ents relate to three matters. One is the prospective e DRG plan-proposed for reimbursement to hospitals care A health insurance. The second, proposed changes nt, or cost sharing of hospital charges for patient hospid against catastrophic costs included in long-term illthird, reduction of the costs of medical malpractice in1 malpractice awards affecting both physicians and hosws are those of the legislative task force of the board of I the Princeton Chapter of the AARP. The opinions are t of any that may be put forth by the National Headthe American Association of Retired Persons. topic, the prospective payment plan for medicare reimto hospitals may prove highly successful in limiting hosif a number of conditions are properly met. eme has been tested by several States. Of these, the expeNew Jersey has been the most extensive and informative. the results in New Jersey and our own judgment, we call to the following necessary features for an acceptable, plan. t of these is the prospective reimbursement system must all classes of patients and payers. The proposed legislation ovide for prospective reimbursement for medicare patients results would be a shift of cost overruns to nonmedicare and their payers and would thus be unfair to the younger and those outside medicare coverage. second place, the introduction of prospective reimburseould include safeguards to prevent the shifting of excess elderly patients. third place, the prospective reimbursement if it is adopted, be made mandatory for all acute-care hospitals. The expeNew Jersey has demonstrated that a program that was optional, rapidly gained statewide acceptance and is now I in all 96 acute-care hospitals in the State. ermore, considerable flexibility in diagnosis related group ust be permitted to take into account differences in local laska's so-called market-basket hospital costs are inherently igher than those in any of the lower 48 States. in the fourth place, prospective reimbursement will introveral new complications. It will tend to slow the adoption of edical techniques if they involved additional costs that are the DRG schedule. sions to the cost schedules can be excessively delayed by the 1 administrative machinery, so that hospitals are unfairly ed of any prompt upward adjustments, and the introduction medical techniques will be sadly delayed. n, in the fifth place, the experience of New Jersey should be ned carefully as a guide to a Federal program of prospective ents. we noted previously, New Jersey has the only DRG prospecystem in the United States that is both all payer and all hosAn independent evaluation of the New Jersey experience is t complete. It was made by the Health Research and Educa1 Trust of New Jersey, located here in Princeton, N.J. Their reports, some of which are already available, will be the best present source of data on actual results. The report I refer to that is a summary is by May and Wassernan and is entitled, "Some Preliminary Results From the New Jersey DRG Evaluation," and it was issued in December 1982. This New Jersey study convinces us that with the proper safeguards an all payer, nationwide prospective reimbursement system to hospitals would help control rising hospital costs. Then I come to the second major topic. We applaud the efforts to prevent catastrophic costs to patients with long illnesses. There can be no question that long hospital confinement can be financially devastating to medicare patients without adequate private insurance protection. The plan put forward recently by HHS to reduce the patient's share of the cost of hospitalization beyond 150 days is a major step to avert catastrophic loss of lifetime savings of the patient and of his family on one medical disaster. The major consequences of the HHS program should be considered. And here are two of them. One, cost sharing by the patient for shorter-term hospital stays will be excessively increased. In an example given by HHS, and referred to by Dr. Davis this morning, for the so-called low-cost hospicalization, a hospital confinement of 15 days would increase the paient's share by nearly $400, and for a term of 60 days, the increased cost would be nearly $1,200. In each case the day-one charge would remain at the present projected $350. The burden of such an increase will fall most heavily on low income participants whose principal income is from social security and who cannot afford supplementary insurance coverage. Then, restraints must be provided to prevent excessive reliance on long-term free hospitalization. While we have stressed the social necessity of avoiding catastrophic costs of long-time hospitalization n acute-care and certain other facilities, means should be included n regulations on medicare to prevent abuse of the system for longcime hospital confinement is not absolutely necessary. Perhaps the fairest way is by continued cost sharing by the pacient, his family or a third-party payer. The amount of this further sharing beyond day 150 should be a very modest percentage of the DRG hospital costs. The patient must be assured of not being reduced to the poverty level by a single protracted illness. Thus, we favor legislation to protect against catastrophic costs of llness but only with safeguards to prevent excessive increase in medicare financing costs. Furthermore, if the committee does not have a copy of the report I referred to on the New Jersey results, I will offer a copy here for nclusion in the record. Mr. RINALDO. We do not have a copy, and with no objection it will be included in the record. So ordered. My name is 08540. I am Pr of Retired Per I am a physi years. During particular em who live in sp munications in Public Health in the Outbac I have made Micronesia (T) [The complete prepared statement, along with the New Jersey DRG evaluation report submitted by Mr. Bond follows:] My discussi ing affordable burdens on th (a) The pros under Medica (b) Proposed hospital care (c) Reducti awards affecti I shall not Rather, the re to costs to sen These views the Princeton be put forth b Persons. THE PROSPECT PROVE HIGH ARE PROPER As the Com the Departme tal administr tant growth i 18 percent du The schem Jersey has be Jersey and ou for an accepta THE PROSPE The propos care patients tients and th side Medicare trations to ac We do not pitals cope w THE INTRODU Present sch ductions and 1 Schweiker, partment of H PREPARED STATEMENT OF DONALD S. BOND VITAE OF THE WITNESS Donald S. Bond. I reside at 456 Snowden Lane, Princeton, New Jersey sident of the Princeton Chapter No. 459 of the American Association ons. ist and have specialized in electronics and telecommunications for 54 he last nine years I have been a telecommunications consultant with nasis on applications to health care delivery and education for people rsely settled areas. This has included direct planning of satellite comcooperation with the Alaska Area Native Health Service (of the U.S. Service) in the Alaska bush and with the Royal Flying Doctor Service of Australia. I have traveled extensively in these isolated areas. similar but briefer studies in Northwest Territories of Canada and in e Trust Territory of the Pacific Islands). AREAS OF MY TESTIMONY on is directed to Medicare and some of the problems it faces in providè health care for senior citizens and in avoiding exorbitant financial e taxpayer. In particular the topics I shall address are: spective payment (DRG) plan proposed for reimbursement to hospitals re A Health Insurance (HI); d changes in co-payment, or cost-sharing of hospital charges for patient and against catastrophic costs incurred in long-term illnesses; and on of the costs of medical malpractice insurance and malpractice ing both physicians and hospitals. t attempt to discuss Medicare funding by the Federal Government. remarks will be directed to cost containment in hospital operations and nior citizens. vs are those of the Legislative Task Force of the Board of Directors of n Chapter of the AARP. The opinions are independent of any that may by the National Headquarters of the American Association of Retired CTIVE PAYMENT PLAN FOR MEDICARE REIMBURSEMENT TO HOSPITALS MAY GHLY SUCCESSFUL IN LIMITING HOSPITAL COSTS IF A NUMBER OF CONDITIONS ERLY MET ommittee is well aware, the prospective reimbursement plan proposed by ment of Health and Human Services1 offers a tangible incentive to hospistrations to exercise diligence and imagination in restraining the exorbih in the costs of hospital care of patients. The nationwide costs rose over during the last year. eme has been tested by several states. Of these, the experience in New s been the most extensive and informative. Based on the results in New I our own judgment, we call attention to the following necessary features eptable and workable method. SPECTIVE REIMBURSEMENT SYSTEM MUST APPLY TO ALL CLASSES OF PATIENTS AND PAYERS oposed legislation would provide for prospective reimbursement for Medients only. The result would be a shift of cost overruns to non-Medicare pad their payers and would thus be unfair to younger patients and those outicare hospital coverage. There would be little incentive to hospital administo achieve more efficient cost control. not believe that a Medicare-only prospective payment system will help hospe with the major problem of the cost of indigent patients. RODUCTION OF PROSPECTIVE REIMBURSEMENT SHOULD INCLUDE SAFEGUARDS TO PREVENT THE SHIFTING OF EXCESS COSTS TO ELDERLY PATIENTS nt schedules of costs to be borne by Medicare patients include first-day deand sharing of costs for longer hospital stays. We consider these cost-shar eiker, R. S., Report to Congress: Hospital Prospective Payment for Medicare, U.S. Det of Health and Human Services (December 1982). ing arrangements already a major burden to be carried by patients, either directly or through other insurance carried. The introduction of prospective reimbursement should not be permitted to make this burden even heavier for senior citizens. IF PROSPECTIVE REIMBURSEMENT IS ADOPTED, IT SHOULD BE MADE MANDATORY FOR ALL The experience in New Jersey has demonstrated that a program that was initially optional rapidly gained Statewide acceptance and is now in force in all acute-care hospitals in the State. It may be found that under Federal law the proposed system cannot be made mandatory for non-Medicare cases without appropriate State legislation. Such cooperation by the states is of great importance. Furthermore, considerable flexibility in diagnosis-related group (DRG) rates must be permitted to take into account differences in local costs. Alaska "market-basket" hospital costs are inherently much higher than in any of the Lower-48 states. PROSPECTIVE REIMBURSEMENT WILL INTRODUCE SEVERAL NEW COMPLICATIONS It will tend to slow the adoption of new medical techniques if they involve additional costs that are not in the DRG schedule. Revisions to the cost schedules can be excessively delayed by the Federal administrative machinery so that hospitals are unfairly deprived of any prompt upward adjustments, and the introduction of new medical techniques will be sadly delayed. A possible disadvantage of prospective payments may be that older patients will not be as welcome. Clearly a given medical procedure for an 85-year-old person is more costly than the same procedure for a 55- or a 65-year-old. A hospital will benefit more from the lower-risk patient. THE EXPERIENCE OF NEW JERSEY SHOULD BE EXAMINED CAREFULLY AS A GUIDE TO A As we noted previously, New Jersey has the only DRG prospective system in the U.S. that is both all-payer and all-hospital. However, when it started in 1980 on a voluntary basis, there were only 26 hospitals involved, whereas now all 96 acutecare institutions participate. Thus a comparison of DRG operation with non-DRG operation was possible for a few years, and the change-over costs also known. An independent evaluation of the New Jersey experience is almost complete. It was made by the Health Research and Educational Trust of New Jersey, located in Princeton, New Jersey. Their reports, some of which are already available, will be the best present source of data on actual results.2 This New Jersey study convinces us that with the proper safeguards and all-payer nation-wide prospective reimbursement system to hospitals will help control rising hospital costs and perhaps even reduce these expenses to all patients, not to Medicare patients only. WE APPLAUD THE EFFORTS TO PREVENT CATASTROPHIC COSTS TO PATIENTS WITH LONG ILLNESSES There can be no question that long hospital confinements can be financially devastating to Medicare patients without adequate private insurance protection. The plan put forward recently by Health and Human Services to reduce the patient's share of the cost of hospitalization beyond 150 days is a major step to avert catastrophic loss of the life-time savings of the patient and his family on one medical disaster. Two major consequences of the HHS proposal should be considered. COST SHARING BY THE PATIENT FOR SHORTER TERM HOSPITAL STAYS WILL BE EXCESSIVELY INCREASED In an example given by HHS for "low cost" hospitalization, a hospital confinement of 15 days would increase the patient's share by nearly $400 and for a total of 60 days the increased cost would be nearly $1200. In each case the Day-1 charge would remain at the present $350. 2 The following summary report has been made available to us: May, J.J., and J. Wasserman, Some Preliminary Results from the New Jersey DRG Evaluation, Health Research and Educational Trust of New Jersey (December 1982). The burden whose princip tary insuranc Other sour present patie RESTRAINTS While we time hospital cluded in reg hospital conf tinued cost s this further hospital costs not the famil must not be We do not ments are de penses for a Thus we fa with safegua COMPLACENC The views the public a costs cannot cently. In the hea ally. Retrosp costs to abou of abating. It is evide Medicare se physicians e patients. W the price. B and adequa better admi One sourd practice cla miums, larg fantastic aw LEGISLATI Let me of insurance: My ophth field of eye continue in ance would Explorato practice th their effecti However injuries in cede that injury statu Some pos (a) Limita (b) More 22-020 0 of such an increase will fall most heavily on low-income participants al income is from Social Security and who cannot afford supplemene coverage. ces of revenue from Medicare Part A must be sought to prevent the nt's share of the cost from continuing to rise excessively. MUST BE PROVIDED TO PREVENT EXCESSIVE RELIANCE ON LONG-TERM FREE HOSPITALIZATION have stressed the social necessity of avoiding catastrophic costs of longlization in acute-care and certain other facilities, means should be ingulations on Medicare to prevent abuse of the system where long-term finement is not absolutely necessary. Perhaps the fairest way is by consharing by the patient, his family, or third party payer. The amount of sharing (beyond Day 150) should be a very modest percentage of DRG ts. While we do not favor it in general, a means test of the patient's (but ily's) resources might be included, but bearing in mind that the patient reduced to the poverty level by a single protracted illness. ot favor Medicare schedules by which initial deductible amounts of paydetermined solely on a calendar year basis when applied to medical exa given condition that extends into a second calendar year. favor legislation to protect against catastrophic costs of illness but only ards to prevent excessive increases in Medicare financing costs. NCY HAS DEVELOPED ABOUT THE INEVITABILITY OF TREMENDOUS INCREASES IN MEDICAL COSTS ws of the health care professionals-in and out of Government-as seen by are that the rate of increase of hospital costs and indeed of all medical not be controlled. It is similar to the general view on inflation until re health care field, the rise in hospital costs is now about 18.7 per cent annuospectively, over the last 10 years' time, such a rate would bring present bout 5.5 times their value a decade ago. And this rate has shown no signs g. ident that hospital administrations have little incentive to control costs for e service. All charges are paid in full by the Government. Pressures from s exist for new equipment, new techniques, and more exhaustive tests for Where this improves the quality of Health care it may seem well worth e. But this engenders complacency on the part of hospitals and physicians, quate incentives do not exist to search for cost-saving procedures and for dministrative practices. ource of rising costs for both hospitals and physicians is the threat of malclaims and awards. This involves skyrocketing malpractice insurance prelarge out-of-court settlements of claims by or for patients, and sometimes c awards by tender-hearted juries. SLATIVE AND OTHER ACTIONS ARE URGENTLY NEEDED TO CONTROL MALPRACTICE COSTS ne offer a personal example of the present overwhelming cost of malpractice nce: ophthalmologist for the last 30 years in Philadelphia is world-famous in the feye care and surgery. He will retire in June. He informed me that he cannot ue in part-time practice to help younger M.D.'s because his malpractice insurwould eat up all his income-unless he continued to work full time. loratory work is needed to get at the cause of the vast increase of the malce threat. We do not feel competent to offer solutions with any assurance of effectiveness. wever we do note that the problem has some similarity to that encountered in es in the workplace and that involved in motor-vehicle injuries. We must conthat neither existing workmen's compensation laws nor no-fault automobile y statutes serve fully as models for the medical situation. me possibilities include: Limitations on awards (including large claims for “pain and suffering"); More careful pre-trial screening by a board including medical professionals; -020 0-83--4 |