PROHIBITION AGAINST ANY FEDERAL INTERFERENCE

Section 1801. Nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency. or person.

Senator TALMADGE. Thank you very much, Dr. Dorrity, for your contribution.

The next witness is Dr. Dave M. Davis, immediate past president, Georgia Psychiatric Association and director, psychiatric services, Peachtree-Parkwood Mental Health Center, on behalf of the Amer

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ican Psychiatric Association and National Association of Private Psychiatric Hospitals.

Dr. Davis, it is a pleasure to welcome you before our committee as a valued friend and a valued constituent.

STATEMENT OF DAVE M. DAVIS, M.D., IMMEDIATE PAST PRESIDENT, GEORGIA PSYCHIATRIC ASSOCIATION, DIRECTOR OF PSYCHIATRIC SERVICES, PEACHTREE-PARKWOOD MENTAL HEALTH CENTER AND HOSPITALS, ATLANTA, GA., ON BEHALF OF THE AMERICAN PSYCHIATRIC ASSOCIATION AND THE NATIONAL ASSOCIATION OF PRIVATE PSYCHIATRIC HOSPITALS

Dr. DAVIS. Thank you.

With me is Mr. Caesar A. Giolito, American Psychiatric Association. I am here to present the views of the American Psychiatric Association, which represents 23,000 psychiatrists in the United States, and of the National Association of Private Psychiatric Hospitals, which represents 178 free-standing psychiatric facilities, containing over 15,000 beds.

We share the concern of the author and cosponsors of S. 1470 regarding the need to contain rising health care costs and support the objectives of this bill to achieve this goal.

While we believe and urge that equal attention be paid to the needs of Americans with mental and emotional illness vis-a-vis those with physical illness, we understand that the purpose of the bill is a longterm basic structural solution to the vexing problem of rising health

care costs.

To achieve that important goal, we recommend your consideration of amending the bill to authorize a demonstration program-subject to rigorous, ongoing, organized peer review-to determine-as we believe it will-that appropriate psychiatric intervention and treatment does reduce medical care costs.

We would be pleased to work with the committee professional staff and develop the appropriate amendment to achieve that goal, if the committee is interested in pursuing that objective.

Senator TALMADGE. If you would excuse me, there is a record vote on the Senate floor. I will go over and cast my ballot and return immediately.

The committee will stand in recess momentarily, subject to the call of the Chair.

[A brief recess was taken.]

Senator TALMADGE. The subcommittee will be in order.

Dr. Davis, my apologies for having to recess for the vote. You may proceed where you left off.

Dr. DAVIS. Senator, we recommend your consideration of amending the bill to authorize the demonstration project, subject to rigorous, ongoing, organized review, to determine, as we believe it will, that appropriate psychiatric intervention and treatment does reduce medical care costs.

We believe that such a demonstration program would prove that the placing of psychiatric benefits in medicare on a par with physical illness benefits would result in even greater cost savings. It has been dem

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onstrated that 50 percent or more of persons who present themselves to physicians with physical complaints suffer from some component of mental or emotional illness.

Experience shows us that the elderly are especially prone to psychosomatic complaints. If provided with necessary psychiatric treatment, this population group would be lower utilizers of expensive testing and medical services.

We believe that such a demonstration project would prove that the provision of psychiatric treatment to medicaid recipients-age 22 to 64-in psychiatric hospitals will effect cost savings. This age group— 22 to 64 is currently covered for psychiatric care only in State mental or general hospitals.

The American Psychiatric Association testified before the House on the Medicare-Medicaid Antifraud and Abuse Amendments, H.R. 3, on March 7, 1977. We stated that fraud and abuse would be minimized through the implementation of improved administrative policies and practices.

We need to encourage competent physicians to participate in medicare and medicaid. If we discourage competent physicians from participation through excessive administrative constraints, unrealistic reimbursement, and restrictive patient benefits, we will perpetuate the prevalence of providers who deliver poor quality care and who may be abusive and fraudulent.

The medicare and medicaid benefits and reimbursement policies for the coverage of mental illness, as presently constituted, can only discourage qualified professional participation and deprive the patient. of cost-effective services.

For example, psychiatrists who participate in the medicaid program in Georgia receive from $28 to $32 per hour, while in community mental health centers the medicaid program is billed in Georgia at the rate of $22 for each 15 minute segment, or at the hourly aggregate of $88 for a patient who receives service in the center, regardless of the credentials or professional qualifications of the person providing the service.

Senator TALMADGE. Do you mean the payments they make under medicaid in Georgia is not limited to a specific psychiatrist? Who else do they pay?

Dr. DAVIS. Directly to the community mental health center. I was given the latest payment schedule, $22 per 15 minutes, regardless of who delivers that service.

Senator TALMADGE. That is poetry, dance therapists, things of that nature?

Dr. DAVIS. Whoever that community mental health center designated to see that particular individual.

Senator TALMADGE. That is authorized by State law?

Dr. DAVIS. I do not know if that is the law. I know that is how they pay it out presently.

Senator TALMADGE. I appreciate your bringing that up and looking into it with the committee staff. If that is going on, it should be

corrected.

Dr. DAVIS. I agree very much. I will send you a copy of the schedule that I recently got from the Department.

Senator TALMADGE. Please do.

[At presstime the information was not received. The committee was informed that the information will be forthcoming.]

Dr. DAVIS. The classification of hospitals into separate categories is a reasonable approach. However, we feel that involved groups and associations should have the opportunity to be a part of the process which determines classification together with the Secretary of DHEW. There are numerous factors that should be considered, such as whether the facility is a teaching hospital, the intensity of the teaching facilities, and whether the hospital provides community services.

Variables such as patterns of personnel requirements in these institutions will differ markedly. There also exists a vagueness in the bill in relation to the grouping of psychiatric hospitals with geriatric, maternity or other specialty hospitals. S. 1470 states that whether or not they are to be grouped together or separately is to be determined by the Secretary of HEW.

These associations support the prospective reimbursement of hospitals, which is already being utilized successfully in a number of States and recommend continued experimentation in this area as authorized under Public Law 92-603. We also support incentive reimbursement based on routine operating costs, making exceptions for capital and related costs, energy costs, malpractice insurance expense, and so forth.

Although supportive of this approach, we wish to caution the committee that there may be a danger that hospital administrators may move to the extremes in the incentives of 120-percent overcost reimbursement or the 5-percent rebate, since there appears little to be gained by being in the middle.

In this exemption procedure for determining reasonable costs in cases where the hospital is located in an underserved area; certified as being currently necessary by an appropriate planning agency; and underutilized, we strongly recommend that an additional exception be made for psychiatric hospitals with underutilized beds.

Patterns of underutilized beds in psychiatric hospitals have been established because of the lack of third-party payment mechanisms to defray the costs, and do not reflect patient needs in any particular area. However, a recent trend in state legislation mandating the coverage of inpatient and outpatient psychiatric treatment in health insurance policies is beginning to fill these beds. In the meantime, we must encourage meeting patient needs by exempting psychiatric hospitals that have had artificial barriers imposed for the inpatient treatment. of mental illness.

Encouraging physicians to accept assignment through the $1 per patient administrative cost incentive has been employed by Blue CrossBlue Shield, and could be an effective incentive in some cases. However, it does not address the problem in the treatment of psychiatric outpatients where the benefits are so limited as to discourage physician participation altogether. For the outpatient treatment of psychiatric illness it only represents a token gesture and we are concerned that will not have any impact.

We wish to commend the chairman and this committee on section 11 (f) which encourages physician participation in shortage areas. We continue to hold the position that in medicare, the mechanism to determine reasonable charges for physician services should be structured in such a way as to provide usual customary and reasonable payment.

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