PAGENO="0001" Part 3 HEALTH MAINTENANCE ORGANIZATIONS* HEARINGS BEFORE THE SUBCOMMITTEE ON PUBLIC HEALTH AND ENVIRONMENT ON THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HOUSE OF REPRESENTATIVES NINETY-SECOND CONGRESS SECOND SESSION ON H.R. 5615 and H.R. 11728 (and all identical bills) BILLS TO AMEND THE PUBLIC HEALTH SERVICE ACT TO PROVIDE ASSISTANCE AND ENCOURAGEMENT FOR THE ESTABLISHMENT AND EXPANSION OF HEALTH MAINTE- NANCE ORGANIZATIONS, AND FOR OTHER PURPOSES APRIL 11, 12, 13; MAY 2, 3, 4, 9, 10, 11, 16, 17, AND 18, 1972 Serial No. 92-90 Printed for the use of the Committee on Interstate and Foreign Commerce U.S. GOVERNMENT PRINTING OFFICE 81-185 0 WASHINGTON: 1972 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 - Price $1.50 Stock Number 5270-01598 PAGENO="0002" COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HARLEY 0. STAGGERS, West Virginia, Chairman TORBERT H. MACDONALD, Massachusetts WILLIAM L. SPRINGER, Illinois JOHN JARMAN, Oklahoma SAMUEL L. DEVINE, Ohio JOHN E~ MOSS, California ANCHER NELSEN, Minnesota JOHN D. DINGELL, Michigan HASTINGS KEITH, Massachusetts PAUL G. ROGERS, Florida JAMES T. BROYHILL, North Carolina LIONEL VAN DEERLIN, California JAMES HARVEY, Michigan J. ,J. PICKLE~ Texas TIM LEE CARTER, Kentucky FRED B. ROONEY, Pennsylvania CLARENCE J. BROWN, Ohio JOHN M. MURPHY, New York DAN KUYKENDALL, Tennessee DAVID B. SATTERFIELD III, Virginia JOE SKUBITZ, Kansas BROCK ADAMS, Washington FLETCHER THOMPSON, Georgia RAY BLANTON, Tennessee JAMEiS F. HASTINGS, New York W. S. (BILL) STUCKEY, JR., Georgia JOHN 0. SCHMITZ, California PETER N. KYROS, Maine JAMES M. COLLINS, Texas BOB ECKHARDT, Texas LOUIS FREY, Ja., Florida ROBERT 0. TIERNAN, Rhode Island JOHN WARE, Pennsylvania RICHARDSON PREYER, North Carolina JOHN Y. McCOLLISTER, Nebraska BERTRAM L. PODELL, New York RICHARD G. SHOUP, Montana HENRY HELSTOSKI, New Jersey JAMES W. SYMINGTON, Missouri CHARLES J. CARNEY, Ohio RALPH H. METCALFE, Illinois GOODLOE E. BYRON, Maryland WILLIAM R. ROY, Kansas W. E. WILLIAMSON, Ct~erk KENNETH J. PAINTER, Assistant Clerk Professional staff JAMES M. MERGER, Jr. KURT BORCHARDT WILLIAM J. Dixon CHARLES B. CURTIS ROBERT F. GUTHRIE LEE S. HYDE SUBCOMMITTEE ON PUBLIC HEALTH AND ENVIRONMENT PAUL 0. ROGERS, Florida, Chairman DAVID B. SATTERFIELD III, Virginia ANCHER NELSEN, Minnesota PETER N. KYROS, Maine TIM LEE CARTER, Kentucky RICHARDSON PREYER, North Carolina JAMES F. HASTINGS, New York JAMES W. SYMINGTON, Missouri JOHN 0. SCHMITZ, California WILLIAM R. ROY, Kansas (II) PAGENO="0003" CONTENTS Hearings held on- Part 1 Page April11, 1972 1 April 12, 1972 171 April 13, 1972 Part 2 May 2, 1972 May 3, 1972 May 4, 1972 Part 3 May 9, 1972 May 10, 1972 887 May 11, 1972 1035 May 16, 1972 1121 Part 4 May 17, 1972 1155 May 18, 1972 1343 Text of- H.R.5615 H.R. 5766 H.R. 7764 H.R. 11728 18 H.R. 11981 3 H.R. 12936 Report of- Comptroller General of the United States on H.R. 5615 52 Health, Education, and Welfare Department on H.R. ~615 53 Interior Department on H.R. 5615 -~ 53 Office of Management and Budget, Executive Office of the President on H.R. 5615 Treasury Department on H.R. 5615 54 Statement of- Anderson, James, counsel, Connecticut General Medical Programs, Inc 1447, 1450 Ashford, Jerome, director of community programs, Harvard Com- munity Health Plan 1371 Averill, Richard W., Washington office director, American Optometric Association 1122 Baehr, Dr. James M., Wichita (Kans.) Clinic, and representing the American Association of Medical Clinics 1059 Barr, Dr. Martin, American Association of Colleges of Pharmacy- - - - 668 Bennett, Berkeley V., executive vice president, National Council of Health Care Services 757, 758 Berman, Richard A., associate director, Salt Lake Neighborhood Health Center 1371 Biblo, Robert L., executive director, Harvard Community Health Plan, member Group Health Association of America 218, 225 Brindle, James, president, Health Insurance Plan of Greater New York, and chairman, Board of Directors, Group Health Association of America 181, 201 Bromberg, Michael D., director, Washington Bureau, Federation of American Hospitals 613 Brown, Hon. Clarence J., a Representative in Congress from the State of Ohio 1058 (III) PAGENO="0004" Iv Statemezit of-Contlnuecl Buchert, Dr. Walter I., medical director, Geisinger Medical Center, Danville, Pa., and president, American Association of Medical Page Clinics 1059 Callihan, Patrick J., president, Provincial House, Inc. Lansing, Mich., and president, National Council of Health Care ~ervices. 757, 761 Caramela, Leonard J., director, Alternate Delivery Systems, National Association of Blue Shield Plans 1015 Carlson, Rick J., Health Services Research Center, American Re- habilitation Foundation 363, 403 Cohelan, Jeffrey, executive director, Group Health Association of America 171 Cole, Clifton A., president, National Association of the Neighborhood Health Centers, and project director, South Central Multi-Purpose Health Services Corp 1371, 1428 Colombo, Theodore J., associate director, Planning and Administra- tion, Kaiser Foundation - 1371, 1386 Connell, Elizabeth J., public relations director, National Council of Health Care Services 757, 768 Connelly, Harrell L., director of professional relations, American Society of Medical Technologists_ - 737 Cooper, Dr. John A. D., president, Association of American Medical Colleges 913, 917 Custer, Dr. G. Stanley, Marshfield (Wisconsin) Clinic, and immediate past president, American Association of Medical Clinics 1059, 1096 Daniels, Henry, member, Executive Board, American Public Health Association 567,583 Davis, Dr. E. D., Daytona Beach, Fla 1145 Dearing, Dr. W. Palmer, former executive director, Group Health Association of America 171 Denmark, George D., immediate past chairman, Board of Trustees, American Pharmaàeutical Association 685 Dettweiler, William J., executive director, Community Health Center, Inc., Two Harbors, Minn 1343, 1354 Dornblaser, Bright M., professor of health services administration, University of Minnesota, in behalf of Association of University Programs in Hospital Administration 626 Dorsey, Dr. Joseph L., director of medical planning, Harvard Com- munity Health Plan 1371, 1418 Dowda, Dr. F. William, president, Georgia Foundation for Medical Care, representing American Association of Foundations for Medical Care 1035 DuVal, Dr. Merlin K., Assistant Secretary for Health and Scientific Affairs, Department of Health, Education, and Welfare 55 Eliwood, Dr. Paul M., Jr., executive director, Health Services Research Center, American Rehabilitation Foundation~ 363, 1186 Filerman, Gary, executive director, Association of University Pro- grams in Hospital Administration 626 Fleming, Scott, Deputy Assistant Secretary for Policy and Develop- ment, Department of Health, Education, and Welfare 55 Friedheim, Stephen, executive director, American Society of Me4ical Technologists 737 Frist, Dr. Thomas F., vice president, Hospital Corporation of America 1155 Galbraith, Annie, speaker-elect, House of Delegates, American Dietetic Association 747 Gehrig, Dr. Leo J., deputy director, Washington Service Bureau, American Hospital Association 537 Gibson, Dr. Count D., Jr., professor and chairman, Department of Community and Preventive Medicine, Stanford University School of Medicine, Stanford, Calif 1343 Gibson, Dr. Robert W., secretary, American Psychiatric Association - 1168 Griffin, James, vice president and secretary, Neighborhood Health Centers, Baltimore, Md., representing the National Council of Health Care Services 757, 765 Gumbiner, Dr. Robert, executive director, Family Health Program, Long Beach, Calif 595 Hallahan, Isabelle A., president-elect, American Dietetic Association. - 747 PAGENO="0005" V Statement of-Continued Hart, Dr. William T., director, region II, National Council of Com- munity Mental Health Centers, and director, Rochester Mental Page Health Center, Rochester, N.Y 854 Heyssel, Dr. Robert M., associate dean for health care programs, Johns Hopkins University School of Medicine, Baltimore, Md., representing the Association of American Medical Colleges 913 Hoenig, Mrs. Leah, executive director, Council of Home Health Agencies and Community Health Services, National League of Nursing 868 Hoffman, Richard H., chairman, Subcommittee on Health Mainte- nance Organizations, Health Insurance Association of America~ - - - 887 Hoffman, Dr. William W., Dallas Medical and Surgical Clinic, and commissioner of accreditation, American Association of Medical Clinics 1059, 1110 Holleran, Constance, director, Government Relations Department, American Nurses' Association 862 Hopping, Dr. Richard L., president, American Optometric Association- 1122 Johansson, Mabel S., American Nurses' Association 862 Jones, Thomas W., director of HMO development, New York-Pennsyl- vania Health Planning Council, Inc 1338 Kalinowski, Dr. Robert, director, Division of Health Services, Associa- tion of American Medical Colleges 913 Keller, Jane D., president, Council of Home Health Agepcies and Community Health Services, National League of Nursing 868 Kernodle, Dr. John R., vice chairman, Board of Trustees, American Medical Association Kimmey, Dr. James R., executive director, American Public Health Association 567, 579 Kingren, Gibson, Kaiser Foundation Health Plan, Inc., member of Group Health Association of America 205 Knebel, James D., executive vice president, National Association of Blue Shield Plans 1015 Kurzman, Stephen, Assistant Secretary for Legislation, Department of Health, Education, and Welfare 55 Lavanty, Donald F., director, National Affairs Division, American Optometric Association 1122 Lipitz, Roger C., president, Medical Service Corp., Baltimore, Md., representing the National Council of Health Care Services 757, 764 McClure, Walter, Health Services Research Center, American Rehabilitation Foundation 363, 464 McNerney, WMter J., president, Blue Cross Association 930 Macdonald, Dr. Larry, assistant professor, Department of Medical Care and Hospitals, Johns Hopkins School of Hygiene and Public Health 1186, 1226 Meyers, Dr. John, Fallon Clinic, Worchester, Mass., and representing the American Association of Medical Clinics 1059, 1106 Morris, Stephen M., president, American Hospital Association 537 Newman, Dr. Harold F., director, Group Health Cooperative of Puget Sound and first vice president, Group Health Association of America 205, 207 North, Evans W., executive director, Washington Office, American Health Foundation 1135 O'Donoghue, Dr. Patrick, associate director, Health Services Re- search Center Institute for Interdisciplinary Studies, American Rehabilitation Foundation 363, 489, 1186 Peterson, Harry, director, Legislative Department1 American Medical Association Reed, Dr. Wallace A., vice president, Maricopa Foundation for Medi- cal Care Phoenix, Ariz., and member, Board of Directors, American Association of Foundations for Medical Care 1035, 1039 Richardson, Hon. Elliot L., Secretary, Department of Health, Educa- tion and Welfare 55 Riso, Gerald Deputy Administrator for Development, Health Serv- ices and Mental Health Administration, Department of Health, Education and Welfare Roberts, Carl, director, Legal Division, American Pharmaceutical Association 685 Roemer, Dr. Milton I., member, Council on Personal Health Services, American Public Health Association 567, 579 PAGENO="0006" VI Statement of-Continued Roth, Dr. Russell B., Speaker of AMA House of Delegates, American Page Medical Association 333, 337 Sager, Dr. Robert V., member, Board of Directors, Physicians Forum, Inc 873 Saward, Dr. Ernest W., associate dean and professor, University of Rochester Medical School, and president, Board of Directors, Group Health Association of America 181 Schaefer, Marguerite J., vice president, American Association of Deans of College and University Schools of Nursing 1440 Schmidt, Herman, director, Field Services, Group Health Associaion of America 218, 221 Schubert, Dr. James J., president, Medical Care Foundation of Sacramento, Calif., representing American Association of Founda- tions for Medical Care 1035, 1040 Schultz, Henry, attorney, Family Health Program, Long Beach, CaliL 595 Segadelli, Louis, executive director, Group Health Association, mem- ber, Group Health Association of America 218 Seidel, Dr. Henry, medical director, Columbia Hospital and Clinic, Columbia, Md 1186, 1228 Seidman, Bert, director, Department of Social Security, American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) 645 Shoemaker, Richard, assistant director, Department of Social Security, American l?ederation of Labor and Congress of Industrial Organiza- tions (AFL-CIO) 645 Skinner, William J., assistant executive secretary, American Associa- tion of Colleges of Pharmacy 668 Smillie, Dr. John G., secretary, Permanente Medical Group, and member, Board of Directors, Group Health Association of America~. 205 Smith, Dr. Frederick G., Frederick C. Smith Clinic, Marion, Ohio, and representing the American Association of Medical Clinics - - 1059, 1115 Steinbach, Dr. Clarence, director, Physician Recruitment, Family Health Program, Long Beach, Calif 595 Stewart, David W., managing director, Rochester Blue Cross Plan, and managing director, Rochester Hospital Service Corp., Rochester, N.Y., representing Blue Cross Association 930, 1001 Stewart, Dr. William H., chancellor, Medical Center (New Orleans), Louisiana State University School of Medicine, representing the Association of American Medical Schools 913, 916 Sutton, Harry, member, Subcommittee on Health Maintenance Or- ganizations, Health Insurance Association of America 887 Suycott, Leo E., president, Wisconsin Blue Cross Plan, and president, Associated Hospital Service, Inc., Milwaukee, Wisc., representing Blue Cross Association 930, 985 Tallon, James R., associate director for community relations, New York-Pennsylvania Health Planning Council, Inc 1338 Thalheimer, Harold R., vice president, Connecticut General Medical Programs, Inc 1447 Trover, Dr. Loman C., medical director, Trover Clinic, Madisonville, Ky., and second vice president, American Association of Medical Clinics 1059, 1116 Tuttle, Daniel S., executive director, Southeastern Kentucky Regional Health Demonstration, Inc 1343, 1350 Veltmann, Joseph R., executive vice president, Hawaii Medical Service Association, Blue Shield Plan in Hawaii, representing the National Association of Blue Shield Plans 1015 Vorlicky, Dr. Loren N., St. Louis Park Medical Center, Minneapolis, Minn., representing the American Association of Medical Clinics 1059, 1114 Weems, Samuel A., chairman, Legislative Committee, Federation of American Hospitals 613 Whalen, Hon. Charles W., Jr., a Representative in Congress from the State of Ohio 1121 Williamson, Dr. John W., professor, Department of Medical Care and Hospitals, Johns Hopkins School of Hygiene and Public Health - 1186, 1219 Wilsmann, Edward J., president, Homemakers Home and Health Care Services, Inc. Kalamazoo, Mich., representing the National Council of Health óare Services 757, 763 Wilson, Franz, project director, Group Health Association of America 218 PAGENO="0007" VII Statement of-Continued Wilson, Dr. Vernon E., Administrator, Health Services and Mental Health Administration, Department of Health, Education, and Page Welf are 55 Winstead, Martha, national president, American Society of Medical Technologists 737 Wurzel, Dr. Edward M., executive director, American Association of Medical Clinics 1059, 1107 Wynder, Dr. Ernest, president, American Health Foundation 1135 Yuen, Albert H., administrative president, Hawaii Medical Associa- tion, Blue Shield Plan in Hawaii, representing the National Asso- ciation of Blue Shield Plans 1015, 1022 Zapp, Dr. John S., Deputy Assistant Secretary for Legislation (Health), Department of Health, Education, and Welfare 55 Additional material submitted for the record by- American Association of Deans of College and University Schools of Nursing, attachment to Mrs. Schaefer's prepared statement-The role of nurses in health maintenance organizations 1444 American Association of Dental Schools, R. H. Sullens, president, letter dated May 25; 1972, to Chairman Rogers 1514 American Association of Foundations for Medical Care: Attachments to Dr. Schubert's prepared statement, diagrams for indemnity, closed panel, and foundation HMO's 1043-1045 Utilization and cost data 1048 American Association of Medical Clinics: Attachments to Dr. BUchert's prepared statement: Accreditation program of the AAMC 1069 Editorial-"A Credo for Our Times . . .". 1068 Greater Marshfield Community Health Plan-A Model for Health Maintenance Organizations, by Dr. G. S. Custer, Department of Gastroenterology 1100 American Dental Association, statement 1476 American Dietetic Association, position paper on nutrition services in health maintenance organizations 750 American Medical Association: Letter dated June 2, 1972 from James W. Foristél, assistant director, Department of óongressional Relations, to Chairman Rogers forwarding the AMA statement presented to the Sub- committee on Health and Labor, Public Welfare Committee, U.S. Senate on June 2, 1972 357 American Nurses' Association: Definition of the term "nurse practitioner" 867 The Frontier Nursing Service 867 American Optometric Association, cost of optometric vision care. - - - 1133 American Pharmaceutical Association: Attachments to Mr. Denmark's prepared statement: Drug interactions pilot study initiated by APA 690 White paper on "The Pharmacist's Role in Product Selec- tion," with critique and response prepared by the Academy of Pharmaceutical Sciences 692 Letter dated May 12, 1972, from Carl Roberts, director, Legal Division, to Chairman Rogers re annual average per patient cost of including "out-of-hospital drugs" as an HMO service, with attachments 732 Letter dated May 15, 1972, from William S. Apple, executive director, to Chairman Rogers re providing comprehensive pharmaceutical service to HMO members 736 American Podiatry Association, Ernest M. Weiner, D.P.M., president, statement 1483 American Psychiatric Association, appendixes to Dr. Gibson's prepared statement: Article from the American Journal of Psychiatry, entitled, "Can Mental Health Be Included in the Health Maintenance Organization?" 1171 Excerpt from "Equal Coverage for Mental Illness," a position statement by the APA entitled "Highlights of the APA Report on Health Insurance and Psychiatric Care: Utilization and Cost" 1178 PAGENO="0008" VIII Additional material-Cnatinued American Public Health Association, position paper-health mainte- Page nance organizations 571 American Rehabilitation Foundation, Health Services Research Center: Arbitration of malpractice disputes 410 Assumptions on HMO startup and enrollment rates, 1972-7&.~. - 483 "Assuring the Quality of Health Care," a preliminary version of chapter III 499 Commission on Health Care Quality Assurance Act of 1972-a draft title 1322 Comparative performance of HMO's on hospital use 387 Constitutionality of a congressional delegation of health care quality regulatory authority to a private body 1189 Effect of HMO performance on health status (prematurity and mortality) 389 Estimated annual HMO assistance expenditures, 1972-76 485 Estimated costs for programs operated by a" Health Care Quality Commission"-draft 1268 EstImated HMO's and enrollments, 1972-76 483 Existing prepaid plans providing medical services, 1969 - 482 Expected expenditures for HMO assistance and partial support of near-poor capitation payments - 485 Financial barriers to liMO care: problems and approaches 467 Letter dated April 26, 1972, from Dr. Patrick O'Donoghue asso- ciate director, Health Services Research Center, Institute for Interdisciplinary Studies, Minneapolis, Minn., re ARF's proposed Health Outcomes Commission 531 Method for supporting transportation benefits in liMO's 488 Potential sponsors of liMO plans, 1972-76 483 Proposed position on liMO legislative issues 396 Review of the experiences of two small liMO's 365 Typical liMO start-up capital requirements 481 American Society of Hospital Pharmacists, statement 1467 American Society of Medical Technologists, "Quality Clinical Laboratory Services for the American People," from the Public Health Reports volume 85, No. 2, February 1970 742 American Society of Oral Surgeons, J. Leon Schwartz, M.D., presi- dent, letter dated May 30, 1972, to Chairman Rogers 1519 Associated Hospital Service, Inc. (See Blue Cross Association.) Association for Academic Health Centers James L. Dennis, M.D., president, letter dated May 26, 1972, to Chairman Rogers 1515 Association of University Programs in Hospital Administration: Attachments to Mr. Dornblaser's prepared statement: Criteria for an accredited graduate program in hospital administration 630 Graduate education for health and hospital administration- January 1972, a brochure 633 Publication describing the AUPHA as a leading consortium in higher education 635 Letters dated May 11 and May 12, 1972, from Mr. Filerman to Chairman Rogers re practical limit on the magnitude of an liMO and suggested language for inclusion in H.R. 11728 - - - 642, 643 Blue Cross Association: Attachments to Mr. Stewart's prepared statement: Report of the Rochester Community Advisory Committee to Study the Financing and Delivery of Health Care 1003 Genesee Valley Group Health Association board composition 1005 Attachments to Mr. Suyeott's prepared statement: The Greater Marshfield Community Health Plan 993 Milwaukee Compcare Program 996 Exhibits to Mr. McNerney's prepared statement: Exhibit I-Policy statement on health maintenance organizations 939 Exhibit Il-Alternative delivery systems plan status report, March 1972 945 PAGENO="0009" Ix Additional material-Continued Blue Cross Association-Continued Exhibits to Mr. McNerney's prepared statement-Continued Exhibit Ill-Blue Cross and Blue Shield activity in alter- native delivery systems, April 1972 (operational pro- Page grams) 967 Exhibit IV-Blue Cross and Blue Shield activity in alter- native delivery systems, April 1972 (implementing programs) 970 Exhibit V-Prepaid group practice as a national health policy: problems and perspectives 972 Letter dated May 31, 1972, from George J. Kelley, vice presi- dent, Washington representation, to Chairman Rogers re article from Marshfield News-Herald dated May 22, 1972, entitled, "Community health plan reopening enrollments" - - - - 999 California Medical Association, Jean F. Crum, M.D., president, statement 1484 Charlotte County (Florida) Medical Society, Roscoe Maxwell, M.D., president, and three others, statement 1489 Community Health Center, Inc., Two Harbors, Minn., objectives; early history; scope of health care program; finances; and the roll of prepay, group practice health plans 1358 Connecticut General Medical Programs, Inc., attachment to Mr. Anderson's prepared statement-Comments on H.R. 11728~ - - 1453 Council for the Advancement of the Psychological Professions and Sciences, Nicholas A. Cummings, Ph. D., member, Executive Committee, and chief psychologist, Kaiser-Permanente Health Care Systems, statement 1487 Family Health Program, Long Beach, Calif., analysis of the budget bill of the State of California legislature, 1971 regular session, pertaining to the demonstration project-Family Health Program- - 607 Group Health Association of America: Uomparative performance of HMO's on cost 282 Comparative performance of HMO's on health 283 Comparative performance of HMO's On hospital use 281 Excerpt from an article by Jeffery Cohelan entitled, "Health Maintenance Organizations," printed in the 1971 conference proceedings, volume 13, "Textbook for Welfare, Pension Trustees and Administrators" 232 Excerpt from "Prepaid Group Practice: A Health Services Delivery System," by Dr. W. P. `Dearing 284 Guide in making grants to HMO's 294 Health policy and the HMO, extension of remarks by Dr. Ernest W. Saward, and Merwyn R. Greenlick 185 HMO fiscal plan, initial operation 222 HMO project plan abstract, community sponsored prepaid group practice 224 Medical staff of Group Health Cooperative of Puget Sound 209 Physician turnover-Permaflente Medical Group 320 Proposed language to insure balanced enrollment 292 "Revised Working Standards for Group Health Plans," from the November 1963 (revised May 1964) issue of Group Health & Welfare News Special Supplement 296 "The Federal Employees Health Benefits Program," from the October 1968 issue of Group Health & Welfare News Special Supplement 273 The Federal Employees Health Benefits Program-Enrollment and Utilization of Health Services, 1961-1968 244 Group Health Cooperative of Puget Sound, medical staff 209 Hawaii Medical Service Association. (See National Association of Blue Shield Plans.) Health, Education, and Welfare Department: Appropriations testimony on use of other authorities and funds for HMO's Comparison of basic HMO benefit packages, H.R. 5615, H.R. 11728, and 5. 3327 126 Comparison of experience of prepaid group practice with fee-for- service plans 64 PAGENO="0010" x Additional ntaterial-Oontinued Health, Education, and Welfare Department-Continued Consumers involvement in HMO operations Distribution by sponsor of lIMO grants, fiscal years 1971 and 1972 (pie charts) Experimental health services delivery system Health plans which incorporate some characteristics essential to an HMO-type program HMO development grants Identification of he~lth service scarcity areas Organizations funded to date under HMO's grant program- fiscal years 1971 and 1972 Potential 10-year savings from HMO development Proposed program budget-Health Maintenance Organization Assistance Act of 1971 Start-up costs Summary-goals projected for cumulative HMO growth 1973-80 (federally and nonfederally funded) Health Insurance Association of America: Appendix A to Mr. Hoffman's prepared statement-Summary of activities of insurance companies in HMO development, and eight lessons from experience Assets of member companies for 1970 Minimum standard benefits of a comprehensive national health insurance program Number of HMO's per year that Government should sponsor Social responsibility in health area of the insurance industry. * - Total national health expenditures by government and the private sector for personal health care, health research and construction Johns Hopkins School of Hygiene and Public Health and the Columbia Medical Plan: "Evaluating Quality of Patient Care-A Strategy Relating Outcome and Process Assessment," by Dr. John W. Williamson. Medical quality assurance system (a functional design) "Recommendations for a quality assurance program for the Maryland Health Maintenance Committee," by Dr. John W. Williamson Attachment 1-Health care assessment: health benefit analysis Attachment 2-Actual health accounting projects underway Kaiser Foundation, attachments to Mr. Colombo's prepared state- ment: Comparing the use of medical care services by a medically indigent and a general membership population in a compre- hensive prepaid group practice program Comprehensive neighborhood health services project of Kaiser Foundation Hospitals Kaiser-Permanente Health Care Systems, Nicholas A. Cummings, Ph. D., chief psychologist, and member, Executive Committee, Council for the Advancement of the Psychological Professions and Sciences, statement National Association of Blue Shield Plans, letter dated May 19, 1972, from J. R. Veltmann, executive vice president, Hawaii Medical Service Association, to Chairman Rogers re dollar savings as a result of reduction of the level of institutional care experienced by HMSA members under Federal Employees Plan National Association. of Retail Druggists, William E. Woods, Wash- ington representative and Association general counsel, statement - - National Council of Health Care Services: Bylaws, Northwest Community Advisory Board Comparison of proprietary and non-profit home health care services from a selected group of cities Fact sheets on Berkeley V. Bennett, Elizabeth J. Connell, Patrick J. Callihan, Provincial House, Inc., Edward J. Wilsmann, Homemakers, Inc., Roger P. Lipitz, Medical Services Corp., James Griffin, and Neighborhood Health Centers JCAH accreditation information Page 114 163 72 85 82 129 78 92 92 103 63 897 905 902 912 905 908 1242 1236 1248 1258 1259 1404 1387 1487 1023 1463 816 850 803 831 PAGENO="0011" XI Additional material-Continued National Council of Health Care Services-Continued Letter dated May 22, 1972, from Edward J. Wilsniann, president, Homemakers Home and Health Care Services, Inc., Kalamazoo, Mich., re specific cases where for.'profit health care deliverers have been able to deliver services more economically than not- Page for-profit organizations 849 Standards for home health services 834 National League of Nursing, Home Health Agencies in the districts represented by members of the Public Health and Environment Subcommittee 872 National Pharmacy Insurance Council, Ralph Engel, director, letter dated May 5, 1972, to Chairman Rogers with exhibit attached entitled, "National Pharmacy Insurance Council Guidelines for the Formation of a Prototype Pharmacy Group Practice Including a Model Operational Review System (MORS)'. 1490 Permenente Medical Group, physician turnover 320 Physicians Forum, Inc., attachments to Dr. Sager's prepared state- ment: A National Health System, pamphlet 878 Statement on the Nixon Administration HMO proposal 882 Rochester Blue Cross Plan. (See Blue Cross Association.) Rochester Hospital Service Corp. (See Blue Cross Association.) United States Catholic Conference, Department of Health Affairs, Msgr. Harrold A. Murray, director, letter dated June 6, 1972, to Chairman Rogers 1520 Wisconsin Blue Cross Plan. (See Blue Cross Association.) ORGANIZATIONS REPRESENTED AT THE HEARINGS American Association of Colleges of Pharmacy: Barr, Dr. Martin. Skinner, William J., assistant executive secretary. American Association of Deans of College and University Schools of Nursing, Marguerite J. Schaefer, vice president. American Association of Foundations for Medical Care: Dowda, Dr. F. William, president, Georgia Foundation for Medical Care. Reed, Dr. Wallace A., member, Board of Directors, AAFMC, and vice president, Maricopa Foundation for Medical Care, Phoenix, Ariz. Schubert, Dr. James J., president, Medical Care Foundation of Sacramento, Calif. American Association of Medical Clinics: Baehr, Dr. James M., Wichita (Kansas) Clinic. Buchert, Dr. Walter I., president, AAMC, and medical director, Geisinger Medical Center, Danville, Pa. Custer, Dr. G. Stanley, immediate past president, AAMC, and member, Marshfield (Wisconsin) Clinic. Hoffman, Dr. William W., commissioner of accreditation, AAMC, and member Dallas Medical and Surgical Clinic. Meyers, Dr. John, Fallon Clinic, Worcester, Mass. Smith, Dr. Frederick G., Frederick C. Smith Clinic, Marion, Ohio. Trover, Dr. Loman C., second vice president, AAMC, and medical director, Trover Clinic, Madisonville, Ky. Vorlicky, Dr. Loren N., St. Louis Park Medical Center, Minneapolis, Minn. Wurzel, Dr. Edward M., executive director, AAMC. American Dietetic Association: Gaibraith, Annie, speaker-elect, House of Delegates. Hallahan, Isabella A., president-elect. American Federation of Labor and Congress of Industrial Organizations (AFL- CIO): Seidman, Bert, director, Department of Social Security. Showmaker, Richard, assistant director, Department of Social Security. American Health Foundation: North, Evans W., executive director, Washington Office. Wynder, Dr. Ernest, president. PAGENO="0012" XII: ORGANIZATIONS REPRESENTED AT HEARINGS-Continued American- Hospital Association: Gehrig, Dr. Leo J., deputy director, Washington Service Bureau. Morris, Stephen M., president. American Medical Association: Kernocile, Dr. John R., vice chairman Board of Trustees~ Peterson, Harry, director, Legislative E~epartment. Roth, Dr. Russell B., Speaker of AMA House of Delegates. American Nurses' Association: Holleran, Constance, director, Government Relations Department. Johansson, Mabel S. American Optometric Association: Averill, Richard W., Washington office director. Hopping, Dr. Richard L., president. Lavanty, Donald F., director, National Affairs Division. American Pharmaceutical Association: Denmark, George D., immediate past chairman, Board of Trustees. Roberts, Carl, director, Legal Division. American Psychiatric Association, Dr. Robert W. Gibson, secretary. American Public Health Association: Daniels, Henry, member, Executive Board. Kimmey, Dr. James R., executive director. Roemer, Dr. Milton I., member, Council on Personal Health Services. American Rehabilitation Foundation: Carlson, Rick J., Health Services Research Center. Elwood, Dr. Paul, director, Health Services Research Center, Institute for Interdisciplinary Studies. Mcclure, Walter, Health Services Research Center. O'Donoghue, Dr. Patrick, associate director, Health Services Research Cen- ter, Institute for Interdisciplinary Studies. American Societj of Medical Technologists: Connelly, Harrell L., director of professional relations. Friedheim, Stephen, executive director. Winstead, Martha, national president. Associated Hospital Service, Inc., Milwaukee, Wis., Leo E. Suycott, president, and president, Wisconsin Blue Cross Plan. Association of American Medical Colleges: Cooper, Dr. John A. D~, president. Heyssel, Dr. Robert M., associate dean for health care programs, Johns Hopkins University School of Medicine, Baltimore, Md. Kalinowski, Dr. Robert, director, Division of Health Services. Stewart, Dr. William H., chancellor, Medical Center (New Orleans), Louis- iana State University School of Medicine. Association of University Programs in Hospital Administration: Dornblaser,. Bright M., professor of health services administration, Univer- sity of Minnesota. - Filerman, Gary, executive director. Blue Cross Association: McNerney, Walter J., president. Stewart, David W., managing director, Rochester Blue Cross Plan, and managing director, Rochester Hospital Service Corp., Rochester, N. Y. Suycott, Leo E., president, Wisconsin Blue Cross Plan, and president, Asso- ciated Hospital Service, Inc., Milwaukee, Wis. Columbia Hospital and Clinic, Columbia, Md., Dr. Henry Seidel, medical director. Community Health Center, Inc., Two Harbors, Minn., William J. Dettweiler, executive director. Connecticut General Medical Programs, Inc.: Anderson, James, counsel. Thaiheimer, Harold H., vice president. Dallas Medical & Surgical Clinic, Dr. William W. Hoffman. Fallon Clinic, Worcester, Mass., Dr. John Meyers. Family Health Program, Long Beach, Calif.: Gumbiner, Dr. Robert, executive director. Schultz, Henry, attorney. Steinbach, Dr. Clarence, director, Physician Recruitment. PAGENO="0013" XIII ORGANIZATIONS REPRESENTED AT HEAR1NGS-Cor~tinued Federation of American Hospitals: Bromberg, Michael D., director, Washington Bureau. Weems, Samuel A., chairman, Legislative Committee. Geisinger Medical Center, Danville, Pa., Dr. Walter I. Buchert, medical director. Georgia Foundation for Medical Care, Dr. F. William Dowda, president. Group Health Association, Louis Segadelli, executive director. Group Health Association of America: Biblo, Robert L., executive director, Harvard Community Health Plan. Brindle, James, chairman, Board of Directors, GHAA, and president, Health Insurance Plan of Greater New York. Cohelan, Jeffery, executive director, GHAA. Dearing, Dr. W. Palmer, former executive director, GHAA. Kingren, Gibson, Kaiser Foundation Health Plan, Inc. Newman, Dr. Harold F., first vice president, GHAA, and director, Group Health Cooperative of Puget Sound. Saward, Dr. Ernest W., president, Board of Directors, GHAA, and associate dean and professor, University of Rochester Medical School. Schmidt, Herman, director, field services, GHAA. Segadelli, Louis, executive director, Group Health Association. Samillie, Dr. John H., member, Board of Directors, GHAA, and secretary, Permanente Medical Group. Wilson, Franz, project director, GHAA. Group Health Cooperative of Puget Sound, Dr. Harold F. Newman, director. Harvard Community Health Plan: Ashford, Jerome, director of community programs. Biblo, Robert L., executive director. Dorsey, Dr. Joseph L., director of medical planning. Hawaii Medical Service Association, Blue Shield Plan in Hawaii: Veltmann, Joseph R., executive vice president. Yuen, Albert H., administrative president. Health, Education, and Welfare Department: DuVal, Dr. Merlin K., Assistant Secretary for Health and Scientific Affairs. Fleming, Scott, Deputy Assistant Secretary for Policy and Development. Kurzman, Stephen, Assistant Secretary for Legislation. Richardson, Hon. Elliot L., Secretary. Riso, Gerald, Deputy Administrator for Development, Health Services and Mental Health Administration. Wilson, Dr. Vernon E., Administrator, Health Services and Mental Health Administration. Zapp, Dr. John S., Deputy Assistant Secretary for Legislation (Health). Health Insurance Association of America: Hoffman, Richard H., chairman, Subcommittee on Health Maintenance Organizations. Sutton, Harry, member, Subcommittee on Health Maintenance Organizations. Health Insurance Plan of Greater New York, James Brindle, president. Hospital Corporation of America, Dr. Thomas F. Frist, vice president. Johns Hopkins School of Hygiene and Public Health: Macdonald, Dr. Larry, assistant professor, Department of Medical Care and Hospitals. Williamson, Dr. John W., professor, Department of Medical Care and Hospitals. Kaiser Foundation, Theodore J. Colombo, associate director, Planning and Administration. Kaiser Foundation Health Plan, Inc., Gibson Kingren. Maricopa Foundation for Medical Care, Phoenix, Ariz., Dr. Wallace A. Reed, vice president. Marshfield (Wisconsin) Clinic, Dr. G. Stanley Custer. Medical Care Foundation of Sacramento, Calif., Dr. James J. Schubert, president. National Association of Blue Shield Plans: Caramela, Leonard J., director, Alternate Delivery Plans~ Knebel, James D., executive vice president. Veltmann, Joseph R., executive vice president, Hawaii Medical Service Association, Blue Shield Plan in Hawaii. Yuen, Albert H., administrative president, Hawaii Medical Service Associa- tion, Blue Shield Plan in Hawaii. PAGENO="0014" XIV ORGANIZATIONS REPRESENTED AT HEARINGS-Continued National Association of the Neighborhood Health Centers, Clifton A. Cole, president, and project director, South Central Multi-purpose Health Services Corporation. National Council of Community Mental Health Centers, Dr. William T. Hart, director, Region II, and director, Rochester Mental Health Center, Rochester, N.Y. National Council of Health Care Services: Bennett, Berkeley V., executive vice president. Callihan, Patrick J., president, NCHCS, and president, Provincial House, Inc., Lansing, Mich. Connell, Elizabeth J., public relations director. Griffin, James, vice president and secretary, Neighborhood Health Centers, Baltimore, Md. Lipitz, Roger C., president, Medical Services Corp., Baltimore, Md. Wilsmann, Edward J., president, Homemakers Home and Health Care Services, Inc., Kalamazoo, Mich. National League of Nursing: Hoenig Mrs. Leah, executive director, Council of Home Health Agencies and ôommunity Health Services. Keller, Jane D., president, Council of Home Health Agencies and Com- munity Health Services. New York-Pennsylvania Health Planning Council, Inc. Jones, Thomas W., director of HMO development. Tallon, James R., associate director for community relations. Permanente Medical Group, Dr. John G. Smillie, secretary. Physicians Forum, Inc., Dr. Robert V. Sager, member, Board of Directors. Rochester Hospital Service Corp., Rochester, N.Y., David W. Steward, managing director, and managing director, Rochester Blue Cross Plan. Rochester Mental Health Center, Rochester, N.Y., Dr. William T. Hart, director, and director, region II, National Council of Community Mental Health Centers. Rochester (N.Y.) Blue Cross Plan, David W. Stewart, managing director, and managing director, Rochester Hospital Service Corp., Rochester, N.Y. St. Louis Park Medical Center, Minneapolis, Minn., Dr. Loren N. Vorlicky. Salt Lake Neighborhood Health Center, Richard A. Berman, associate director. Smith, Frederick C., Clinic, Marion, Ohio, Dr. Frederick G. Smith. South Central Multi-purpose Health Services Corp., Clifton A. Cole, project director, and president, National Association of the Neighborhood Health Centers. Southeastern Kentucky Regional Health Demonstration, Inc., Daniel S. Tuttle, e~cecutive director. Stanford University School of Medicine, Stanford, Calif., Dr. Count D. Gib- son, Jr., professor, and chairman, Department of Community and Preventive Medicine. Trover Clinic, Madisonville, Ky., Dr. Loman C. Trover, medical director. Wichita (Kans.) Clinic, Dr. James M. Baehr. Wisconsin Blue Cross Plan, Leo E. Suycott, president, and president, Associated Hospital Service, Inc., Milwaukee, Wis. PAGENO="0015" HEALTH MAINTENANCE ORGANIZATIONS TUESDAY, MAY 9, 1972 HousE OF REPRESENTATIVES, SUBOOMMrrrEE ON Purn.Tc HEALTH AND ENVIRONMENT, (JkMMrrrE1~ ON INTERSTATE AND Foiu~iIGN COMMERCE, Wa$Mngton, D.C. The subcommittee mEt at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. Paul G. Rogers (chairman) presiding.' Mr. ROGERS. The subcommittee will come to order. We are continu- ing our hearings on proposals for health maintenance organizations. Our first witness today is Mr. Berkeley Bennett, executive director of the National Council of Health Care Services, Washing(on, P. 0. We welcome you to the committee. We will be pleased to have you and your associates identify themselves and make ~hatcver state- ments you desire. STATEMENT OP PANEL REPRESENTING THE NATIONAL COUNCIL OF HEALTH CARE SERVICES: BERKELEY V. BENNETT, EXECUTIVE VICE PRESIDENT, NCHCS; PATRICK ~1. CALLIHAN, PRESIDENT, PROVINCIAL HOUSE, INC., LANSING, MICH., AND PRESIDENT, NCHCS; EDWARD L WILSMANN, PRESIDENT, HOMEMAKERS ROME AND HEALTH CARE SERVICES, INC., KALAMAZOO, MICH.; ROGER C. LIPITZ, PRESIDENT, MEDICAL SERVICES CORP., BALTIMORE', MD.; NAMES GRIFFIN, VICE PRESIDENT AND SECRETARY, NEIGH- BORHOOD HEALTH CENTERS, INC., BALTIMORE, MD.; AND ELIZABETH ~. CONNELL, PUBLIC RELATIONS DIRECTOR, NCKCS Mr. BENNETr. Thank you, Mr. Chairman and members of the com- mittee. We appreciate the' opportunity to appear before the commit- tee. We have a `panel to discuss a number of areas which we think will be of interest to the committee. We will summarize our testimony however, and each will cut it down so that our time will be better saved `for questions. Mr. ROGERS. Fine; we `will make the full statements part of the rec- ord following yonr summation. Mr. BENNETT. Thank you. (757) PAGENO="0016" 758 STATEMENT OP BERKELEY V. BENNETT Mr. BI~NN~ETr. Mr. Chairman and members of the committee, my name is Berkeley Bennett and I am executive vice president of the National Council of Health Care Services, based in Washington, D.C., with member companies throughout the country. I will introduce our other panel members as we go along, if I may. The National Council of Health Care Services represents a select group of tax-paying health care companies owning and/or managing hospitals, nursing homes, psychiatric facilities, clinics, pharmacies, home health agencies, consulting services, surgical supply companies, homemaker services, unit dose drug packaging, day care centers, paramedical training schools, and rehabilitation units. The majority of our member companies are publicly owned health care corporations and most have under active consideration the formation of one or several health maintenance organizations. As a condition of membership, the council's member facilities, where applicable, are required to be accredited by the Joint Commission on Accreditation of Hospitals. The joint commission is a nongovernmental standard of quality care surpassing licensing, medicaid, and medicare requirements. Accreditation is voluntary and is a yardstick to the progressive facility that meets standards set by a professional knowl- edgeable, nationally recognized group. In addition, each member is dedicated to seeking innovative approaches to providing quality patient care in the appropriate cost-effective setting. We believe that proprietary, tax-paying, management oriented health care companies can offer assistance in solving the problems of making the health care delivey system responsive to the needs of all and in helping to make care available to more people at the lowest pos- sible cost. The National Council of Health Care Services supports the develop- thent of the health maintenance organization concept. Not as the panacea for the many shortcomings of the American heaith system, but as one method which appears to have promise of making more effective use of scarce health resources than the present fragmented health care nonsystem. National Council of Health Care Services member companies are presently conducting feasibility studies, contracting for services, assist- ing iii the formation of physician groups, working with existing group practices, and carrying out the necessary planning and development activities for possible entry into HMO's. I might add that all of these functions have been performed at no cost or obligation to the Govern- ment or the taxpayer. The National Council believes that the legislation introduced by Congressman Roy and yourself, Mr. Chairman, along with several other members of this subcommittee represents a commendable step toward improving health care delivery in this country. Our remarks today, will be devoted to the issues of; one, for-profit involvement in the development, operation, and ownership of HMO's; two, the competitive principle in the health care arena versus franchis- ing and comprehensive health planning; three, some examples of pro- prietary involvement in providing comprehensive health care services; and four, development of a continuum of care and services through the maximum utilization of nursing homes and home health services. PAGENO="0017" 759 FOR-PROFFr INVOLVEMENT IN THE DEVELOPMENT, OPERATION, AND OWNERSHIP OF HEALTH MAINTENANCE ORGANIZATIONS One of our major concerns with some proposed HMO legislation and national health insurance proposals is their discrimination against one type of sponsorship of health facilities, services, and systems in favor of another without regard to the quality of care being provided. We believe the acceptance of this philosophy is directly opposed to the best interests of both the consumer of health care services in America and the individual tax-paying citizen. It is generally recognized that the success of an HMO is dependent upon the incentives built into the program-incentives for efficiency- incentives for proper utilization-incentives for the physician. Health maintenance organizations should be coordinating bodies able to bring together the appropriate type and level of care at the appropriate cost. Proprietary health care companies, such as those represented by the National Council of Health Care Services are uniquely suited to providing the business talents needed and to assembling the finan- cial resources necessary to the formation and continuation of an lIMO. We believe that it is vital to attract and recruit the bestbusiness man- agement minds available in order to accomplish the task of delivering health care to all at a price the Nation can afford. Under the present system, costs are soaring, manpower and resources are insufficient and misallocated. A close look at the problem will reveal the following: EFFICIENCY IN THE HEAIff H CARE INDUSTRY When we talk about containing or slowing down the rise in health care costs, what we are really talking about is the cost of hospitaliza- tion, which not only has accounted for the largest rise in costs, but also represents in absolute terms the largest slice of the health care pie. For fiscal year 1970, the total national health expenditure was in excess of $67 billion or 7 percent of the Gross National Product Some $58 billion of this money was for personal health care. Just under one-hi~lf of all moneys spent for personal health expendi- tures goes to our Nation's hospitals and nursing homes, and the per- centage is increasing each year. In the past 4 years hospital daily serv- ice charges have increased 71.1 percent compared to 29.1 percent for all medical care, 30 percent for physician's fees and 6 percent for drugs. It is readily apparent that it is the hospitals, 85 percent of which are nonprofit, that are eating us out of house and home. But why ~ Any analysis of effort to control hospital costs will essentially be broken down into two broad categories: one, internal efficiency and, two, utilization control (which is defined as efficient treatment of the patient who truly needs such treatment at the proper facility level and over the appropriate time span. It does not mean exclusion from care of those who need it). No one can deny that much of the increase in hospital expenditures comes from increased services and a "catching up" in salaries by a labor force that for years subsidized this Nation's health care system by accepting an inadequate wage structure, and a generalized inflation in other cost, but much of the increase is the direct result of a consortium consisting of an abominable cost reimbursement system, which en- 81-185 0 - `72 - pt.3 - 2 PAGENO="0018" 760 coura~ed and rewarded inefficiency, and a `hospital management group that did not need incentives to achieve ineptitude. The basic failure of this country's hospitals to achieve any significant degree of internal efficiency has to rest with its No. 1 problem-its self-perpetuating, nonresponsible leadership, and its lack of adequate fiscally trained, full-time management, which `has led to very low level of co~npetency in the area of controlled cost and productivity. The hospital industry-and, more especially the emerging HMO "industry" needs full-time executives of the type and with the abili- `ties ~f those men running our major industries. We do not need small donations of j~shilanthropic time, but `a primary commitment from com- petent organizational persomiel at all administratIve levels in the hospital or the HMO, from `the' board of directors to the purchasing agent and the housekeeping managers. Without this, no internal ef- ficency will ever be realized. PRODUCTIVITY AND PRIVATR ENTERPRISE Proprietary enterprise, by its very nature, is structured to p~rovide the incentives\whjth are completely absent in the nonprofit field. [ point out that virtually every aspect of the health care delivery system is proprietary in nature except for the general hospital, wiuiah in turn, has suffered the most phenomenal inflationary spiral. Wihen referring to liMO's and to "incentives" inherent in the lIMO concept whith should work to lower costs and keep quality of service high, what you are really talking about is the profit: motive, no mat- ter what `the semantics. The entire concept is founded upon offering financial incentives to someone or group someWhere to reduce the costs of health care. We believe that recognition of this premise is vital to the success of the lIMO concept. The National Council of Health Care Services does not believe that this country can continue to `afford the price of health care provided by the subsidized nonprofits. With proper safeguards in law `and regu- lation against shuses, the proprietary sector otf the health care field ought to be encouraged to invest its capital and use its management expertise in this field. One advantage of such competition between proprietary and nonpix~flt should be to spur the nonprofit to operate more efficiently. We strongly oppose the `granting of further authority to CHP `agen- cies. In any segment of the health care industry, such as the nursing home industry, where competition has a significant effect on it and where its presence is beneficial to the consumer by giving him a choice of prices and services, the membership of the National Council strongly urges that it be exempted from CliP and certificate of need authority, unless the individual facility concerned is to be built `with Government funds, such as Hill-Burton. The National Council of Health Care Services is strongly opposed to the extensions of CliP's authority to include lIMO planning. Ad- vocates of liMO's have stressed that the concept is only viable when it is offered `as `a "dual choice" `to consumers'. The lIMO can only prove its worth and gain acceptance through competition. This is diametrically opposed to the concept of comprehensive `health planning, and "certi- ficate-of-need" ~legi.slation which carried to their logical extension, will effectively "franchise health c'are facilities and services." PAGENO="0019" 761 Next I would like to introduce the president of the Natijonal Council of Health Care Services, Mr. Patrick ~J. Callihan. Mr. Callilhan is aiso president of Provincial House, Inc., in Lansing, Mich. They own and operate 10 nursing homes, a construction company, and a computer center. Mr. Callihan will talk about the potentiia~l role of nursing facilities and other alternatives to acute hospitals in the lIMO. STATEIVIEMT OP PATRICK ~r. CALLIHAN Mr. CALLIHAN. Thank you. As Berkely has already indicated, it is really a pleasure for us to be able to appear before this committee that historically has done so much for health care in the United States. I mean that in all sincerity. My remarks today are going to concern themselves primarily with the question of the types and levels of bene- fits that should be required of any lIMO. You have the text of my re- marks in front of you so I will attempt to paraphrase and summarize and I promise you, I won't take longer than 5 minutes. The health maintenance organization bills that are before the com- mittee specify a pretty wide range of minimum benefits that would be required in order to establish a lIMO. Those benefits and services as you know, range from the Kennedy bill's requirements f6r a whole range, !5~ whole host of services and benefits that include mental health and treatment for drug abuse, alcoholism, and so forth, to the admin- istration's version, where they require little more than physician care and hospital treatment. The bill introduced by you, Congressman Rogers, as you know, takes a middle course requiring the basic things that are part of the admin- istration's bill plus some others along with an open-ended statement which reads ". . . and other services at the Secretary's discretion." In addition to this open-ended statemeiit, there are a couple of things about most of the bills that really give us significant cause for concern. No. 1 is the tendency of all of the legislation to require more bene- fits than we feel it is economically possible to provide in the initial stages of an lIMO. The second is all of our tendency to confuse add-on benefits, with alternatives to acute hospitalization. I think that unfortunately too many of us have a tendency to lump alternatives to acute hospital care such as nursing homes and extended care facilities and home health services in with what we probably should call add-on benefits and there we are talking again about dental care and mental health care, drug abuse, alcoholism, and so forth. At the outset I would hope that alternative methods of delivering care could be separated from the concept of benefits so that we are all talking the same language and hopefully this will enable us to make a pretty strong case for limiting, at least initially, the list of benefits that we are going to have to require while at the same time encouraging but hopefully not mandating alternative methods of delivering health care to the HMO. T~ date, I think we will all agree that there are really no reliable statistics regarding the way in which costs can be cut by using nurs- ing homes and extended care facilities and other alternatives to the acute care hospital but I think our collective experience in delivering services, health care services in a number of different environments PAGENO="0020" 7~2 lead us to believe that if somehow we can encourage the use of alterna- tives to acute hospital care we can in fact cut health care costs significantly. This is true whether it is in an HMO environment or whether it is in a standard fee for services environment. I think there are many studies that will show, and some of them are detailed in our prepared testimony, that a significant proportion of all the people who are in hospitals at any given time could just as well be taken care of in some other less expensive environment. The one that is quoted in there, the Methodist Hospital in Indiana, shows three quarters of all the hospital patients could just as well be cared for at home or in a nursing home at $17 a day rather than in a hospital at $85 a day. In my estimation, your encouragement of the voluntary use of alternatives to acute hospitalization is the key to the success of the HMO or prepaid health care concept because, for the first time, we are going to be, through the use of both services and facilities, treating a patient's needs and his illnesses, not trying to live up to what his insurance policy says he should be getting. This would be, in my esti- mation, a significant innovation. A word about benefits. In the above introduction of some of the alternatives to acute hospital care along with the proper use of a whole range of facilities and services that we refer to in our testimony, I think we will be providing the HMO member and the health care corporation with some-significant cost savings. Now, hopefully those cost savings can then be plowed back into providing the kind of benefits we are talking about. Now, if this com- mittee or if the legislation that comes out mandates that we will pro- vide a whole host of benefits, from the outset, you place us in a position where we can't possibly compete with the traditional indemnity medicine. All of us who consider ourselves to be proponents of the HMO con- cept really stress the need for dual choice. The consumer has his choice between a traditional fee-for-service and HMO. However, I think we will all agree that the American consumer simply is not sophisticated enough to make the judgment to enroll in a health maintenance orga- nization for three times the cost even if the HMO is going to provide him with six times as many benefits. We have to educate the American consumer and tell him that we hope the benefit level is kept at a minimum. Specifically, Mr. Chair- man, it is the position of the National Council that the minimum bene- fit and service requirement for HMO's that are finally written into legislation be kept to an absolute minimum and that no required serv- ices be left open-ended that will later allow changes by administrative edict. This is th~ problem we have gotten into in a number of health care areas. I hope we can avoid it with HMO legislation. One additional concern. The National Council is frankly concerned about the matter of demonstration projects and the fact that the Gov- ernment has a great propensity to fund in the area of nonprofit experi- ments and does little to help proprietary experiements. We would hope that this committee would be able to remedy that situation and mandate some real experiments in both the nonprofit and the proprietary areas. PAGENO="0021" 703 The National Council of Health Care Services is hopeful that this committee will report out a bill which allows the greatest flexibility for health maintenance organizations in terms of the benefits that are offered, in terms of the structure, in terms of the type of ownership that you ultimately mandate, and one that frankly encourages alter- native health care delivery mechanisms. Thank you. Mr. RoOER5. Thank you very much. Mr. BENNEVP. Next, Mr. Chairman, I would like to introduce Edward Wilsmann, president of the Homemakers Home and Health Care Services. They are a subsidiary of the IJpjohn Co. They presently operate 125 home health care agencies throughout the country. Mr. Wilsmann will talk about home health care in relation to the HMO. STATEMENT OP EDWARD I. WILSMA1~N Mr. WILSMANN. Thank you, Mr. Chairman and members of the committee. My pleasure, of course, being here. As Pat said, I am going to brief what I have in the written testimony. I do not plan on taking more than 5 minutes either. I think to date the sick and near sick always end up in a hospital. When we are talking about a home health agency, we have no brick and motar involved whatsoever, so a home health agency allows us to match the exact skills required with the patients' needs, always at the minimum cost to that patient or whoever happens to be .paying for the services necessary, and gives ns~ the greatest proper utilization of manpower in health care delivery by being able to match in that particular manner. We feel this very definitely should be included in the lIMO approach to health care delivery so that we are able to get that patient out of a hospital bed more quickly and someone in need of that acute hospital bed will have it available to him. Medicare and medicaid legislation, passed back in 1965, and the rules and regulations promulgated thereunder, when they talk about home health agencies, specifically eliminate the possibility of for-profit organizations to serve even the qualified, not-for-profit organizations. We have had many people across the country, organizations of not- for-profit home health agencies, unable to deliver services, wanting to contract those services with us, but under the regulations promul- gated under XVIII and XIX we are unable to serve those people. They have had to turn to other places and ended up paying more money for the services that are available from our organizations simply because we are excluded by the regulations. I would ask please that when writing home health care into any HMO bill that provisions be stricken so that proprietary as well as nonproprietary can be involved in the delivery of health care. If you put the two bf them together, proprietary and nonproprietary, we will still fall far short of the needed manpower to get the job done. There are only 30,000 health aides operating out of 2,8~0 health agencies. Last year with Homemakers we had 20,000 employees rang~ ing from the RN and the LPN all the way down to the housekeeper at the bottom end of it and that is in 1~5 locations, last year 114 locations. We are the world's largest. We only have 20,00b at this poJnt and the need is for 300,000. PAGENO="0022" 764 I think it is very evident we must include both the proprietary as well as the nonproprietary to get our health care delivery system to the point where we are really going to serve the public and the Nation. Thank you. Mr. RoGERS. Thank you very much. Mr. BENNETT. Next, an interesting concept that is being tried in Baltimore by Roger Lipitz, who is the president of Medical Services Corp. He is going to tell us about some flexible facility planning. STATEMENT OP ROGER C. LIPITZ Mr. LIPITZ. Mr. Chairman and members of the committee. I would like to expand on the other people who have commented and extend my appreciation for this opportunity to testify. In November we purchased and began the operation of a 200-bednursing home facility and at the same time negotiated to lease a 48-bed area of this nursing home to the Baltimore County General Hospital. The concept was to allow the hospital to expand its services with- out, at least at the present time, the substantial cost of building additional beds. The hospital at that time was running at almost full occupancy. These beds were leased to the hospital and they were li- censed by the State as a 35-bed hospital facility. We provide to the hospital not only the actual building area, but also dietary, maintenance, and laundry services, and the hospital provides its own nursing and medical personnel services. We ha.ve found, even through the first few months of its operation, even though the satellite, as it is known in the community, has been operating at a somewhat lower occupancy than we hoped, approxi- mately 60 percent, that the cost for that satellite unit is less than the cost in the base hospital area or the acute general hospital area, even though that hospital's occupancy is in excess of 90 percent. We have avoided the duplication of ancillary hospital services that were not necessary. I would like to deviate from the testimony for a second to men- tion that the main reasons that our nursing facility was licensed as a hospital were twofold. One, the hospital's desire to maintain the control over the medical care given at the institution, which is cer- tainly logical, could have been accomplished by merging of the medical staffs of both the nursing home and the hospital. Secondly, and more importantly, the very limited ability to obtain third party payments for people under 65 in extended care facilities. That is really the principal reason. Blue Cross and other third party payers are very restrictive in their payments to extended care facilities. That is really the principal reason for its being licensed as a hospital. It could just as easily have been licensed as a nursing home if third party payments were available, where good quality medical care was controlling. We found in the initial stages that acceptances of the satellite by the patients coming in from the hospitals has been overwhelmingly favor- able. We have included in our report a survey of 37 patients who were at the satellite facility and their response and acceptance of the facility has been excellent. I offer that for the record as part of our testimony. PAGENO="0023" 765 In addition, the nursing facility is an ideal environment for rehabili- tative activities regardless of whether it is inpatient or outpatient in nature. If the HMO physician is free to prescribe the services that are needed in the most appropriate setting for the patient, in many in- stances this can be nursing facilities rather than costly hospital facili- ties, then everybody benefits. In addition, we offer the opportunity for possibly the best training of paramedical personnel, in many respects even more appropriate training in some instances than the hospital. Certainly the training available in our facilities should be made available to paramedical personnel because we, as a part of the health care field, need them as well as any other segment. We also offer an opportunity with the trained~ personnel we have to educate consumers of health care. Any HMO concept, if it is to work, has to allow for the education of the consumer. If this idea is to prevent illness, the consumer has to be educated as much as possible. We offer within our facilities the training mechanism and to not only train our personnel for inservice training but also families of patients and members of possible HMO groups themselves. The nursing facility may provide not only a more medically ap- propriate and economical alternative to hospitalization during con- valescence, but in many cases, and I don't think we ever think about this, patients would prefer to leave the hospitals as soon as they can. Hospitals can be very depressing. Where necessary or desirable the nursing facility èan also do double duty, as in our satellite, especially in rural areas. Rather than creating a costly satellite of a hospital in a rural area, the nursing home offers the opportunity, where proper communications exist, for acute care hospitals to provide the services because there are many small com- munities where the only real inpatient care oriented facility is the nursing home.. This appropriately could be used as a satellite of a hospital, again, with the proper medical control. The examples I have just given you are a few. Going back to Mr. Cal- lihan's testimony, the key is the maximum flexibility for an HMO to provide the services that you mandate in the most economical way. If we are required to place people in hospitals for x days before they can go, we are just going to perpetuate the problems that have existed for years. Thank you. Mr. RooEns. Thank you very much. Mr. BENNETT. Mr. Chairman, James Griffin is associated with Mr. Lipitz in Neighborhood Health Center, Inc., in Baltimore. Some 2 years ago they started planning for an inner city ghetto area, if you will, ambulatory care center. Mr. Griffin is vice president and secretary of Neighborhood Health Centers. He is going to tell of their experience with an inner city health project. Mr. ROGERS. Mr. Griffin? STATEMENT OP NAMES GRIFFIN Mr. GRIFFIN. I certainly am appreciative of the opportunity gentle- men and ladies, for appearing before you today. Our company was started a little over 2 years ago. It is called "Neighborhood Health Centers," a private corporation formed in Augu~st 1970. PAGENO="0024" 766 It is jointly owned by Medical Services Corp. and Dr. Venter, a physician, and myself. It is proposed that Neighborhood Health Centers, Inc., will be the vehicle for providing comprehensive health services on an outpatient basis to all segments of the population, im- tially in northwest Baltimore and ultimately it is hoped on a citywide basis. We believe that a proprietary taxpaying management oriented health care company can offer a solution to the problems of makmg the health care delivery system responsive to the needs of the general patient population by pirovithng acceptable and attractive high quality health care at a cost to the patient which is equal to or lower than some of the nonprofit. organizations. It has been brought to our attention also that one section of H.R. 11728, in effect excludes the participation of proprietary organizations as health maintenance organizations. We at Neighborhood Health Center strongly oppose such a move and this is our reason for appear- ing here today. Conceding that proprietary health care is not the only panacea for all the ills of the health care system in the Nation today we remain convinced it is nevertheless a desirable alternative. Therefore, it is our intention to briefly describe the activities of Neighborhood Health Centers in its efforts to plan, develop and oper- ate what we have considered to be the first step toward a viable health maintenance organization. Hopefully the membership of this subcommittee will subsequently understand our position and agree to make these changes in this section of the aforementioned proposed legislation. Our company started this particular project because of a void in health care services in the Balti- more community. Some of you may know that the trend in the cities is to move the hospitals out of the inner city areas into the suburban communities. We worked with the group organizations, city and State health depart- ments, community organizations and developed what we thought was a good alternative to a void in the health care system in Baltimore. We started out approximately 15 months before we finally opened our center. We sought private conventional funds and began this proj- ect at an approximate cost of $250,000. This is a cost much less than other similar outpatient facilities, federally funded and otherwise. We note that this project, doing it ourselves, took 5 months. Other organizations in the community started their efforts several years prior to ours and to this date they have not developed any health care system similar to ours. We negotiated with the State health department to treat medical assistance patients at a cost of just under $20 and the services are briefly described here and I will just mention them. No. 1, we give medical and minor surgical care, family health as- sessment and continuous health maintenance through outreach pro- grams under physician's supervision, emergency services, minor psy- chiatric services, and extensive referrals for subspeciaiist care not. located in our facility. We additionally provide a number of ancillary services for which no charge is made to the State medical program. Among these services are extensive radiological services, extensive pathology and PAGENO="0025" 767 laboratory services, social work, nutrition, podiatry and other re- habilitative services, It has been publicly stated by the Maryland State Department of Health that their intention is to provide us with a prepaid contract so that we can provide all inpatient and outpatient health services for selected populations of medicaid patients. We work jointly with the community, with the residents in the area. We have two resident physicians ~ho practiced in the area prior to coming into our center. We work with community organizations. We have consumer patients on our advisory board. Though we have had problems in forming, as any organization, we have ironed them out and we are operating rather smoothly. To date, we have seen ap- proximately 18,000 patients, we have registered a little more than 10,000. Our cost per patient is approximately $15. The cost of the federally funded project such as ours is $50 or more. Mr. RoGERs. You say your cost is $15 and the comparable cost is $50~? Mr. GRIFFIN. $50 or more per patient's visit. We have an average of $15 patient cost because we also treat private patients in our facility as well as medically assisted patients for which the State paid. Mr. ROGERS. I think any figures like that if you can supply them for the record will be helpful. Mr. GRIFFIN. We can get them. (The information requested was not available to the committee at the time of printing.) Mr. G1ur1~'IN. We believe that the entrance of NHC, a proprietary company, in the field of health care and benefited the consumers who have utilized our services and this would not have been possible if we were excluded from the HMO activities as a proprietary organi- zation. Since we opened our facility, others in the State have seen our pro- gress and noted some of our successes. In doing so, others have paid us what we feel is the ultimate compliment, trying to duplicate our pro- gram elsewhere. This applies to both private and public groups. Another possible effect of our presence, although not proven, has `been the report by a hospital nearby that for the first time their emergency room visits have stabilized and that we have influenced them to begin tougher programs to reduce costs. We realize that it would take more time than we now have to prove the efficacy of our efforts. However, the point we have tried to make here is that this joint venture has cost the taxpayer nothing for plan- ning, development, or implementation; and for those whose care is financed by tax revenues these costs have been lower or equal to exist- ing programs. We have an added dimension in our facility. A number of the black patients in Baltimore facilities have been turned off by the type and level of care that they have received at neighboring hospital emergency rooms and outpatient departments. In our facility the one thing we stress is respect and dignity for every patient. We have a mixture of indigent patients as well as patients who can pay their own freight. We cannot discriminate because we never know one patient from the other. Our patients go PAGENO="0026" 768 by and receive the services in the facility. The paying process is at the end. We have been complimented by hospitals in the areas, by other com- munity organizations. We think that we have had very good success in the 9 months that we have thus far been in operation. Thank you very much. Mr. BENNE'rr. Mr. Chairman, you will find in the appendix the by- laws of their consumer advisory board which they have worked with for some year and a half before they opened their facility, a very consumer-oriented group. Our last speaker will be Miss Elizabeth Connell, public relations director, for the national council. She will summarize some of our legislative recommendations. STATEMELNT OP ELIZABETH J. CO1~NELL Miss CONNELL. I will be brief as well. The National Council of Health Care Services strongly urges this committee to create incen- tives to encourage private proprietary enterprise to invest its much- needed capital resources in the health care field and to lend its busi- ness management expertise to the awesome task of bringing order, efficiency, cost-consciousness and higher quality for more people in the health care area. We believe that open-ended deficit financing removes the liMO's natural incentives to control costs and may lead to some form of cost-of-service reimbursement, so we believe that stringent limits ought to be placed on operational and developmental subsidies to any type of HMO sponsorship. Second, we recommend that contracts, loans and loan guarantees be equally available to liMO sponsors, both proprietary and nonproprie- tary, which will operate in medically underserved areas. If the object of providing such Government funding is to assure that the medically underserved receive quality health care such discrimination is directly contrary to that objective. Third, lower the barriers to entry into lIMO formation by over- riding State legislation that restricts or prohibits lIMO develop- inent. All forms of organizations should be treated equally. We have the bill's definition of an lIMO will be changed so that proprietary organizations are included. This will allow proprietary HMO~s to benefit from section 1116 of that bill, which allows the Secretary of HEW to waive restrictive State laws for lIMO's which meet the bill's definition. We hope that this committee will change the relevant section accordingly even if the bill continues to restrict Federal assistance to public and nonprofit sponsors. Fourth, we have two specific recommendations regarding compre- hensive health planning both of which ask that they play no role at all in HMO development, even an advisory capacity. We think that bodies that are constituted for the purpose of eliminating competition cannot effectively encourage competition with HMO's. Fifth, take affirmative Government action to encourage the forma- tion of liMO's by offering backup assistance in the form of consulting services, research and information to all types of liMO's. We would hope that HEW will be able to do this. PAGENO="0027" 769 Sixth, legislation enacted should require a standard minimum bene- fit package in order to facilitate price comparisons. The required package should contain only the minimum necessary services although additional services may be made available and some extra charge may be, levied. Seventh. As indicated earlier, the national council supports the approach to consumer involvement taken by your committee's bill H.R. 11728 and section 1101(e). While this section mandates consumer involvement which we think is desirable, the bill does not specify the method and thereby allows for a desirable element of flexibility. Eighth. The lIMO ought to be held publicly accountable for the care it renders, whatever its sponsorship. However, we suggest that the reporting requirement in section 1101(h) or H.R. 11728 ought to be limited to cost and utilization patterns with full disclosure to the public. And finally, the national council supports the notion of federaliz- ing standards relating to health care including standards and require- ments for professional licensing in the States. We support the concept expressed in section 1101(g) of H.R. 1172~8 which requires the HMO to have organizational arrangements for an ongoing quality assurance program that stresses the processes and outcomes of services provided in addition to requiring the components of the lIMO's to meet stand- ards established by the Secretary. In conclusion, we are happy to provide needed care under what- ever standards of partic~pation and operation this committee and the Congress in its collective wisdom see fit to write and enact into legisla- tion with the provision that these standards be applied equally to all providers of health care whatever their ownership or sponsorship. Thank you, Mr. Chairman. Mr. BENNErr. In summary, Mr. Chairman, we have tried to show you how for-profit involvement in the development, operation, a~d ownership of lIMO's can be desirable. We have discussed the com~eti- tive principle in the health care arena versus franchising and compre- hensive health planning, we have given examples of proprietary involvement in providing comprehensive health care and of course the important development of a continuum of care and services through the maximum utilization of nursing homes and home health agencies. One other thing I would appreciate being added to th~ record. I have here a copy of the standards that are set up by the }~omemakers Upjohn Co. for delivery of home health care services. Mr. ROGERS. Thank you. They will be made a part .~f the record, without objection. (Testimony resumes on p. 844.) (The prepared statement and appendix of the ~ational Council of Health Oare Services and the "Corporate St~andards for the De- livery of Services," referred to follow:) PAGENO="0028" 770 STATEMENT BEFORE HOUSE COMM1T~EE ON INTERSTATE AND FOREIGN COMMERCE SUBCOMMiTTEE ON PUBLIC HEALTH AND ENVIRONMENT UNiTED STATES HOUSE OF REPRESENTATIVES 92nd CONGRESS, 2nd SESSION OVERVIEW: FOR- PROFIT INVOLVEMENT IN HMO's AND ALTERNATIVES TO HOSPITALIZATION ALTERNATIVES TO HOSPITALIZATION Berkeley V. Bennett, Executive Vice President National Council of Health Care Services, Washington, D.C. POTENTIAL ROLE OF NURSING FACILITIES AND OTHER ALTERNATIVES TO ACUTE HOSPITALIZATION IN THE HMO Patrick J. Callihan, President Provincial House, Inc., and President National Council of Health Care Services, Lansing, Michigan HOME HEALTH CARE IN THE HMO Edward J. Wilsmann, President Homemakers Home and Health Care Services, Inc. Kalamazoo, Michigan FLEXIBLE FACILITY PLANNING Roger C. Llpltz, President Medical Services Corporation, Baltimore, Maryland THE INNER CITY HEALTH PROJECT OF NEIGHBORHOOD HEALTH CENTERS, INC. James Griffith, Vice President and Secretary Neighborhood Health Centers, Baltimore, Maryland LEGISLATIVE RECOMMENDATIONS Elizabeth J. Connell, Public Relations Director National Council of Health Care Services, Washington, D.C. PAGENO="0029" 771 Testimony of BERKELEY V. BENNE1T, Executive Vice President National Council of Health Care Services OVERVIEW: FOR-PROFIT INVOLVEMENT IN HMO's AND ALTERNATIVES TO HOSPtrALIZATIP~ Introducti~ Mr. Chairman and Membeis of tie Committee, my name is Berkeley V. Bennett and I am Executive Vice President of the National Council of Health Care Services, based in Washington, D.C. with member companies throughout the country. With me today are PatrickJ. Callihan, President of the National Council and President of Provincial House, Inc. Lansing, Michigan; Edward 3. Wilsmann, President of Homemakers -Upjohn, Kalamazoo, Michigan; James Griffin, Vice President and Secretary of Neighborhood Health Centers, Inc., a subsidiary of Medical Services Corporation located in Baltimore, Maryland; Roger C. Lipitz, Vice President of the National Council and President of Medical Services Corp. in Baltimore, Maryland; and Elizabeth 3. Connell, Director of Public Relations for the National Council. Fact sheets on members of the panel and the companies they represent may be found in the Appendix of our testimony. The National Council of Health Care Services represents a select group of tax-paying health care companies owning and/or managing hospitals, nursing homes, psychiatric facilities, clinics, pharmacies, home health agencies, consulting services, surgical supply companies, homemaker services, unit dose drug packaging, day care centers, paramedical training schools, and rehabilitation units. The majority of our member companies are publicly owned health care corporations and most have under active consideration the formation of one or several Health Maintenance Organizations. As a condition of membership the Council's member facilities, where applicable, are required to be accredited by the Joint Commission on Accreditation of Hospitals. The Joint Commission is a non-governmental standard of quality care surpassing licensing, Medicaid and Medicare requirements. Accreditation is voluntary and is a yardstick to the progressive Ilicility that meets standards set by a professional, knowledgeable, nationally recognized group. In addition, each member is dedicated to seeking innovative approaches to providing quality patient care in the appropriate cost-effective setting. We believe that proprietary, tax-paying, management oriented health care companies can offer assistance in solving the problems of making the health care delivery system responsive to the needs of all and in helping to make care available to more people at the lowest possible cost. PAGENO="0030" 772 The National Council of Health Care Services supports the development of the health maintenance organization concept. Not as the panacea for the many shortcomings of the American health system, but~one method which appears to have promise of making more effective use of scarce health resources than the present fragmented health care non-system. National Council of Health Care Services member companies are presently conducting feasibility studies, contracting for services, assisting in the formation of physician groups, working with existing group practices, and carrying out the necessary planning and development activities for possible entry into HMO's. I might add that all of these functions have been performed at no cost or obligation to the government or the taxpayer. The National Council believes that the legislation introduced by Congressman Roy and yourself, Mr. Chairman, along with several other members of this Subcommittee represents a commendable step toward improving health care delivery in this country. Our remarks today, will be devoted to the issues of (1) for-profit involvement in the development, operation and ownership of HMO's; (2) The competitive principle in the health care arena vs. franchising and comprehensive health planning; (3) Some examples of proprietary involve- ment in providing comprehensive health care services; and (4) Development of a continuum of care and services through the maximum utilization of nursing homes and home health services. For Profit Involvement in the Development, Operation and Ownership of Health Maintenance Organizations. One of our major concerns with some proposed HMO legislation and national health insurance proposals is their discrimination against one type of sponsorship of health facilities, services and systems in favor of another without regard to the quality of care being provided. We believe the acceptance of this philosophy is directly opposed to the best interests of both the consumer of health care services in America and the individual tax-paying citizen. It is generally recognized that the success of an HMO is dependent upon the incentives built into the program. . . incentives for ef~lciency. . . incentives for proper utilization. . . incentives for the physician. Health Maintenance Organizations should be coordinating bodies able to bring together the appropriate type and levelof care at the appropriate cost. Proprietary health care companies, such as those represented by the National Council of Health Care Services are uniquely suited to providing the businessiatents needed and to assembling the financial resources necessary to the formation and continuation of an HMO. We believe that it is vital to attract and recruit the best business management minds available in order to accomplish the task of delivering health care to all at a price the nation can afford. PAGENO="0031" 773 Under the present system, costs ~re soaring, manpower and resources are insufficient and mis-allocated. A close look at the problem will reveal the following: Efficiency in the Health Care Industry When we talk about containing or slowing down the rise in health care costs, what we are really talking about is the cost of hospitalization, which not only has accounted for the largest rise in costs, but also represents in absolute terms the largest slice of the health care pie. For fiscal year 1970, the total national health expenditure was in excess of $67 billion or 7% of the Gross National Product. Some $58 billion of this money was for personal health care. Just under one-half of all monies spent for personal health expenditures goes to our nation's hospitals and nursing homes, and the percentage is increasing each year. In the past four years hospital daily service charges have increased 71.3% compared to 29.1% for all medical care, 30% for physician's fees and 6% for drugs. It is readily apparent that it is the hospitals,85% of which are non-profit, that are eating us out of house and home. But why? Any analysis of effort to control hospital costs will essentially be broken down into two broad categories: (1) internal efficiency and (2) utilization control (which is defined as efficient treatment of the patient who truly needs such treatment at the at the proper facility level and over the appropriate time span. It does not mean exclusion from care of those who need it.) No one can deny that much of the increase in hospital expenditures comes from increased services and a "catching up" in salaries by a labor force that for years subsidized this nation's health care system by accepting an inadequate wage structure, and a generalized inflation in other cost, but much of the increase is the direct result of a consortium consisting of an abominable cost reimbursement system, which encouraged and rewarded inefficiency, and a hospital management group that did not need incentives to achieve ineptitude. The basic failure of this country's hospitals to achieve any significant degree of internal efficiency has to rest with its number one problem- -its self-perpetuating, non-responsible leadership, and its lack of adequate, fiscally trained, full-time management, which has led to very low level of competency in the area of controlled cost and productivity. The general problem areas are (a) part-time trustees, who may be some of the finest, most humane and civic-minded men in this country, but who by the very lack of involvement and primary commitment cannot make a significant contribution to as complex and costly an organization as a major general hospital (as no man could in four or five or ten hours a month); and (b) behind the trustee, in the area of primary responsibility, we have had poor fiscal training at all levels of administration. Hospital administrators are trained to coordinate the services within the hsopital, so that a facility can offer the required medical PAGENO="0032" 774 care. However, they are usually not trained in discovering or achieving the most efficient mechanics for the delivery of their required commodity. The traditional non-tax-paying and non-profit hospital has failed to attract superior, aggressive and innovative talent (with some notable exceptions) due to the inherent structure of the organization and the very fact that the institution is non-profit. There is a lack of incentive, a lack of upward mobility, and usually inadequate compensation to attract superior personnel. In short, the traditional non-profit hospital system does not have now adequate managerial capacity to achieve any significant degree of efficiency. This in turn creates a very substantial doubt as to whether prospective reimbursement, capitation payment, or any of the budgeting programs contemplated in the various legislative proposals before Congress td~r can be meaningful. How can there be realistic budgeting or the ability to live with prospective reimbursement when there is, in fact, no sound fisca1~ management. The hospital industry--and, more especially the emerging HMO "industry" needs full time executives of the type and with the abilities of those men running our major industries. We do not need small donations of philanthropic time, but a primary commitment from competent organizational personnel at all administrative levels in the hospital, or the HMO from the Board of Directors to the purchasing agent and the houskeeping managers. Without this, no internal efficiency will ever be realized. No program or national program with restricted drive to control the rise in costs will succeed unless there are built into the legislation adequate incentives to increase productivity. Management capable of responding to incentives such as budgeting or to other types of cost control devices as may be legislatively imposed upon hospitals and health delivery systems will not be developed overnight. Twenty-five years of cost reimbursement and the knowledge that the hospital could increase its charges to cover its costs regardless of its efficiency has pre- vented the present institutional health care establishment from acquiring sound fiscal management. Time is going to be needed to develop this capacity... time and an environment conducive to the development or attraction of proper talent. Cost reimbursement, as we have known it, created in addition a tradi- tionally cheap labor environment in our hospitals - but it is not so cheap any more. Some 15 years ago, the average general hospital required 1.4 employees to take care of one patient. Today, the requirement is almost 3 employees per patient. During the same period of time, the services required or offered did not double, as did the number of employees, but the inefficiency factor magnified. Particularly since the advent of Medicare, the query in many hospitals, if not most, when adding an expense was not ~~!s this expense necessary" but "Is this expense reimbursable?" PAGENO="0033" 775 Productivity and Private Enterprise Proprietary enterprise, by its very nature, is structured to provide the incentives which are completely absent in the non-profit field. I point out that virtually every aspect of the health care delivery system is proprietary in nature except for the general hospital, which in turn, has suffered the most phenomenal inflationary spiral. The entire philosophy of encouraging the development of marginally managed institutions and systems of a "non-profit" nature, while at the same time discriminating against, or even eliminating the participation by responsible, proprietary, tax-paying enterprises, as some proposed legislation seems to do, is built on a series of false premises, most of them centered around the concept that profit motivation has no place in health care. Yet there is no more reason for excluding private enterprise in the field of h~arth care delivery than there is for excluding it from any ~thër realm of vital life fUnctions, such as the production of food oróffièr è~Ientials required for daily life and which are, on a day-by-day basis, more ~Unential than remedial health care. Not only is proprietary activity, as ifiThealth care an existing and vital fact of life, it is a driving force in many so-called non-profit organizations, such as in the proprietary aspects of the Pérmanente Medical Group of the Kaiser Foundation Plan. When referring to HMO' s and to "incentives"inhereflt in the HMO concept which should work to lower costs and keep quality of service high, what you are really talking about is the profit motive, no matter what the semantics. The entire concept is founded upon offering financial incentives to someone or group somewhere to reduce the costs of health care. We believe that rec~ñition ~f this premise is vital to the success of the HMO concept. The National Council of Health Care Services does not believe that this country can continue to afford the price of health care provided by the sub- sidized non-profits. With proper safeguards in law and regulation against abuses, the proprietary sector of the health care field ought to be encouraged to invest its capital and use its management expertise in this field. One advantage of such competition between proprietary and non-profit should be to spur the non-profit to operate more efficiently. I should like to support some remarks presented to The Senate, Subcommittee on Health in November 1971, by Dr. Harold Upjohn, Chairman of the Board of Health Maintenance, Inc., and I paraphase: "There is a lot of confusion about what, `non-profit' means, for instance, if yOur doctors ~e profit-making, if you are making profits on ancillary service businesses like the pharmacy or the labOratory, if the bank is making 12 percent on a loan to build new facilities, and if a construction company makes a profit on construction of your hospital, the equipment and supply manufacturer makes profit, how can it be said in all honesty that health care is b~inji ~TèUvered on a non-profit basis?" We would also agree with Dr. Upjoñn ~hat incentives must exist ancithey are a reality. Call it what you may, the profit motive generates the required incentives. 81-185 0-72 - pt.3 -3 PAGENO="0034" 76 profit motive generates the required incentives. Along these lines, the HMO- - or any health system for that matter, must create incentives for the physician to involve hftnself in the economics of patient care. For generations, American physicians have made a tribal fetish out of dissociating themselves from the economics of patient care, taking the attitude that care of the patient involves only medical skills, and that economic aspects of patient care should somehow be left to the administrators. It is now painfully clear that the medical and the economic aspects of patient care cannot be separated and that any attempt to continue to do so will result in continued inflation of medical costs. Potential Problem Areas Caused By For-Profit HMO's. The most often-cited potential problem area which for profit liMO's might generate is a forced under utilization of needed services in the HMO in order to generate more profits. Undoubtedly, the potential for this situation does exist, but several factors will militate against such a develop- ment in proprietary HMO's. 1. It is questionable that "over economizing" is a risk associated exclusively with for-profit liMO's. If physicians are to respond to the incentives that liMO-type care is supposed to introduce they must be given a financial stake in the outcomes of particular cases In most liMO s, this is done through some form Of profit-sharing arrangements, and it would appear that these profit-sharing arrangements would be made in HMO's regardless of the type of ownership or sponsorship of the FIMO itself. 2. The threat of malpractice suits against the liMO ought to cause the liMO to eliminate insoiar as possible any potential situations of this type. 3. The liMO would have a powerful incentive to give the best possible health care to its subscribers - - retainin$ consumer confidence and support. Any liMO providing substandard or inadequate health care would soon lose substantial numbers of its subscribers. 4. If fears still exist regarding Inadequate care by proprietary HMO's, reinsurance might be required against those risks that seem most likely to produce the greatest temptations to render inadequate care. 5. The National Council of Health Care Services believes tint if the Federal government sets and enforces high standards that are uniform for all types of ownership and sponsorship of HMO~s, most of the problems of assuring quality care in liMO health care delivery should be solved. PAGENO="0035" 777 Consumer Involvement The role of the consumer in the development and operation of the lIMO is pivotal, whatever the sponsorship of the lIMO. Because an lIMO is operated on a for-profit basis does not preclude or limit in any way the responsible participation of consumers. Perhaps it even allows for more participation. For instance, where a profit-iitaking lIMO allows consumers to purchase shares in the corporation, the success of the HMO will be to thefinanclal advantage of the subscriber-shareholder, who now has another incentive to maintain his health and to use costly resources sparingly. Another way in which the voice of the consumer will be heard is Dual Choice. The consumer must have a choice as to how he Is to receive1iT~ i~dlc~il care -- whether in an lIMO, in the traditional fee-for-service system, or, he may also have the option of choosing from more than one lIMO. The notion of competiti~ is vital to the success of the HMO concept; an lIMO in an monopOlistic setting will not be motivated to achieve the same efficiencies that an lIMO competing against other forms of delivery and other HMO's will have the potential to reach. In terms of consumer involvement, the effect of giving the consumer a choice is perhaps the most far-reaching method of giV[ng him a voice in the iëi~Ion of the lIMO. Obviously, for a proprietary lIMO, the incentives are there to provide good care to its subscribers and to attract new subscribers, since the very continued existence of the proprietary lIMO, which cannot depend on government funds to cover operating deficits, depends upon maintaining the confidence of the subscriber. We believe that the concept of having an "Ombudsma~ to represent the consumer both as to grievances and in operatiOii~i matters to the lIMO management is sound and Is one of several methods for assuring meaningful consumer participation. We are in full accord with the provision in Congressmen Roy and Rogers' bill which states that the HMO must be organized to assure members a meaningful policymaking role in the health maintenance organization and that the lIMO must provide for hearing and grievance procedures between members and the lIMO and between Individuals providing services and the lIMO. We would hope, however, that this provision be adopted without specifying methods, number or percentage of consumer representatives, etc. to allow for the greatest possible flexibility according to the Individual case. While most consumers lack the necessary skills, professional training, and knowledge tO actively participate in many of the decision making processes involved in the rendering of medical care, a trained person acting on behalf of the consumer-member could be a practical method of gaining a greater voice for the subscriber. PAGENO="0036" 778 Consumer Education The most important factor in giving the consumer a meaningful voice in the direction of health care is to educate him. The consumer must learn what he can and should expect froin1iI~Lgit to the physician, when to go to the doctor, how to use paramedical personnel, basic symptomology. Until the consumer Is educated to seek the appropriate kind of care, until he stops believing that the best care consists of daily visits in a private hospital room by a specialist, then we, in this age of consumerism, will not be able to use scarce resources effectively. In the course of our presentation, Mr. Griffin will discuss an example of consumer involvement in a proprietary company which provides compre- hensive ambulatory health care services to an inner-city population group in Baltimore, Maryland. The Competitive Principle in the Health Care Arena vs. the Franchisi~~ Issue and eomprehensjve Health Plann~ One of the major areas of concern to the National Council is the relation- ship of health maintenance organizations to comprehensive health planning. Carried to their logical conclusion, the objectives of CHP are in direct conflict with the principles of competition and dual choice which most 1-JMO advocates see as cornerstones. We fear that reliance of any kind on com- prehensive health planning bodies may stifle the development of HMO's and may discriminate based on type of sponsorship. The philosophy behind comprehensive health planning is simple and sound: Duplication of health services and facilities is wasteful and the resultant under-utilization accounts in part for the spiralling cost pattern in the health care industry. Therefore, eliminate the duplication and wasteful over- building and over-provision of services. The CHP principle appears even sounder when one considers it in light of the overwhelmingly non-profit hospital industry which is heavily dependent on government funding both for capital and reimbursement for care and the traditional method of reimbursing hospitals which is based on the individual institution's cost of providing the care received without regard to prevailing community rates. Where true competition is not possible, the idea of comprehensive health planning and "certificate-of-need" as a method of controlling hospital building and therefore slowing rising costs is acceptable to the Council. We strongly oppose the granting of further authority to CHP agencies. In any segment of the health care lndustry,such as the nursing home industry, where competition has a significant effect on it and where Its presence Is beneficial to the consumer by giving him a choice of prices and services, the membership of the National Council strongly urges that It be exempted from CliP and certificate of need authority, unless the individual facility concerned PAGENO="0037" 779 is to be built with government funds, such as Hill-Burton. The National Council of Health Care Services is strongly opposed to the extension of CHP's authority to include HMO planning. Advocates of HMO's have stressed that the concept is only viable when it is offered as a Thial choice' to consumers. The HMO can only prove its worth and gain acceptance in competition with traditional modes of health care delivery and by competing - with other HMO's. This is diarnetricafly opposed to the concept of compre- hensive health pTanning, and "certificate-of-need" legislation which carried to their logical extension, will effectively "franchise" health care facilities and services. We would like to see a wide-ranging public debate centering on whether or not this nation should or desires to preserve the principle of competition in those parts of the health care field where it still operates and where it can spur the development of emerging health systems such as HMO's. We hope that this discussion can take place before the passage of any additional legislation directed at increasing th~i~ere of comprehensive health planning's authority. PAGENO="0038" 780 Testimony of PATRICK J. CALLIHAN, President Provincial House, Inc., and President of the National Council of Health Care Services POTENTIAL ROLE OF NURSiNG FACILITIES AND OTHER ALTER NATIVES TO ACUTE HOSPITALIZATION TN THE lIMO It is a great pleasure for me to be able to appear today before this Committee which has done so much to raise the standards of health care in America over the years. My remarks today will concern the question of types and levels of benefits which should be required in an HMO as well as some of the varied uses which can be made of nursing facilities and other Institutional alternatives to acute hospitalization in the HMO. The two health maintenance organization bills which are before your Committee, H. R. 11728 and H. R. 5615, along with Senator Kennedy's bill S. 3327, specify widely varying minimum benefits and services which an organization would have to provide in order to qualify as an lIMO. Minimum benefits and services range from the Kennedy bill's requirement that lIMO's provide, at the outset, a comprehensive range of services, including dental care and treatment for drug abuse and alcoholism to the Administration's approach of requiring only inpatient hospital and physician care, ambulatory physician services, emergency care, and outpatient preventive medical services. H. R. 11728, introduced by Congressmen Roy and Rogers, takes a middle course, requiring, in addition to the basic benefits of the Administration's bill dla~nostic laboratory and diagnostic and therapeutic radiologic services, rehabilitation services including physical therapy, extended care facility services, home health services, and other services as the Secretary of HEW shall require. However, it is possible to interpret the minimum require- ments of the Roy bill as being almost as comprehensive as the Kennedy bill, given the fact that the Secretary is given complete latitude to establish unlimited .additlonal requirements. In addition, the required "preventive health services" are not defined in the bill and thus ft gives open-ended authority to the Secretary to define mandatory benefit levels. Levels of Benefits Testimony already presented to this Committee by the Administration, the Group Health Association of America and others has suggested that the required level of benefits for lIMO's should be kept at a minimum, so that the HM(Ys rate to subscribers will be competitive with lñdémnity ~policy PAGENO="0039" 781 rates. We agree with this line of reasoning and believe that benefit levels set at~tôö high a level at the outset will cripple the potential of HMO's in com- petition with traditional indemnity policies. We would like to make the following distinction between categories of benefits. ~Critics of compulsory comprehensive benefits lump alternatives to the acute hospital, such as nursing home or extended care facilities and home health care in with "add-on" benefits such as dental care and benefits for drug abuse and alcoholism. While we agree with the importance of such "add-on" benefits in considering the total health maintenance needs of a modern population group, we suggest that the "alternative" benefits group be separated from the "add-on" benefits. There are as yet no reliable statistics concerning the effect on HMO costs of providing through the HMO (either directly or through arrangements with others) sub-acute or nursing home and home health services. However, based on our experience in the provision of a variety of health services and with the Medicare and Medicaid programs, we strongly believe that it could be shown that having ALTERNATIVES to high-cost acute hospitalizatiqn available through the HMO would lower the cost to the HMO of treating illnesses. Where no alternative to the acute hospital is available, a patient in need of Institution- alization, but who does NOT require acute hospitalization will have to remain in the acute hospital until he is able to return to his home, even if the care is provided through an HMO. In some cases he may have to remain in the acute hospital still longer if the HMO does not provide home health care services once his need for institutionalization has passed. Thus, even though the existing HMO's have shown an ability to reduce the incidence of hospitalization and thereby cut down on the number of patient days in the hospital, we would submit that in many instances, this reduced hospitali- zation figure results from a lower incidence of often unnecessary elective surgery, etc., and could be lowered still further through the medically appro- priate use of lower cost alternatives. In support of this premise, I would like to cite some figures from a study recently performed by the Methodist Hospital of Indianapolis, Indiana. While Methodist Hospital is not part of a health maintenance organization, I believe that the statistics are relevant. According to this study, "Approximately 44.5% of all the patients at an~r given time at Methodist Hospital could be placed in the Category III Iev~l oi~ patient care. This category includes those patients that require very little nursing care but who will need help with medication, dressings, patient education and any treatments required. Basically this patient can use self care and could be easily taken care of at home if someone is there to do the treatments for him, assist and prepare medication and any other home nursing type care. "Approximately 30.1% of all patients at Methodist Hospital at any given time can be placed in Category U level of patient care. This category Involves those PAGENO="0040" 782 patients who require partial nursing care but who are able to do some things for themselves. They may require bed rest but would be allowed to be up to the bathroom once or twice a day only. "Finally, approximately 25.4% of all the patients at any given time at Methodist Hospital can be placed uto dategory I which involves those patients who are serioUsly ill who require total nursing care. They are unable to do anything for themselves. "In other words, a total of approximately three-fourths of all the patients at Methodist Hospital at any given time require either partial nursing care or very little nursing care." While this does not represent an HMO hospital these figures indicate, for any type of health care delivery system without lesser cost, more appropriate alternatives to acute hospitalization, a significant proportion of the hospital inpatients at any given time could be treated at a lesser cost in a more medically appropriate setting -~ to say nothing of the inefficient and wasteful use of scarce medical personnel! Needs vs. Covered Services The HMO concept is based upon a use of services and facilities motivated solely by the kind of care or service needed in a particular case and not, as in traditional fee-for-service indemnity medicine, on what is covered under the patient's insurance policy. We believe that significant economies may be achieved in the HMO through the use of an integrated spectrum of facilities and services to be used in the care and treatment of subscribers. Let me emphasize that the concept of flexthllity within the HMO depends for its success on physicians and HMO managers who are trained In both modern business management and the medically appropriate use of a wide range of levels of care. Flexibility is Important In spite of the fact that accredited nursing facilities constitute the major part of the membership of the National Council of Health Care Services, it is the position of the Council that minimum benefit and service requirements for HMO's written into legislation be kept to a minimum and that no required services be left undefined or open-ended. The Council supports the relevant provision of H. R. 5615 (Sec. 1101 (1) (B)) in this area, with the provision that diagnostic laboratory and diagnostic and therapeutic radiologic services be required. The National Council also recommends that the Secretary of HEW be directed to authorize HMO demonstration projects, under both proprietary and non-profit sponsorship, of a sufficiently broad application to test the concept of providing a broad spectrum of alternatives to acute hospital care. Such demonstration projects should be set up so that valid cost comparisons can be made with HMO' s which offer only outpatient physician services and inpatient acute hospital care. PAGENO="0041" 783 In addition, some sort of quality-of-care monitoring devices should be employed, perhaps the sort of quality of process and outcomes approach taken by H. R. 11728 or perhaps modelled along the lines of the certification process for group prac- tices developed over a 15-year period by the American Asaociation of Medical Clinics. The kind of quality indices we would like to see would be able to compare the care received by a patient in an acute hospital to the care received by a patient with a similar condition receiving his treatment in a variety of modes. The reason for suggesting that legislatively-mandated services in an HMO be kept to a minimum is simple: We believe that the HMO concept, while not new, is still in an experimental stage, especially when we are talking about making such an alternative available to the great majority of the American population. Dual Choice Proponents of the HMO concept stress the necessity of "dual choice". That is, the consumer must have a choice between the HMO and traditional fee-for-service care. Realistically speaking, the American consumer of health care services is not sophisticated enough in most cases, to make a decision to pay three times more to receive his health care in an HMO than he would have to spend to buy a traditional indemnity policy--even if the HMO offered six times as many benefits. Until the typical consumer throughout: the country has been educated about health maintenance organi- zations and until he shows a far greater acceptance o and desire for implementation of the HMO concept of medical care, then comprehensive requirements such as those proposed by the Kennedy bill, and perhaps even the lesser benefit levels required by H. R. 11728, will be self-defeating in terms of encouraging the formation of HMO's. The National Council agrees with President Nixon's remarks in his Message to Congress, "Building a National Health Strategy" (February 18, 1971), when he said about the HMO: "Such an organization can have a variety of forms and names and sponsors. One of the strengths of this new concept, in fact, is its great flexibility. As nursing facility proprietors and operators of the home health care service, and as businessmen who wish to participate in the formation and operation of health maintenance organizations, we are confident that experi- ments will demonstrate to the satisfaction of all that the addition of sub- acute alternatives and home health care to the acute hospital will not be cost "add-ons" for an HMO. Rather, given tic flexibility of the HMO structure, they wiLl be able to significantly lower the HMO's hospitalization factor still further and will provide the HMO member-subscriber and his physician with a wider range of suitable services. Projected cost-savings from the efficient and proper use of a range of facilities and services may allow the hMO to offer other actual "add-on" services such as mental health services at minimal or no additional cost to subscribers and thereby improve the HMO's competitive position vis-a-vls other HMO's as well as fee-for-service care. PAGENO="0042" 784 Because skilled nursing facilities are no longer devoted exclusively to the senior citizen, more and more, sub acute institutional care is being recognized as a legitimate element in the continuum of health care services for persons of all ages Perhaps the most meaningful kind of consumer participation in the health care area lies in giving him a choice of how and where he receives his medical care. PAGENO="0043" 785 Testimony of EDWARD J. WILSMANN, President Homemakers Home and Health Care Services, Inc. Subsidiary of the Upjohn Company HOME HEALTH CARE IN THE HMO Institutionalization of the sick and near sick has become a "way of life". but not exactly the "way of life" that necessarily promotes maximum recovery and rehabilitation. The advantages of the home environment after or instead of hospitalization include the happiness and well being of the patient, faster recovery, and the preservation of the dignity of the individual. Other factors important to the patient include the easy transition from the hospital or institutional environment to normal living while extending the required medical and nursing care and service on a continuing basis. The use of home health services may also prevent the "ping-pong" effect of the patient sent home from the hospital whose condition deteriorates because no one is available to provide for his needs in the home environment and who must be readrnitted to the acute hospital. A Definition of Home Health Care Home health care can be defined as a coordinated system of individual health care delivered to patients in their homes by professional and allied health personnel under the direction of a physician. These services are organized and provided so that the patient is either restored to full health or achieves maximal rehabilitation with the least possible disruption to his usual pattern of daily living. Home health services include intermittent nursing care, physical therapy, occupational therapy, speech therapy, social service, home health aides, housekeeping services, and medical equipment and supplies as ordered by the physician. Home health services have applicability for physical Illness, short or long term disabilities, emotional illnesses and crises which threaten the normal pattern of living. In addition to cutting down on the number of days a patient must remain Institutionalized at the end of his stay, home health services may be able to delay entrance into an institution where appropriate. All of these services can be provided by a well-organized., centrally managed home care service through coordination, planning, evaluation, and follow-up procedures. All at less cost than institutional care. PAGENO="0044" 786 Utilization vs. Continuum of Care What an opportunity Health Maintenance Organizations have to place the HMO patient in the proper setting and the proper level of care. What an opportunity to prove that continuum of care can be more than just a concept~ - but instead a desirable reality, which has been largely unavailable to date through our traditional, fragmented fee-for-services, indemnity insurance system.... A system where the patient receives his care on the basis of what his insurance policy covers, rather than what is medically appropriate to his needs. We believe that the HMO offers an ideal growth medium for a true contin uum of care and services where the patient-subscriber moves through the system, receiving care of various types and levels based Only on what is appropriate medically for him as an individuaL Those services which represent that part of the continuum that lies in- between the acute hospital and outpatient Visits tO a physician have never really "caught on" with significant segments representing all age groups of the population. Not because they are unacceptable or medically inappropriate, but because traditional indemnity health insurance policies have not covered them. As the HMO concept becomes more widely known and accepted by the population at large, if the HMO uses a range of alternative levels of care well and appropriately, then the consumer who continues to receive his care through fee-for-service will also begin to demand that more alternatives be made avail- able to him through his insurance policy. Medicare and Medicaid have served to bring to light the inadequacies and improper utilization of facilities and manpower in the traditional system. You have just heard from Mr. Callihan about the conditions of the patients in the Indianapolis Methodist Hospital . . . .44.5% require only the type of care usually classified as "Intermediate" care or home he4lth care and an additional 30.1% require only the kind of care which is provided in skilled nursing facilities Certainly the proper utilization of existing nursing facility beds would remove most of the pressure for more hospital beds. Home health care could also free acute hospital beds for those in need of them while permitting the patient to return to more natural surroundings at the earliest possible moment. A three -year research study conducted at Mt Sinai Hospital in Milwaukee, Wisconsin entitled "Home Care in Comparison With Continued Hospitalization" indicated the following: (1) Home health care was evaluated by 50 physicians as approximately equal to continued hospitalization in regard to medical care and was rated as predominantly better than hospitalization in four other aspects of care; (2) Some patients and their families had mixed emotions about home care at first. However, 84% of those actually receiving home health services pre- ferred it over continuation of hospitalization. PAGENO="0045" 787 Prevention and Education If HMO planners truly insist that HMO's live up to their name and con- centrate efforts on prevention of unnecessary illness and maintenance of health, then the home health nurse-home health aide are ideally suited to carry out training and educational programs. The encouragement of HMO subscrthers to exert effort toward the pre- vention of illness and health maintenance must come from sources familiar with the personal health aspects of the subscribers. Aside from the subscriber's physician, who could be more intimately involved in the personal health life of the patient-subscriber than home health care personnel who see patient- subscribers in their homes. The well-trained, well -equipped aide has the opportunity to educate and train patients and subscribers and their families on such vital subjects as nutrition, cleanliness, independent living, sick care, self care, and preventive measures. The use of borne health aides to train liMO subscribers in health maintenance and disease prevention concepts will merely help solve the problems of ignorance and indifference among the well and near well population. We believe in fact that there must be a massive public relations and advertising effort to motivate the public on prevention of disease and health maintenance and HMO workings. Cost and Home Health Care Traditionally, the health insurance Industry has regarded home health care as an "add-on" benefit or has completely ignored Its existence. Where home health has been a covered service, significant savings are apparent. In Denver, New York, and Rochester the statistics on early hospital discharge where home health care is available are impressive. And cost savings -are also significant when the patient returns home, receives appropriate home health care and recovers, as opposed to the patient who returns home, does not receive needed care, deteriorates, and must- return to the hospital. A~kional cost savings result when the home health services are provided by a well- managed, coordinated, quality conscious home health agency. It's refreshing to note that home health care requires no bricks and mortar, no expensive medical equipment, no high administrative costs and that the services can beused and paid for on an as~needed basis. Role of Proprietary Home Health Agencies As the nation's largest provider of home health services as well as a tax- paying enterprise, Homemakers is hopeful that this Committee will not adopt language contained in H. R. 5615 which uses Medicare standards (condlirons of participation) to govern the eligibility of the various institutional and service components of health maintenance organizations. The National Council of Health Care Services believes that in order to provide complete, comprehensive and workable health programs, the resources of both public and proprietary health care providers must be Involved. This can be PAGENO="0046" 788 stated as an axiom regardless of any suspicions cast on the for-profit sector or claims of bureaucratic inefficiencies directed at the public and non-profit sector for one simple reason: Combining all the public and private, tax-paying and tax-supported providers together, there still is currently and projected for in the future a shortage of manpower, financial resources and coordination. Therefore, there seems to be no alternative but to ccmbine the resources of both the private proprietary health care industry with the public not-for-profit providers of health care. The key to a successful co-existence of both types of providers is a set of adequate but iiöt restrictive ~ontrols on standards accountability organization and incentives for efficiency To determine the eligibility of a provider of health care on the basis of the provider's profit or non-profit structure is discriminatory and `wasteful. Participation must be based on quality, availability and reasonableness of cost of service which will encourage competition for the provision of these services. Many of the current proposals for health care legislation enw urage participation from the private sector of health care providers. This is particularly true in some of the variations of the Health Maintenance Organization concepts that have emerged. However, in some HMO proposals that we have analyzed, the standards of eligibility for providers of service are generally based on Section 1861 of Title XVIII of the Social Security Act, for example H. R. 5615. These standards are restrictive in that there is definitely a discriminatory approach taken against the private for-profit provider The regOlations implementing Sec. 1861 fufther complicate the position of the proprietary provider. Time after time proprietary home health care providers have been approached by non-profit certified home health agencies to provide supple- mental services that the agency itself was unable to provide. In most instances the services of the proprietary agencies met every test of the Medicare regulations under 1861 (0) except that they were and are tax-paying organizations. The results being that in many cases the required services that could not be provided by the certified agency went unprovided or, in some instances, the service was ultimately arranged with a public or not-for-profit agency at a higher cost to the certified agency. We are actively involved with th~ Standards Committee for the National Council for Homemakers Home Health Aide Services, and with the joint Commission on Accreditation of Hospitals. We are a firm believer and promoter of high standards for home health care and intend to promote this position regardless of our ability to participate in providing services under the Social Security Act. We feel, however, that the exclusion of the proprietary for- profit agency from providing basic and supplemental services is causing many home health needs to go unmet. PAGENO="0047" 789 We have in the past made attempts to determine the rationale behind the dis- crimination of theprivate for-profit (tax-paying) organization in health legislation. The answers to our inquiries have been in our minds weak and, if factual, without grounds. It is time to recognize the contributions pro- prietary health care can make to cost control and quality care. Recommendations, Experimentation, and Flexibility 1. Encourage experimentation In the uses of home health services in the HMO, but the legislatively-required benefit package for HMO's should be kept to a minimum so as to encourage experimentation, allow for flexibility, and to allow the liMO to retain a good competitive position vis-a-vis traditional health insurance plans. 2. Because home health services are in short supply (there are some 30,000 employees In 2, 850 agencies at the present time and it Is estimated that there is a need for 300,000 employees), encourage the development of quality services through loan guarantees for planning and start-up costs to responsible applicants regardless of type of ownership. 3. Encourage the Federal and State governments to negotiate capitation contracts, where feasible, for Medicare and Medicaid recipients. Significant numbers here would give the liMO an immediate cash flow and would obviate or do away with the necessity for government funding for operating losses. 4. Require quality standards and monitoring such as these voluntary, self-policing standards developed by Homemakers-Upjohn which are being submitted for the record. Whatever standards are enacted, they must be uniform and apply equally to all, regardless of type of ownership. PAGENO="0048" 790 Testimony of ROCI~R C. LIPITZ President Medical Services Corp. In addition to 11 or exten( - FLEXIBLE FACILITy ror tn ;pital U gfacil - tary service, nursing and me~ ~it was the Patient-day c~ itself has an average occupancy rate c.. 2. Patients who were transferred from the hospital to the Satellite Unit at the nursing facility overwhelmingly expressed their satisfaction with all aspects of the care they received at the Satellite Unit in a survey, the results of which are attached. Thirty-five of thirty-seven patients surveyed responded "Yes" when asked "If re-hospitalization becomes necessary, would you want to return to Baltimore County General Hospital and he trans- ferred to the Satellite when your condition warranted?" g racij the hospital conclunjons have emerged from a survey conducted the first few months of operation of "Satellite Unit I": PAGENO="0049" 791 I might add that this sort of arrangement does not require that the hospital and nursing facility be adjacent or connected. The Randalistown nursing facility is located approximately one mile from the hospital. However, we did find that physicians were reluctant to make the extra trip which the Satellite Unit's location necessitated. In addition, a physician was not on duty 24-hours per day. This is not an isolated example; other members of the National Council have nursing facilities with similar arrangements with acute hospitals. 3. The nursing facility is an ideal environment for rehabilitative activities. With no restrictions on whether the treatments are rendered on an inpatient or outpatient basis, the HMO physician would be free to prescribe the proper regimen of rehabilitative activities to be conducted in the nursing facilities. In most cases, the only justification for making the acute hospital responsible for rehabilitation is that no less costly and more appropriate alternative exists. 4. The nursing facility offers a place for the appropriate wider use of paramedical personnel. Many supporters of the HMO concept have suggested that it offers an opportunity to use paramedical personnel effectively and to expand their now limited roles. At the same time, however, we do recommend that uniform national standards for various types of paramedical personnel be developed and that paramedical personnel in HMO's be required to meet these standards. Perhaps, if this condition were met, they could be held exempt from restrictive State laws. 5. The nursing facility, with its complement of trained personnel, is an ideal location for consumer education in health maintenance and health care, a cornerstone of the true HMO and unfortunately, non-existent in many existing HMO's. Many nursing homes have already established themselves as community centers. For example, some of the Council's member nursing facilities sponsor classes in childbirth and prenatal care, provide training in care of the ill-elderly or bedridden for families with an old or ill person living in the home, and provide classes in nutrition and proper diets. The National Council believes that consumer health education should be mandatory in health maintenance organizations and that the nursing facility is well suited to providing requisite educational activities. 6. The nursing facility may provide not only a more medically appropriate and economical alternative to hospitalization during convalescence, but, in most cases, patients would prefer to leave the hospital at the earliest possible moment. 81-185 0- 72 - pt.3 - 4 PAGENO="0050" 792 7. Where necessary or desirable, the nursing facility can do "double duty" as a "satellite" or medical clinic. In an LIMO serving a rural or sparsely populated area, this might be particularly applicable. In many small towns and villages, the community nursing home is the only medical facility available. With the proper communications networks, such facilities could be used to provide emergency care aid to do preliminary screening of subscribers. It would appear to be a waste of limited health care dollars to build a series of satellite clinics or hospitals beds for which in many cases, no trained personnel could be found -- when the facil1~ies and trained personnel already exist and could be adapted to meet new challenges. The aforementioned are only a few ways in which the sub-acute care nursing facility may be "put to work" in the LIMO to achieve truly an integrated, comprehensive spectrum of care. Of course, they may also be implemented in the traditional system, where the fragmented delivery system permits. PAGENO="0051" 793 BALTIMORE COUNTY GENERAL HOSPITAL Dear Patient: Now that you are eing discharged from the Baltimore County General Hospital atellite Unit, I would like to ask that you assist us in eval ating our services to patients. Would you then please complte the following questions and return them in the enclosed $ ~lf-addres5ed envelope. Yes No 1. Were the arraigements for transfer to the Satellite satisfactory? 57 ~,` Did you experience any unusual discomfort as a result of the transfer? - 0 9 2. When you arrived at the satellite, (a) were yáu treated in a friendly,courteOuS ~ manner? . ~L ..«=2. (b) were your questions answered clearly and promptly? 3~ / (c) were parking facilities adequate? ~?d 3. While at our Satellite, did you feel that, (~) your room was attractive? 3'7 ç, quiet and comfortable? ~z?~' 0 kept neat, clean and cheerful ~ (b) Your food was served hot when it should have been hot and cold when it should have cold? -2.~' P tastefully prepared? `j~a. c served in adequate portions? .2~ 2_ served in an attractive,appetizing way? 3ç Did Satellite personnel perform their duties to * your satisfaction? (If not, please comment in the space provided). y~ Ia':, a 4. OLD COURT ROAD * RANDA(tSTOWN, MARYLAND21133 * AREA CODE 301 - 922-5700 PAGENO="0052" 794 Yes No' 5. When you left Baltimore County General Hospital satellite, (a) were financial matters handled quickly and smoothly? ;?2 Q. (b) was your bill easy to undErstand? 5~'7 ~ (c) if you had questions aboui. your bill, were they answered pleasantly ~Lnd clearly? ~3'9 ~r 6. If re-hospitalization became necessary, would you want to return to Baltimore County General Hospital and be transferred to the Satellite when your condition warranted? Comments and Suggestions: We are particularly interested in your remarks concerning those areas which were unsatiafactory to you. On~$/ ~Qi~//Gii~f ~j. 7'h /`0~i ~ ~L,tPh C~o/ Thank or your assistance. Alto . ickert Executive Vice President PAGENO="0053" 795 Testimony of JAMES GRIFFIN, Vice President and Secretary Neighborhood Health Centers, Inc. THE INNER CITY HEALTH PROJECT OF NEIGHBORHOOD ~ INC. Neighborhood Health Centers, Inc. Inc. (NHC) is a private corporation formed in August 1970. It is jointly owned by Medical Services Corporation (MSC), a publicly held health care company headquartered in Baltimore, Maryland and by Charles Venter, M.D. and myself. It is proposed that NHC will be the vehicle for providing comprehensive health services on an outpatient basis to all segments of the population, Initially in Northwest Baltimore and ultimately, it is hoped, citywide. We believe that a proprietary, tax-paying, management-oriented health care company can offer a solution to the problems of making the health care delivery system responsive to the needs of the general patient population byproviding accessible and attractive high quality health care at a cost to the patient which is equal or lower than similar non-profit organizations. It has been brought to our attention that one section of H. R. 11728 in effect excludes the participation of proprietary organizations as health maintenance organizations. We at NCH strongly oppose such a move and this is our reason for appearing here today. Conceding that proprietary health care is not the only panacea for all of the ills of the health care system in this nation today, we remain convinced that it is, nevertheless, a desirable alternative. Therefore, it is our intention to briefly describe the activities of NHC in its efforts to plan, develop and operate what we have considered to be the first step toward a viable health maintenance organi- zation. Hopefully the membership of this Subcommittee will subsequently understand our position and agree to make necessary changes in this section of the aforementioned proposed legislation. NHC Health Care Involvement In late 1970 our company made a decision to conduct an experiment in the delivery of primary health care to a primarily black, inner City poverty population. This commitment was made because we observed certain trends in the delivery of health care in the city and felt we could fulfill a need, gain valuable experience in new areas and also cut Costs to consumers while maintaining profitability. In order to implement this decision we sought assistance from various sources so that we might find a location in the city with a significant need for the kind of facility we envisioned. The final decision as to location was based on the following major criteria: PAGENO="0054" 796 1. shortage of primary health care 2. inner city 3. hospItal outpatient or emergency department as prime source of care for the area 4. need for competition 5. viable community consumer group, which would be willing and able to assist with planning and to maintain an ongoing advisory role as the service developed. We finally settled on an area in Northwest Baltimore City because all of the above criteria were met. Additionally, the State of Maxy.land,through its Medicaid program,agreed to work with us in developing a unique reimbursement contract for persons who were medically indigent in this community. The contract signed between NHC and the Maryland State Departmeit of Health and Hygiene is not a prepaid type although NRC had expressed a desire to negotiate this type of reimbursement originally. However, the present arrangement between the above does have similarities to prepayment. As operating presently the contract provides a single reimbursement for any and all of the following: 1. Medical and minor surgical care 2. Family health assessment and continuous health maintenance through outreach programs under physicians' supervision 3. Emergency services 4. Psychiatric services (minor) 5. Extensive referrals for subspecialist care not located in the facility. Under the contract NHC has also agreed to provide a variety of "ancillary services" for which no charge is made to the State Medicaid program. Among these services are extensive radiological services, extensive pathology and laboratory services, social work, nutrition, podiatry, rehabilitation services and a variety of other services. It has been publicly stated by the Maryland State Health Department that their intention is to contract eventually with us on a prepaid basis to provide all inpatient and outpatient health services for a selected population of Medicaid patients. Prior to the securing of the site of the health center we set out to see if we could: 1. recruit a group of physicians to provide the primary medical care needed in the area, and 2. organize a group of.community residents who would be able to give advice and support as appropriate. Throughout this venture it has been our goal to provide an attractive alternative to what many patients feel is second~class health care while at the same time minimizing unnecessary costs so that the consumer would opt for our service in an area where prior to our entrance he had little choice. PAGENO="0055" 797 Early in 1971 we began the renovation of a ten thousand square foot facility. Financing of this venture came solely from conventional private sources. We might add here that no effort was made to investigate the possibilities of securing other types of financing, primarily because of the belief that it would result in long delays for the project. With renovations completed, we opened the facility to the public August 18, 1971. It is of interest to note here that the entire project took approximately 15 months from inception to delivery. Simultaneously, at least four organizations were planning similar facilities for the city with monies received from various public sources and to date none of these organizations have successfully opened such a facility. The implementation of this project has not been without problems. In the area of consumer participation there have been times when mistrust among the participants has threatened the entire existence of the project. We have also experienced, not atypically, internal power struggles within the community, conflicts between the consumer advisory board and the professional staff in medical policy areas, and criticism from a local medical society for distributing what we consider educational literature about the facility. In reference to the point immediately proceeding we believe it is significant that at least three other organizations which happen to be non-profit carried out more intensive "educational" programs and to our knowledge received no criticism from the same medical society. During the initial seven months of operation the facility has registered approximately 10,000 individuals. The number of patient Visits during this period has been approximately 18,000. Slightly less than 40% of the visits have been made by persons covered under the Maryland Medical Assistance Program (Medicaid). We believe the entrance of NHC, a proprietary company, In the field of health care has benefited the consumers who have utilized our services and this would not have been possible if we were excluded from the HMO activities as a proprietary organization. Since we opened our facility others in the state have seen our progress and noted some of our successes. In doing so others have paid us what we feel is the ultimate compliment--i. e., trying to duplicate our program elsewhere. This applies to both private and public groups. Another possible effect of our presence, although not proven, has been the report by a hospital nearby that for the first time their emergency room visits have stabilized and that we have influenced them to begin tougher programs to reduce costs. We realize that it would take more time than we now have to prove the efficacy of our efforts. However, the point we have tried to make here is that this joint venture has cost the taxpayer nothing for planning, development, or implementation; and for those whose care is financed by tax revenues these costs have been lower or equal to existing programs. PAGENO="0056" 798 Testimony of ELIZABETH j. CONNELL, Public Relations Director National Council of Health Care Services LEGISLATIVE RECOMMENDATIONS R. # 1. IncentIves for Proprietary Involvement The National Council of Health Care Services strongly urges this Committee to create incentives which will encourage private, proprietary enterprise to invest its much-needed capital resources In the health care fie~ld and to lend its business management expertise to the awesome task 5~ bringing order, efficiency, cOst-consciousness, and higher quality for more people to the health care arena, rather than discriminating against far-profit involvement in HMO's. Encourage competition among non-profit HMO's and for-profit HMO's. This should compel efficiency and would work to eliminate the monopolistic practice of pricing health services in accordance with ability to pay. Stringent limits should be placed on operational and developmental subsidies to non-profit sponsors of HMO's concomitant with requirements that an HMO, whatever its sponsorship or organizational form, be able to provide the Secretary of HEW with assurances that it will become self- supporting within a short, specified period of time. Dependence on long- term government funding is apt to lead to the organization providing cexe at excessive cost because it does not have to depend solely on self- generated income. Open-ended deficit financing removes the HMO's natural incentives to control costs and may lead to some form of cost- of -service reimbursement. R. # 2~ Financial Incentives to Provide Services for Medically Underserved We recommend that contracts, loans, and loan guarantees be equally available to HMO sponsors both proprietary and non-proprietary which will operate in medically underserved areas In addition funding to cover the cost of HMO care fOr the near-poor not eligible for Medicaid or for experimental job training programs for underskilled persons sponsored by an HMO, or for extra or innovative services and programs In the area of preventive health care and health education Should be equally avaIlable to any HMO willing and qualified to provide the service without regard to type PAGENO="0057" 799 of ownership. To accomplish tht s, we would suggest that monies appropriated for this purpose be undesignated as to whether for contracts or for grants, and that awards be made based solely on the need for and quality of the proposed services. If the object of providing such government funding is to assure that the medThilly underserved receive quality health care, such discrimination is ~lh~ectly contrary to that objective. The present system of restricting funding for providing health care services for the poor and under served has not been successful in making quality care either generally available or acceptable to. these population groups. If uniform standards are met and adhered to, the welfare of these individuals could best be served by making every effort and using every available resource to provide health care of high quality. R. # 3. Restrictive State Laws Lower the barriers to entry into HMO formation by overriding, Federally if necessary, State legislation that restricts or prohibits HMO development. All forms of organization should be treated equally. The National Council of Health Care Services recommends that the definition of an HMO contained in H. R. 11728 be changed so that proprietary organizations are included under it. This would allow proprietary HMO' s to benefit from Section 1116 of that bill which allows the Secretary of HEW the authority to waive restrictive State laws for lIMO's which meet the bill's definition. We hope that this Committee will change the relevant section accordingly even if the bill continues to restrict Federal financial assistance to public and non-profit sponsors. R. # 4. Comprehensive Health Planning The National Council makes the following specific recommendations concerning the relationship betwe9n HMO' s and comprehensive health planning mandated by proposed legislatiai: a. That no comments be solicited from comprehensive health plann~g ~~cies which would be permitted to have any bearing whatsoever on any type of funding for any prospective HMO, much as stated in Senator Kubnedy' s bill S. 3327. Even though both H. R. 11728 and H. R. 5615 give CHP' s a purely advisory fur~tion, we believe that it would be a serious and costly mistake to establish a precedent for allowing bodies which exist for the purpose of eliminating competition to make recommendations on the "need" for a new system which must depend for its eventual success on competition and which will undoubtedly involve some duplication of existing services if not facilities. b. We suggest that H. R. 11728 be changed to delete the requirement that the Secretary consult with CHP agencies in d~iEèrmining what constitutes a PAGENO="0058" 800 "medically underserved" area, so as to give the Secretary wider discretion in the determination of a medically underserved area. This would not precluth the Secretary from consulting with these agencies. However, the possibility exists that an adverse comment by the agencies may stultify HMO growth and development In areas where they are needed. R. # 5.. Technical Assistance Needed Take affirmative government action to encourage the formation of HMO's byoffering backup assistance in the form of consulting ser~iices, réséarch, and Information to all types of HMO's. R.# 6. Standard Minimum Benefit Packa~ Legislation enacted should require a standard benefit package in order to facilitate price comparisons for the consumer~ The required package should~ contain only the minimum necessary services, although additional services may be made available and some extra charge may be levied. We pre~er the benefit package required by FY.R. ~oi5, with the addition of diagnostic and therapeutic radiok~gic services, as provided in H. R. 11728. The HMO needs flexibility to compete successfully with traditional medicine. R. # 7. Consumer Involvement As indicated earlier in this testimony, the National Council of Health Care Services supports the approach taken by the Roy bill, Sec. 1101 (E) of H. R. 11728. While mandating consumer Involvement, the bill does not specify methods, etc. and thereby allows for a desirable element of flexibility. We are also in favor of educating the consumer, about what constitutes good health care, preventive health, and health maintenance, so that his involvement may be more meaningful. R. # 8. Accountability The HMO ought to be held publicly accountable for the care it renders, whatever its sponsorship proprietary or non~profit. However, with regard to Section 1101 (H) of H. R. 11728, we believe that statistical information on such issues as accessibility and availability Is difficult to ascertain reliably and objectively. We suggest that r~portlng requIre~ ments In this provision ought to be limited to HMO cost and utilization patterns with full disclosure to the public. PAGENO="0059" 801 R. # 9. Uniform Standards The development, implementation, and (perhaps most important) enforcement of uniform Federal standards for institutional providers, health systems, and health professionals and paramedical personnel should serve to assure the consumer that the care he receives meets high minimum standards wherever he receives that care. The National Council supports the notioncf Federalizing standards relating to health care, includj~g i~ändards and requirements for professional licensing in the States. We bëliéve that among the standards for medical professionals ought to be requirements for continuing education and special requirements for various medical specialties. We support the concept expressed in Section 1101 (G) of H. R. 11728 which requires the HMO to have organizational arrangements for an ongoing ~lity assurance program that stresses the processes and outcomes of services provided, in addition to requiring the components of the HM~I~ó ~iüeet standards established by the Secretary. Assessment of processes iñd outcomes should prove to be a far mó reliable and precise method of assessing the quality of care provided than the present reliance on component standards. The HMO which brings all the services together and controls their use should be an ideal medium for use of this sort of method. Wisely, in our judgement, H. R. 11728 refrains from specifying the quality assurance method. Since no one system has yet been proven demonstrably superior or even viable, we hope to see experiments and demonstration projects in this area and would hope that at least initially, until the results of demonstrations are in, the Secretary will be permitted to withhold regulations and evaluate HMO quality assurance programs on a case-by-case basis. In conclusion, we are happy to provide needed care under whatever standards of participation and operation this Committee and the Congress in its collective wisdom see fit to write and enact into legislation, with the provision that these standards be applied equally to ALL providers of health care, whatever their ownership or sponsorship. PAGENO="0060" 802 APPENDIX FACTS SHEETS ON: Berkeley V. Bennett A - 1 Elizabeth J. Connell A - 3 Patrick J. Callihan A 5 Provincial House, Inc. A - 6 Edward J. Wilsmann A 7 Homemakers, Inc. A - 8 Roger C. Lipitz A - 9 Medical Services Corporation A - 10 James Griffin A - 11 Neighborhood Health Centers A - 12 By-Laws, Northwest Community Advisory Board A - 15 JCAH Accreditation Information A - Standards for Home Health Services A - ~ 33 PAGENO="0061" 803 Fact Sheet on BERKELEY V. BENNETT A native of New England, Mr. Bennett was educated in. Business Administration at the Wharton School of Commerce and Finance of the University of Pennsylvania. He served four years as a gunnery officer in the Air Force. After World War II, Mr. Bennett's experience has been concentrated in health related industries and association management, with emphasis in the pharmacy, medical consulting, and nursing home fields. Following military service from 1942 to 1946, he was a management trainee with Vick Chemical Company, sales training director of Johnson & Johnson's Chicopee Division; public relations director of the National Wholesale Druggists' Association; management consultant to nursing homes; and executive director of the Vermont Nursing Home Association, the New Hampshire Association of Licensed Nursing Homes, and the Vermont Pharmaceutical Association. In addition, Mr. Bennett was a co-founder of the American Society of Consultant Pharmacists, an association composed of pharmacists serving as consultants to health facilities, and served as its first Executive Director. Mr. Bennett has also served as nursing home consultant to Gilman Brothers, Johnson & Johnson, and the National Wholesale Druggists' Association. He also serves on the editorial board of Modern Nursing Home and writes for Drug Topics as well as serving on several governmenfi~Tsory boards, TETudThj~he Vermont Small Business Administration and the White House Conference on Aging. Mr. Bennett serves as Executive Vice President of the National Council of Health Care Services, the trade association representing multi-facility health care companies, headquartered in Washington, D. C. Mr. Bennett was among the first industry leaders in Washington to recognize the potential of HMO' s to deliver health care more efficiently. Since the summer of 1970 he has worked with DHEW, HSMHA, BHI, SSA, MSA, his member companies and other groups and consultants to educate Council members on HMO's and to generate interest in their development. In addition, Mr. Bennett has studied with existing HMO's across the country extensively and serves as a coordinator and consultant to his member companies involved now in HMO planning. Published Articles Drug Topics: "Vital Market Open to Pharmacists", December 12, 1966. "Today's Nursing Home Expects More of Pharmacist", June 1967. "33 Questions To Ask", November 17, 1967. Nursing Homes: ~`Nursing Homes In Public Ownership", January, 1971. PAGENO="0062" 804 Pharmacy Times: "Tomorrow's Successful Nursing Home Consultant", May, 1968. Modern Nursing Home: "Where and How Nursing Homes Buy Supplies", September, 1968. "Good Nursing Homes Make Good News", July, 1965. "Mu1ti~Facility Health Care Services", June,1970 "Inventory Control Built Into Drug Units", November,l966 "Unit Dosage Simplifies Nursing Care", July 1968 Pharmacy News: "Nursing Home Pharmacy Hits Snage ", Winter, 1969 Membership on Editorial Advisory Boards: Modern Nursing Home (McGraw-Hill) Drustar Digest Papers on Health Care Topics delivered: Northeastern University Butler University American Nursing Home Association Federal Wholesale Druggists' Association American College of Apothecaries National Public Radio National Wholesale Druggists' Association Purdue University Mid-American Health Congress TestimonIes on Health Care Legislation delivered: Senate committee Labor and Public Welfare, Health Subcommittee Senate Finance Committee Senate Special Committee on Aging, Subcommittee on Long Term Care House Committee on Ways and Means House Special Studies Committee PAGENO="0063" 805 Fact Sheet ELIZABETH J. CONNELL Ms. Connell attended Cornell University and was awarded an A. B. degree in 1967, graduating with honors on the Dean's list. From September 1967 to May 1968 she was Administrative Assistant at the American Political Science A'ssociatiai where she assisted in administering the Congressional Fellowship Pm gram funded by the Ford Foundation. Ms. Connell was then actively involved in fund raising for Hubert Humphrey in the 1968 Presidential Campaign involving personal, telephone and mailing contact with prominent presonages. She also worked on the planning for several major fund raising dinners. Following the campaign Ms. Connell was made director of Correspondence at the Democratic National Committee where she supervised six persons in answering sensitive political and general correspondence for the Chairman, Senator Fred R. Harris. She was also responsible for interpreting Demoncratic Party positions on issues as well as for researching party positions. Since February 1970, Ms. Connell has served as Public Relations Director and Special Assistant to the Executive Vice President of the National Council of Health Care Services. In this position she replaced an out- side public relations firm and was in charge of all aspects of the Council's public relations and communications programs. This included writing a weekly confidential bulletin detailing Washington news, of all association position papers and the preparation and presentation of testimonies before some seven Congressional Committees. Ms. Connell's duties include contacting Congressmen, Senators and admin- istrative aides regarding legislation and appropriations bills of interest to the health industry. It is also necessary to be in close contact with the various agencies of the Department of Health, Education and Welfare. Ms. Connell has done extensive research in the HMO area and has been involved in a number of seminars and workshops on the subject. In the absence of the Executive Vice President, Ms. Connell serves as Acting Director of the Council. PAGENO="0064" 806 Fact Sheet on PATRICK J. CALLIFIAN Nursing Home Chain Executive; Born in Flushing, Michigan, March 10, 1928; parents, Dale M. and Eva C. (Burt); B.A. Michigan State, 1953; M.A. in Administration, 1957; Married to Coilah A. Plrochta, September 14, 1950; Children, Michael James and Daniel Scott. Mr. Callihan is President and Director of Provincial House, Inc.; President and Director of the National Council of Health Care Services; Director, Extended Care Conference American Hospital Association; Officer and Director of the Michigan Nursing Home Association; Presidential Appointee to the National White House Commission on Aging; Member of the U. S. Department of Commerce Consumer Committee on Health; Member Blue Cross Extended Care Facility Relations Committee; Officer and Director of Compu-Link Corp.; Officer and Director of P. H. I. Construction Co. Formerly Associate Professor at Michigan State University and Manager of WMSB-TV, Executive Assistant for Network Affairs and Director of Field Services for National Educational TV, NYC; President and Director of Charter Develop- ment Co., Lansing, Michigan 1964; President and Director of Secured Mortgage, 1965; Trustee of Eastern Educational TV Netwoi~k; Served with USNR 1946-48; Member of the Public Relations Association of Michigan National Association of Educational Broadcasters, Alpha Epsilon Rho, Home at 1324 Pepper Hill Drive, Lansing, Michigan, Office: 4000 North Grand River Avenue, Lansing, Michigan. The above information is from Who~s Who In Commerce and Industry and Who's Who in the Midwest. PAGENO="0065" 807 Fact Sheet on PROVINCIAL HOUSE, INC. Provincial House is located in Lansing, Michigan and operates nine convalescent care centers, a construction subsidiary, and a computer corporation. The company operates 1100 skilled nursing home beds served by 715 employees. Provincial House has been working with the Lansing, Michigan Capital Area Comprehensive Health Planning Agency to develop a prepaid health plan, aid is at the present time in the process of amalgamating three groups of physicians in the area. A wholly owned subsidiary, Compu-Link, serves a wide variety of clients in addition to Provincial House with complete data processing and system develop- ment. The computer provides perpetual inventory, general accounting, finaPcial statements and comparative statistics on all facilities. A wholly owned con- struction company is mainly involved in the building of hospitals, nursing homes and college buildings throughout the country. Provincial House is a publicly held company with financial resources and capabilities to develop the needed capital for the start-up and continuation of HMO's. Among the other areas that the company is developing are day-care centers, congregate housing, lousing for the retarded, meals-on-wheels and an administraton training program for stixients at Michigan State University. Provincial House was also instrumental in the formation of a discharge planning group of all health facilities in the Lansing area to coordinate services. The company is starting this in three other cities as well. 01-185 O-72-pt.3-5 PAGENO="0066" 808 Fact Sheet on EDWARD J. WILSMANN Edward J. Wilsmann, President, Homemakers, Inc., The Upjohn Company, was born in Neilsville, Wisconsin June 6, 1924. He attended Two Rivers High School and Wisconsin State University, White- water, Wisconsin, where he received a B. Ed. degree in 1950 and North- western University in Evanston, Illinois to get his M.B.A. degree in 1956. He i~ a CPA of Wisconsin in 1956 and Illinois and Indiana by reciprocity. Mr. Wilsmann was a partner of Brabec and Wilsmann, CPA's, prior to forming Homemakers, Inc. in 1966 as President. Homemakers was acquired by The Upjohn Company in November 1969. He is a member of the American Institute of CPA's, Illinois Society of CPA's, has been three term director, one term president of the Society for Advancement of Management, and two term president of the Credit Associ- ation of Greater Joliet. Mr. Wilsmann is married to the former Delores C. Piambino of Philadelphia, Pa. He has four children: Leni Ann, Jo Ann, Edward A. and Christine Ann. They attend the Immanuel Lutheran Church. PAGENO="0067" 809 Fact Sheet on HOMEMAKERS, HOME AND HEALTH. CARE SERVICES SUBSIDIARY O~ THE UPJOHN COMPANY Homemakers is a new health care service which makes supportive services to home and to health care Institutions available at the lowest possible cost. Headquartered in Kalamazoo, Michigan, Homemakers is a wholly-owned subsidiary of the Upjohn Company, a leading pharmaceutical manufacturer. Homemakers has offices In 114 major metropolitan areas across the country. The company's personnel in each office include registered nurses, licensed practical (or vocational) nurses, nurse aides, companions, visiting house- mothers and housekeepers. Because Homemakers is not an employment agency, the company is responsible for the services rendered by its employees. Homemakers personnel are skilled, reliable individuals, bonded and insured in the performance of their duties. In addition to home services, Homemakers provides staff substitutions in hospitals, nursing homes, clinics, and doctors' offices. Homemakers recruits its own employees. Some of them are from that segment of the labor market desiring work on a part-time basis while others seek full- time employment with the challenge and interest of varied work assignments. Because of these latitudes, Homemakers is able to provide Its many services efficiently, while making available to people with critical skills in the community a broadened opportunity to use them. The company's services enable hospital patients to return home upon author- ization by the attending physician. The physician determines the need or degree of supportive services required for home convalescence. Homemakers relates the skills possessed by an employee to the services prescribed. As recuperation occurs or the status of the convalescent changes, the skills and services rendered by Homemakers are adjusted in accordance with the physician's decision. A patient- -or his family- -secure only the attendant services necessary for recuperation. As the convalescent resumes normal functions, less care may be needed. Homemakers continues to adjust its services to meet the individual require- ments of the patient's care until full health is restored. Such a health care service frees professional skills and supportive services for other duties as quickly as safely possible. Care in the home environment can represent a considerable financial saving. Expensive laboratory and technical skills, which are part of a hospital's overhead, are often no longer needed in convalescence. In cases of chronic illness or long term disability, physicians recognize the possible psychological advantages of returning the patient to the home to rejoin the family. In many cases the patient views the return home as an important step on the road to recovery. The family, with assistance as needed from Homemakers, is able to function as a unit again without daily worry regarding the patient's welfare, hospital visits, and mounting hospital expenses. PAGENO="0068" 810 Fact Sheet on ROGER C. LIPITZ Education: B. A. University of Maryland (Accounting) Career: President, Chief Operating Officer of Convalescent Care Centers and its predecessor companies 1965~l968 President, Chief Operating Officer Medical Services Corporation 1969 - present Mr. Lipitz has direct responsibility for all nursing home operations of Medical Services Corporation as well as the company's pharmacy operations. He Is a past president of the Maryland Nursing Home Association, and former Secretary (now Vice President) of the National Council of Health Care Services. Mr. Lipitz serves on the Maryland Licensure Board for Nursing Home Administrators and was formerly a member of the Maryland Medicaid Citizens Advisory Board. PAGENO="0069" 811 Fact Sheet on MEDICAL SERVICES CORPORATION Medical Services Corporation presently owns 15 nursing centers with 1,700 beds, two pharmacies and an ambulatory care center. MSC employs 1, 300 people, and is active in developing a hospital project as well as experimental outpatient services. In August 1971 the company opened an ambulatory care center in a poverty area of north Baltimore in conjunction with a group of four full-time physicians and several part-time specialists. Non-medical policy for the center is set by an elected neighborhood consumer advisory board. The ambulatory care center is under contract with Maryland Medicaid to provide amprehensive physician services, and in the first three months of operation has served an average of over 600 patients per week. MSC is actively planning additional centers in other cities as the first step toward lIMO developments. Medical Services Corporation has eight facilities in Maryland and others in Indiana, Illinois, Nebraska, and Texas. The company is one of the first to employ a full time medical director for their Maryland nursing facilities. One of the major undertaklfl~ in the development of the ambulatory care center has been the development of an improved medical records system. Medical Services Corporation is a publicly held stock company, and has access to funds for nperatlons, capital spending, and innovative program development. PAGENO="0070" 812 Fact Sheet on JAMES GRIFFIN Education: B. S., John C. Smith University Physical Therapy Certificate, Sargent College of Boston* University M. S. In Rehabilitation Counseling, Richmond Professional Inst. Career and Community Service: Vice President and Secretary, Neighborhood Health Centers, Inc. (a subsidiary of Medical Services Corporation) 1969 to present Director, Northwest Community Medical Center Member, Congress on Racial Equality (CORE) 1963 - 1968 Vice President, Baltimore City School Board 1968 to present Member of the Board of Directors, Scholarship Education and Defense Fund for Racial Equality (SEDFRE) Member of the Poard of Directors, Fjumanic Designs Corporation 1969 to present (involved in skill upgrading projects for low income and underutilized workers) Member, Work Experience Program of Baltimore Mental Health Association 1970 Executive Board, Black Caucus of the National School Board Assn. Member, Rep. Parren J. Mitchell (D-Md.) Task Force on Corrections Mr. Griffin Is a native of Baltimore and is devoting his time and efforts to improving the quality of JIlfe for his fellow Baltimoreans. PAGENO="0071" 813 INNER CITY HEALTH CENTER PROJECT NEIGHBORHOOD HEALTH CENTERS, INC. Initial Design and Objectives ( Sept.l,l970) Neighborhood Health Centers, Inc. Is a private corporation formed August 7, 1970 as a subsidiary to Medical Services Corporation. Medical Services Corporation is an independent, profit-making public company which is presently involved in the ownership and management of a chain of nursing homes, pharma cies and other related medical enterprises. The Board of Directors of Neigh- borhood Health Centers, Inc. is comprised in part of Mr. Al Ian Zalesky who Is Chairman of the Board of Medical Services Corporation. Dr. Charles Venter is President of the Neighborhood Health Centers, Inc. and Chairman of the Board of Directors. Mr. James Griffin Is the Executive Vice President of the company and Secretary of the Board of Directors. The company will be 80% owned by Med- ical Services Corporation and 10% each by Dr. Venter and Mr. Griffin. Control, however is shared equally between Medical Services Corporation and Dr. Venter and Mr. Griffin. Dr. Venter is an Internist, graduate of Howard Medical School and a practicing Physician in the Baltimore Area. Mr. Griffin is a physical therapist, past President of C 0 R E and Vice President of the Baltimore School Board. It is proposed that Neighborhood Health Centers,lnc. will be the vehicle for providing comprehensive health services, on an out-patient basis, to all segments of the population, Initially in the Park Heights area and ultimately, it is hoped, city wide. The three principal types of patients to be treated are; I. "Public and Medical Assistance Patients" 2. "Medically Poor Patients" 3. "Paying Patients on Fee-For Service Basis" The "Public and Medical Assistance Patient" - A contract will be proposed to the State of Maryland to provide comprehensive, out-patient care to a fixed number of patients covered under the State Medicaid Program on a pre-pald basis, Under this contract Neighborhood Health Centers, Inc. would be responsible for 24 hour a day out-patient care of these patients and would provide the follow- ing services: I. Medical and minor surgical care 2. Immunization 3. Vision and eye examination 4. Routine check-ups and diagnostic services 5. Social services 6. Counseling PAGENO="0072" 814 7. TraIning programs 8. Physical therapy and rehabilitation 9. Consultation as needed 10. Med i cal backup wi I be enl i sted from hospita Is, exist ng medical groups, and private practitioners The "Medically Poor Patient" - will be managed in conjunction with commu- nity volunteers and other profesional volunteers on as yet to be determined basis. No funds from any level of government (Federal, State or City) are cur- rently available to serve the need of this group of patients. The "Paying Patients" - will be treated on a strict fee-for-service basis. Neighborhood Health Centers, Inc. has devised a highly sophisticated cost-re- lated system to determine the exact fee to be charged for the actual service performed, the person(s) so performing, and a minimal profit factor; i.e., If a patient required $4.00 worth of service, he will be charged only $4.00 + the profit factor. The presently proposed facility will be located in the Park Lane Shopping Center at Park Heights Avenue and Coldspring Lane in what was before the Acme Market. The facility comprises approximately 10,000 square feet. It will be re-modeled in relation to the services to be provided. Our projected comple- tion date will be within the next two months. Neighborhood Health Centers, Inc. will have a Board of Directors - current- ly proposed to be nine(9) members. In addition an Advisory Board will function with twelve (12) residents of the Park Heights area and six (6) city-wide representatives. It is the intent that the two Boards will function jointly in the determination of the center's policy with the Board of Directors having the responsibility of carrying out the Advisory Board's decisions. The philosophy behind Neighborhood Health Centers, Inc. is that everyone is entitled to ~ health care, promptly delivered, and the review of services rendered should lie with the patientstreated and the community involved. It is our further intent that training programs be designed primarily for neighborhood residents. Profits, if any, will be plowed back into the company for the ex- pansion of clinic services wherever needed. Status as of February l~, 1972 The initial medical center, the Northwest Community Medical Service Center was opened August 15, 1971 at 4432 Park Heights Avenue in Baltimore. The site of the center is a 10,000 square ft. former Acme supermarket which was converted into a modern, attractive, comprehensive health center at a total cost of approx- imately $225,000 Including equipment. Facilities of the center include physician offices, X-ray, laboratories, physical therapy, social service, nutritional, dental,etc. This was a joint effort of three groups; I. Neighborhood Health Centers, Inc. PAGENO="0073" 815 the developer, manager and financer of the project 2. Braxton-Carter Associates, P.A. a professional corporation of physicians organized to staff the center 3. the Northwest Community Medical Service Center Advisory Board - a group of community residents who advise the center. Al three entities are joined by contracts. The prepaid contract originally (see above) was not signed with the State of Maryland. Instead a contract was signed with the State on a fixed fee per physician visit which is designed to be sufficient to include all ancillary ser- vices (see copy of State contract). The stated intention of both the Medical Center and the State of Maryland was to convert this arrangement Into a prepaid program at either the end of the first or second year. PAGENO="0074" 816 * - BY~LAWS OF NORTHWEST COMMUNITY ADVISORY BOARD, INC. I,. ARTICLE I. NAME OF CORPORATION The name of the Corporation is NORTHWEST COMMUNITY ADVISORY BOARD, INC. ARTICLE II. PURPOSE The purpose, of the Corporation (Advisory Board) is to help promote, deve]op and institute citizen participation in a community health program, including all phases of such program such as planning and construction of facilities; selection, employment and tra~ining.of staff and employees; and administration and operation of the program. -. - More specifically, it is a function of the Advisory Board to represent the interest of the community, including the consumers and prospect~re consimiers of the Northwest Community Medical Service Center at 4432 Park Heights Avenue in Baltimore City, State of Maryland, through a joint under~ taking with the Park Heights Medical Associates (the manageneni of the Center) and the Braxton Carter Associates, P.A. (the professional corporation providing medical services at the Center) to (a) determine *the goals and policies of the community health care program,. (b) periodically review available - services and facilities and determine the health program needs; Cc) periodically review the progress of the health program and undertake actions needed for further improvement, and Cd) determine the appropriate allocation of funds in accordance with agreed upon priorities. PAGENO="0075" 817 ARTICLE III. DEFINITIONS Section 1. The term "Corporatiofl" as used i~.these By.-Laws shall mean the Northwest Community Advisory Board, Inc. f~ectioh2. The term "Advisory Board" as used herein means the entire membership of the Corporation; that is, all persons who have and remain qualified as members following their certification to membership at a duly authorized meeting of the Advisory Board. ARTICLE IV. MEETINGS OF ADVISORY BOARD Section 1. Location Advisory Board meetings shall be conducted at the Northwest Community Medical Service Center, 4432 Park Heights Avenue, Baltimore City, Maryland. on~i~~ (1) Regular meetings shall be held on the first Monday of each month at 8:30 p.m. (2) ~p~cia1 meèting~ may be called by the Chairman or his delegate upon at least 24 hours notice to members and said notice shall state the purpose of the meeting. Sec tion ~ Advisory Board may at its regular meetings, pass on any item of business, subject to the provisions of the Articles of Incorporation and these By-Laws. Business transacted at special meetings shall be limited to the purposes in the notice given for said meeting. With the exception of impeachment proceedings, hereinafter set forth, and amendments of the by-laws, a majority vote is required to pass on the business of the :M~T.t50~ Board. Section 4. Quorum All busi~es.s transacted at any Advisory Board meeting shall be null and void unless a quorum is present. A quorum at regular meetings shall be nine, (9) PAGENO="0076" 818 m~mbei~s; a quorum at special meetings shall be seven (7) members.. Section 5. Vgj~j~j Each member of the Advisory Board ~1ia~l be entitled to one vote. ARTICLE V. MEMBERSHIP Sctioni~~3J~ibili~ All persons, age 18 and over, residing in Baltimore City, and approved by a majority vote of the existing Board present at a duly called meeting, shhll be eligible ~for membership in this Corporation. Section 2. Number of Members There shall be no more than seventeen (17) members of the ~Advisory Board. Sect ion 3. Termination of Mernbers~ A person's membership In this Corporation shall be terminated by: (1) his or her absence for three consecutive regular meetings; or (2) the vote of 2/3 of all members present at a regularly scheduled meeting in support of termination, provided that the grounds for termination are based on a member's failure to conduct himself in a manner consistent with the. best interest of the Corporation. ARTICLE VI. BOARD OF DIRECTORS . * . * Section 1. Functicn The Board of Directors shall manage the business and affaits of the Corporation. Section 2. Number of Directors The Boardof Directdrs shall be comprised of the seventeen (17) members of the Corporation. * ________ _____ A q~iorum for, the Board of Directors shall be the same as for the Advisory Board. See Article IV, Section 4. 0 * 0 PAGENO="0077" 819 ARTICLE VII. OFFICERS Section 1. Enumeration There shall be five ,(5) officers of the Corporation, as follows: Chairman, Vice- Chairmc~n, Recording Secretary, Corresponding Secretary, and Treasurer. Section 2. Term of Office Officers shall be elected for a term of two years. Vacancies created during the term of office shall be filled ~ nominations of not more than two persons for the vacant office and an election to the office by the greater number of votes of the Board members * Section 3. ~3ethod of Election All officers shall be members of the Board of Directors. Two members shall be nominated for each office. The member receiving the greater number of votes shall. be elected to that office. The vote shall be carried out by written ballot. ~t~2~h Duties and Re Ibilit tea of Officers - a. The duties and responsibilites of the Chairman of the Corporation are to: chair all Board meetings, appoint the head~ of standing committees, prepare an agenda for such meetings, be chairman of the Executive Committee, be an éx officio member of all standing committees, be the offi~ial spokesman and representative of the Corporation and appoint a parliamentarian. b. The duties and responsibilities of the Vice Chairman are to act with the full authority of ~he office of the Chairma~ in the Chairman's absence and to act as the first. assistant PAGENO="0078" 820 to the Chairman. He shall be an ex officio member of all Standing Committees. c. The duties and responsibilities of the Recording Secret~y are to keep accurate records of all Board meetings, to keep a~tendance roll, to make the records available to Corporate members and, at the discretion of the Board, to mail copies of such records to the members. d. The duties and responsibilf~ies of the Corresponding Secretary are to mail required notices of meetings to Board members and other correspondence at the direction of the Chairman of the Board. e. The duties and responsibilitie.s of the Treasurer are to keep accurate financial entries, to report on the financial position of the Board monthly at the discretion of the Chairman of the Board, to have the care and custody of all funds held in the name of the Corporation, and deposit all such funds in the name of the Corporation in such bank or banks or trust companies as the Board may designate and to exhibit at all reasonable times his books and accounts to any officer or member of the Corporation and to give such security for the faithful discharge of his duties as the Board may deem necessary ARTICLE VIII. IMPEACHMENT Section 1. Officers may only be removed for cause. An officer who (a) is negligent or delinquent in the performance of his duties or (b) breaches his fiduciary duty of trust and loyalty to the Corporation or (c) fails to fUlfill his responsibilities to the Corporation may be rethoved at any time 1w a vote of a majority of the members at arty special I meeting called for the purpose of impeachment at which a ,quorum is present. The officer sought to be impeached shall PAGENO="0079" 821 be notified of the charges and given an opportunity to be heard at such meeting. Section 2. Impeachment of an officer*, shall be (. carried by a two-~tbirds, vote of Board members present at a duly called meeting. ARTICLE IX. EXECUTIVE COMMITTEE Section 1. Enumeration The Executive Committee shall be composed of all elected officers a~Id the chairmen of the standing committees. This Committee shall effect the policies of and act for the Corporation when the Board is not in session. The Chairman of the Corporation shal~l act as Chairman of this Committee. ~ection~~ Additional standing committees may be formed by vote of the Executive Committee or the Board. The Chairmen of these Committees shall be appointed by the Chairman of the Corporation. Section 3. Committee meetinqs Committees shall meet at the discretion of the4r respective chairmen or at the d~,rection of the Chairman, of the Corporation. Section 4. Commi Reports All committees shall report at every regular Board meeting. ARTICLE X. CONTRACTING AUTHORITY The Chairman of the Corporation shall have the authority to sign contracts and leases on behalf of the Corporation upon the approval of a majority of the Board of Directors at a duly called meeting. ARTICLE XI. FINANCE Section 1. Source of Funds The funds of the Corporatior shall be derived from any source deotring to or required to PAGENO="0080" 822 support the activities of the Corporation. Section 2. Appro~ at ions The Board of IDirec tors is vested with the authority to appropriate and disburse funds c?nsistent with the objectives of the Corporation. Sec tion 3. Siqn~~y Authority Checks, drafts, bills of exchange or any other documents or instruments drawing on -~\ the funds of the Corporation or on the funds within the control of the Corporation must be signed by any two of the following three officers of the Corporation: Chairman, Recording Secretary or Treasurer. ARTICLE XII. ANEUDMENTS AND INTERPRETATIONS OF BY-LAWS Section 1. Submission of Amendments Proposed amendments to these By-Laws may be submitted in writing to th~ Board at its regular meeting. Upon approval by majority vote, each member of the Board shall be promptly notified in writinq that the proposed amendment will be acted upon at the next regular meeting of the Board. Section 2.. Apj~povsl of Amendment~ Proposed Amendments must be approved by two-thirds vote of the Board present. Section 3. Interpretation These By-Laws shall be construed liberally so as to effect the wishes of the members of the Corporation and specific provisions herein shall govern the general provisions. PAGENO="0081" 823 This Agreement by and between NEIdEBOTWOOD HEALTH CENTERS, INC., hereinafter referred to as CENTr'S, and COMMUNITY ADVISOrr BOARD of NEIG}IBORUOOD HEALTH CENTERS, hereinafter referred to as ADVISORY BOARD, witnesseth that: - WHEREAS CENTERS is a prQf it corporation under contract * with NEIGHBORHOOD MEDICAL SERVICES, INC. (NMS) to lease space and tacilities to the latter at 4432 Park Hei~hts Avenue, Baltimore, Maryland 21215, and to provide administrative and quasi-professional personnel and management servic~s to N~4S in support of the latter's contract with the State Department of Health, attached hereto as ~ "a": WHEREAS CENTERS has diligently sought and hereby endeavors * to promote full community participation anc1're~resentation in the planning, organization, and administration of the community health care program; and * WHEREAS ADVISORY BOARD is an unincorporated `association* composed of eighteen persons at least one-half of whom are enrollees in the program referred to in Exhibit "A". The names and addresses of'these persons are set forth on a paper attached hereto and marked Exhibit "B"; and * , *, WHEREhS, the raembersof this ADVISORY BOARD, chosen by; and representing the communit~y `at large, seek to provide and `assure maximum community participation in the health care program offered by CENTERS. NOW, THEREFORE, in consideration of the mutual and rec~p- rocal efforts, benefits, undertakings and interests hereinafter 81185 0 - 72 - pt. 3 - 6 PAGENO="0082" 824 set forth,- 9ENTERS ar~d ADVISORY BOARD agree as follows: 1. CENTERS acknowledges and designates ADVISORY BOARD as the adviscry board referred to in section 6.06 of the by-la"s of CENTERS attached hereto as Exhibit "C". 2. CENTERS and ADVISORY BOARD shall, among other under~ takings, and with respect tO the community health facility at 4432 Par3~ Heights Avenue1 Baltimore City, Maryland (hereinafter referred to as the "Facility"), jointly (a) determine the goals and policies of the community health care program, (b) periodically review available services and facilities and determine the health program needs, Cc) periodically review the progress of the health ~ ~ert~tk'~ actions needed for further I rover'en4-: * (d) deteriuine the apprbpriate allocation of funds in. accordance with agreed upon priorities. It is understoàd that subparagraph Cd) of this paragraph 2 does *not refer to the allocation of any operating surplus of CENTER~; provided, however, that there will be no allocation of any operating surplus ~derived from the Facility which impairs the ability of CENTERS to provide the services it has ~agreed to provide at the Facility. 3. ADVISORY BOARD shall be empowered -to elect two of its own members or 20% of the Board of Directors, whichever is greater, to the Board of Directors of CENTERS. * 4. It is the intention of CENTERS, as both a profit~ making corporation and an organization devoted to community service, to devote a portion of the net profits which it earns PAGENO="0083" 825 from the operations of the* Facility to the betterment of the community iilwhich the Facility is located. In order to confirm this intention, and in expression of the means for giving effect theret~, CENThRS agrees that it will make a charitable contribu- tion, within 90 days after the end of each of its fiscal years, in an amount equal to the lesser of $5,000 or 5% of the net profits (before deduction of Federal and State income taxes but after deduction of all other taxes, expenses and other deductible items) earned by CENTERS from the operations of the Facility during such year. In addition, CENTERS~wil1 make a charitable contribution, within the same period of~tinte, in an amount equal to 1/2% of the net profits (computed in the same manner as stated above) in excess of $100,000 earned by CENTERS from the operations of the Facility during the preceding fiscal year. Such contribu- tion shall be made to ADVISORY BOARD or its successor if at the time thereof ADVISORY BOARD or its successor is a qualified charitable or~anizatiom of the kind described in Section 501(c) (3) of the Internal Revenue Code of 1954, as amended, and such contri- bution is tax deductible under Section 170 of said Code, ~tnd the primary purpose of the ADVISORY BOARD or its successor at such time is the betterment of the community in which the Facility.is located. In the event that any of the foregoing conditions are not satisfied, CENTERS will make said charitable contribution *~ PAGENO="0084" 826 to an organization designated `by ADVISORY BOARD or its successor whose prinLa~y purpose is the betterment of the community in which the Facility is located if such organization is a qualified charitable ox~,anization as aforesaid ~nd such contribution is tax deductible as aforesaid. 5. ADVISORY BOARD may, within Its own discretion, es- tablish a grievance procedure to resolve or attempt to resolve the complaints or problems of persons receiving or attempting to receive services from CENTERS at the Facility. A written record of the recommendation of ADVISORY BOARD and the decision of CENTERS shall be made in each case. ` . 6. CENTERS and ADVISORY BOARD shall meet at least once a month with the Board o~ Dirc~torc i,~eighbuLli~,ud II~die~~l ServIces, Inc. to consider, discuss and act upon any business perta5: ing to the community health program atthe Facility. At such meetix~ CENTERS will (a) furnish ADVISORY BOARD with a progress report on the operation of the program at the Facility, (b) consult with ADVISORY BOARD with respect to any significant plan or contemplated action with respect to the `Facility for the future; and (c) mske every effort to aniwer questions about the program at the Facility propo~unded by members of the ADVISORY BOARD. ADVISORY BOARD will (a) offer its evaluation and recommendations with respect to all or any part of the. health care program at the Facility, (b) prescnt such complaints or grievances as it deems' appropriate, (c) decide ~ointly with CENTERS what goals and/or policies should be under- taken with respect to the Facility, and Cd) decide jointly on all PAGENO="0085" 827 other matters with respect to the Facil'ity within their appropriate concern. 1. ~CENTERS shall adopt appropriate by-laws or modify existing by-laws where necessary to incorporate or reflect the terms of this Agreement. 8. ADVISORY BOARD shall be consulted with respect to, and shall, jointly with CYNTERS, decide on the discharge of all non-physician employees of the Facility. ADVISORY BOARD shall also have the right to veto the employment of non-physician cmployee~ of the Facility at the next meeting of ADVISORY BOARD following the hiring of such employees by-CBNIIERS. ADVISORY BOARD and OENTERS agree to decide jointly on the general hiring criteria to ,4çç~. ~m!=~J be applied by Ci~1~E~RSAin the employment of non-physician employees of the Facility. Notwithstanding the foregoing provisions of this paragraph, ADVISORY BOARD agrees that it will r~ot unreasonably withhold its approval of the hiring or proposed discharge of any non-physician employee of the Facility. SpecIfically, `ADVISORY * BOARD agrees that such approval shall not be withhelcl'on the ground of race, color, creed, national origin, `education, place' of resi- dence or political or community affiliation, or on any ground other than the competency or incompetency of the particular employee or his demonstrated ability Or inability to perform the assigned * sobs in the expected manner. , The veto of ADVISORY BOARD with respect to the hiring of any non-physiciaj~ employee mn~y be ovèr~* ~ Cô-i~s~i, ~-f 4c.c~'c.~ ` * ridden by a 2/3 vote of the ~ 9. The policies hereinabove referred to in Paragraph 2(a) on which joint decisions will be made shall include, but not be limited to, the following: PAGENO="0086" 828 (a) The kind and scope of health care services provided or to be provided by CENTERS at the Facility, not £ncon~ sistent wit~ the terms, schedules and Exhibits attached hereto as Exhibit "A" * It is understood that this provision does not include any inatter pertaining to the practice of medicine or within the special disciplines of the professional staff. (b) Bours for delivery of health care services, subject to the limitation that CENTERS will not be required to keep the Facility open during any hours when the demand for health care services does not justify the expense or other hardships thereof on CENTERS or on the staff of the Facility. Cc) Standard or criteria of eligibility for indi- gent persons, consistent with the best interest of the health care program at the Facility as a whole and with the best interests of CENTERS and not inconsistent with the terms of the Agreement attached hereto ~s Exhibit "A". (d) Use of training programs, other resources or public funds for the benefit of the health care program at the Facility. 10. ADVISORY BOARD agrees to cooperate to the fullest extent possible with CENTERS and to use its best efforts to: (a) Recruit Enrollees for the Facility under any * contracts for the provision of public health services entered into with respect to the Facility; (b) Expand the operations of CENTERS to other facilities,within the City of Baltimore and elsewhere in the State of I4aryland; - (c) Naintain good relations (to the extent deserved) between CENTERS. and the community and between CENTERS and the City, PAGENO="0087" 829 State and Federal government and departments and agencies thereof; f (d) help solve the problems presented by medically indigent patients of the Facility and minimize the losses caused by treatment of such patients, includ~ng, without limitation, assistance in the collection of sums due to CENTERS from such patients and cooperation 3.n other means of obtaining funds to defray the costs of treating such patients. 11. Nothing in this Agreement shall be construed to authorize or permit CENTERS or ADVISORY BOARD to do any act or thing whatsoever which interferes in any respect with the confi- dential relationship or privacy between physicians and patients or with the absolute authority and discretion of the physicians and other professional staff of the Facility with resp~r~t tr tn~ isannër of providing preventive, diagnostic, therapeutic, advisory and rehabilitative services to specific pat~en~s. 12. This oontract shall be binding upon the parties and their successors, including any corporation formed by the ADVISORY BOARD and having initially a Board of Directors comprised of at least a majority of the present ADVISORY BOARD. * IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and sealed by their respective representa- - tives this ~Z't~( day of November, 1970. * ATTEST NEIGHBORHOOD HLALTH CENT~ RS, INC E,~e /~ ______ ~ ____________ * ,4~ii; ict~c~ietlr * COMt4UNITY ADVISORY BOARD OF * * NEIGhBORHOOD HEALTH CENTERS C-' * c-j 1) / *i~/ ~I.i~'e~ (/~crc~,t~/ * )3y:/~Sf c~/~sic- `~. PAGENO="0088" 830 /5, 3hzi~,'~ 27 `%J1~7 /~~J ~of?'~ 2~ / r i:~, Tt4.itS ),~4tS /5/ l4c~7'~Z. ~ ,~j. ~ .A~o~' / )/ /1/i ,trc~ j7br1M1~ ~ ,dh~, ,~, 22~t-e.y /~/ ~ ~ ~ O~ this~~(day of November, 1970, I, Zzri L, ~ Secretary of NEIGHBORHOOD HEALTH CENTERS, INC. (the "Corporation~) * do hereby certify that C~/~tt.t&~ /~ /~/Ct/ of the Corporation has been duly authorized to execute the foregoing Agreement on behalf of the Corporation, that 1 have been duly * authorized to affix the seal of the Corporation to this Agreemant * and that neither authorization has been revoked or modified prior hereto.. * ~ e/~ Secrtar~ * On this~2~.~A day of November, 1970,1 ~ /~cO~4~.- Secretary of COMMUNITY ADVISORY BOARD OF ~EIGHBORI1OOD HEALTH * CENTERS do he~eby certify that * 7~/~* /Sc~L4-i been duly authorized to exec~t.e the foregoing Agreement. /W ~ * * Secretary PAGENO="0089" 831 JOINT COMMISSION ON ACCREDITATION OF HOSPITALS LONG TERM CARE FACILITY In 1952, after much discussion among the or- ganizations concerned with high standards in the health care field, an independent, voluntary, non- profit organization, the Joint Commission on Accreditation of Hospitals, was created to take over the responsibility for accreditation of hospi- tals from the Program of Hospital Standardiza- tion, which had been inaugurated in 1918 by the American College of Surgeons. The Joint Commission on Accreditation of Hos- pitals is incorporated under Illinois law and is co-sponsored by the following member organiza- tions of the Commission: the American College of Physicians, the American College of Surgeons, the American Hospital Association, and the Amer- ican Medical Association. In 1966, the Joint Com- mission on Accreditation of Hospitals undertook the additional responsibility for accreditation of health care facilities other than hospitals. Two additional groups, the American Association of Homes for the Aging and the American Nursing Home Association, were added as participating organizations, with representation on the Board of Commissioners. The purposes of the Joint Commission as stated in its certificate of incorporation, are: (a) To establish standards for the operation of hospitals and other health care facilities and services (b) To conduct survey and accreditation pro- grams which will encourage members of the health professions, hospitals and other health care facilities and services volun- tarily to: (1) apply certain basic principles of phys- ical plant safety and maintenance, and of organization and' administration of function for efficient care of the pa- tient (2) promote high quality of care in all aspects in order to give patients the optimum benefits that medical science has to offer (8) maintain the essential services in the facilities through coordinated effort of the organized staffs and the governing bodies of the facilities (c) To recognize compliance with standards by issuance of certificates of accreditation (d) To conduct programs of education and re- search and publish the results thereof, which will forward the other purposes of ACCREDITATION PROGRAM the corporation, and to accept grants, gifts, bequests and devises in support of this purpose (e) To assume such other responsibilities and to conduct such other activities as are com- patible with the operation of standard- setting, survey and accreditation programs Because of the dynamic complexity of the health care field, the standards that are acceptable are continually changing and being upgraded. In adopting revisions, the Joint Commission con- siders the recommendations not only of the mem- ber organizations but also of organizations in the health field not presently represented on the Com- mission. The certificate, "Accredited by the Joint Com- mission on Accreditation of Hospitals," is highly valued by those facilities that have attained the right to display it. It is symbolic of the striving for excellence in promoting high standards of health care. Accreditation is voluntary. It is offered as a yardstick to the progressive institution that wishes to meet quality standards set by a profes- sional, knowledgeable, nationally recognized group. The accredited facility is the one which has volun- tarily chosen to operate on a higher level than that legally required. The Joint Commission on Accreditation of Hos- pitals, in establishing a program for the appro- priate recognition of health care facilities, follows these objectives: 1. To establish standards of quality relating to an acceptable level of patient care, to pro- mote them, and to assist in their attainment 2. To conduct requested surveys of medical and nursing care facilities to measure the quality of care provided, in terms of the standards 8. To recognize substantial compliance with the standards through issuance of an accredita- tion certificate 4. To make public a list of health care facilities which satisfactorily comply with the stan- dards The standards and interpretations established by the Joint Commission are based on the prin- ciple that the patient shall be under a continuing planned program of care, which focuses on his total needs. This program shall be rendered in a physical and social environment that provides for the patient's safety and the achievement and UI PAGENO="0090" 832 maintenance of all optimum level of rehabilitation. Substantial compliance with all the standards is necessary for accreditation. DEFINITIONS Category 1.-Hospitals Category U-Extended Care Facilities Establishments with organized medical staffs and with continuous professional nursing service that are established to provide comprehensive In- patient care (which is usually post acute hospital care), for the most part of relatively short dura- tion, and to serve convalescent patients who are not in an acute episode of illness or In a stable stage of illness and who have a variety of medical conditions. Category fli-.Nursing Care Facilities Establishments with medical staffs or a medical staff equivalent and with continuous nursing ser- vice under professional nurse direction. They provide, usually, long-term inpatient care (not nec- essarily post-hospital) to patients who have a vari- ety of medical conditions requiring service. Category W-Resldent Care Facilities Establishments providing safe, hygienic, shel- tered living for residents not capable of or desir- ing fully independent living. They furnish regular and frequent but not continuous medical and nursing services and they furnish continuous sup- portive, restorative and preventive health ser- vices. GENERAL POLICIES AND PROCEDURES ON ACCREDITATION A. ELIGIBILITY CRITERIA AND APPLICATION Facilities to be eligible for survey: * Shall meet the definition as stated for an Extended Care Facility, a Nursing Care Facility, or a Resident Care Facility * Shall have been in operation under the same ownership for at least six (6) months prior to survey * Shall have a current unrestricted license to operate as required by the state * Shall provide on the application form the information requested, together with full payment of the survey fee The Joint Commission will survey all facilities requesting accreditation if the foregoing criteria have been met. Requests for survey should be addressed to the Joint Commission office, 645 North Michigan Ave- nue, Chicago, Illinois 60611. The institution will be sent Survey Form-Part I which shall be completed and returned to the Joint Commission. The fee for an accreditation survey is based on the actual cost of the survey. The number of days assigned for con- ducting a survey will be at the discretion of the Joint Commission. An invoice billing will be sent to the facility for payment prior to the survey date. The facility will be notified of the survey date approximately 30 days in advance of the survey. At the time of survey, Survey Form-Part I will be reviewed by the field representative with the Ad- ministration of the facility. Survey Form-Part 11 will be completed by the field representative and this, together with the information on Survey Form-Part I, prepared by the institution, will be forwarded to the Joint Commission for staff evalua- tion and approval by the Board of Commissioners. Approximately six to eight weeks later the institu- tion will be notified of the results. B. ADMINISTRATIVE REGULATIONS * Accreditation shall be granted for two years or until a resurvey is made. A two-year accreditation indicates the institution is in substantial compliance with the standards. * * Where indicated, accreditation may be grant- ed for one year or until a resurvey is made. A one-year provisional accreditation indicates the institution is in substantial compliance with the standards but is weak in some areas and is advised on recommendations for im- provement. * * Institutions not granted accreditation may be resurveyed upon reapplication after at least six months and payment of fee. * An institution granted accreditation may be resurveyed at any time. * Accreditation is not transferable, and the new owners must apply for reaurvey. In the case of the sale of a corporation, new officers will be considered to constitute a change In own- ership. * Institutions offering more than one category of care e.g., Extended Care, Nursing Care, and/or Resident Care, shall be accredited in each category for the specific number of beds as licensed by the state. Iv PAGENO="0091" * Facilities which fail to receive initial accredi- tation or re-accreditation or whose accredita- tion is revoked shall, upon written request, within 80 days of notification, be entitled to a hearing thereon before the Board of Com- missioners or a subcommittee thereof desig- nated by the Board for that purpose. C. CERTIFICATES * A certificate of Accreditation shall be issued to an institution that is granted a two (2) year accreditation. An institution re-accred- ited for two (2) years may retain the old Certificate showing continuous accreditation or may receive a new one if so desired. It cannot have both. * Institutions receiving a one (1) year accredi- tation on the initial survey dO not receive a Certificate. An institution that is accredited for one (1) year following a previous two (2) year accreditation may keep the Certifi- 833 cate for one (1) year. If, on the next survey, the institution is again granted a one (1) year accreditation, the Certificate shall be returned to the Joint Commission. * There is no charge for the Certificate; it is the property of the Joint Commission. If the institution loses its accreditation, has a change in ownership or corporate structure, or changes the type of care given, the Certificate must be returned to the Commission. * The Certificate of Accreditation serves as an indication that the institution voluntarily ad- heres to the most rigid self-imposed stan- dards. PAGENO="0092" 834 COBPORATE STANDARDS FOR THE DELIVERY OF SERVICES 1972 HOMEMAKERS ROME AND HEALTH CARE SERVICES, INC., SUBSIDIARY OF THE UPJOHN COMPANY, KALAMAZOO, MICHIGAN PREFACE Homemakers Home and Health Care Services, Inc., a subsidiary of The Upjohn Company, provides quality nursing care and other allied and ancillary health and social services, whether In the home or institution. The standards that follow are neecessary to govern the home health care concept and assure quality of service. They have been synthesized from the best understandings of various national and state professional organizations, from legislative re- quirements, from acerediting and licensing organizations and, most importantly, from our own corporate experience as the nation's largest single supplier of home and health care services. These standards shall be continually updated to reflect changing service needs. PURPOSES We believe that standards of performance are essential in order to achieve corporate objectives and purposes through effective management. Those objec- tives and purposes are: 1. To provide the consumer of services with the highest possible level of quality care. 2. To guarantee and assure that level of care by the provision of control mechanisms and protections to the consumer. 3. To comply with all legislative regulations and contractual requirements. 4. To cooperate and work with professional nursing, social service, and allied associations in maintaining quality standards for the delivery of home health care. 5. To maintain sound management practices and effective control of operations. 6. To develop and correctly utilize the organization's human resources. 7. To at all times be in the vanguard in the delivery of better service and to maintain this position of pre-eminence through sophisticated Informational, developmental, and operational procedures. It is the corporate intent and commitment that these ends be realized. The right of all men to enjoy a higher standard of healthful living Is recognized and affirmed. DEFINITION OF ORGANIZATIONAL GROUPS Several groups are involved in the organization and Its functioning. Their areas of responsibility are defined below: 1. Governing body.-Comprised of the Board of Directors of Homemakers Home and Health Care Services, Inc. and top corporate officers as assisted by the Home Office Staff. 2. Field management.-Zone Managers responsible for the operation of all company-owned offices nationwide and Group Directors who supervise Zone Managers and maintain liaison with Licensees. 3. Licensee groap.-Licensed managers having proprietary rights in specified geographic areas. Governed by a licensee agreement, national standards, and corporate controls. 4. standards and procedures committee-Comprised of professional nurses and other health and social service professionals directly involved in rendering of the service who recommend policy standards and operational procedures to the Governing Body for adoption and implementation. 5. National advisory council.-Comprised of selected Zone Managers and Licensees who represent their respective groups in advising the Governing Body and in reviewing proposed programs. 6. Local advisory comrnittees.-Local groups established to advise Zone Man- agers and Licensees on the overall functioning of the service in the community and to suggest areas for improved or new services in consultation with compre- hensive health planning groups. 7. Local utilisation review committees.-Local groups established to advise Zone Managers and Licensees on the effectiveness of health services. The primary function Is to evaluate the program and the quality of service being rendered. PAGENO="0093" 835 8. Manager of personnel and training.-Member of the Governing Body staff responsible for personnel and training programs and the monitorI~ig of policies in these areas ln consultation with the Standards and Procedures Committee. 9. Manager of national consumer affair&-Member of the Governing Body staff responsible for investigation and handling of consumer affairs in consultation with the Standards and Procedures Committee. INDEX I. Organization and management: 1. Each office shall have legal authorization to operate. 2. There shall be an appropriate and duly constituted authority in which responsibility and accountability are lodged for each function. 3. Insurance protections shall be afforded both consumers and employees. 4. Corporate management shall evaluate through regular systematic review all aspects of its organization and activities in relation to the service's purposes and needs of the communities being served. II. Administration of services. 1. Adequate and appropriate supervision of the service and its field workers shall be provided. 2. There shall be an appropriate process for assessing case need and establishing a plan of care. 3. Individual case records and reporting systems necessary to meet all applicable requirements shall be maintained. III. Human resource utilization: 1. The service shall have written personnel policies. 2. There shall be no discriminatory practices based on race, color, creed, sex, age, national origin or ancestry. 3. There shall be a written job description for all office and field posi- tions which are part of the service. 4. There shall be an effective process utilized in the selection of em- ployees that will assure continuing quality of care. 5. All employees shall have had appropriate and adequate training. IV. Community and consumer relations: 1. There shall be written consumer relations policies. 2. The service as an Integral part of the Community's health and social service delivery system shall continue to assume an active role in assessment of community needs. 3. When more than one agency participates in the plan of care, an agree- ment shall be entered into between the agencies to confirm the mutual understanding of the particulars of the service to be provided. SECTION I-ORGANIzATIoN AND MANAGEMENT STANDARD I-i-EACH OFFICE SHALL HAVE LEGAL AUTHORIZATION To OPERATE INTERPRETATION IMPLEMENTATION A. Each office shall be in conformity The Zone Manager or Licensee will with all applicable Federal, state, and obtain appropriate licensure and will local laws and shall be currently observe all legal requirements at the licensed in accordance with applicable local and state level. laws. The Governing Body will establish policy in relation to national legislation and will monitor compliance of indi- vidual offices nationwide. In the case of Licensee offices, this auditing function may be handled through Licensee visita- tion programs. In the case of Company- owned offices, it will be handled by the line management structure. PAGENO="0094" 836 STANDARD 1-2-THERE SHALL BE AN APPROPRIATE ARD DULY CONSTITUTED AUTHOR- ITY IN WHICH RESPONSIBILITY AND ACCOUNTABILITY ARE LODGED FOR EACH FUNCTION INTERPRETATION IMI~LEMENTATI0N A. The Governing Body Is responsible Organization and reporting relation- for all corporate aspects of the service ships as presently constituted. `in budgeting, legal authorization and standards of service. This general man- agement function applies to Company- owned and Licensee-owned offices. Policies and procedures affecting pro- Regular meetings shall be held by a fessional and ancillary health and social Standards and Procedures Committee services shall be reviewed and recoin- cOmprised of service and health profes.. mended to the Governing Body by a sions within the corporation. Standards and Procedures Committee. This Committee shall be permanently established with a rotating membership and shall be comprised of professionals directly involved in rendering the service. B. The field management group is re- Field management carries out na- sponsible for the effective operation of tional programs and innovates within their offices under the direction of the the framework of national policies to Governing Body and its policies, meet local conditions. C. The Licensee group is responsible The Licensee operates under the and accountable for the effective oper- terms of the agreement. The Licensee's ation of their offices In line with the operations are flexible within the guide- terms of the Licensee Agreement and in lines set forth in the Licensee Agree- compliance with national policies. ment. The Licensee carries out national programs and innovates within the framework of national policies to meet local condltl~na STANDARD I-S-INSURANCE PROTECTIONS SHALL BE Arroiums Born CONSUMERS AND EMPLOYEES INTERPRETATION IMPLI~MENTATION A. Insurance protections shall include The scope of insurance protections general liability, malpractice, maiplace- will be continually reviewed to meet ment, and bonding in addition to other service needs. coverages as legally required. Minimum amounts of insurance shall be specified to both consumers and employees. STANDARD 1-4-THE GOVERNING BODY SHALL EVALUATE PrniOUGH REGULAR SYS- TEMATIC REVIEW ALL ASPECTS OF Irs ORGANIZATION AND AcrrrvrrIEs IN RELATION TO THE SERVICE'S PURPOSES AND NERDS OF THE COMMUNITIES BEING SERVED INTERPRETATION IMPLEMENTATION A. Regular reports shall he made to Continued field practice. the Governing Body by field offices for review. Other methods for evaluation including office visitation, normal line management functioning, and audit re- porting shall be used. Additionally: PAGENO="0095" 837 INTERPRETATION 1. The Standards & Procedures Com- mittee shall monitor office compliance with established standards and report to management. 2. The Manager of National Consumer Affairs shall investigate problem areas and recommend adaptions in the service. 3. The Advisory Council shall be con- sulted for review of proposed programs and shall offer input on problem and new service areas. B. Advisory Committees shall be established: 1. As required if the office is operat- ing as a provider of services utilizing public funds or as part of a contractual agreement, or 2. As deemed necessary by local management. The establishment of such boards in states not requiring them is deemed advisable. It is anticipated they will be required under Federal and state statutes in the future. One or more advisory groups may be needed by Zone or Licensee area as determined by geographic separation of service areas, population variances, or as required by contracting or funding sources. C. Utilization Review Committees shall be established: 1. As required if the office is operat- ing as a provider of services utilizing public funds or as part of a contractual agreement, or, 2. As deemed necessary by local management. The establishment of such boards in states not requiring them is deemed advisable. It is anticipated they will be required under Federal and state statutes in the future. The Utilization Review Committee may function as a subcommittee of the Advisory Committee and should be coin. prised of outside local professionals only. P. Service evaluation conferences will be held as an ongoing process by the service staff in order to review case load and case problems, communica- tions, nursing evaluation, counseling services, and to assure proper follow- through and implementation. The func- tioning of these conferences Will vary depending on local needs and cir- cumstances. IMPLEMENTATION Reports and recommendations shall be reviewed and implemented through line management. Patterns of membership may be specified by regulations or contractual agreement. Regardless of specification, the pattern as outlined below shall be considered as minimally required. Committee members are drawn from the community and should include a physician, a Registered Professional Nurse or a Public Health Nurse, other health and social service professionals and lay persons, and consumer repre- sentation. Members of the service's staff may. participate on this committee. Patterns of membership may be specified by regulations or contractual agreement. Regardless of specification, the pattern as outlined below shall be considered as minimally required. Committee members are druwn from the community and should include a physician, a Registered Professional Nurse or a Public Health Nurse, and other health and social service profes- sionals. Service personnel from outside groups who function similarly t~ Home- makers should be included. Continued field practice. PAGENO="0096" 838 SECTIoN II-ADMINISTRATI0N OF Suavicas STANDARD II-1-ADEQtJATE AND APPROPRIATE SUPERVISION OF THE SeRVICE AND ITS FIELD WORI~ERS SHALL Ba PROVIDED INTERPRETATION IMPLEMENTATION A. Services shall be supervised by Field management will continue prac- appropriate professional personnel as tice of hiring capable professional per' specified by legislation or contractual sonrel for supervision of services. agreement. Regardless of regulatory re- quirements of contractual specifications, services, when rendered, shall at all times be supervised in accordance with the following minimum requirements: Registered and licensed nursing services-Registered Professional Nurs- ing services or licensed Practical (Vo- cational) Nursing services shall be supervised by a Registered Professional Nurse or Public Health Nurse currently licensed by the state In which practic- ing. Additionally, this person shall have knowledge of social casework etiology and procedures. Nurse aide, homemaker-home health aide, and ancillary health services- Shall be supervised by a Registered Professional Nurse or Public Health Nurse. Additionally, this person shall have knowledge of social casework etiology and procedures. Other appro- priate patterns of professional super- vision may be used when specified by legislation. Social services-Shall be supervised by a qualified Social Worker. Physical, occupational and speech therapy services and diet counseling- Shall be supervised by the appro- priate qualified professional in these specialties. Nonpersonnel services-S hail be supervised by an appropriate member of the service supervisory staff. B. The supervision of services is resp~nslble for: The Initial assessment and plan of care In cooperation with other partici- pating health professionals. The continuing evaluation of the care and services rendered. Making sure that field personnel meet job description requirements. The selection and assignment of field employees. C. The supervisor of service may delegate some duties to other appro- priate members of the staff. In instances where this is done, the person to whom these duties are delegated will be ac- countable to the supervisor of service for the proper discharge of these dele- gated duties. Persons to whom duties are delegated may report to someone else in the organization for those job functions that are not related to the service being rendered. Continued~ delegation of these duties to the supervisor of services and inclu- sion of these duties in the job descrip- tion of positions. Office organization charts `shall show the proper reporting relationships. PAGENO="0097" INTERPRETATION 839 Due to the close proximity of some Homemakers offices within certain Zone and Licensee geographic areas, it is not required that ~ professional supervisor of the service being rendered be pres- ent in each office if appropriate super- vision is readily available. However, except for the unusual circumstance of close proximity, it is expected that the normal pattern of operation will pr~o- vide for appropriate professional super- vision within each office area. D. Written nursing, medical and social service policies and procedures shall be maintained in each location. IMPLEMENTAPIOtt All nursing and medical policies and procedures will be continually reviewed by the Standards and Procedures Committee. STANDARD 11-2-THERE SHALL BE AN APPROPRIATE PROCESS FOR ASSESSING Sznvicu NEED AND ESTABLISHING A PLAN OF CARE INTERPRETATION IMPLEMENTATION A. An initial assessment of need and a plan of care shall be established for all cases. This assessment shall include applicable physician orders, referral in- formation from other agencies, and an evaluation by the supervisor or designate. Pertinent case information will be shared with assigned field employees where applicable. B. On-site visits shall be made in assessing case need where legislatively or contractually required. When not re- quired by the above, the supervisor of service or designate shall make an on- site visit in assessing case need where indicated. 1. Initial visits shall be made in ac- cordance with the attending physi- cian's diagnosis and anticipated case duration, and as deemed necessary by service supervision. 2. In all cases, verification that the initial assessment was adequate will be made by consulting with the assigned field employee. C. For health care cases, as part of the initial assessment process, contact will be made with the attending physi- cian for any applicable orders. Written authorization from the attending physi- cian shall be obtained. D. Reassessment of case need shall be performed as determined by the supervisor of service, or as required by contractual arrangement or legislation. This reassessment may be performed by an on-site visitation, conferences with the attending physician and other in- volved professionals, and through con- tacts with the field employee assigned to the case~ Continued implementation through local management. Continued implementation through local management. Continued implementation through local managemei~t. Governing Body will submit form for national uniformity of application. Continued implementation through local management. 81-185 0 - 72 - pt.3 -7 PAGENO="0098" INTERPRETATION A. Records used in the delivery of service shall include where appropriate: 1. Service Request Form-_Used in the assessment and plan of care and kept as part of the consumer's file. 2. Service Record-A progress notes sheet for recording changes in physical, mental or social status as kept by the field employee. Periodically returned to the local office for inclusion in the con- sumer's file. 3. Physician's Orders Form-_Author. ization for treatment, medication, and other directives. Additional recordkeeping require- Inents of agencies or institutions being served shall be met. B. Case information shall be treated confidentially and shall be accessible only to authorized persons. Appropriate measures shall be taken to safeguard case records. C. Records shall be retained for the length of time necessary to fulfill legal requirem~~~~ B. Policies and benefits for regular part-time and full-time office personnel in Company~owned offices shall include: Liability insurance coverages, Social Security, Workmen's Compensatjo~ Unemploym~n~ Compensation, Vacation plan, Holiday schedule, Sick leave, Medical and life insurance, Transpori~ tion costs compensation, and Profes- sional Service Compensation Plan (when applicable) Plans and procedures will be continu- ally updated. C. Policies and benefits for tempo- rary field employees of Company~o~fl~ offices shall include: Liability insurance coverages, Social Security, Workmen's ~ Unemployment Compensation, Vacation plan, and Transporta~i~~ costs~ compen- sation. Other policies and benefits will be provided when required by contract and updated to reflect service needs. IMPLEMENTATION All forms and records used in local offices shall be reviewed and approved by the Standards and Procedures Com- mittee and the Governing Body. It is not intended that local needs be made subservient to national decision mak- ing, but rather that more effective re- sults be achieved through a focused program. Principles that will be followed in forms design are: 1. Flexibility of Content-_A few forms designed for a number of uses rather than Producing many forms, each with a single purpose. 2. Impact on Systems-_Indivi~~~~ forms changes will be authorized in the context of the systems of which they are a part. Security meaSures will be imple- mented by local manageme~~~ 840 STANDARD II-3-_INnwIDu~ CASE RECORDS AND REPORTING SYSTEMS TO M~r ALL APPLICABLE REQUIREMENTS SHALL BE MAINTAIN~ Standards & Procedures Committee will investigate legal retention require- ments by state as well as by type of record. SECTION Ill-_HUMAN RESOURCE UTILIZATION STANDARD III-l~THE SERVICE SHALL HAVE WRITTEN PERSONNEL POLICIES INTERPRETATION IMPLEMENTATION A. All office and field employees shall Manager for Personnel & Training receive written personnel policies and will provide employee handbooks con- business procedures upon employment taiñing pertinent information Line management will continue present communication practices. Manager for Personnel & Training will develop, catalog and refine national I)ersonnel policies. Manager for Personnel & Training will develop, catalog and refine national personnel policies. PAGENO="0099" INTRRPBBTATION INTERPRETATION A. Non-discriminatory personnel practices are based upon longstanding corporate commitments In this area and national and state legislation. INTERPRETATION A. Job descriptions for each job category shall include a job title, delineation of job responsibilities and duties, personal and educational re- quirements, experience requirements and inter-staff reporting relationships. These descriptions shall serve as es- sential base documents for continuing training programs development. B. Organization charts will be main- tained to represent lines of authority and reporting relationships. C. Job titles and descriptions shall be standardized for national ushge. Due to local variances and acceptability, it may be necessary to use other job titles, but job content will be stabilized for the purpose of training programs development. IMPLEMENTATION Job descriptions for all office and fiel4 positions shall be prepared by the Standards and Procedures Committee for management adoption and updated as needed. A. The selection process shall include personal interviews with each applicant and `an orientation of the employee to his employer's procedures `and policies. A central employee file will be main- tained for each active employee. B. Interview impressions shall be Continued field practice. confirmed by reference checking before assignment: D. It is strongly recommended that I licensees pattern their personnel policies after those of Company-owned offices to achieve employee parity as well as `~ervice uniformity in regional contract the ac ing with consuming. institutions and agencies. STANDARD 111-2-THERE SHALL BE No DISCRIMINATORY Pi~cTIcEs BASED ON RACE, COLOR, CREED, SEx, AGE, NATIONAL ORIGIN OR ANcESTRY IMPLEMENTATION Governing Body interprets Federal legislation for field implementation and audits compliance. The corporate Af- firmative Action Program and policy statements shall serve as the govern- ing documents In this area. Local management establishes non- discriminatory practices in line with corporate directives and state and local laws. STANDARD 111-3-THERE SHALL BE A WRITTEN JOB D~SCRIPTrON Foa ALL OPRICE AND FIELD POSITIONS WHICH ARE PART OF THE SERVICE The Governing Body is responsible for maintaining and disseminating Home Office, line management, ~tnd local office chhrts. Field management is re- sponsible for communicating job con- tent of positions in local offices~ The Standards & Procedures Chin- mi'ttee shall recommend standard job titles and descriptions for office and field positions. INTERPRETATION STANDARD 111-4-THERE SHALL BE AN EFFECTIVE PROCESS UTILIZED IN THE SELECTION OF EMPLOYEES THAT WILL ASSURE CONTINUING QUALITY OF CARE IMPLEMENTATION Continued field practice and develop- ment of additional selection procedures. PAGENO="0100" 842 INTERPRET~ON IMPLEMENTATION 1. Multiple work references shall be Work references shall be reviewed obtained, for total work eYperien~ with atten- 2. In instances where Work referenee tion to duration of time Ofl each Job, information is unavailable educational and reasons for leaving which may in- and/or personal references shall be dicate a change in skill or responsibility obtained levels. 3. Notes should be made of telephone reference check information 4. All reference cheek Information shall be kept in a confldenriai file. C. Screening of each employe~ health shall be performed before em- Ployment: 1. A physica' history cheek list must be completed by each employee. 2. The applicant must provide writ- ten evidence of a negative TB test or chest X-ray in accordance with local public health practices, These test re- suits must be renewed annually. 3. Other physical examination proce- dures will be performed as requir~ by state legislation, contractual agreeme~~ or at the option of local manageme~~ D. Before employme~~ each candi- date will be evaluated against the criteria contained in the job descrip- tion. A written record of this Initial evaluation shall be kept. After hire, there shall be an ongoing process of evaluation ott each employ~ as part of the service evaluation proce~ in assur~ng continuing quality care. 1. An ongoing asses~nent ott the em- ployee's performance will be condUCted by supervision 2. A reeor~J of such evainations shall be kept. 3. The resulin of evaluation will be shared with the employ~, STANDA5D III-5_~tj~~ EMPLOYEES SRALi~ HAvE HAD APPROPRIATE AND ADEQUATE TRAINING INTERPRETA~ON A. Professional employ~ shall have completed an ~ccredited progpa~ in their discipline and be currenuy li- censed in the state in which they are currently practidng if required, B. For non.professional categories, appropriate experience or adequate training is required to meet job de- mands, Additionally, these empioy~ must be certified if required by the state. C. A progr~rn of continuing inservice education shall be established that is ap- propriate to each job category. D. It is the corporate intent to make available career advancement opportu. nities through training and development programs, The Standards & Procedures Commit.. tee shall continue researeh OR suitable checklist items. Availability of testing services may be found through the Public Health De- partment, TB Association, or other health organiz~~~011 Continued field practice and develop. meet of additional evflluation proce- dures. IMPLEMENTATION Normal employme~~ screening proce- dures. The Standar~ & Procedures Commit. tee shall review and endorse training outlines having appropriate content. The Standards & Procedures Commit- tee shall review and endorse inservice education materials and program~~ The Personnel & Training Manager shall develop the career ladder concept and sequentj~~ training programs, PAGENO="0101" SEC'rIoN IV-COMMUN1TY AND STANDARD IV-1-THERE SHALL Bn WRITTE] INTERPRETATION A. The service will continue to be re- sponsive to the needs of the consumer. Questions regarding quality of service, human relations, nursing practices, and other critical areas affecting the con- sumer shall be investigated by manage- ment. Policies and practices will be modified accordingly. All consumer inputs will be dealt with courteously and expeditiously. B. It is the Intent of the organization that there shall be no limitation on serv- ice provided In terms of eligibility of consumers, groups or individuals, on the basis of age, sex, race, religion, normal geographical service area, hours (bey- ond normal local minimums) and days of service, social and health needs, num- ber of children in the borne, emergency service, or referral sources. The health care needs of communities served dic- tate total service capability. C. It is recognized that there will be occasions where service cannot be ren- dered due to the consumer's inability to mobilize economic resources or a short- age of employee Inventory. In cases where the organization is unable to meet a request for service, the consumer shall be referred to other service agencies or sources of assistance. Every effort will be made by Home- makers Governing Body and field man- agement to encourage all fiscal inter- mediaries, Federal and state funding sources, and other involved parties to structure coverages to fit the needs of the consumer. Af qu ., ~rvic~ ommend approprh sultation with I .~. ~4al service professionals ~ be sought where appropriate. Continued field practice~ Continued field ptactice. STANDARD IV-2-THE SERVICE AS AN INTEGRAL PART OF THE COMMUNITY'S HEALTH AND SOCIAL SERVICE DELIVERY SYSTEM SHALL CONTINUE To ASSUME AN ACTIVE ROLE IN ASSESSMENT OF COMMUNITY NEEDS INTERPRETATION A. Appropriate adaptations in the service shall be mhde based on local management's assessment of the com- munity's needs. It is the intent of the organization to continue in cooperative relationship with all parties interested in improving the quality of services, in- cluding comprehensive health planning groups. B. An ongoing program interpreting the service to the public shall be under- taken. The availability and purposes of the service shall be made known to the public through the use of the news media and other pertinent avenues of communication. IMPLEMENTATION Continued field and corporate practice of active community involvement. The Governing Body will continue~to structure national promotional policies and programs. Local management will continue to implement programs that will inform the public of the service. PAGENO="0102" 844 STANDARD IV-&-WREN MoRE THAN ONE AGENCY PARTICIPATES IN TIlE PLAN OF CAns, AN AGREEMENT SHALL Bn ENTERED INTO BETWEEN THE AGENCIES To CON- FIRM THE MUTUAL UNDERSTANDING OF THE PARTICULARS OF THE SERVICE TO BE PROVIDED INTERPRETATION IMPLEMENTATION A. When an agreement is entered into Governing B~tly will supply sample for shared responsibility in the delivery agreements for local use. of the service~ the consumer will be pro. vided with: 1. The services of the field employee under professiousi supervlsjo~ 2. An adequate assessment and plan of care. B. The items which shall be included Governing Body will Provide sample in the agreement are: agreement format for national use. Descriptjo~ of the service to be pur- chased. Duration the agreement is in force. Delineation of respective roles of each agency. Requiremen~5 regarding qualifications of supervlao~~y and field personnel. Delineation of fiscal arrangeme~~ be- tween the two agenejeg. Delineation of liability. Assurance of compfla~ with Federal and state regul.a~~~ Additional contract Items may be in- cluded as specified by regula~on~ or contractual agreem~n~~ Mr. ROGERS. Thank you for your testimony. I think it has been most helpful. We will have Some questions. Before we begin questioning, however, I would like to recognize the president of a very distinguished group of senior citizens who are here from Rockvifle, Md. I understand at the request of our good colleague, and most distinguished colleague, Congressman Gude. We welcome you to the committee. We are having hearings this morning on health maintenance organizatio~~ where people can pay a certain amount of money at the beginning of the year, and their health care for that year will be taken care of in a most comprehensive way. We are now trying to determine the measures of the bill, what it should require. We have just had some experts from the field testify- ing now, and the committee will begin questioning. Let me just ask two or three quick questions. What should the basic benefits be? You say they should be limited, they should not be overly extended. What should they be? Mr. OALLIHAN. I really think that the bill that you have introduced covers it in grand shape. If you would add radiological Services, diag- nostic radiological services, and a couple of other areas, you would be in good shape in our estimation. Mr. BENNETr. The administration bill really lays out the four areas. Mr. CALLfflAN. Right, plus the diagnostic services. Mr. BENNETT. You notice we are not including nursing home serv- ices or home health care. Mr. ROGERS. Should we have home health care? Mr. (JALLIHAN. Not specified as a benefit. Mr. Rooirns. Why not? PAGENO="0103" care h~spitiais.' If you mandate it going in as a benefit, it puts it in a d gory and forces us into an unfair competitive position we If that HMO is to survive, it will use both extended care facLies and home health services. Mr. Rcxn~s. Suppose we place in the legislation which the committee is considering similar minimum standards for all health insurance~ policies sold in America. Mr. BENNETr. That makes it a different story. Mr. ROOERS. If we are going to move in preventive medicine, aren't we going to have to take steps like this, have home care, visits to the doctor's office, examinations paid for either by bealth insurance or by your HMO? Mr. (JALLIHAN. In that case, fine. Mr. BENNEPr. That would be different, yes, indeed. Mr. R0OER5. How do we assure the public, where you have a pro-j prietary operation that you own for profit, that when the money gets tight, you are not going to give underutilization or underservices to people? In other words, we hear from the nonprofits that if we allow the profit people into this field, encourage them, then when they find out in the ninth month that the money which has been paid in is going to run low, they will say, "Well, let us keep everybody out of the hospital," or "Cut out this type of pill or this type of medication." Is there `a validity to that argument? Mr. BENNErr. I firmly believe it would be a common problem re- gardless of the type of ownership of the HMO. However, as we have talked about, when you are talking about HMO's, you are talking about incentives, and perhaps the one person who has the most incen- tive to provide good care is the physician because, in most cases, he is in some kind of a position where he is under a profit-sharing arrange- ment with the lIMO. They certainly have the threat of malpractice suits just as the lIMO does that would keep the consumer happy. We think that competition will keep the lIMO's providing the kind of services that are required, and, of course, satisfying the consumer of lIMO's is extremely important. If one is not performing, they should be able to choose another mode or another HMO. Mr. LIPITz. In line with our whole concept of government, of checks and balances, in any prepaid group or any kind of medical care today, it requires some kind of audit of that care, both from the utilization standpoint, which is required in medicare and medicaid, and also from a quality care standpoint. Medical audits in both proprietary and nonprofit would be most appropriate. We have no objections to that to assure that high quality care is given consistent with the dollars being spent. Mr. RooERs. I understood from your testimony that you did not rec- ommend any such qualification be written into the law, that you would rather not get into that. PAGENO="0104" PAGENO="0105" 847 In what way would the legislation we are considering restrict your type of operation, a privately owned, proprietar~r operation? How would it stop you from expanding the way you would like to expand? Mr. BENNETT. Miss Coimell will respond. Mr. NELsEN. Is there any other restriction that stands in your way? Miss CONNELL. As one of our recommendations stated, in H.R. 11728, there is `a provision in the bill which exempts HMO's qualified tinder that bill from restrictive State legislation. We are not talking about Federal dollars here. If proprietary HMO's are not included in the definition, then they obviously don't benefit from that provision. Mr. NELSEN. I see. That is important. Now, another point is, of course, the Federal money that might go into an HMO. One of the things that has bothered many of us is if Federal dollars go into this type of operation, do we put others at `a disadvantage by the funneling of dollars to a nonprofit organization only? You may have an existing hospital or you may have a proprietory HMO operating, going along on their own. So, we begin t~ funnel Federal dollars into the nonprofit organization, putting others at a disadvantage, putting other facilities at a disadvantage. Do you have an observations on this? I think your testimony would indicate that you do have. Mr. BENNETT. Definitely, it would place us at a disadvantage. How- ever, the competitive factor, we think in the long run, will prove out, that `we can provide the services and probably at a lOwer cost. Mr. NELSEN. I want to complement Mr. Griffin and the group here because you have made it on your own. You have dt~ne a job with your own funds, and you have supplied the community with a health serv- ice that has been very good. `One of the things I fear in an extensive HMO program using Fed- eral dollars is that you create a dependency and overlook those who are l'ambing it alone. We don't want to discourage them because really we never have enough dollars to do a total job. I want to congratulate you, Mr. Griffin, for the job you obviously have done. Thank you, Mr. Chairman. `Mr. ROGERS. Dr. Roy? Mr. Roy. What experience have you `had with for-profit HMO's? I will preface that by saying, as I understand your testimony, none of you are opening for-profit HMO's. Mr. BENNETT. That is right. Mr. Roy. What experience have you had with for-profit IWO's? `Mr. BENNETT. I don't think we have had any. As you know, there are~ a couple of fledgling proprietary HMO's, but none with any real track record `as yet. I guess that is why we are asking for nothing restri~- tive, but let us be flexible `and experiment. Mr. Roy. Why haven't there been for-profit HMO's? Mr. BENNETT. I think a number of things. First of all, I think if you are involved in any of the large kinds of health care delivery, you are concerned about legislation, and legislation has not come along, as yet, as' you `are well aware. We also have had the bad taste of medicare that we have been living with for 6 years, and know what can happen without more definitive legislation. I think we are all ready to see what we can do to develop the system better, but there is definite need for legislation. PAGENO="0106" 848 Mr. ~ I think in some respects, also, restrictive State laws have hampered, In Maryland, physicians are allowed to be employed by nonprofit groups, but not proprietary groups. Mr. Roy. Isn't it true however, that with the restrictive State laws, we have had, we still have about 6.5 million people being taken care of by what you might call prototype nonprofit liMO's? Mr. BENNETT I like Dr. Gumbinder's definition of his operation as being "entrepreneurial nonprofit". Mr. Roy. Would you like to define "for-profit" for me? Mr. CALLrnAN. One that pays and reports dividends, if any. Mr. Roy. What is your necessary return on capital? Mr. CALLIHAN. Necessary return and what we realize are two dif- ferent things. Mr. Roy. In order to attract capital, what do you think your promised return on capital needs to be? Mr. BENNETT. I can tell you on gross income. Mr. CALLIHAN. Go ahead. Mr. BENNETT. I think many health care companies in the nursing 1i~ld shoot for a 5 percent after-tax return on the gross income. Mr. Roy. That really does not tell us much. - Mr. Lipipz. I think the reason we can't answer is because it is so new. You know, there are no parameters, there are no guidelin~ to say you are doing very well, and he is not doing well. We really don't know. Of course, capital is invested in different ways. If you can earn more than the interest you are paying at the bank, that is a reasonable return. There are a lot of definitions of how you raise capital. We are just not sure. Mr. Roy. We have been told they are requiring about 12 to 20 per- cent return on capital. Mr. CALLIHAN. In our operation last year, we made a 6.2 percent return on capital. Obviously, we can't borrow money for that. We can make more money in Government bonds. It has to be between there and 12.5 to 14 percent. Mr. Roy. If you add on 12 to 14 percent as a margin of profit, they then indeed cannot compete with our present health care system of indemnity insurance for-fee service. Mr. Liprrz. Our assumption is that we can provide the Same serv- ice more efficiently, and draw our profit out of Savings, not out of additional cost. Mr. Roy. It is still an assumption because. we have not had any experience. Mr. CALLIHAN. It is assumption in HMO's but not in general health care delivery. It has been proven throughout the United States that Proprietary operators repeatedly deliver health care at a much lesser cost than do nonprofit organizations, I will be glad to give you the statistics. Mr. ROGERS. I think that it would be helpful to have that. (The following letter was received for the record:) PAGENO="0107" 849 HOMEMAKERS HOME AND HEALTH CARE SERVIORS, INC., SUBSIDIARY OF THE UPJOHN Co., Kaiamazoo, Mlo1~., May 22, 1972. Congressman PAULO. ROGERS, 2417 Rayburn Hoase Oj~Zce Bt~iiding, Washington, D.C. DnA1~ CONGRESSMAN ROGERS: Per your request for additional factual infor- mation of specific cases where for-profit health care deliverers have been able to deliver services more economically than not-for-profit organizations I'd like to refer you to my testimony before the Ways and Means Committee hearing on National Health Insurance on November 11, 1971. In response to a question put to me by Congresswoman Griffith, I offered to contract with the Secretary of H.E.W. to provide all of the Home Health Aide services required under Titles 18 and 19 in all of New Orleans, Louisiana at a rate of $4.50 per hour- a $2.00 per hour savings by comparison to the two not-for-profit organizations currently delivering that service at $6.50 per hour. We will be reporting other specific cost savings thru the National Council of Health Care Services (Mr. Bennett and his staff are currently collecting such data to comply with your request) but I thought I should write to you directly primarily because of the line of questioning Dr. Roy used with me and other members of our panel the day we testified in front of your committee. It appeared that Dr. Roy's prime concern with for-profit providers of health care was a fear of "profiteering" rather than a concern for cost savings. thst sav- ings, it seems to me, should be the number one consideration in all Congressional planning for health care regardless of whether the subject be National Health In- surance, lIMO's, Medicare, Medicaid or any of the many provisions under Title 45 of the Social Security Act or whether the subject under any of the above major headings be existing coverage or service, alternatives to existing coverage or service, or innovative experiments in radical departures from existing coverage or service. We can draw the above conclusion logically if the specifications of "eligibility for participation" on the part of the provider are properly written. Only those providers capable of rendering quality service should be eligible to begin with. That leaves "cost" standing alone for further consideration. Continuing that line of logic, it shouldn't make one bit of difference to Congress what amount of profit a for-profit provider makes as long as he Is providing a quality service more economically than his not-for-profit counterpart can do. That kind of economy means cost savings to the Federal Government while at the same time, if the for-profit provider should produce a profit, provide additional revenue to the U.S. Treasury because every dollar of before-tax- profit will produce forty-eight cents of income tax for Uncle Sam. I had suggested to the Ways and Means Committee that an alternative method of payment be made available to for-profit Home Health Agencies. Instead of reimbursement on a cost-plus 9.938% return on equity capital, simply pay us - on a fe&for-service basis at our "going rate in the community" so long as our rate is less than that of our not-fer-proftt counterpart. That move alone would save the Federal Government millions of dollars of auditing costs currently re- quired under Medicare and would save for-profit Home Health Agencies count- less hours of administrative time trying to figure out what the $9.938% should he applied against, etc. On the point of cost-plus reimbursement, I thought it most unusual that both not-for-profit home health agencies in New Orleans could have such similar costs that their billing rates turned out to be identical, so I personally worked up our "justifiable cost basis" in the New Orleans market before my testimony last Noyember. On that basis, and before adding the 9.938% return on equity capital, our billing rate would have to be $5.54 per hour rather than our "going rate in the community" of $4.50 per hour. (I didn't add the 9.938% because, even though I am a CPA, I didn't understand what the 9.938% applies to!) We don't need that extra $1.04 per hour. We couldn't get it from our private customers (who make up 95% of our total sales ~o1ume nation-wide). We shouldn't be allowed to get it from Uncle Sam! PAGENO="0108" 850 As I mentioned previously, we will be furnishing additional cost savings data thru the National Council oi~ Health Care Services. If we can be of any further service to you and your committee during your deliberations on health care delivery, please feel free to call upon us at any time. Respectfully submitted, EDWA1ID ~ WILSMANN, President. (The following table was subsequently received for the record:) COMPARISON OF PROPRIETARY AND NONPROFIT HOME HEALTH CARE SERVICES FROM A SELECTED GROUP OF CITIES City and service Nonprofit charges Homemakers, Inc. St. Paul, Minn.-Homemaker home health aide $4 per hour (2 or 3 hours $3.15 per hour. only). Milwaukee, Wis.-Homemaker home health aide_ - $5.25 per hour $3.45 per hour. Oshkosh, Wis.-Homemaker home health aide $3 per hour $2.68 per hour. Detroit, Mich.-Homemaker home health aide $4.80 per hour ($38.40 per $3.84 per hour ($30.72 per day). day). St. Louis, Mo.-Homemaker home health aide $5.50 per hour ($13.75 per $2.8S per hour. Visit). RN.' at VNA $15.50 per RN.' $5.75 per hour. hour. Lansing, Mich.-Homemaker home health aide $3.25 per hour $3.55 per hour. 1 No services provided in Grand Rapids, or Kalamazoo, Mich. Mr. Roy. I think I would `be hard put to defend the quality of care in private nursing homes. Do you think you are capable of defending quality care? Mr. OALE~IHAN, Yes, sir, I would like to invite anyone to visit one of our facilities. Mr. Roy. I attn not speaking of your facilities. I am speaking of facJilit~ies nationwide. Mr. BENNETT'. When Dr. Elwood testified 2 or 3 weeks ago, he mentioned a study they did in Minnesota in determining the quality of care. Their conclusion was that regardless of nonprofit or proprie- tary, there was no difference in the quality of care being provided. Mr. Roy. On your home health services company, you say you have 125 locations, 20,000 employees. What was your gross income for the last year? `Mr. WILSMANN. Our sales, combining the company's sales with franchise sales, was just slightly over $16 million. Mr. Roy. What was your net income? Mr. WILSMANN. We had a loss of slightly over $1 million. Mr. Roy. What was your capital investment? Mr. WILSMANN. Something in excess currently of' $5 tmillion. Mr. Roy. I assume you paid no dividends? Mr. WILS1~1ANN. We had a loss, sir. Mr. Roy. What has your record been over the number of quarters you have been in existence?, Mr. WILSMANN. We have been operating since April 12, 1965. We have, as yet, to make a profit. Basically, this is because of rapid ex- pansion. We opened 45 offices last year. We plan on opening another 34 to 45 this year. Anything that might have been made in maintaining a particular level of offices has been plowed back into the business, and, as a result of it, we have ended up loosing to this particular point. PAGENO="0109" / 851 We should tarn black for the first time in 1~)73 when our expa.nsi~n, as far as owned operations are concerned, will pretty well have glutted the company. Mr. Roy. What is your record as far as book value of a share of the stock? Mr. WILsM~NN. We are a subsidiary of the Upjohn Co. Our book value of the subsidiary, itself, is definitely in a negative position. We live on borrowed funds from the Upjohn Co. Mr. Roy. If we support; for profit HMO's, would you consider this to be an experimental program? Any Federal aid to HMO's, is this or is this not an experimental program? Mr. CALLIHAN. I think we would have to term it as much because there are none in existence. Mr. Roy. Do you feel Federal assistance for the formation of for profit lIMO's is an experimental program? Mr. BENNETT. We have said in our testimony that there should be equal treatment whether it is grants, contracts, loans, loan guaranteeS. I guess, in effect, we are saying however, loan guarantees might be im- portant such as FHA has done. Mr. CALLIHAN. Representative Roy, the problem we are trying to overcome is a cénstant discrimination, historically, against proprietary operators in favor of the nonprofits. We are trying now to overcome that, and hope for some equal treatment. In experimental programs to determine whether or not we can deliver health care at lesser cost than nonprofit operations can. Mr. Roy. For-profit lIMO's have not existed up until this time, however, nonprofit HMO's have. `There has been some reason for this. Therefore, I feel if we financially assist a proven concept, this is one story. If we assist an unproven concept, this is another story. How- ever, I think maybe what you asked in regard to making any pre- emption of State laws apply to for-profit, as well as nonprofit HMO's would be wise. Mr. BENNETr. If I may comment~ Mr. Chairman. I think the seman- tics of what is nonprofit is a little hazy at this point. Mr. Roy. That is the reason I asked for your definition. Mr. BENNETT. If you talk about even Kaiser, those physicians are on an incentive. The people who built the hospital made a profit, the people who supplied the radiological equipment, and the food and everything that goes into that hospital in that program is nonprofit, but somehow, there is this umbrella which perpetuates itself, and they' are nontax paying. We have cost figures on building a nonprofit hospital that run $60,- 000 to $70,000 a bed. We can go in for $30,000 a bed. I don't think the system can afford that kind of funds. Mr. Roy. I will admit we have built some very fancy health care facilities under the nonprofit system. These may or may not be neces- sary. Probably not necessary. Mr. ROGERS. I am not sure about this nonprofit business. They all make a profit. Everybody is paid a profit, an incentive. Mr. BENNETT. They have to make their mortgage payments which come out of profits. Mr. ROGERS. Certainly. I question that kind of fiction that has been built up. PAGENO="0110" 852 Mr. CALLIHAN. Amen. Mr. NELSEN. Hallelujah. Mr. ROGERS. Mr. Hastings? Mr. HASTINGS. Thank you, Mr. Chairman. I have had some bad views and good views. First, the good views. I generally agree, proprie- tary should be included to some degree. I am not sure what that degree is. I ktiow that is consistent with your viewpoint. Now, bad views. I don't understand the total opposition to the inclusion of any consideration by CHP's. If somebody will clarify that for me. Mr. CALLIHAN. I can give you an instance where comprehensive health programing is either going to stop or significantly delay a proprietary prepaid health care system in Detroit. A doctor's clinic with 31 members is practieing excellent medicine almost in an HMO environment, now. They are in the process of contracting with the State of Michigan to provide services to 10,000 medical assistance patients in a certain geograhic area. They have facility on site next to their clinic. They are now building a surgical facility as well. The facility is an ECF hospital kind of combination. In order for them to successfully deliver the right kind of medical care, they must get a hospital license or some kind of modi- fication of a hospital license in order to treat people on site. Otherwise, they have to ship their people across town. Now, the comprehensive health law for the State of Michigan that is now being passed, says you cannot have a certificate of need unless the areawide comprehensive health planning agency approves you for a hospital. They have no chance. So, the comprehensive health programing will work against the formation of their HMO. Maybe, unknowingly, you see. Mr. LIPITZ. We believe the question is: Are you going to experi- ment? Experimentation requires flexibility. We are not saying that comprehensive health planning does not belong within the HMO's, but if what we are doing with them now is to learn what an HMO can reRily do, the more difficult we make it to create that experiment, the longer time it will take us to get any information. Mr. HASTINGS. You say you are not excluding CHP's. MiSS~CONNELL. If I may explain. I think the purpose of comprehen- sive health planning is to eliminate competition as being unnecessary duplication of facilities. Call it what you may, that is eliminating competition. Also, in general, most CHP agencies are controlled by the present establishment, the local nonprofit hospitals and medical society, and they certainly are not about to disenfranchise themselves, I don't think. Mr. HASTINGS. Would you advocate that we repeal CHP legisla- tion? Mr. CALLIHAN. No. What we are recommending in the State of Michigan, Congressman, is that the certificate of need legislation which is tied with CHP, be modified so that, if we are talking about a prepaid system or a prepaid environment, then the laws or the rule for certification be waived for those installations. If we could get that kind of legislation, it would be most helpful to us. PAGENO="0111" 853 Mr. HASTINGS. If CliP's were given a consultation role, ~perhaps in the establishment of any facility subject to, perhaps,. appeal to the Secretary of HEW, would you ob.ject to this? Mr. CALLIHAN. So long as it is consultative, and they did not have the final decision. Mr. HASTINGS. Well, decision subject to appeal to the Secretary does not give them final decision. I am concerned because aithou~h you talk about for-profit, which I am in favor of, at the same time, I think we all recognize that, without Federal dollars through medicaid, medicare, health insurance, you are not going to operate very profit- ably. The suggestion that the Federal Government or State government are not going to be involved in delivery of health care is not true. We all know that. So, we do have a serious responsibility. Whether competi- tive medicine is going to be the long range answer or not to the proper delivery of health care, I don't know. Some feel it isn't. Somebody has to make a decision on where to put another facility. If you are going to put one next door to another, it will be openly free market enterprise, competitive, then I think we probably have a problem in coming up with enough dollars to make both of those institutions remain financially valuable. So, I am concerned a little bit about what would seem to be your total opposition to the involvement of CliP's. Mr. BENNETT. We have said in effect, too. though, that as a~i alter- native, Mr. Roy's consultation role of comprehensive health planning would be acceptable. Mr. HASTINGS. You say it now. You did not say it in your testimony. Miss CONNELL. I think our position more clearly stated is that in some parts of the health care industry, like the nonprofit hospital industry where competition doss not. exist, where facilities are reim- bursed on a cost-type basis and the negotiations are conducted between the individual hospital and the insurance company, there certainly is a role for comprehensive health planning and restriction of duplication. In other parts of the health care industry, for instance, the nurs- ing home industry, where competition does exist, where it does provide the consumer with a choice of prices, and so forth, and where the Government is not being asked to underwrite losses, then we don't think the comprehensive health planning belongs. Mr. HASTINGS. What percentage of the income of the average nurs- ing home is going to be from medicaid and medicare? Mr. BENNETT. Medicaid is 60 percent. Mr. HASTINGS. So the suggestion that the Federal Government is not going to be asked to underwrite the law indicates that without that you are not going to operate. We are contemplating, as we all know, a system of national health insurance. Whatever may come out, I have my own views on that. There is an involvement, certainly, by the Government. I think we certaInly have to take a look at your CHP's. Your testimony is helpful in that respect. I would ask you, from your point of view, to be a little more receptive. Mr. CALLIHAN. I think that is reasonable. Mr. ROGERS. Can you supply for the record any evidence you may have of average patient cost for specific illnesses or operations regard- ing proprietary versus the nonprofit? Any statistics would be helpful. PAGENO="0112" 854 Also, the number of operations, comparing your operations and what may happen outside. (See letter dated May 22, 1972, from Edward J. Wilsmann, presi- dent, Homemakers Home and Health Care Services, Inc., to Chair- man Rogers, p. 849.) Mr. ROGERS. Let me ask you to supply for the record too, your corn- merit on the proposition that if the Federal Government does award grants for profit HMO's, should it exercise a limitation on profits percentagewise? If you could give us a comment on that? Mr. BENNETT. We will be glad to. (The information requested was not available to the committee at the time of printing.) Mr. ROGERS. Thank you very much. Your testimony has been most helpful The committee is grateful for your appearance today Our next witness is Dr. William T. Hart, director, Rochester Mental Health Center. STATEMENT OP DR. WILLIAM T. HART, DIRECTOR, REGION II, NATIONAL COUNCIL OP COMMUNITY HEALTH CENTERS, AND DIRECTOR, ROCHESTER MENTAL HEALTH CENTER, ROCHESTER, N.Y. Dr. HART. I believe you have a copy of my testimony. Mr. RoGERs. Yes, it will be made a part of the record, if you will highlight the specific points that you think should be brought to the committee's attention. Dr. HART. Mr. Chairman and members of the committee, it is a great pleasure to speak to you today. I am probably presenting more prob- lems than solutions. What I would like to do is to primarily speak about our experience in the development of a mental health center in con- junction with an HMO. I am the director of the Rochester Mental Health Center, Rochester, N.Y. I am also a psychiatrist. The Rochester Mental Health Center has been operative for over 5 years. It serves 176,000 people in Monroe County, including a quadrant of the city of Rochester. The area in Rochester includes 50 percent of the poor of Monroe County, so that we have had experience with both the poor in the central city and our catchment area which extends out to the rural areas in the towns of Webster and Bondeguoi. The Center initiated new programs when we started, and an alco- holism clinic joined us, then a child guidance clinic joined us. All other services were started from scratch, including inpatient service. The services we offer include in-patient services, services for the gen- eral psychiatric patient, drug abuse services-we have a methadon clinic for heroin addiction-as well as other services, and services for the alcoholic. I might emphasize that these services are included in the cost figure that I will give you later on in the presentation. However, I would like to go back to a little of our history to try to support the major point that I would like to make, namely, that HMO's should include mental health services and, more than that, should contract with a community mental health center if it is available to that lIMO. PAGENO="0113" 855 The people's health center, which is a neighborhood health center operates in the inner ghetto section of our catchment area. We began operation approximately 3 years ago. We had been in operation about 2 years at that time. We spoke to the administration there and agreed to deliver mental health services to this neighborhood health center, not specifying at that time the administrative relationship. We didn't know how solid their funding was, or our funding. We were both beaming at this inner city portion of our catchment area to deliver services. However, they left the direction of the mental health services completely to the Mental Health C~nter. What occurred is as follows: This neighborhood health center, People's Health Center, serves a population of 12,000, has 12,000 enrollees. They developed health teams to serve segments of this population. These health teams consist of physician, public health nurse, and two or three family health assist- ants. We began our work by being available to these health teams that met weekly and in the beginning maybe 10 percent of the conversation, of these health teams was concerned with mental health matters. This has grown until now in their weekly meetings about 70 percent of the con- cerns of the teams are with mental health matters. At the beginning we had many inappropriate referrals to the mental health person on the team but finally we began getting referrals such as the family health assistant who had gone into an apartment and there was a woman there listening all day to the voices coming out of the radiator. At this point we would become quite active and intervene. Now the relationship of the health center to the Mental Health Cen- ter here I think is important, because sometimes patients refuse to be seen by mental health personnel and the care had to be carried out through the physician, or the family health assistant, or the public health nurse who had direct contact with the patient. Another situation that would occur is that the nonpsychiatric or nonmental health personnel would not want to refer the patient, in which case we had to work with whoever was resisting referral and often would see the patient directly ourselves. I think the critical item here is that with mental health services in the neighborhood health center there was a heightened awareness on the part of nonpsychiatric personnel to recognize and to treat some of the mental health illnesses that were seen. Our association with the People's Health Center has continued all these 3 years. At one point in our history--it was about three and a half years ago-the health center decided to deliver mental health services on their own. There were certain irritating constraints that we would place on the personnel. It was the complexity of having twG people responsible, but after a long discussion we finally agreed jointly that it was important that the Mental Health Center be involved with the personnel delivering mental health services at the neighborhood. health center. At the present time in our relationship with the People's Health Center there is a new movement, new personnel have come in and there is a new movement to establish independent services. Unless there is a definite fiscal-administrative relationship I think this tendency wilJ ~ontinue and eventually the health center will have its own mental health services or have none at all. 81185 0 - 72 - pt. 3 -. 8 PAGENO="0114" e two groups. These t~ two years away f S or not I d' tist as PAGENO="0115" 857 What I would like to speak to you about now is the advantages of the combination of the HMO and the Community Mental Health Center. First, I think if they are completely independent organiza- tions that we will see hostility gradually grow up between the two organizations. You see it in communities now where there is so-called dumping, where patients you don't like are dumped on the other facility. I think there would gradually be more distrust and anger toward the other facility, and the facilities would become totally iso- lated, and, I think this would lead to a marked deterioration of care. Now the importance of the delivery of services at the health center I think is what has been stressed with all small organizations; namely, the accessibility. I think mental health care would be much more acces- sible and we would be able to deliver it in a much more continuous man- ner, that we would have much greater contact with the patient and be able to do a much better job. I feel vei~y strongly that, as the Center has grown, we have grown from 18,000 visits in our first year to 42,000 visits last year, it has become much busier `and I can see it is going to be very necessary from that standpoint to decentralize some of our care. Now, the mental health service contribution that would be made to the health center is inpatient services. Of course the health centers cannot all have inpatient services, emergency services. Emergency services are very expensive `and I think would have to be done in a central facility. `Training and continuing education are two more. When new person- nel come to the mental health center it is necessary to orient them to our style of delivery. The system is different enough that they have to go through a learning process to understand how we are doing things. Continuing education: Let us asume that a Health Center had three or four personnel, they would be isolated and they would need ongoing exposure to drug techniques and various things that could be talked about at the mental health recruiting. I think it is markedly enhanced by a mental health center. Special programs: If you look at a drug abuse program, a metha- done program, for each of the centers to start one I think would be extremely difficult. There is a very small percentage of your person- nel that can deal with this group. The licensing and the difficulties of dispensing I think would be too great. So I think these programs would have to be centralized at the mental health center to serve the patients are enrolled in the neighborhood health center. In fact, in many of these areas one of the major values of the center would be to be able to sift out personnel and assign them to areas where they are most competent. If the center, the Genesee Valley group I was telhng you about, looked toward hiring three people they would have those people all the time and no other people with specialities in alcoholism or the other services. If the mental health center had the equivalent of three full-time people it could mean eight or nine different people rotating through. The final point that I think is important is the linkage that the Community Mental Health Center has with other services, the courts, the schools and other agencies in the community. I think that that has been one of the major important thrusts of the Community Mental Health Center that could be passed to the health center. PAGENO="0116" 858 Finally, again I want to stress that the Mental Health Center is offering a system of delivery that I think is qualitatively different from free mental health services in the Neighborhood Health Center The flexibility of the people you can put in there, the hai~on of en- rollees who would move from the health center to treatment at the Mental Health Center, and the wide variety of programs that are available at a Mental Health Center. I think it would be a setback to the development of Mental Health Centers to again separate all these people out in the various health centers. Now, in terms of cost, we did a study in 1969 of the actual services, mental health services, delivered to the catchment area population. We have a register in Monroe County that notes all psychiatric care given to the population in the county. From that and from our cost figures in 1971-196~ were the most recent statistics we had available to us from the register, but our cost figures for 1971 were from the Center-we found that there was a cost of $11 per year per patient for inpatient services and a cost of $3.35 per person per year for out- patient services. This is adults, but it includes alcohol and drug services. The inpatient figure is high but there are certain factors operating in Monroe County that I think cause this. One is the availability of beds and the catchment area bed patients get into beds outside of my catchment area that I have no control over. I think this could be re- duced very rapidly if there could be some control of the enrolled popu- lation, and the outpatient figure I think is a good solid figure, and I think mental health services could be delivered for $10 per person per year with little difficulty. (Dr. Hart's prepared statement follows:) STATEMENT oy WILLIAM T. HART, M.D., DIRECTOR, REGION II, NATIONAL COuNCIL or COMMUNITY MENTAL Hn.~thn C~mas; AND Dianc'roa, ROCHESTER MENTAL HEALTH GENTER, ROCHESTER~ N.Y. Mr. Chairman, my name is William T. Hart. I am appearing today on behalf of the National Council of Community Mental Health Centers, a nonprofit organiza- tion representing approximately 215 community mental health centers, including many of those receiving federal funds. We appreciate this opportunity to testify on HR 515, ER 11728, and other bills regarding Health Maintenance Organizations. The National Council is~ extremely interested in the various proposals pending in congress at this time relating to the development of HMO's. We are partic- talarly eoncerned that any new progmni for health services delivery not over- look the valuable experience gained in the community mental health center program. As this comittee is fully aware, the network of federally-funded community mental health centers have been providing comprehensive mental health services to specified populations for over half a decade. The services provided, either directly or through, contract arrangements with other agencies, are designed to meet all of the mental health needs of the catchment area-from preventive care, inpatient and outpatient services, to home care and after care services. These centers, with their linkages between other social service agencies, such as the educational system, the judicial system and other health services in the community offer the most advanced health delivery system available today The experience gained through the CMHC program in delivering comprehen~ sive Care is not peculiar to mental health services. We are confident that this ex- pertise would prove invaluable in bringing about a change in the delivery of health services (through the development of HMO's), particularly in the area of linking healtk-and other community services, and with the administrative problems which will arise in any health delivery system. We would like to addre~s ourselves, in this statement, to three issues: PAGENO="0117" 859 The inc1~sion of mental health services in the minimum services required of federally-supported lIMO's, The relationship between lIMO's and CMHC's,and The quesetion of whether an lIMO should serve a geographic area, or an enrolled population. I would also liked to highlight for the committee my own experience at the Rochester Mental Health Center where we are now in the process of establish- ing linkages with three potential lIMO's. Our concern with the role of mental health services within the HMO structure is I think, self-evident. Mental health services have traditionally been the step- child of health services, and received less attention as a result. Yet mental illness is one of the major causes of disability, with the result that the cost to the nation in terms of human sufi5ering is substantial. This cost can also be calculated in dollar-terms and according to a study by NIMH American society lost $16.9 billion in productivity in 1968 due to mental illness. The reason most often given for excluding mental health services is the cost factor. This, is a false argument. A study of our catehment area patient utiliza- tion figures from 1969 and mental. health center cost figures from 1971 shows that it costs $11 per person per year for the catchment area population to provide hospitalization in short-term acute hospitals, and only $3.37 per person per year for outpatient care. The most striking item in these figures is the high cost of hospitalization, but it must be remembered that this constitutes all psychiatric care to a group that includes 50 percent of the poor in Rochester, N.Y. Also, Rochester has a very high rate of utilization of inpatient psychiatric beds, but with proper financial patterns I think that this can be lowered dramatically. Our estimate of a reasonable figure is $10 per person per year for comprehensive mental health services. Our experience is also supported in the recent report on Health Insurance and Psychiatric Care: Utilization and Cost by the American Psychiatric Association, which I am sure the Committee has seen. This report concludes that the cost of providing mental health services is relatively low and entirely feasible. We therefore strongly urge the committee to consider requiring mental health services of all federally-funded lIMO's. But particularly HMOs should be strongly encouraged to established an arrangement with existing CMHC's in the area whereby the center would provide mental health services to lIMO enrollees. ROCHESTER HMO'S In Rochester, there are three types of health maintenance organizations being formed, all of which will served people within our catchment area, and I would like briefly to discuss the relationships which are developing between the lIMO's and the Rochester Mental Health Center. The first group Is Neighborhood Health Centers of Monroe County, Inc., which has an OEO grant to develop neighborhood health centers within poor and near poor areas. There is a neighborhood center already operative, the People's Health Center, that plans to join Neighborhood Health Centers, Inc. in the very near future. This center was sponsored by the University of Rochester, and is funded by OEO and Medicaid payments. The Rochester Mental Health Center has been delivering mental health services to the people served by this Health Center since it opened about two and a half years ago, (its catchment area lies entirely within ours). This enabled us to gain experience in clinical, administra- tive and fiscal relationships. Initially, our relationship with this center was quite Informal and at one point about a year ago there was a move to separate their mental health Services from the Rochester Mental Health Center entirely and to operate by themselves. After a series of meetings the problems that would arise froth this becameevident and a bilateral decision was made that both the Health Center and the Mental Health Center had to share control of mental health Services within the Health Center. At the present time this is accomplished by % of the mental health personnel being employed by the Health Center and 1/~ by the Mental Henlth Center. Now we are working out a relationship that I hope will follow the pattern which I shall discuss later. The next type of health organization that is arising is a Medical Society Foundation called the Monroe Plan, Inc. Enrollees would be eligible, for a prepaid annual fee, for a range of services delivered by the physicians who are members of the Plan. The physicians would be paid on a fee for services basis. PAGENO="0118" 860 ~ The third health organizatig~i is the 4~enesee Valley Grvup health A~~&ciation, Inc. and it is belngformed by Blue Cross and Blue Shield and will be -a closed ~aize1 physielan group patterned essentially on the l~aiser Permanente Model. HMO-OMHC RELATIONSUIPS From our acual clinical experience with the People's Health Center and from our negotiations with the other health centers a pattern for a relationship has emerged The pattern is a contract arrangement where the Health Center ëontracts with the Mental Health Center for the delivery of services both at the Health Center and the Mental Health Center. This arrangement offers the best care to the consumer. Based on our experience in Rochester there are requirements for the relation ship that should exist between a Health Center and a Menial Health Center. The first of these is that mental health centers should actually be delivered in the Health Center This is necessary so that mental health personnel are available to consult to other disciplines. An example of this is the patient who is unwilling to be referred to mental health personnel and must be handled by consultation between the actual care glver and the mental health personnel. Also, it has been our experience that a certain awareness of psychological Implications of both physical and mental illness is fostered by the presence of mental health p~rsonnel within a Health Center. The presence of mental health personnel also increase accessibility and continuity of care because of geographic proximity to the patient offered by the multiple bases of operation. The second requirement Is that not all of the care should be delivered within the Health Center. For example, emergency services are very expensive and are most efficiently run in a centralized facility Specialized programs and programs which are being initiated will have to be operated at the Mental Eealth Center. ~lxamples of this are alcohol and drug programs and certain group therapy progra~ns Training of personnel is also an important function of the Mental Health Center that cannot be decentralized Recruitment of personnel is en hanced by the Mental Health Centers affiliation with the Health Center The Mental Health Center offers a system of delivery of services that requires some orientation and experience within the system before new personnel can operate effectively This must be done at the Mental Health Center Consultation and education to agencies and various groups within the community will need special procedures and specialized personnel. Finally, the system of delivery of care developed by a Mental Health Center is an entity that should not be excluded from the Health Center. The procedures that make a wide range of service available also offer a different quality of service to the community. The relationship that would best foster these arrangements is one where the Health Center contracts with the Mental Health Center for the delivery of mental health Services both within the Health Center and at the Mental Health Center The Health Center would have the final say through the fiscal mechanism .They could feed back consumer satisfaction or dissatisfaction with the services de- livered and could make it incumbent upon the Mental Health Oenter to deliver a p~ickage that was satisfying to the consumer and that was economically feasible. TRANSITIONAL PROBLEMS However, in establishing these arrangements there are several transitional problems that need careful thought and planning. The problem of the enrolled population versus the geographical population is one of the more difficult The community mental health center is, of course, organized to serve a catch- inent area population, and by concerning itself with a geographic area can deal with the entire mental health needs of the community This is especially inipor taut in the delivery of preventive Services-consultation and education services being a principal thrust of the mental health center concept Indeed traditionally all preventive health services (such as the public health service programs) have been delivered on a geographic basis and it is our belief that this is essential for any effective preventive service. Thus the concept of an enrollment process for HMO's does not tie in with our experience in existing programs for effective delivery of preventive services. Yet prevention is cited as one of the priniary functions of the new delivery system. The problem of a contract between the HMO, with its enrolled population and a center with its geograplue base would not be as difficult to solve with regard to Other services provided by the mental health center. It is our assumption PAGENO="0119" 8.1 that the populations served by an HMO will come primarily from an area clOse to the organization, and therefore there could be a general area served by the mental health center from which the bulk of the HMO consumers would come. At the present Ifinie, certain facilities served by CMHO's draw people from out of the catcbment area-schools, family agencies, day-care programs, etc.-and these problems have been resolved on an individual basis. CONCLUSION In summary, we would like to stress the following points for the development of a health program of health maintenance organizations: -An HMO should be required to offer a full range of services including mental health services and these services should be provided by (JMHC's where they are available. -There should be an integrated system for delivering health services to the enrolled population with linkage between all human services in the area. -The organization should serve a geographic area, for truly preventive services cannot be provided any other means. -The experience of the community mental health center needs to be taken into account in developing lIMO's, for there is much to learn from this effort. One of the most important features of the centers is the range of services which they provide. In order to provide these services, the centers have had to develop creative programs, often shifting the traditional roles of professionals in order to get maximum use of manpower. -Consumer participation should be a requirement in the development of the lIMO system. In this respect, we find the Administration bill, ll.R. 5615, falls far short of providing the basis for the development of a sound system of health care delivery. H.R. 11728 is, in our opinion, a far better bill, but it could be significantly strength- ened by the recognition of the need for comprehensive mental health services, and for linkages between lIMO's and CMHC's such as I have outlined above. Mr. ROGERS. Thank you very much, Dr. Hart. This has' been most helpful testimony. I think the committee will want to consider, as you say, encouraging mental health services and certainly in cooperation with the existing mental health centers we have already established over the country. We now have how many? Dr. HART. There are over 500 that are funded and close to 400 that are operating. Mr. RoGERS. That gives you a great resource to begin on. I thank you so much for your testimony. Mr. Nelsen. Mr. NELSEN. I was interested in one of your statements. I was inter- ested in all of them, in fact, but I want clarification on the OEO operation. As I recall from debates on the floor, it seems that the OEO activities just sort of float around and spring up here and there, are not under any supervision and are not required to meet the same standards of delivery that we require of others. I wonder if you have any comment. Dr. HART. Yes. This has been a problem because there is no control, the OEO money bypassed all of the planning agencies directly into this neighborhood health center I was talking about. My negotiations essentially depended on the good will of the aaministrator and director of the center, and myself. There were no levers of any kind there. It still is very much of a problem. Mental health services in these centers will depend on whether I can get them to buy it. Just plain selling. Mr. NELSEN. Thank you. Mr. ROGERS. Dr. Roy. PAGENO="0120" 82 Mr. Roy. I have no question1 I thank you for your testimony. I will state that I feel very much as the chairman feels with regard to the mental health services and the use of community mental health centers that ai~e now established.. Mr. ROGERS. Mr. Hastings. Mr. HASTINGS. Thank you. I am glad to welcome you here with your testimony. I have no questions. . As Dr. Roy stated, we are interested in the chairman's wishes that mental health centers be included. Certainly we will take a careful look at it. Mr. ROGiRS. Thank you so much for your presence here. It has been most helpful. Dr. HART. Thank you, Mr. Chairman. Mr. ROGERS. I am very pleased to have as our next witness a repre- entative of the American Nurses' Association, who is a health expert from my own area. I particularly welcome Mrs. Mabel Johansson, as well as Miss Constance Holleran. I am very pleased to have you here. lam delighted you have been selected to offer the testimony. STATEMENT OP MABEL S. JOHANSSON IN BEHALF OP AMERICAN NuRSES' ASSOCIATION; ACCOMPANIED BY CONSTANCE HOL- LERAN, DIRECTOR, GOVERNMENT RELATIONS DEPARTMENT, ANA Mrs. JOHANSSON. Thank you, Mr. Chairman. I bring you greetings irom the home city. Mr. ROGERS. Thank you. Mrs. JOHANSSON.Mr. Chairman, I am Mabel S. Johansson, director, Nursing Division, Palm Beach County Health Department, West Palm Beach, Fla. I am accompanied by Constance Holleran, director, Gov- èrnment Relations Department, American Nurses' Association. The American Nurses' Association, the professional organization of registered nurses in the United States, is committed to the position that health care is a basic right of all people. It further believes that health care should be comprehensive, offering preventive, health mainte- nance, diagnostic and treatment, restorative and protective services through an integrated delivery system. With few exceptions, notably the prepaid group practice plans, the system for delivering and financing health care through health insurance, whether provided under public or private mechanisms, has fostered the use of the most expensive facilities and providers. Little emphasis has been placed on the use of ambulatory services- clinics, outpatient departments, home care, the neighborhood health center. Preventive and restorative services have been largely ignored. It is our conviction that, although vitally important additionl emphasis on public arid private financing alone will not guarantee that health care is accessible to all. What is needed is the development of in.. tegrated systems to deliver quality comprehensive health care services which are accessible and acceptable to people of all income levels and in all geographic areas of the country. The health maintenance organization is one approach for struc- turing the delivery of comprehensive health care into such an orga- PAGENO="0121" 88~ nized system. The legislation you are considering would encourage this development, and we support its intent. There is widespread criticism of the present delivery system~. We believe that integrated systems for delivery of health care services should be developed through areawide health planning mechanisms in which consumers are involved. These planning groups must have authority to do the planning. For this reason, we believe that there should be some provision in the legislation, such as that in H.R, 11728, which states that the HMO should be "organized to assure members a meaningful policymaking role . . ." In inaugurating a new program, sound planning by those most familiar with local resources and needs is essentiaL Without input from the individuals who will require health services, there could be dangers of public resistance. A selling job will have to be done to convince people that care received through a health mainte- nance organization is of high quality, readily available, and less costly. Consumers who have participated in planning for change would be the best salesmen. One of the biggest blocks to joining, other than financial, is likely to be the idea of not having one doctor as a contact point. There should be ways of working this out. As the delivery system evolves there should be continuing oppor- tunity for consumers to evaluate its effectiveness in meeting their needs. Further, any corporate structure, arrived at through the planning process, for coordinating and delivering health care should have a board composed of consumers and providers. It should not be domi- nated by any one institution or agency or any one group of professional practitioners. We support the concept of the health maintenance organization assuming the responsibility for providing comprehensive health serv- ices, directly or indirectly, to its clients. }II.R. 11728 does include, among other services, those of clinics, outpatient departments, home health services, and extended care facilities. While it may be neces- sary in many locales for the organization to provide al~ the services directly, where institutions-hospitals and extended care facilities, home health agencies, and other professional services-are well de- veloped, contractual arrangements could be made in order to avoid duplication, fragmentation, and competition for scarce health peTson- nel. The important issues are coordination and continuity. If medical schools operate lIMO's, as has been suggested by some, there should be safeguards to assure that the purpose of the HMO service to people does not become secondary to the educational purpose of the medical school. We would recommend that schools of the health sciences, rather than medical schools exclusively, establish HMO's to insure interdisciplinary planning and participation in de- livery of health care. All health professionals should have opportunity for learning experiences under expert guidance and supervision in whatever structured delivery system is decided upon. Such experience could bring about a more rapid acceptance of the need for a better utilization of the many health professionals, many of whom are now underutilized. Whatever programs in health maintenance are developed, we believe they should be under jublic or nonprofit auspices, as provided in H.It. 11728. Profitmaking in the health field is not in the best interest of the PAGENO="0122" 864~ American people already concerned about the ever-increasing costs of health care and who are suspicious of profiteering in the health field We are aware that adequate health care services are lacking in many rural and inner-city areas. The thrust of both H.R.11728 and B.R. 5615 is to establish health maintenance organizations in medically under- served areas. We agreed that a major effort must be made to reach out to those who have been denied health care for economic, social geo- graphic reasons. We would hope that this would not result in and perpetuate a separate system for the poor and underprivileged. For too long they have been isolated from quality services. We favor a one class system in which all sectors of the population would be covered and in which services of high quality would be available to all. In rural areas, during planning for an HMO, there will have to be consideration of incentives to attract health professionals to the area Financial incentives~~loan forgiveness, grants, higher compensation- can have some impact in attracting health manpower to areas of scarce supply. Health workers, like other people, have professional, intellectual, and social needs. Salary differentials, realistic continuing education programs, sabbaticals, and opportunity for consultation with peers should be provided as a means for encouraging redeploy- ment of health professionals. There should be less problem in extend- 1n~ health care services into ghetto areas if proper planning is re quired as a condition for receiving funds and if the HMO is required to serve a cross section of the population__the affluent, the middle- income group, and the poor. However, it may be necessary to develop au. HMO for a homogeneous population because of certain demo- graphic characteristics. ~The matter of communication in rural areas is already being dealt with through use of closed circuit television, radio, and telephone. Transportation for those in need of sophisticated and intensive care in a large center can be provided by helicopter, air ambulance, mobile coronary care, and accident care units. Satellite health centers, with affiliation to an urban health center, can be staffed by qualified health profession~Js other than physicians, but with adequate provision for communication, consultation, and transportation to and from urban centers. Certainly in some rural areas, a sparse population could not finan- cially support the full range of professional services required for com- prehensive health care, but there should be the requirement and the opportunity to secure professional services in and out of a major health center. The Palm Beach County Health Department is the provider of health care services to a defined population of the medically indigent numbering in the thousands We do not have the formalized organiza tion of a health maintenance organization, but we do have most of the components of an HMO, including a formalized arrangement with local hospitals. Presently we are in the planning stages of developing a more structured organization which will include a preexisting con- sumer advisory board. Nursing is an integrated service functioning in all areas of the health care service. Examples of nurses who are practicing in various areas of health care are: PAGENO="0123" 8f~5 First; the pediatric nurse associates, working in a team relation- ship, are providing health care to a large pediatric population. The service is available 24 hours a day, 7 days a week. The nurse is responsi- ble for all continuing well-child supervision and for diagnosis and treatment of minor illnesses. The children are healthy and the mothers are satisfied. I would like to add that this service has not been misused. Contrary to many statements that have been made that if you provide a free service to people, they misuse it-they have not. 2. The nurse is a member of the mental health outreach team of the comprehensive mental health center, and functions as a cotherapist. Many patients are seen on a continuing basis only by the nurse. Since this has been instituted there are no waiting lists at the com- prehensive mental health center and more people are being seen sooner and emergencies can be seen on the same day. 3. Nurse midwives are providing continuing supervision of the prenatal patients. The patients like the "nurse-doctor" and relate well to her. 4. Nurses in health centers and outreach trailers are providing primary health care service to people, including both diagnosis and treatment and preventive services. In the delivery of health care more recognition should be given to this primary care role of the nurse. Nurses have been engaged in providing preventive services and in promoting good health practices in communities, schools, industry, the home and in neighborhood health centers, but this role has had less recognition than the role played in crisis-related situations in hospitals. Increasingly they are assuming a primary care role, especially in pediatrics, in maternity care and in the mental health field. We submit that increased in- volvement by nurses in primary care can result in helping people enter the health care system at a point early enough so that medical science can be of help to them. I think of the nurse as being a patient advocate. Primary care can be described as being health oriented rather than illness oriented. More and more education for nursing practice con- centrates on maintenance of health and prevention of illness. Tradi- tionally, education for medical practice has focused on pathology and the treatment of disease. These are complementary roles and appro- priate to achieving the overall societal goals of keeping people well and curing the ill. We see the nurse expanding her practice in the area of health care in a number of ways: assuming responsibility for monitoring the growth and development of children, providing care throughout normal pregnancies, counseling regarding physical and mental health, and screening and treating minor illnesses, following guidelines established collaboratively by physicians and nurses. One h~alth maibtenance organization-Harvard Community Health Plan, Boston, Mass.- reports that of 4,500 visits made to its center, 05 percent were related to upper respiratory problems, minor trauma, muscle pain and need for psychological support. Their experience indicates that 70 percent of these incidents can be handled by the nurse alone without sacrificing quality care and with full patient acceptance and approval. PAGENO="0124" 866 For individuals with chronic illness, guidance and supervision is essential to maintain a degree of health so they can remain at home. We are pleased to see that H.RJ. 11728 includes home health services within the comprehensive health services provision. The nurse is the appropriate health professional to provide these services. A striking example of this type of nursing care and what can be accomplished is the case of an 18-year-old diabetic who in an 8-year period was hos- pitalized 124 times. Later, under nursing supervision, she had no hospitalization over a 7-month period. The Permanente Medical Group teaches and employs pediatric nurse practitioners in several of its northern California medical centers. They perform primary child health care. This includes taking histories, making a complete physical examination, using basic skills of inspec- tion, palpation, percussion and asuculation with the aid of the stetho- scope and an otoscope. They make the judgment whether the child is - well or ill and refer the child to a pediatrician or other specialist as needed. They also manage minor illnesses, look for variations on growth patterns and essentials of child nutrition, order immunizations as needed, and perform developmental screening tests at specific ages.~ The work of a pediatric nurse practitioner relieves the pediatrician from many demands, freeing him to devote more time to serious illnesses of children. Mr. Chairman, we believe that preparation and utilization of the nurse practitioner in a primary care role is one important way to extend health services and to use health manpower more effectively.' We hope that the committee will give serious consideration to this potential as they continue deliberation of HMO legislation. Optimal utilization of the nurses' skills and expansion of her func tions can have a very positive influence on health care. This is also true of other workers in the health field. We have reached the point in our history where no single profession can meet all the needs for health services of all people in this country. Attached is a statement of the definition of the term "Nurse Practitioner" developed by the Congress on Nursing Practice of the American Nurses' Association. I respectfully request that it be included in the record of these hearings. We would also like to include in the record a statement on the Frontier Nursing Service, which describes the nurse practitioner in action. Mr. ROGERS. Without objection, it will be made part of the record. Mrs. JOHANSSON. Thank you. H R 11728 proposes that a National Advisory Council on Health Maintenance Organizations be established within the Public Health Service, to advise and assist the Secretary in the development of policy and preparation of regulations relating to HMO's. The Coun- cil will also make recommendations with respect to approval of grants, loans, and loans guarantees. The American Nurses' Association recom- mends that the composition of the Council be multidisciplinary, and that the membership include at least one representative of the major health professions. p:ret~1o~~n a Large Group Practice," by Marie Feldman, Kaiser PAGENO="0125" 86~~ Thank you for this opportunity to present the associations' views on the matter of Health Maintenance Organizations. (Definition of the term "Nurse Practitioner," and "The Frontier Nursing Service," referred to follow:) DEFINITIoN OF THE TERM "NURSE PRAcTITIONER" A nurse practitioner is a licensed professional nurse who provides direct care to individuals, families and other groups in a variety of settings including homes, institutions, offices, industry, schools and other community agencies. The service provided by the nurse practitioner is aimed at the delivery of primary, acute or chronic care which focuses on the achievement, maintenance or restoration of optimal functions in the population. The nurse practitioner engagesin independ- ent decision making about the nursing care needs of clients and collaborates with other health professionals, such as physicians, social workers and nutritionists, in making decision about other health care needs. The nurse practitioner plans and institutes health care programs as a member of the health care team. The acquisiton of knowledge In depth and competence in skill performance in a particular field of practice enables this practitioner to: 1. Assess the physical and psychosocial health-illness status of individuals and families by health developmental history taking and physical examinations. 2. Evaluate and interpret data in order to plan and execute appropriate nursing intervention, 3. Engage in decision making and implementation of therapeutic actions cooperatively with other members of the health care team. The practitioner institutes and porvides health care to patients within es- tablished regimes such as supervising and managing normal pregnancy and delivery, pediatric health supervision and diagnostic screening. The nurse practi- tioner provides counseling, health teaching and support to individiuals and families. The nurse practitioner is directly accountable and responsible to the recipient for the quality of care rendered. THE FRONTIER NURsING SERVICE One example of a successful health care program developed for a rural area is the Frontier Nursing Service in Leslie County, Kentucky. It was the lack of health care in rural areas that led to establishment of the service which began 47 years ago as an experiment in the use of nurse midwives. With additional training in the care of common health problems and with medical backup, services were extended to the entire family. At the center of the FNS now is the family nurse. The system for delivery of care is built around the residential nursing clinic which is readily accessible and makes possible the development of a program unique to the area. All 1~amilles served by the nurse live within an hour's travel time, and the average population served is 200-250 families or 900-1000 individuals. The majority of illnesses dealt with are minor and can be identified and managed by the family nurse. Serious illnesses can be recognized by these nurses and referred to the physician. Nurses also screen and direct their patients to appropriate health and social agencies. There are six nursing outposts located within an hour's travel of a hospital and health center at Hyden, Kentucky. It has more extensive diagnostic and treatment facilities and a resident physIcian is available at all times. Hyden clinic is conducted similarily to the nursing outposts with nurses screening all patients and doing preliminary health histories and so on. Specialty clinics are conducted periodically. Clinics are conducted periodically by spclalists from university or other medical centers. For example, a surgical team from the University of Cincinnati conducts ear, nose and throat clinics twice a year, and they perform such surgery as to sillectomies. This arrangement makes it possible to provide such services to isolated families without proh~ibi- tive costs. Many patients needing specialty services are transported to a regional hos- pital or medical center. Regional mental health services and other state facilities PAGENO="0126" 868 also are used. Thus there is no need for costly equipment or for maintaining full-time specialists on the staff. The community (the consumer) has been very much involved in the plan- ning and maintenance of the service since it was established. it was developed on the basis of stated needs of the people, and no nursing outpost is btiilt with- out their request. In addition to health services which are provided or made available through the FN'S, there is a strong emphasis on health education. A recent newspaper article (Washington Post, December 28, 1971) pointed out the dramatic decline in the birth rate in the area (where families of 10 and 12 children are not un- common) since the FNS Instituted a program in birth control education. The Frontier Nursing Service has proved over the years that a workable health program can be made accessible and acceptable and provldecj at moderate costs to people in a poor, rural area-with the registered nurse as the provider of primary health care. Mr. ROGERS. Thank you so much, Mrs. Johansson, for a very excet- lent statement, and Miss Holieran for her presence and support here. I think it is true that Palm Beach County does have one of the most outstanding health departments in the Nation, and many of the in- novative programs have actually been experimented with in Palm Beach County. So I commend you for the work you have done, par~ ticularly in the migrant area. It has been most rewarding. Mr. KYROS. No questions, Mr. Chairman. I wish to thank Mrs. Johanssori for an excellent and comprehensive statement, particularly in regard to our passing the Nurses Training Act. Those hearings are important in seeing what the role of the nurse is, and I think this makes consideration of HMO's more relevant. Thank you. Mr. ROGERS. Mr. Nelsen. Mr. NELSEN. Thank you, Mr. Chairman. I want to join with my colleagues in expressing a thank you. My only daughter is a registered nurse, so I am a little bit partial to any observations that the nurses make. I want to also comment that that radiant smile of yours would ,ci~ire almost any person. Thank you very much. Mr. ROGERS. Thank you so much. We may be in touch with you as the legislation is considered for additional advice. Mrs. JOHANSSON. Thank you. Mr. ROGERS. Our next witness is Miss Jane B. Keeler, president of the Council of Home Health Agencies and Community Health, Na- tional League of Nursing. I believe you will be accompanied by others? STATEMENT OF FANE D. KELLER, PRESIDENT, COUNCIL OF HOME HEALTH AGENCIES AND COMMUNITY HEALTH SERVICES, NA- TIONAL LEAGUE. FOR NURSING; ACCOMPANIED BY MRS. LEAH KOENIG, EXECUTIVE D~IRECTOR Miss KEELER. Mrs. Leah Hoenig, director of our council. Mr. ROGERS. We will make your statement a part of the record, without objection If you will highlight it for us it will be helpful Miss KEELER. Mr. Chairman and members of the committee. My name is Jane D. Keeler and I am the director of Visiting Nurse As- sociation of New Haven, Conn., an accredited community health service. I am also the president of the Council of Home Health Agen- PAGENO="0127" 869 cies and Community Health Services of the National League for Nursing and it is in that capacity that I appear before you today. The council is the national spokesman for over 1,400 official and volun- tary home health and community health agencies throughout the country and includes in its membership the majority of the large com- munity health agencies. These agencies utilize the services of nurses, physical therapists, occupational therapists, physicians, social work- ers, nutritionists, home health aides, and speech and hearing therapists. I am accompanied by Mrs. Leah Hoenig, the executive director of the council. It is important to my presentation that the committee understand the context within which I speak. Because of their professions prior to election to the Congress, Congressmen Roy and Carter are prdbably the members who have the most intimate knowledge of the role and contribution of the home health agency. I may be in error but in all probability the closest association other members of this committee have had with home health care agencies is through a tax contribu- tion to your public health agency or through your favorable response to an appeal to support your local visiting nurse service. What we do is provide `health care services outside the walls of hospitals and other health care institutions such as within a patient's home, in schools, in ambulatory health care centers and in other community settings such as senior citizen centers and neighborhood health. centers. I am at- taching a list of those agencies for whom we speak in the congressional districts represented on this subcommittee. Perhaps if I tell you a little bit about the agency I direct it will be illustrative. The Visiting Nurse Association of New Haven has been serving residents of New Haven since 1904. In the intervening years we have assumed responsibility for the provision of hom~ health and other community health services in adjacent communities of East Haven, West Haven and Milford, covering a total population of approximately 270,000. We are the certified home health agency providing home health care under the medicare program. We also provide nursing ancj other therapeutic patient care services related to illness to all other age groups and participate in the medicaid program in the State of Con- necticut. As a basic part of our program in relation to illness, the rehabilitation needs of patients are always assessed and, through phys- ical therapists who are members of our staff as well as through nursing rehabilitation activities, patients with rehabilitation needs receive these services as well as other therapeutic care. / In addition to care related to illness, members of our staff provide health education and guidance services to women who are pregnant, to new mothers, to parents of infants and preschool children, and the nursing component of the school health program in 63 public and parochial schools in the city of New Haven. Health education activi'- ties are carried out in the home and in an extensive well-child clinic program which provides basic, preventive health services to infants and preschool children. In the city of New Haven between 4,500 and 5,000 children each year receive their preventive health care through this clinic program. Our staff participates in the health service of an extensive year-round Head Start program working with parents and educators in these programs and in day care centers. We provide PAGENO="0128" 870 health education and counseling sessions at senior citizen centers and centers in housing projects. In all of our interaction with the mdi- viduals and families, staff members are constantly alert to health and social problems which indicate a need for assisting the family to plan to use other health and social resources. The program we of the VNA of New. Haven offer, which I have described, is not unlike that offered by coffimunity home health agen- cies throughout this country. What I hope you will understand is that our agencies have been concerned over the years with not only care related to illness, but also with preventive health services, health education activities and with assisting families make appropriate use of other health care resources. I would like for just a moment to give you a little depiction of the extent to which our services are dist~ributed in the neighborhood settings and areas within the geographic area we cover. You have some coding here which indicates that in all of these dark green locations we have schools. The well-child clinics are the orange coding. The Head Start programs are the lighter green. We also provide care in day care centers identified by the lighter yellow. These services are provided in these locations. In addition, our staff worked throughout the neighborhoods in providing health care services to patients and their families in their own homes. I think the point particularly I would like to make with this is that we have been out there for a long period of time and have developed, we feel, a way of working with families in their home settings that should be taken into consideration as we think of the newer patterns of care, particularly those being suggested by the HMO concept. We want to commend the sponsors of H.R. 11728 and of similar legislation for what we believe to be a Serious endeavor to deal in a meaningful way with our Nation's deficient health care system. We implore you to give `thorough and careful study to this proposal and to the suggestions that we make because we `believe, the grievously unfortunate mistakes of medicare and of medicaid and certain other Federal support programs must `be avoided where the stimulus has been to develop services which duplicate components of care which already exist within the community. As we understand it, this legislation addresses the organization of health care services and does not concern itself with payment mecha- nisms for health care delivery. My comments shall be within the frame of reference. As enunciated in H.R. 11728, an HMO would be required to pro- vide "comprehensive health services, directly or indirectly, through a medical group or groups and other health care delivery entities"- as stated on page 3, lines 8-10. The term comprehensive, is defined beginning at line 18 of page 6, The term "comprehensive health services" means (A) physician services (including consultant and referral services); (13) inpatient and outpatient hospital services; (C) extended care facility services; (D) home health serv- ices; (E) diagnostic laboratory and diagnostic and therapeutic radiologic serv- ices; (F) rehabilitation services (including physical therapy); (G) preventive health services; (H) emergency health services; (I) out-of-area emergency health services; and (J) such other personal health services as the Secretary may determine are necessary to insure the protection, maintenance, and sup- port of human health. PAGENO="0129" 871 Of the 10 categories, I wish to comment specifically on (D), (F), (G-),and (J). In relation to item (D), we urge this committee to assure that all pOssible emphasis be placed upon the proper and appropriate utihza-~ tion of home health services. The percentage of persons who prefer an institutional setting, be it hospital, extended care facility, nursing home or another to his or her own home is miniscule. I think this has been well demonstrated. We have testified to this fact and others certainly support this concept. Psychological trauma is not an inconsiderable element adversely affecting the health status of the individual. The cost of care pro- vided in a home environment is markedly less than that required in a hospital stay or in an extended care facility. As defined in~H.R 11728, section 1011 F, which encourages and actively provides for its members (i) health education services and (ii) education in the appropriate use of health services," and 1101 (2) (F), and 1101 (2) (F> rehabilitation services, and (G) preventive health services are so inextricably entwined that we are unable to treat these elements separately. However, once again I would say they are all concepts of patient and family care for which our services have been long noted, been concerned with and have attempted to provide. Nursing and related services as practiced and provided in home health and community health service agencies are quite different from their counterparts in inpatient care institutions. Individuals when hospitalized are usually undergoing an acute episode of illness, whereas patients cared for in their own homes may be recovering from an acute episode or suffering from a short or long term illness. The care provided in the home includes consideration and attention to the health status of not only the patient but his family. Such care encom- passes teaching of desirable health practices, interpretation of the appropriate use of health care resources, early identification of health problems of family members, and referral for medical assessment and care. Rehabilitation is an essential component of care provided to individuals and families by health workers in home health and com- munity health agencies. We who are involved in the provision of health care services to people outside of institutions, have always believed that the health status of our citizenry will not be improved until the system has shifted its focus from aàute episodic care to health services in which the preventive components are strong. We are gratified to note the s~pecific inclusion of preventive health services in H.R. 11728 as a requirement and we urge again that there be a prohibition against establishment of an HMO duplicating home service where such service already exists. We also urge that NLN- APHA accreditation for community home health services be among the required standards. Our comment relative to discretionary power of the Secretary as stated in item (J), page 7, is one of caution. We realize that it is not unusual to provide rather wide discretionary powers to. the Secretary, HEW, in legislation of this kind. We hope, however, that this com- mittee will observe closely the implementation of this program. There are approximately 20 references in H.R. 11728 to the fact that the Secretary by regulation shall do one thing or another. I am sure you 81-185 0 - 72 - pt. 3 - 9 PAGENO="0130" 872 realize that under the powers of the Secretary, HEW to delegate re- sponsibility, we are discussing some 115,000 to 120,000 employees and, despite the Secretary's personal commitment he must depend upon his staff. It has been our experience in the past that HEW staff may at times not be the most experienced, or knowledgeable in certain areas of health care. For example, it might be interesting to know how many HMO, or for that matter, how many group health practice experts, persons who have experience in these programs, not those who have read the litera- ture, are on the HSMHA, HMO staff. It is because of less than satis- factory experiences particularly under the medicare and medicaid pro- gram to which I referred earlier that we so strongly urge a significant policy role for the National Advisory Council on Health Maintenance Organizations. In addition, representation in appropriate number and experience in the operation of home health agencies should be required on the advisory council.' Health maintenance organizations are intended to affect the meth- ods for delivery of health care. As I noted earlier, the proposal is nei- ther a funding program nor will it to any appreciable degree increase the health manpower which provides services. It is especially impor- tant therefore that this legislation will make it clear that the services of existing community agencies should be utilized. We appreciate this opportunity to present our views on this im~ portant legislation. (The list of agencies referred to follow':) HOME HEALTH AGENCIES IN THE DxsTn[c'rs REIPRESENPED BY MEMBERS OF THE PUBLIC~ HEALTH AND ENVrRONMENT SUBCOMMITTEE Congressman Paul Rogers of Florida,: Palm Beach Health Department, Nursing Division, and Visiting Nurse Association of Palm Beach County. Congressman David B. Satterfield IIJ of Virginia: Bureau of Public Health Nursing, State Department of Health, and Institution Visiting Nurse Association. Congressman Peter N. Kyros of Maine: Portland Visiting Nurse Association and City of Portland Health Department. Congressman Richardson Preyer of North Carolina: Guilford County Health Department. Congressman James Syinington of Missouri: St. Louis County Health Depart- ment. Congressman William Roy of Kansas: Public Health Nursing Service, Division of Medical Health Service and Topeka-Shawnee County Health Department. Congressman Ancher Nelsen of Minnesota: Bloomington Health Department and Immanuel Hospital Home Care Service. Congressman Tim Lee Carter of Kentucky: Clay County Health Department, and Owsley Lee Jackson and Clay County Health Department. Congressman James F. Hastings of New York: Visiting Nurse Association in Jamestown. Oongressman John (I. Schmitz o'f California: Visiting Nurse Association of Orange County in Tustin. Miss KEELER. I would like to add one additional comment out of our personal experience in New Haven. At the present moment within the city of New Haven proper we have a neighborhood health center which was funded, has been funded over the last 3 years, through chil- dren's bureau and M&IC funds, and now has 314(e) grant money. Within that same neighborhood, despite the efforts of the neighbor- hood health center, the degree of health need in that area is so extensive that our agency still is carrying out well-child clinic care. We are still providing all of the home health care services to medicaid and PAGENO="0131" 873 medicare recipients. We also now have developing a new group pre- paiid mechanism operating in the area of New Haven with an expecta- tion they will have an enrollment of an approximately 30,000. They have gotten up to about 5,000 in their enrollment so far. I worked very closely with this group. I serve on the board of direc- tors. I have to tell you I am having extreme difficulty in helping them to understand that it might be more appropriate for them to consider utilizing our services when we get out into the home health services than their planning to orient their staff, staff up and send their people out through this total geographic area. Mr. ROGERS. In other words, they would do that on a contract basis Miss KEELER. This is what I have been trying to work out with them. And that is why I strongly urge with respect to H.R. 11728 that existing quality services should not be duplicated. Mr. ROGERS. Thank you so much, Miss Keeler and Mrs. Hoenig. You have been most helpful to the committee. Your opinions are well taken and they will be considered. Mr. Kyros. Mr. KYROS. No questions, but I want to commend the testimony of the witness. We have all had experience with the visiting home nurses when we were young. I am very pleased to hear your testimony. Miss KEELER. Thank you. Mr. RoGERs. Mr. Nelsen. Mr. NELSEN. No questions, thank you. Mr. ROGERS. We are grateful for your presence and your helpful comments. Miss KEELER. Thank you. Mr. ROGERS. Our last witness is Dr. Robert V. Sager, a member of the board of directors of the Physicians Forum, Inc., in New York. Dr. Sager, the committee welcomes you. We appreciate your presence. STATEMENT OP DR. ROBERT V. SAGER, MEMBER, BOARD OP DIRECTORS, PHYSICIANS PORUM, INC. Dr. SAGER. We appreciate this opportunity to appear before the House Subcommittee on Public Health and Environment. My com- ments, today, will be primarily directed at the Nixon administration HMO proposals. My name is Robert V. Sager, M.D. I am a member of the board of directors of the Physicians Forum on whose behalf I am testifying today. I am also chairman of the forum's Committee on Health Maintenance Organizations. I am a specialist in internal medicine and have practiced over the past 43 years, initially in private practice. Since returning from World War II, I have been involved in group practice and was one of the founding members of one of the health Insurance Plan of Greater New York's first medical groups, and sub- sequently, I became an associate director of HIP. Since my retirement from HIP, I have spent some of my time working for the Northeast Neighborhood Comprehensive Health Center (NENA), a community- controlled comprehensive health care center located in New York's lower east side. The Physicians Forum is a national organization of physicians which has, for more than 30 years, supported every major proposal for PAGENO="0132" 84 a strong and comprehensive national health insurance system. We supported the Wagner-Murray-Dingell bill in the late 1940's; the Forand bill in the 1950's; and we were the first physician organiza- tion to come out in favor of the King-Anderson bill, which, as you know, formed the basis of the medicare portion of Public Law 89-97 passed in 1965. Since that time, the forum has repeatedly called for the extension and improvement of national health insurance in the United States as part of a restructuring of our national health care system. It is the forum's position that the purpose of a national health in- surance program is not simply to pay the Nation's medical bills but rather to reform its anachronistic, fragmented, often dehumanizing, and therefore relatively ineffective medical care system. I would like to insert into the record, at this time, the Physicians Forum statement on a national health system which more fully explains our position, as well as the complete statement on the Nixon administration health maintenance organization proposal. The principles upon which this HMO statement is based can be applied to other HMO bills before this committee. I would like to say that our remarks are directed mainly toward i{.R. 5615. But I would like to make a few remarks about H.R. 11728, a bill introduced by Representative Roy, yourself, and others. Although we do feel that the bill has weaknesses which should be corrected, I shall restrict myself, at this time, to pointing out a few areas of superiority in it as compared to the administration proposals. Dr. Roy's bill mandates that an HMO provide additional health serv- ices making a package that is more nearly comprehensive; the HMO must be a nonprofit organization in order to receive Federal support; consumers be given a meaningful policymaking role; also, education of consumers in appropriate use of health services must be provided, and the medical groups are required to provide regular opportunities for continuing education of their personnel. There are additional provisions for special project grants for con- sumer and provider education. The bill js also stronger in its provi- sions for public accountability and for quality assurance and evalua- tion (although it does not approach Senator Kennedy's HMO bill, S. 3~27, with respect to the latter point). Mr. ROGERS. I believe they set up a separate organization. Dr. SAGER. A separate organization which is separately funded and unconnected I believe with HEW. It certainly has the aspects of a commission. Mr. RoGERs. I was wondering if they would have enough personnel to do adequate checking. Do you think they would? How many would you have to hire to do that? Dr. SAGER. It would be an immense organization if the HMO's really got going. Mr. ROGERS. Do you think that would be a practical approach at this date? Dr. SAG1~n. Not right now. It could be pan passu to the development of the HMO's. After analysis of the administration-sponsored Health Maintenance Organization assistance bill-H.R. 5615-and the related National Health Insurance Partnership proposa'ls-H.R. 7741-the physicians forum finds them unacceptable. To use the words of the forum's PAGENO="0133" 8~5 statement of December 1971, on current national health insurance proposals, the administration legislative package, in spite of the ref- erence to health maintenance organization, "is inadequate for the sup- port of the nonprofit, salaried, prepaid, group-practice medicine which is needed in the United States." Furthermore, the forum considers the use of the terms "health maintenance organization (HMO)" and "com- prehensive health services" in the context of these bills misleading and demogogic. The forum's principles for a national health system provided the framework for the present analysis. To understand the proposed HMO system of medical care delivery, not only were the bills men- tioned above considered, but also statements by officials of the De- partment of Health, Education, and Welfare, and the actual imple- mentation of HMO planning proposals which was begun, with the specific legislation still to be enacted, by the diversion of funds ap- propriated for other purposes. The pertinent Forum principles may be stated as follows: 1. Adequate distribution of facilities and personnel in kind and number so that patient care services are based on demonstrated health needs; 2. Creation of local and regional community-controlled health boards with responsibility for the provision of all personal and en- vironmental health facilities and services; 3. Practice by personal physicians and other health workers on a salaried basis in groups which are based in neighborhood health centers; 4. Peer and consumer review of quality of care provided and con- tinuing education for health workers of all types;' 5. Obligatory service for physicians, nurses, and other health work- ers-who should not have to pay personally for their training-in rural and poverty areas of medical need-for a specified period of time, of course. 6. Payment for all personal health care through an equita~bly fi- nanced national health care fund, to be a mandated trust fund so constituted as to remove it effectively from dependence on annual appropriations by Congress; and 7. Establishment of a National Department of Health with full Cabinet rank. The aforementioned principles indicate that the Physicians Forum is in favor of a unified and complete system of health services. The Nixon-HMO Insurance System is fragmented and pluarlistic throughout: the system is broken up among a variety of bills; some of the HMO types have built-in fragmentation of health care; eligibil- ity under the insurance plan is a loopholed and patchwork affair; medical care is not offered to all the people; what is offered retains all the features of our present multiclass system, including, as I note fur- ther on, a means test, especially under the insurance bill. Continuity of care is favored but there is no effective mechanism for assuring it. The HMO plan, in itself, is not economically viable. Since loans and `grants to assist with operational costs would be limited to 3 years, HMO's in currently undeserved areas could hardly become financially `self-suffi- cient. It is indeed questionable whether an effective and satisfactory chain of HMO's providing first-class medical care could be founded at PAGENO="0134" 8'?6 all without the concurrent establishment of an equitable, truly natiori~al financing mechanism. Comprehensive services are not mandated and social services are completely omitted (except, it appears, in relation to enforcement of means tests under the insurance bill). Continuity of care is favored but there is no effective mechanism for assuring it. The emphasis of the HMO plan is more on cost saving than on im- proved services, which it also appears to favor. The emphasis on cost cutting and competition invites an invasion of for-profit HMO's and encourages nonprofit private HMO's to increase the difference between payments for care (income) and cost of delivery, since net income be- comes inversely related to the number of services rendered and there is no mechanism for assuring that a significant amount of the increased income be used for more or better services. In fact, without provisions for adequately monitoring the quality of care and for educating the consumers on what they have a right to expect and giving them a meaningful role in policymaking and surveillance of care, this short- changing of the recipient of care is inevitable. We must emphasize that an HMO is not necessarily a group. In dis- cussing HMO's government officials are fond of name-dropping "Kaiser-Permanente" and similar successfull group-practice organiza- tions and lauding their virtues to suggest a relationship, but reference to the H.R. 5615 lIMO definition reveals that all an lIMO is required to do is arrange for services. While pluralism may be a valuable characteristic, in this case it is blown up to monstrous proportions. An lIMO may be public at any level, Federal, State, local, regional: nonprofit private, including consumer and neighborhood sponsored groups; medical society foundations which are associations of solo physicians and not groups at all; and Blue Shield and Blue Cross in- surance associations; and, finally, profitmaking private organizations under variety of sponsorships, singly or in consortiums; commercial insurance companies, electronic and industrial firms, drug houses, banks, management companies, and so on. Physicians in these organizations may be full time or part time, paid by salary, partnership share or fee for service. The lIMO may give most of the health services directly or contract out for them; they may operate from an institution, an ambulatory health center, a neighbor- hood health center, a number of scattered centers or, from solo private offices. A glance at the first planning grants to lIMO's indicates that almost all of these varieties are at present in gestation and may eventu- ally come to fruition. The above list makes it clear that there will be several types of lIMO's that are not groups; that the unfortunate market effects of fee for service, demonstrated by the medicare experience, will be re- peated; that not all lIMO's will be neighborhood centered and that in some kinds of lIMO's care may be delivered through personal physi- cians and in others there is little likelihood of this. Community boards are not provided for even in an advisory capac- ity; neither are grievance procedures. The only way consumers could conceivably affect quality would be by exercising their market power by mass withdrawals from the lIMO; the administration seems to believe it can rely on market relations to bring forth and preserve the best. PAGENO="0135" 877 As for providing patient care services sufficient to meet demonstrated needs, failure is written into the bill. Not only are the mandatory serv- ices not comprehensive-dental care, mental health services including psychiatric care, and drugs, among others, need not be offered-but the quantity of services can be limited by the size of ihe prepayment package purchased by or for the individual, Furthermore, experience rating is not interdicted, so that people most in need of care can be priced out of the market. The lIMO bill, H.R. 5615, does contain provisions that encourage the development of lIMO's in medically underserved areas, both urban and rural. But without adequate financing provisions for continued operation, the encouragement is meaningless. In addition, workable incentives for recruiting and retaining the necessary manpower in such areas are lacking. I know you are pressed for time. I thank you very much. (Testimony resumes on p. 885.) (The attachments to Dr. Sager's prepared statement follow:) PAGENO="0136" Financing of Health Services Our present method of payment for personal health services precludes adequate health care for the people of the United States and supports the two classes of medical care which currently exist. Prevention is not encouraged. Too few incentives for better care exist. Inefficient systems are supported and rewarded. We therefore propose: * Establishment of a national health care fund to pay for all personal health care, includingpreventive, curative, and rehabil- itative services This is to be a mandated trust fund, so constituted as to remove it effectively from annual appropriations by Congress. It is to be financed by a pro- gressive income tax surcharge for health. * Distribution from the trust fund of all funds for personal health services to be made to the regional and local community. controlled health boards on a per capita basis. * Funding through general tax funds for environmental health services, medical re- search, health education and construction of health facilities. * Establishment of a national Department of Health with Cabinet status, eMich would be responsible for the administra- tion of all health servlces, personal and environmental. The Department of Health is to consult regularly on basic policies with a National Health Board composed of representatives from the regional com- munity-controlled health boards. 197D REPRINTED 1971 THE PHYSICIANS FORUM IS A MEMBERSHIP ORGANIZATION For Information About The Physicians Forum Write or Call: THE PHYSICIANS FORUM 510 Madison Ave., New York, N.Y. 10022 212 MU 8.3290 878 I National I Health I System Proposed by THE PHYSICIANS FORUM INC. 510 Mad~son Aoenue, New York, N.Y. 10022 .212 MU 83290 PAGENO="0137" PllheAmerican health care system is fail- ing. Medical care is a commodity to be bought rather than a right for all. The poor are ig- nored or offered charity; care for other groups is deteriorating. Physicians concentrate in af- fluent neighborhoods and have largely aban- doned rural and ghetto areas. Other health workers receive' meager wages and scant re- spect. A fragmented, institution-dominated system of care is unresponsive to the commu- nity and is pervaded with racial, economic and sex discrimination. The war machine is well fed but public health, hospitals, medical education and medical research are starved relative to increasing needs. For the world's most affluent and technologically advanced nation, our bealtb indices are a disgrace. Tbe American people need and deserve a society that guarantees the right of all to. bealtb. jA HEALTHY LIFE FOR ALL The physical and mental health of the Ameri- can people is dependent on the social and economic health of the nation. We recognize that ultimately the health problems of our country can be effectively attacked only with a fundamental restructuring of our society from the present private-profit, special-inter- est oriented system to one which is structur- ed primarily for the social welfare of all its people. We therefore propose: * The eradication of racism from all phases of American society. * A guaranteed income, set at a level high enough to eliminate poverty. * The abolition of hunger and malnutrition, a national disgrace in this most affluent country. * The planned reconstruction and transfor- mation of our decaying cities to provide better housing which is intelligently de- ployed in relation to educational, recrea- tional, transportation and employment facilities. * Opportunities for education and vocation- al development, available to all, with ade- ~- quate opportunity for advancement corn- rrsensurate with ability and achievement. 879 PAGENO="0138" 2A HEALTHFUL ENVIRONMENT The industrialization, mechanization and com- mercialization of our country have produced hazards of grave concern to our health and well-being. Among the by-products is pol- lution of our physical and social environ- ments. The federal and local governments have abdicated their responsibility; corporate interest has replaced the public welfare. We therefore propose: * Rigid enforcement of existing air-pollution codes and establishment of new ones where needed, with penalties of sufficient mag- nitude to discourage chronic offenders. * Crash research programs to produce non- pollutant engines and other technological innovations to reduce pollution. * Immediate promulgation and strict en- forcement of the highest safety standards for the automobile industry and strict en- forcement of laws aimed at the prevention of highway accidents. * Establishment of plants capable of treat- ing and c-on verting so/id wastc - * Strictcontro/ of industrial wastes and haz- ards with the cost borne by industry. * Establishmentofa national consumercocle with strong laws protecting the people by insuriAg truth in advertising, packaging and labeling of foods and drugs. * Renunciation of nuclear, biological, chem- ical and all weapons of mass destruction,- disavowal of war with its intolerable psy- chological and physical toll on others as well as ourselves. 880 3 THE NATIONAL HEALTH CARE SYSTEM Lack of organization and coordination of the several aspects of health care makes it im- possible for people to receive adequate care. Services have been established which meet the needs of professionals, not patients. Until our health resources are appropriately structured and placed under consumer control, they will continue to fail to meet the needs of patients. The following proposals establish the kunda- tion of a new system designed to solve the national health care crisis. Manpower Current methods of training health care per- sonnel cannot begin to provide the manpower to meet the nation's immediate needs. -Our country is confronted with a health man- power crisis that requires emergency measures flGW. We therefore propose: * A massive increase in enrollment and train. ing programs in the health professions based on the immediate expansion of et- isting medical, dental and nursing schools and other facilities, as we/I as creation of new training resources. Large scale federal financing is needed for both new and ex- panded facilities and training programs. * Elimination of economic barriers to edu- cation and training programs ~through fed- eral financial support for schools and stu- dents. * Creation of new health careers, unrestrict- ed by outmoded requirements, with spe- cial emphasis on recruitment of personnel from those sections of the population that have been excluded from the health field because of economic and racial discrimi- nation. PAGENO="0139" . A large increase in the number of physi- clans and other health care personnel, suf- ficient to provide adequate services for all, including people in rural and poverty areas. * The use of allied personnel to assume many of the tasks currently performed by physicians. These personnel would function as members of the health care team. * Development of an adequate salary struc- ture for all health workers so that health personnel will not be exploited by institu- tions or practitioners. The right to union- ize should be established for all health workers. * Elimination of separate state licensure re quirements and establishment of national criteria for all health workers. Facilities and Services The availability and distribution of health care facilities and services are inadequate in type, quantity and scope, and they do not begin to meet even the most urgent health needs of the nation. Our hospitals and medi- cal centers are being used inappropriately; their services are provided on the basis of ability to pay or the personal interests and convenience of the professionals. We therefore propose: * Creation of local and regional community- controlled health boards with responsibil- ity for the provision of all personal and environmental health facilities and serv- ices. Each board should have its members selected by the actual consumers of health services in the area. * Distribution of facilities in kind and num- ber so that patient services are based on health needs. The types of facilities and services should include educational and preventive services, screening programs, neighborhood health centers, acute and chronic hospitals, organized home care, re habiitation services, skilled nursing homes and all other services required to provide comprehensive care. * Creation of regional networks of health facilities and services, including medical schools, hospitals, neighborhood health centers and other health services, in order to make the full range of services available to all people in the region regardless of where they live. These networks are to be under the direction of the regional com- munity-controlled health boards. * Encouragement of diversity and experi- mentation with newanddifferentmethOds of providing care. * Abolition of discrimination because of economic status, color, sex, religion or political affiliation in all facilities and ser- vices. Health Workers and Health Care To assure effective and high quality personal health services, we propose: * Practice by personal physicians and other health workers in groups which are based in neighborhood health centers. * Payment of physicians, as well as other health workers, by annual salaries com- mensurate with training, experience and ability. * Peer and consumer review of the quality of care provided and ongoing educational experiences for all health workers, includ- ing full time postgraduate education with- out loss of salary. * Creation of clear avenues of advancement- career ladders-for all health workers. * Obligatory service for specified time peri- ods by physicians, nurses and other health workers in rural, poverty and other de- prived communities. 881 PAGENO="0140" 882 STATEMENT ON THE NIXON ADMINISTRATION HMO PROPOSAL-THE PHYSICIANS FORUM INC. After analysis of the Administration-sponsored Health Maintenance Organiza- tion Assistance Bills (H.R. 5615 and S. 1182) and the related National Health insurance Partnership proposals (HR. 7741 and S. 1623), the Physician.s Forum finds them unacceptable. To use the words of the Forum's Statement of December 1971 on Current National Health Insurance Proposals, the Adminis- tration legislative package, in spite of the reference to Health Maintenance Organizations, "is inadequate for the support of the non-profit, salaried, prepaid, group-practice medicine which is needed in the United States." Furthermore, the Forum considers the use bf the terms "Health Maintenance Organization (HMO)" and "comprehensive health services" in the context of these Bills misleading and demogogic. The Forum's principles for a National Health System on which its December Statement was based also provided the framework for the present analysis. To understand the proposed HMO system of medical care delivery, not only were the Bills mentioned above considered, but also statemen:ts by officials of the Department of Health, Education, and Welfare and the actual implementation of HMO planning proposals which was begun, with the specific legislation still to be enacted, by the diversion of funds appropriated for other p'urposes~. The steps in this analysis with the pertinent Forum principle stated first follows: 1. Adequate distribution of facilities and personnel in kind and number so that patient-care services are based on demonstrated kealtk needs Definition (abstracted from H.R. 5615): A health maintenance organization (HMO) is defined as a public or private organization which provides, either directly or through arrangements with others, health services to individuals enrolled with such organizations on a per capita (or per family) pte-negotiated prepayment basis; health services are those which a defined population might reasonably require to be maintained in good health, including at a minimum: ambulatory physician care and outpatient preventive medical services, inpatient hospital and physician care and emergency care. the organirJation to have ar- rangements for assuring its members prompt and appropriate services meeting quality standards established in accordance with regulations of the Secretary of Health, Education, and Welfare. The bills encourage the location of HMO's in medically underserved areas, both urban and rural, by financial aid in the form of grants, contracts, loans and loan guarantees; but these are also available for HMO's in more favored areas. Since the state and local health planning agencies will be expected to investi- gate an advise on the need for a facility in a proposed area, there is the possi- bility that their input will have an effect. On the other hand, spokesmen close to the Administration talk of choices among competing HMO's and other forms of health care delivery as a~necessary ingredient of the strategy. Whether this can be reconciled with rational planning is open to question. The Health Manpower Training Act df 1971 contains some provisions that could be favorable to recruitment of physicians into HMO's in underserved areas, primarily those calling for loan forgiveness and scholarships in return for a period of work in such areas. However, past experience with financial "forgive- ness" incentives has not been very successful, possibly because of competition from the potential earnings in high income metropolitan areas. As for providing patient care services sufficient to meet demonstrated needs, failure is written into the HMO Bills. Not only are the mandatory services not comprehensive (dental care, psychiatric care and drugs, among others, need not be offered), but the quantity of services can be limited by the size of the prepayment package purchased by the individual. Even with the concurrent passage of the Nixon National Health Insurance Partnership Act, which provides for an HMO option, this would still be so. It is, in fact, actually mandated in the Act for low income `families covered under the Family Health Insurance Plan by limits on the number and kinds of services which are reimbursable. Further, `the general emphasis in the Bills on cost-cutting could lead to many distortions and is likely to adversely affect the quality, quantity and types of medical services rendered, whether these. are medically indicated or even legally required. PAGENO="0141" 883 2. Creation of local and regional community-controlled health boards with re- sponsibility for the provision of all personal and environmental health facili- ties and services Community boards are not provided for even in an advisory capacity. Relevant grievance procedures contained in the National Health Insurance Partnership Act indicate concern only for overcharges to the consumer and none for the quality of the care delivered. The Act provides for "review" of grievances amount- ing to more than $100 and for judicial hearings in matters of more than $1000, obviously applying to services not considered by the HMO to be included in the prepayment package, but which the consumer might consider to be covered. No provision relating to environmental conditions is contained in any of the Bills under consideration. 3. Practice by personal physicians and other health workers on a salaried basis in groups which are based in neighborhood health centers Here we must emphasize that an HMO is not necessarily a group. In discussing HMO's government officials are fond of name-dropping "Kaiser-Pernianeflte" and similar successful group-practice organizations and lauding their virtues to sug- gest a relationship, but reference to the definition reveals that all an HMO is required to do is "arrange" for services. While pluralism may be a valuable characteristic, in this case it is blown up to monstrous proportions. An HMO may be public at any level, Federal, state, local, regional; non-profit private, including consumer and neighborhood sponsored groups; hospital and medical school orga- nizations, group or non-group; physician groups; medical society foundations which are associations of solo physicians and not groups at all; and Blue Shield and Blue Cross insurance associations; and finally profit-making private orga- nizations under a variety of sponsorships, singly or in consortiums: commercial insurance companies, electronic and industrial firms, drug houses, banks, manage- ment companies, and so on. Physicians in these organizations may be full-time Or part-time, paid by salary, partnership share or fee-for-service. The HMO may give most of the health services directly or contract out for them, they may operate from an institution, an ambulatory health center, a neighborhood health center, a number of scattered centers or from solo private offices. A glance at the first 52 planning grants to HMO"s indicates that almost all of these varieties are at present in gestation and may eventnally come to fruition. The above list makes It clear that there will be several types of HMO's that are not groups; that salary will not be the only method of remuneration; that not all HMO's will be neighborhood centered and that in some kinds of lIMO's care may be delivered through personal physicians and in others there is little likelihood of this. 4. Peer and consumer reeiew of quality of care provided, and continuing educa- tion for health workers of all types Peer review, the effectiveness of which is very uncertain, is provided for under the National Health Insurance Partnership Bill through Professional Standards Review Orgardzations of local physicians to assess the quality and appropriate- ness of services. The only way consumers could conceivably affect quality would be by exercising their market power by mass withdrawals from the HMO; the Administration seems to believe it can rely on market relations to bring forth and preserve the best. The Secretary of HEW has the right to inspect, evaluate and regulate which, if vigorously exercised through Federal or state agencies, could be effective in monitoring the quality of services. As noted previously, manpower legislation already enacted offers loans to health professions students; but there is no specific provision mandating on-the- job, part-time continuing education or education for advancement up the ladder. 5. Obligatory service for physicians, nurses and other health workers-who should not have to pay personally for their training-In rural or poverty areas of medical need None of these requirements are fully met. As referred to above, loans for health- professions education are available and could be partially redeemed by service in underserved areas. There is no obligation to render a period of service in areas of medical need. PAGENO="0142" 884 6. Payment for all personal health care through a/n equitably financed national health fund, to be a mandated trust fund, so constituted as to remove it effectively from dependence on annual appropriations by Congress The HMO Assistance Bills contain no provisions for financing the prepayments required of enrolled consumers. The methods of financing health care under the National Health Insurance Partnership Act, which, as previously mentioned, could cover HMO services, are almost as various as the types of HMO's and perhaps more multifaceted. For employed workers, both the employer and the employee contribute for the purpose of purchasing private health insurance. Since the employer's contribution is tax-deductible, to that extent the insurance is subsidized from general tax revenues. Deductibles and coinsurance are imposed on the employee in addition to his initial contribution until medical expenses of $5000 in one year are incurred, when family cost-sharing is forgiven for a period of three years. Poor families with children, not covered by a required employer plan, who are in the lowest income class would have their premiums subsidized from general revenues; for the upper income classes among the poor (up to $5,000 income), the subsidies would be reduced by significant deductibles and coinsur- ance; poor families without children are not covered at all. (Provision for pay- ing HMOs under Medicare for those who elect to obtain their care through them will be possible if H.R. 1 is enacted.) Non-employed people with resources could purchase insurance providing medical care from HMOs. In sum, the Administration Bills do not provide for unified or equitable financ- ing of health care; deductibles, copayments and coinsurance are widespread; a relatively small proportiop of the funds comes directly or indirectly from gen- eral tax funcfs with, of course, no mandated trust fund. A significant propor- tion of the population is left out of the system (even employed people whose em- ployers must offer them a plan could refuse it) and, lastly, the means test which the Forum has found intolerable must be retained to sort out the poor families into different Income classes. 7. Establishment of a National Department of Health with full Cabinet rank This is not contemplated in the Bills. To all of the above, additional Observations should be made: 1. The Nixon~HMO-Insupance5y~tem in fragmented and pluralistic through- out: the system is broken up among a variety of Bills; some of the HMO types have built-in fragmentation of health care; eligibility under the insurance plan is a loop-holed and patchwork affair; medical care is not offered to all th~ people; what is offered retains all the features of our present multi-class system. 2. The HMO plan, in itself, is not economically viable. Since kans and grants to assist with operational costs would be limited to three years, HMOs in cur- rently underserved areas could hardly become financially self-sufficient. Also, will private HIMOs want to make any cash investment (10% is called for) in a severely depressed area? It is indeed questionable whether an effective and satis- factory chain of HMOs providing first class medical care could be founded at all without the concurrent establishment of an equitable, truly national financing mecthjanism. 3. Comprehensive services are not mandated and social services are completely omitted (except, it appears, in relation to enforcement of means tests !)~ Con- tinuity of care is ftrvored but there is no effective mechanism, for assuring it. 4. The emphasis of the HMO plan is more on cost-saving than, on improved services, which it also appears to favor. The former carries a real threat to the hitter. The em~ihasis on cost-cutting and competition invites an invasion of for- profit HMOs and encourages non-profit private HMOs to increase the differen~e between payments for care (income) and cost of delivery, since net income be- comes inversely related to the number of services rendered and there is no mechanism for assuring that the increased inconie be used for more or better services. In fact, without provisions for adequately monitoring the quality of care and for educating the consumers on what they have a right to expect and giving them a meaningful role in policy-making and surveillance of care, this short-changing of the recipient of care is inevitable. We conclude as we started: The Nixon-HMO fragmented system is unaccept- able., The few positive facets of the Bills, such as the possibility of experi- mentation in new forms of health-care delivery and the apparent encourage- mont of group practice as well as the emphasis on increase of care in under- served areas, are ov0rwhelmed by the great inadequacies described above. Even if the best of all possible HMOs were to emerge, the Nixon legislative proposals PAGENO="0143" S8~ would remain tantalizing and frustrating, for there would be insufficient eco- nomic support to keep them alive. The medical market-place, which has brought health care to its present crisis, would be retained, arid the more expensive and less comprehensive medical care would continuri to drive out the more efficient and more comprehensive, leaving the great majority of the population without the benefit of the services really necessary to support health maintenance in the true sense of the term. Mr. Rooi~ms. Thank you, Dr. Sager, for being present and letting us have the benefit of your thinking. The committee wail go over your statement very carefully with the ideas you have advanced. We are grateful to you for presenting it. It has been most helpful. Mr. Kyros. Mr. KYROS. Dr. Sager, what, in your opinion, would be adequate financing provisions for continuing operations? Dr. SAGER. Neither I nor we are expert~s in finance, but we had con- sidered that a large proportion of the fund should come from general taxation and a certain small amount might come from funds such as social security types of taxes. We favor the greatest amount possible being funded through progressive taxation. Mr. KYROS. Thank you, Doctor. Thank you, Mr. Chairman. Mr. RoGERs. Thank you so much. I believe this concludes the number of witnesses today. The committee will stand adjourned until 10 o'clock tomorrow morning. (Whereupon, at 12:20 p.m., the committee was adjourned, to recon- vene at 10 a.m. Wednesday, May 10, 1972.) PAGENO="0144" PAGENO="0145" HEALTH MAINTENANCE ORGANIZATIONS WEDNESDAY, MAY 10, 1972 HOUSE OP REPRESENTATIVES, SUBCOMMITTEE ON PUBLIC HEALTH AND ENVIRONMENT, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washingto~ D.C. The subcommittee met at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. Paul G. Rogers (chairman) presiding. Mr. ROGERS. The subcommittee will come to order please. We are continuing hearings on proposed legislation for health maintenance organizations. Our first witness this morning will be the Health Insurance Association of America, located in Washington, Mr. Richard H. Hoffman, who is vice president and associate actuary, the Equitable Life Assurance Society of the United States, and Mr. Harry Sutton, director of health care programs, the Prudential In- surance Co. of America. The committee welcomes you gentlemen. We will be pleased to re- ceive your testimony. STATEMENT OP RICHARD H. HOFFMAN, CHAIRMAN, SUBCOMMIT- TEE ON HEALTH MAINTENANCE ORGANIZATIONS, HEALTH IN- SURANCE ASSOCIATION OP AMERICA; ACCOMPANIED BY HARRY SUTTON, MEMBER, SUBCOMMITTEE ON HEALTH 1VrAINTENANCE ORGANIZATIONS Mr. HOFFMAN. Thank you, sir. Mr. Chairman and members of the committee, I am Richard H. Hoffman, vice president and associate actuary, the Equitable Life Assurance Society of the United States. With me is Harry Sutton, director of health care programs, the Prudential Insurance Co. of America. We are appearing on behalf of the Health Insurance As- sociation of America, which has a membership of over 300 insurance companies that write approximately 80 percent of the health insur- ance written by insurance companies in the United States. Mr. Sutton speaks as a member of the Health Insurance Associa- tion of America's Subcommittee on Health Maintenance Organiza- tions, of which I am chairman. Mr. Sutton has been instrumental in exploring new approaches to delivery and financing of health care for the Prudential, as have I, as chairman of the Equitable's Com- mittee on Health Care Developments. (887) 81-185 0 - 72 - pt. 3 - 10 PAGENO="0146" 888 We welcome the opportunity the committee has afforded us to dis. cuss our experience with the health maintenance organization con. cept and to present our views on the legislative proposals pending before you, especially H.R. 11728, which Representative Roy has in.. troduced in cooperation with your distinguished chairman and other members of this committee. INSURERS ARE ON RECORD You gentlemen are well aware that the HMO idea is not new to us. In point of fact, the leading health insurers of this Nation have been on record for some time on this topic, and as we have testified before, many of us are deeply involved in the development of HMO's, for we have felt an obligation to test out any ideas in our areas of competence which seem to hold promise of getting at the pressing task of improv- ing the Nation's health care delivery systems. Companies which have become involved find it to be a sobering experience, but also find that they are gaining valuable insights into the practical organizational, management, and financing aspects of the various health maintenance and ambulatory care approaches. Mr. Chairman, in testimony last December 1 before the Subcommit- tee on Health of the Senate Labor and Public Welfare Committee we described our experience and outli~ied eight lessons insurance com- panies have learned. An updated summary of this experience is at- tached as an appendix. Our experience led us to say in our December testimony that "insur- ance companies have taken a considerable and active interest in this HMO concept because it seems to us that it is potentially an impoxtant means of bringing about improvements in health care delivery, encour- aging more efficient use of available manpower, improving access to care, and stimulating. the effective use of less costly forms of care." In spite of the potential, we doubt if anyone really feels that an lIMO approach, however defined, will by itself solve all of the Nation's health care problems. Our experience as health insurers oyer many decades, and our more recent specific explorations into many facets of health care delivery, have brought us to the acute realization that there is no one-way approach to better health care. The need is for the development of a multifaceted delivery system which can work to stimulate innovation, produce better health serv- ices, and lower costs. It should include all varieties of health mainte- nance and ambulatory care services, including prepaid group prac- tices, medical foundations, and fee for service practice. Paralleling a pluralistic and evolving health care delivery system must be a pluralistic financing and insurance system that utilizes the full resources of the Nation, private as well as governmental. The social need is so great that it makes no sense for the nation to hobble its efforts by not using all available competencies and resources. It does make sense, on the other hand, to build on present strengths and to work at the problem on `a full and fair cooperative basis. `Statement of the Health Insurance Associatton of America on health maintenance organizations presented before the Subcommittee on Health of the Senate Labor and Public Welfare Committee, December 1, 1971. PAGENO="0147" 889 BROAD STRATEGY NEEDED We believe that a broad and comprehensive strategy should be developed that deals with the full spectrum of problems in the health care field. At a minimum, that strategy should include: 1. Aggressive encouragement of ambulatory and primary care serv- ices, including group practice, medical foundations, and other forms of HMO's. 2. Incentives to increase and motivate manpower-not only physi- cians, but allied personuel as well. 3. Effective support of comprehensive community health planning, with strong consumer participation. 4. Comprehensive health insurance available to everyone, regard- less of economic or social status or geographic location. These, it should be noted, are the principal building blocks of the proposed National Healthoare Act (H.R 4349 and S. 1490) sup- ported by the Health Insurance Association of America. HMO'S NEED FEDERAL LEGISLATION Clearly in developing this strategy for better health for all,, the HMO concept ranks high although as we mentioned earlier it can only play a part, although a significant part. The record shows that development of effective forms of health care delivery is difficult. Experience has demonstrated this is particularly so with prepaid group practice largely because it requires new life- styles for both providers and users. Furthermore, there are problems in finding and preparing skilled managers and administrators, and in attracting-and holding-medical staff. Marketing is not easy, for the presumed advantages of organized group services are not always as readily apparent `to consumers as to the organizers. More often than not these difficulties, and especially the assembling of a sufficient number of interested enrollees to form a viable group, cause extensive delays in reaching the financial break-even point. Finally, there are construction needs which require financing and amortization. So, however one looks at it, this is a costly and risky business-and it is a business albeit a social business-that neces- sarily must balance income with outgo. Consequently, we believe that in the public interest the overall strategy concerning HMO's should start with a clear commitm~ent to stimulate their growth. To do so, we believe it will be essential for gov- ernment to provide financial assistance, and to keep open opportunities for participation by the private sector. Federal legislation also is~ needed to remove existing barriers in State law. Federal legislation, we believe, should be carefully constructed to encourage the growth of HMO's, and to give them a fair chance to compete within the entire health care system in the interest of improv- ing access, enhancing quality, and reducting costs of health care. Federal legislation should be flexible, but not inhibiting, permitting variations in the structure of HMO's subject to minimum require- ments. This should primarily relate to output and encourage all types of responsible organizations to become involved. Let me underscore that term, "responsible organizations" because we must all face the hard reality that any activity like health that in- PAGENO="0148" 890 volves public and private expenditures of over $200 million a day is subject to possible abuse by misguided and/or opportunistic people. Clear statements of purpose and expectation, standards of perform- ance, and defined processes of accountability are essential and, in our view, should be applicable to any sponsor or participant group regard- less of its source of funds or formal organizational structure. FORMS OF FEDERAL FINANCIAL ASSISTANCE The HMO development process can be thought of in four stages each of which require some form of Federal financial assistance: (1) plan- ning agency approval and feasibility studies; (2) initial organization and plan development; (3) getting underway-the "start up" period to the break-even point; (4) facilities design and construction. 1. PLANNING AGENCY APPROVAL AND FEASIBILITY STUDIES We propose that any Federal financial assistance for the develop- ment of HMO's in a community should require prior approval by the appropriate comprehensive health planning agencies (areawide and State). This, we feel, will help assure a greater degree of community support and provider and consumer involvement from the outset. In view of the critical necessity of encouraging immediate action to create HMO's, modest grants and/or contracts should be available to potential sponsors for necessary feasibility studies. 2. DEVELOPMENTAL SUPPORT Initial organization and plan development should be encouraged by federally guaranteed loans. Such loans should require matching fund- ing by sponsors of approximately 20 percent. This would provide sig- nificant leverage for Federal tax dollars and it would also provide greater incentives to the sponsors for more efficient management of the developmental process and for ultimate success of the HMO. By making the sponsor share the risk, financial stability will be encour- aged. Furthermore, the developmental process should not be financed without insistence by the Secretary of HEW on defined outcomes with- in a definite time schedule. Projects in poverty and underserved areas should also be eligible for grants and/or contracts. In making Federal assistance available it would be shortsighted in terms of the goal of encouraging maximum HMO development to lim- it eligibility to nonprofit entities. To do so would severely retard the HMO movement and there is no evidence that it would in any way enhance efficiency or preclude the possibility of abuse. For this reason, there should be no distinction between so-called profit and not-for- profit projects-that is, taxpaying and non-tax-paying entities. Clark C. Havinghurst, professor of law at Duke University, has noted that "one consequence of the predominantly nonprofit orienta- tion of the (health) industry has been to free decisionmakers to maxi- mize just about any value they choose, including in too many cases the gratification of administrators' empire-building impulses or physi- PAGENO="0149" 891 cians' convenience and income derivable from utilization of plant pur- chased with Government or charitable funds." 1 In short, the real test is not whether the HMO has utilized private funds in its formation or whether the HMO is a taxpaying and non- tax-paying entity. The real test is the availability and quality of care that the consumer gets for his dollar. Furthermore, the same amount of Government funds will accomplish more if used to attract the maxi- mum private resources to this immensely complex task. 3. STARTUP costs The critical period for any new health care delivery system involv- ing a group practice concept is the first 2 or 3 years, when more or less full-scale organization and staffing is required, but the enrolled popu- lation is still below an optimum level. This "startup" period necessi- tates financial underpinning to help get these infant organizations on their feet. We believe this can best be provided through guaranteed loans along the same lines and for the same reasons we have outlined for the de- velopmental period. In the case of projects in poverty or underserved areas the matching requirements of 20 percent could be modified by the Secretary. To promote these three stages of HMO development effectively, we believe the Congress should authorize for the next 5 years at least $50 to $75 million per year for grants, contracts, and guaranteed loans. 4. FACILITIES CONSTRUCTION Many HMO's will need to be housed in special facilities, most accu- rately described as ambul atory care centers. Thus, HMO needs should be considered as part of the larger issue of ambulatory health care center development. Here is where a basis change is needed in the phys- ical plant of the Nation's delivery system, for it has been graphically shown that the development of ambulatory alternatives to high-cost hospital care can dramatically cut the cost of medical care. In 1 year, for instance, the Surgi-Center in Phoenix, Ariz., saved that commu- nity more than $400,000. But an ambulatory care center (as defined in "The National Health- care Act," H.R. 4349) is a brick and mortar medical care delivery fa- cility with a potential for bringing its benefits to the consumer and taxpayer whether or not it is operated on a fee-for-service basis or in conjunction with an HMO. We have recommended, therefore, that Congress make available $200 million a year for the next 5 years for the constructiøn of ambulatory care facilities, and for conversion of existing in-patient and other facilities. The funds should be made available regardless of whether the facility is used on a fee-for-services or HMO basis in order to foster healthy competition. However, we suggest that perhaps 40 percent of these funds be ear- 1 Clark C. Havlnghurst, "Health Maintenance Organizations and the Market for Health Services," Law and Contemporary Problems, Duke University, autumn 1970. vol. 35, issue No. 4, p. 752. PAGENO="0150" 892 marked for HMO ambulatory care facilities. Thus an HMO could be eligible for funds both from the HMO incentive program discussed above and for the construction of an ambulatory care facility. ELIOIBLE HMOS In our view an HMO is distinguished from traditional forms of organization by two major characteristics: First, the providers are so organized (typically on a group practice basis) as to be able to assume meaningful responsibility for delivering coordinated comprehensive care to the consumer in an efficient and convenient manner; and Second, the providers have financial and other meaningful incen- tives to achieve balanced utilization of health care facilities and serv- ices in the interest of meeting the health needs of the participating population. For purposes of determining eligibility for Federal assistance, we would propose the following HMO definition: A health maintenance organization is a prepaid health care system, comprised either of a single organization or of a cooperating group of legally constituted organizations, which has as its objective the provi- sion of health care services to a defined population on an essentially prepaid basis, and which effectively encompasses all of the following functions: 1. Marketing of the services of the system to prospective particip- ants, and enrolling them on a voluntary basis for a predetermined period of time, generally 1 year. 2. Assumption of responsibility for providing or arranging for the provision to the enrollees of coordinated, reasonably comprehensive, quality health care services, including at least those classifications of physicians' sevices and hospital services which are generally available in the community. 3. Financing all, or all but an incidental portion, of such health care services by means of fixed periodic charges paid by or on behalf of enrolled participants. 4. Assumption of the financial risk as to adequacy of such fixed periodic charges in relation to the cost and utilization, rate of all health care services provided to the enrolled participants. The provid- ers of professional services, whether a separate cooperating orga- nization or a subdivision of the organization, should either partici- pate to a significant degree in bearing or sharing such risks or should operate under an incentive compensation program which relates compensation for professional services effectively to the success of the HMO in achieving its c~bjectives. Item 2 of the term, "reasonably comprehensive services," needs to be spelled out more explicitly. It should comprise an acceptable range of services relevant to the needs of the enrolled population, but with- out unrealistically mandating an exhaustive list. * Initially the `benefit-services pattern should include physician serv- ices (other than esoteric procedures such as heart transplants), in- patient and outpatient hospital services, diagnostic X-ray and labora- tory tests, therapeutic radiologic services, some `preventive and main- tenance health services, including health education of enrollees, and PAGENO="0151" 893 emergency medical care out of the service area. To mandate minimum standards richer than these would increase the cost to the consumer so as to seriously jeopardize the ability of the HMO to compete for participants. To allow the broadest possible program of benefits, modest cost- sharing should be permitted, although it should not be made manda- tory. One specific, if relatively small, way of cost-sharing is by use of registration charges at the time a member receives services. This can be very modesty-a dollar or two for the most part. Such charges are desirable as a means of reducing annual capitation premiums to the enrollee by placing some responsibility on the patient in the utilization of health services. QUALITY SURVEILLANCE Quality care must be the basic objective of any health care system. Therefore, there must be built into the HMO a process for continual monitoring and review to assure enrollees and the community that high quality care is being delivered. From the point of initial exploration of feasibility of an HMO, the quality surveillance idea should be in mind. Definite proposals for its inclusion in the basic operating plan should be a requirement for approval by the Comprehensive Health Planning Agency and HEW. Continuing effective existence and operation should be a condition for governmental funding such as medicare, medicaid, FEHBA and for private insurance payments. In the present state of the art it would appear that high quality care can best be assured by requiring that an HMO have either, within its framework or through an agreement with an outside independent review organization, an active review committee. It should be com- posed not only of physicians and allied health personnel of the HMO, but of disinterested physicians and allied health personnel, and as- sisted by representatives of the HMO's enrollees and insurance car- riers. This review mechanism should effectively determine whether the services rendered are (a) of good quality from the standpoint of pro- fessional practice; (b) appropriate and needed for the proper treat- ment of the patient; and (c) provided only as long as necessary within HMO and institutional settings. Standards for both ambulatory and inpatient care would .have to be developed, and it is most important that the orientation be toward preventing under- as well as over- utilization. The lIMO management should take effective and prompt action with respect to the committee's findings arid should be respon- sible for maintaining the continuing education of staff. We are also very aware from our own experience as well as observa- tion that the success of an HMO depends on the satisfaction and hence the loyalty of the enrollees themselves. The matter of what is "satis- factory" health care is highly subjective, and evaluations necessarily differ sharply from person to person. Therefore, the matter of enrollee satisf action or dissatisfaction is a primary and continuing test for an HMO. We realize that the evaluation of performance and effectiveness, whether by peer review or outcomes assessment, is a complex subject PAGENO="0152" 894 which reqiures further study with the aim of developing appropriate quality evaluation standards and techniques. To this end, we suggest the Council of Health Policy Advisors that has been proposed in the National Healthcare Act, H.R. 4349, assume as part of its general functions and duties the responsibility of conducting the necessary research to determine what kinds of measures are possible and how they can be applied to produce meaningful information for public accountability. OPERATIONAL FLEXIBILITY I assume, we all agree, that once an HMO has begun operations there must be assurance that it will remain competitive with other delivery systems; otherwise, it will not be able to survive. Therefore, a federally subsidized HMO should not be required, as some have proposed, to charge the same capitation to everyone. It should have the option to do so, but it also should be in a position to at least develop capitations separately for the aged medicare enrollees, for medicaid recipients, for members of employed groups, and for others. HMO's must compete for participants within the present sys- tem where these distinctions are made. Furthermore, an HMO should not be required to enroll applicants who are not already eligible for similar health care coverage, without some form of underwriting or limitation of benefits for preexisting conditions. Otherwise, the cost of care to the other members of the plan who prudently joined before an imminent sickness could be significantly increased because of those who wait to be sick before joining. Another point to mention is the provision of H.R. 11728 which would have the HMO assume the full financial risk for the first $5,000 of services renedered to a member per year. We feel that any HMO legislation should not contain so specific a restriction. An HMO should be free to decide for itself the extent of its financial capabilities so long as it participates significantly in the risk. COMMUNITY PARTICIPATION AND HEALTH EDUCATION A vital dimension of the emerging health care system of the Nation is participation of consumers. The needs and desires of potential enrollees must be recognized in the development of HMO's. The community should be consulted with respect to HMO develop- ment at the outset. As represented by the Comprehensive Health Planning Agency with its balanced participation of consumers and providers, the community should share in initial decisions to explore and develop HMO's and other delivery systems. This sharing should take the form of local and State level review and evaluation, and ad- vice to HEW as to the desirability of grants, contracts, and loan- guarantees from the viewpoint of community needs and priorities. In addition, an organized and continuing program of health edu- cation of subscribers and patients should be a basic element in any ambulatory care or HMO system. This requires that consumer health education should be built into the professional and on-the-job train- ing of all personnel so that in day-to-day practice they can apply educational concepts as a part of the team approach to health care. PAGENO="0153" 895 Beyond-or perhaps before-the internal HMO health education program takes hold, potential subscribers need the benefit of effective informational and educational efforts to help them make informed decisions regarding their use of community resourcesr-to select the best form of health care for their personal and family needs, whether it be one or another lIMO, ambulatory care center, private physician, or other resource. In addition, a comprehensive community effort at health education of the public should be undertaken, joined in by HMO's. INSOLVENCY PROTECTION In an infant industry like this, an above-average risk of failure of a plan will exist, particularly in the case of newly formed lIMO's. People who have relied on the lIMO for their health care must be protected against the adverse effects of such a contingency. To guard against such failures it is important that HMO's be soundly conceived, well financed, and backed up by sufficient reserves to carry them through difficult operating periods, which, most likely will occur within the early years. The involvement of an insurance carrier in an HMO arrangement could provide this backing. However, there will undoubtedly be some failures and to provide maximum protection to the participants we have two proposals. First, the HMO should have adequate financial resources at all times to provide services that have been contractually committed even though they may not have actually been provided or paid for as of a given date. HMO's should also be required to hold a contingency re- serve in an amount equal to 1½ months' capitation payments. These amounts should be held in approved investments, with the insurance commissioner of the State in which the HMO is domiciled responsible for seeing that these requirements are carried out. ~Should the funds of an HMO be insufficient to provide the required reserves, the in- surance commissioner must be notified immediately and he would be responsible for determining whether the HMO should be declared insolvent. Alternatively, the 1-IMO could purchase a performance bond providing the equivalent financial protection. On either basis, sufficient funds would exist to provide promised services to all partici- pants contracted for up to the date that insolvency is declared. The second proposal is that the lIMO should be required to arrange with an insurance carrier to assume coverage of its subscribers auto- matically should the HMO terminate. STATE LEGAL BARRIERS It will not be enough to encourage development of health main- tenance delivery systems by financial means, by involvement of con- sumers and providers, and by health education of the public. It will be very necessary also to remove artificial barriers to innovative means of delivering health services that differ from the conventional. It is our understanding that in 20 or more States there are a variety of laws and procedures which unduly restrict sponsorship, organiza- .tion and management of lIMO's. To achieve needed flexibility and to allow the free flow of resources into this area, these restrictions should be overriden. There is no longer any substantive reason that only PAGENO="0154" 896 unincorporated individuals, associations, or partnerships should pro- vide health care services, or that the use of allied health personnel should be unduly restricted by outdated laws. There is no reason that physicians should constitute all or a majority of the governing body of an HMO. There is no reason why sponsorship should be limited to non-tax-paying organizations. Such laws merely foreclose the uti- lization of available and needed resources and hamper the development of the "right of choice" for the consumer. PAYING FOR TIlE HEALTH CARE SERVICES OF THE POOR Most people obtain health insurance through their place of employ- ment, receiving the benefit of a substantial contribution toward the cost from `their employer. However, there are the poor who are not employed and would not be covered by such plans, yet it is our strong feeling that every American has the right of access to quality health care without regard to economic or health or geographic status. We have proposed, therefore, that the same minimum standards of ambulatory and inpatient health care be applicable to the poor as to the balance of the population. This can be achieved as outlined in the National Healthcare Act (H.R. 4349), by means of Federal and State subsidies for low-income persons without perpetuating second-class health citizenship. Under H.R. 4349 eligibility for subsidies would be determined on the basis of income as reported for Federal income tax purposes. Premium costs would be subsidized by the combination of Federal and State funds on a sliding scale in accordance with the person's level of income. Those with little or no income would have the full premium paid from Government funds. This program, which would be admin- istered on a State-by-State "pool" basis, would be underwritten by all insurance carriers. The program would provide both conventional insurance ~overage and an option to join an HMO. Thus, the poor would first be provided with the means to obtain health care coverage, and then would be free to choose the health care delivery alternative in which they wished to participate. On this basis HMO's would' be able to compete in the marketplace for persons in all sectors of the population. They could accept a pro- portional share of the low-income population, but without jeopardizing their total operation. Protection against the cost of health care could be made and without overburdening one delivery alternative or the other with the cost necessary to finance the poor. If given a fair chance on equal terms and without any competitive advantages or disadvan- tages with respect to other alternatives, we are certain that HMO's and the group practice concept will show their mettle. THE HEALTH MAINTENANCE OPTION Consistent with the basic principle of free choice of delivery alter- natives, health insurance contracts should provide a health main- tenance option, that is, a choice between conventional health insur- ance benefit plans and HMO benefit plans, whether they are provided through the place of employment or through a Government program. PAGENO="0155" 897 Jnsurance plans should be required to offer this option within each contract, where feasible. Under the health maintenance option approach, the insurance carrier would receive the premium for the coverage from the policyholder and pay to the HMO its capitation charge for its services. To assure the lowest possible cost for individuals receiving health care from an HMO, State insurance premium taxes should not be payable on the capitation amount paid by insurers to lIMO's. This would increase the attractiveness of the health maintenance option and promote par- ticipation in lIMO's. CONCLUSION Mr. Chairman, I hope our foregoing comments have made it clear that we are in basic agreement with the overall goals and objectives of H.R. 11728. We have indicated some areas of difference, although most are matters of emphasis and priority. We appreciate very much your courtesy in hearing us out, and we want to assure you of our willingness to discuss with you any or all aspects of this complex situation. And to sum up, I would like to repeat what we said in testimony last December.' Private insurers believe that the Health Maintenance Organization concept can provide a significant contribution to the solution of the health care delivery and financing problems in the United States. As we have reported, insurance companies are devoting extensive resources toward development of better and more innovative health delivery and fiancing systems. Our experience demon- strates that we can contribute constructively in this nationwide effort and that, indeed, our participation is needed in the public interest. We are convinced that if the nation is to move ahead toward maximum development in this field, all possible resources of interest, expertise, and finane~ ing must he employed to the full. This is not a matter in which pi~ofessionals alone, nor consumers alone, nor government alone, nor insurers alone, can success- fuPy carry full responsibility-in the most profound sense it must be a co- operative partnership effort. It is not in the public interest to discourage, either inferentially or overtly, any responsible and accountable potential participant in this effort. It is a massive task. Every responsible party should be given full opportunity to participate if reasonable results are to be assured. Thank you, Mr. Chairman. (Appendix A referred to follows:) APPENDIX A SUMMARY OF AcTIvITIEs OF INSURANCE COMPANIES IN HMO DEVELOPMENT, AND EIGHT LESSONS FROM EXPERIENCE Following is a brief "progress report" of what some insurance companies have been doing recently to stimulate development of HMO's without waiting for specific legislation, with some of the major conclusions to be drawn from the experience. CURRENT PROJECTS In the new city of Chlumbia, Maryland, the Connecticut General Life Insurance Company, in 1969, was instrumental in the formation of the Columbia Medical Plan in conjunction with the Johns Hopkins Institutions. C~nnecticut General agreed to advance most of the developmental costs and to assume 100 percent of the Plan's operating losses for the first five years. and 90 percent of the Plan's losses thereafter. 1 Statement of the Health Insurance Association of America on Health Maintenance Organizations, presented before the Subcommittee on Health of the Senate Labor and Public Welfare Committee, Dee. 1, 1971. PAGENO="0156" 898 The Committee will be interested to know that thus far Connecticut General's "investment" in the Plan has amounted to $700,000. In addition, Connecticut General is providing 100 percent mortgage financing for a $6 million hospital facility which is being built in Columbia. To aid in its future HMO development activities, Connecticut General has now formed a subsidiary. It also is in the advanced planning stages of an HMO development in Phoenix, Arizona, which is presently scheduled to commence operations In the mid-to-late 1972. In Boston, there is the Harvard Community Health Plan. Ten insurance com- panies-Aetna Life & Casualty, Connecticut General. The Equitable Society, John Hancock~ Liberty Mutual, Massachusetts Mutual, The Metropolitan, The Prudential, The Travelers, and Union Mutual (as well as Blue Cross)-are participating in the marketing of the Harvard Plan, and these companies also provided considerable input in the formative developmental stages of this Plan. Washington University School of Medicine in St. Louis is the site of a demon- stration project whereby an ambulatory care center has been expanded to provide more comprehensive outpatient treatment and hopefully, to reduce the need for costly hospitalization. This project has been financed by a five-year, $500,000 grant from the Metropolitan Life Insurance Company. Metropolitan also has amended applicable health insurance policies to include a Health Mainte- nance Option. In addition, The University and the company have set up proce- dures to facilitate study of potential savings to enrollees who use the University's HMO facilities. Metropolitan is also participating in the Columbia, Maryland Plan. The Equitable Life Assurance Society is active in HMO development In several areas of the nation. In Washington, D.C., the Society provided, in 1967, the initial impetus and technical counsel that helped start The National Medical Association Foundation on its way toward creating innovative HMO-type health services, especially for black citizens of the inner cities. In Washington, Equitable provided $2.6 million in mortgage financing for construction by the NMA Foun- dation of a unique community health center combined with an intermediate care and rehabilitation facility. This is due to be operational this year. Also in Washington, Equitable has provided a mortgage commitment of $2.1 million to the Community-Group Health Foundation to build a permanent facil- ity for health care services to an underserved, low-economic area of the Nation's Capital. In ]?etroit, Equitable also advanced $800,000 to finance the now-in-operation group practice center created by black physician-members of the NMA. In New Haven, Equitable put forwar~ $1.5 million in the form of a mortgage commit- ment to build the primary fac lity for the New Haven Community Health Plan. This now is operational, and he mortgage has been taken up by a local bank Equitable also now is a partic pant in the Columbia, Maryland Plan. More than a year ago, Elqu~ table responded to requests' from local physicians and community leaders in BoF e, Idaho, to develop a prepaid group practice plan on a broad community basis. After extensive explorations, Equitable offered to provide staff and start-up funding for an HMO approach. Subsequently, an HEW "experimental systems contract with HMO components" was awarded under which Equitable has the prime responsibility for the development of an lIMO for Treasure Valley, involving rural as well as urban areas. All elements' in the Boise community are involved-physicians, hospitals, the Regional Medical Program, the comprehensive planning agencies, Boise State College, business and labor, and the local, ate te, and federal governments. In Minneapolis-St. Paul, Equitable served as a catalyst in stimulating a co- operative effort in conjunction with other carriers, hospitals', physicians, major business firms, and other interested groups in the community to develop a city- wide HMO system that will feature a variety of delivery mechanisms. This' proj- ect is now in developmental stages, with costs being borne by the sponsoring firms, insurers, and foundations. In Wisconsin, the Employers Mutual of Wausau has started a plan through which the Medical Society will enter into an HMO type arrangement to provide Services for the employees of the insurance company. As this plan gains expe- rience, it is anticipated it will expand to include the entire community of Wassaii, Wisconsin. For the past two years, the Prudential Insurance Company, in conjunction with the local medical center, is' providing manpower and services in the development of an HMO to serve the 70,000 residents of Hunterdon County, a semi-rural New PAGENO="0157" 899 Jersey community. The proposed Hunterdon County Health Plan will be man- aged by a community sponsored nonprofit organization, and is expected to begin enrolling subscribers in 1972. A Prudential task force also is now available to provide developmental assistance for other groups interested in establishing HMQ's. A number of other companies are in early stages of development of several types of Health Maintenance Organizations. For example, Aetna Life and Ciis- unity is assisting several existing fee-for-service group practice clinics in various parts of the country to establish Health Maintenance Organizations'. CNA/in.sur- ance has developed an HMO plan in Chicago and is in the process of enrolling participants. Liberty Mutual Is playing a decisive role in the development of the Mathew Thornton Health Plan in Nashua, New Hampshire. And in California, the Pacific Mutual Life Insurance Company is participating in the early develop- ment stages of three HMO's, two of which involve new communities, and the third is country-wide and being promoted by the County Medical Society. The John Hancock Mutual Life Insurance Company is working with one very large employer to select an appropriate location for the development of a group practice plan. They hope to have a development underway in the relatively near future. The Kaiser Foundation Health Plans have had extensive financing from private sources. Beginning in 19d2, for instance, insurance companies provided about $43 million for capital financing of the Kaiser Operations. In 1971 this was in- creased by $02 million to a total of over $105 million. The participating coin- panics are Aetha Life and Casualty, Connecticut General, The Equitable Society, John Hancock, The Metropolitan, New York Life, and Northwestern Mutual. LESSONS FROM ExPERIENCE Insurance companies have learned a good bit from these developmental activi- ties. It is clear that even with the best of good will, with full commitment, and with adequate resources, the development of Health Maintenance Organizations is a difficult and demanding process. Here are some of the important things: First, there is time. It requires a considerable period of time-counted in years-before an HMO can be successfully planned, established and become oper- ationally self-sufficient. The three basic components of an lIMO-the consumers, the providers, and the financing mechanisms must be brought together into what is essentially a collaborative relationship. Creation of constructive interrela- tionships, whichever of the three components may be the primary organizing force, is a time consuming undertaking. Second, there is financing. There must be assurance of adequate financial re- sources for planning, for facility construction, for operational deficits-the so- called "start-up" costs-and for protection against unforeseen losses in on- going regular operations. Insurance company experience clearly indicates that at this time the govern- ment must be one of the sources of initial capital. Just as clearly, it is a prob- lem as to how such subsidies can be applied equitably. Third, there is the matter of assembling the needed managerial and adminis- trative skills to operate these complex systems with their legal, fiscal, profes- sional, and community relations problems. Persons with these sensitive skills are still in extremely scarce supply, and it is apparent that serious efforts must be mounted to recruit and train personnel who can provide these resources for HMO's. Fourth, the benefit-services pattern must be reasonably comprehensive and relevant to the~needs of the enrolled population. It should include preventive and maintenance services, and give assurance of continuity of care. Arrange- ments are necessary for the provision of emergency care that might be needed outside the HMO's geographic area of operation. Also, certain supplementary benefits in addition to those provided under the group practice might be required. Fifth, enrollment of consumers is, of course, basic. Insurance company experi- ence indicates that if HMO's are to succeed, a very effective system of marketing will be required. The advantages of HMO's simply are not self-evident to the con- sumer who has had no experience with them. Consumers will have to be per- suaded to try the lIMO, and then they must experience the quality of service that is promised. This marketing Is not easy and to accQmplish it will call foi every marketing talent and resource available. In order to speed up the process, HMO's should permit all insurance carriers to market the plan and to offer the "Health Maintenance Option." PAGENO="0158" 900 The weight of experience thus far indicates that the principal immediate source of enrollment-in addition to public assistance categories-is employed groups and their families. Sixth, and crucial, is professional involvement. Obviously, the necessary health professionals who are committed to the HMO concept must be ready to participate as and when the various aspects of the services become operational or expand. Health professionals who are open to new ways of practice must be attracted to this rather different approach to delivery of health services. This makes It particularly important that they should help to shape the pattern of services. Both professionally and administratively there was many ways to design an organization for the delivery of health services. For example, they can be thought of in terms of the relative degree of organization and centralization of health manpower and facilities. They can be looked at in terms of profes~ sional scope of commitment to the enrolled population-i.e., whether enrollees are served on an excluuive full-time basis or part-time basis; whether the HMO provides all services; whether certain specialist services are obtained outside of the system; or whether existing facilities can be modified or expanded rather than having to always build from scratch. Experience indicates that this need for flexibility should be clearly recognized if we are to get action economically in a reasonable time span. Seventh, experience indicates that a Health Maintenance Option-a multiple, free-choice approach-is essential. Insurance companies are convinced that the very existence of a Health Maintenance Option will provide a strong in- centive to create and develop HMO's. For the HMO, the option helps to assure enrollment, particularly at the outset. For the consumer, the existence of a Health Maintenance Option within the standard insurance contract makes it easy for him to select an HMO if he so wishes, but it also gives him the freedom to choose other means for obtaining his health care, or to shift from one to the other if he becomes dissatisfied. Finally, there is the importance of community participation. Clearly, every effort should be made to provide a voice for the community and the consumer to be served in the planning, development, and ongoing functions of any HMO. Furthermore, plans should not be restricted to one segment of the population of a community. HMO's should anticipate community-wide enrollment-the un- employed, the employed, the seasonally employed, and retirees. In no instance should the development of an HMO create a two-class system of health care. It has become apparent also, that the typical sponsor of a new HMO requires assistance to deal with the problems relating to financing, risk-taking, manage- ment and administration, design of benefit patterns, and marketing and enroll- ment. These are areas for which insurance personnel are uniquely fitted by training and experience. These are the functions which have been performed for decades-and performed well-by insurance companies in administering group health insurance programs. Mr. ROGERS. Thank you very much, Mr. Hoffman, for a. compre- hensive ~tatement on the position of the Health Insurance Association. The attitudes and viewpoints you have expressed will be helpful to the committee. Let me ask, in the law should we require minimum benefits to be offered by HMO's? Mr. HOFFMAN. Yes, we think there ought to be minimum standards present in the law, but they should be minimum, "minimum stand- ards," so to speak. They should be comprehensive enough to assure a broad range of benefits as outlined in the statement, but not so compre- hensive as to price the lIMO's out of the market. We could have a Cadillac product that nobody wanted to buy. Mr. ROGERS. In other words, the physician services, I think you said, hosnital services, emergency care--- Mr. HOFFMAN. Tests. PAGENO="0159" 901 Mr. ROGERS. Radiological and laboratory tests? Mr. HOFFMAN. Preventive services and maintenance services. Mr. ROGERS. To what extent preventive and maintenance services? Should they have so many doctors office visits, should they have so many home visits, so many examinations? What do you recommend? Mr. HOFFMAN. We think that there should be unlimited office visits, but perhaps with a registration charge. Mr. ROGERS. $1 or $2? Mr. HOFFMAN. $2 or $3. Home visits as well, with a larger charge for that kind of service. Mr. ROGERS. How much would you recommend there? Mr. HOFFMAN. I think $5 to $10. Mr. ROGERS. For a home visit? Mr. HOFFMAN. Well, it is very costly, as everyone appreciates to have physicians travel. Mr. ROGERS. It is `to discourage home visits, but allow them if necessary? Mr. HOFFMAN. Allow them if necessary. There is probably a number that strikes a proper balance. This probably needs to be tested. Mr. ROGERS. I think if you have additional ideas on that, it will be helpful to have specifics in all of `these `areas in order to help the com- mittee. What about cast'astrophic illness? Mr. HOFFMAN. The benefit program should certainly provide for catastrophic illness. Mr. ROGERS. It should provide? Mr. HOFFMAN. In some cases, the HMO might have to contract out for the catastrophic services, like kidney dialysis or transplants or that type of procedure. Mr. ROGERS. Certainly mental health? Mr. HOFFMAN. Mental health in hospital care should be a part of' the required services. As far as ambulatory mental health is con- cerned, I think we have to be careful of that. On the one hand, al- though it is desirable to provide a significant degree of mental health care; on the other hand, we know it can be very, very expensive. I think this should be kept in mind. Mr. ROGERS. Dental care? Mr. HOFFMAN. Dental care, we feel, should be optional at this time. Again, if dental care were a requirement, the price would have to be increased so much as to make it unattractive to a large number of people to whom you want to offer the option. Mr. ROGERS. Health education: What should we require on health education? Mr. HOFFMAN. On health education, we think people should be helped to understand how to use the health care system and HMO's better. They should be given instructions as to how to maintain health. Mr. ROGERS. Let me ask you this: Would your industry object, or what would be the feeling if we were to also require all health policies to have these same minimum benefits? PAGENO="0160" 902 Mr. HOFFMAN. This is the position that we have taken in the National Health Care Act. So we would heartily support such an idea. Mr. ROGERS. You think this is a reasonable approach ~ Mr. HOFFMAN. We believe that all health policies and HMO's should be subject to the same minimum standards. In fact, I might expand on that a little bit and say in almost every respect, not only minimum benefits but other requirements like quality surveillance and so on, we should be applying the same responsibilities and tests to both the conventional system, the HMO system, or any other sys- tem, and in that way improve the entire system of health care delivery. At the same time, HMO's could be a strong factor in such a program. Mr. RociEns. Because in carrying out your thoughts this committee may introduce legislation to go ahead and do exactly that, and I think we can do it in these hearings with HMO's. So that goal that the industry supports, too, could be accomplished very quickly. Mr. HOFFMAN. On that basis, I would heartily recommend that the minimum standard benefits included in the National Health Care Act be seriously considered by your committee. If they were adopted, then I would say the minimum standard benefits for HMO's ought to be the same. Mr. ROGERS. I think it would be helpful for people to have a choice, because at least they would be covered by minimum benefits; and then the competitive system could bring in additional benefits, I presume. Mr. HOFFMAN. That is correct. Mr. ROGERS. I think it would be helpful if you would submit to us- I know you have given us general outlines, but as specifically as you can-any suggestions you may have as far as they would apply to the insurance industry. Mr. HOFFMAN. We will be very happy to do so. (The following information was received for the record:) MINIMUM STANDARD BENEFITS OF A COMI.REHENSIVE NATIONAL HEALTH INSURANCE PROGRAM We are in favor of minimum standard benefits as part of a comprehensive national health insurance program that deals with both the delivery and finan- cing aspects of the nation's health care problems. We believe that the best .~approach would be the one outlined in the National Health Care Act, H.R. 4349, which uses tax incentives to encourage the adoption of such minimum standards on a phased-in basis1 to allow suflicien.t time for the development of manpower and facilities needed to provide the services being insured. The minimum stand- ards we recommend are: 1 PrIority I benefits would become effective 12 to 18 months after enactment of the bill. Priority II benefits would phase-In three years after Priority I benefits come into effeët, and PrIority III benefits would phase-in three years after Priority II benefits come Into effect. The President could defer phase-in of Priority~ II or Priority III benefits by Execu- tive order if services and facilities required to supply the benefits are not available. PAGENO="0161" Benefit Copayment Priority 1. Charges made by a licensed physician for professional services rendered- (a) At a physician's office (by the physician or, at his direction, by his staff of nurses (RN.) and allied health professionals)- (i) For diagnosis and treatment of I or more conditions (except pregnancy) other than by surgery or radiation therapy- (A) On the first 3 days of such care per year per individual $2 per day per physician's office (B) On the next 3 days of such care per year per individual do (C) On any additional day of such care per year per individual: Mental conditions 50 percent All other conditions (except pregnancy) $2 per day per physician's office Ill (ii) For I or more surgical procedures for treatment of conditions (other than pregnancy) including any charge for anesthesia __do orthe rendering thereof, for casts, dressings, or other surgical supplies, and for dressings or other surgical supplies, and for postoperative visits-all days of such care per year per individual. (iii) For radiation therapy for treatment of conditions (other than pregnancy) by X-ray or radioactive materials including charges $2 per day per physician's office for such materials-all days of such care per year per individual. (iv) For diagnostic X-rays, laboratory tests, electrocardiograms and other diagnostic tests required in connection with care None described in (i), (ii), (iii) above and (b) below. (v) For counseling on birth control and for fitting of contraceptive devices do II (vi) For pregnancy-see item 9 below (vii) For periodic health examinations, including immunizations- (A) for infants under age 5 (well-baby care)-during first 6 months following birth-first 6 such exams None During next 18 months-first 6 such exams do During next 3 years-first 3 such exams do Ill (B) for individuals ages 5 through 39-1 such exam every 5 years do (C) for individuals ages 40 and over-i such exam every 2 years do Ill (viii) For physical therapy 20 percent. (ix) For speech therapy do Ill (x) For eye examinations-see item 5 below (b) At the individual's home or elsewhere (other than at a hospital, extended-care facility, or the physician s office) by the physician for diagnosis and treatment of- (I) Mental conditions 50 percent ill (ii) All other conditions (except pregnancy) - $5 per day per physician Ill (c) At a hospital, by the physician for the diagnosis and treatment of 1 or more conditions other than pregnancy: (i) During first 30 days of the confinement $2 per day (applicable only to the charges of I (ii) During 31st through 120th days of the confinement attending physician). II (iii) During 121st through 300th day of the confinement $5 per day per physician Ill (iv) In any day of the confinement for which no hospital benefit is payable under item 6(a) below $5 per day per physician (d) At an extended-care facility by the physician for the diagnosis and treatment of I or more conditions other than pregnancy: (i) During first 60 days of confinement $2 per day (applicable only to the charges (ii) During 61st through 120th days of the confinement of the attending physician). (iii) During 121st through 180th days of the confinement (iv) On any day of the confinement for which no extended care benefits is payable under item 7(a) below $5 per day per physician 2. Charges by a qualified independent laboratory for laboratory examinations prescribed by a licensed physician pursuant to his rendering the None services described in item 1(a) (i), (ii), (iii) and item 1(b) above. PAGENO="0162" Benefit Copayment Priority 3. Charges by a licensed dentist for professional services rendered either by the dentist or at his direction by his .ffice staff of allied health pro- fessionals for- (a) Annual oral examination (including prophylaxis and dental X-rays)--- (i) Individuals under age 19 do II (ii) All others do Ill (b) Amalgam fillings, extractions, dentures for- (i) Individuals under age 19 20 percent II (ii) All others do III (c) Other dental care (except orthodentia) 50 percent Ill 4. Charges for the following when prescribed by a licensed physician: (a) Drugs requiring a prescription and insulin digitalis and such other life-preserving nonlegend drugs as are specified by the Secretary of $1 par prescription II Health, Education, and Welfare. (b) Contraceptives for birth control None II (c) Prosthetic appliances 20 percent II (d) Services ~f physical therapist do II (e) Services of speech therapist do Ill 5. (a) Charges for eye examinations by a licensed physician or optometrist for- (i) Individual under age 19-no morethan 1 examination per year None III (ii) Individual age 19 and over-no more than 1 examination every 3 years 50 percent Ill (b) Charges for eyeglasses prescribed by a licensed physician or optometrist: (i) Individual under age 19-no more than one set of frames and lenses every year None III (ii) Individual age 19 and over-no more than one set of frames and lenses every 3 years 50 percent Ill 6. (a) Charges by a hospital for ward or semiprivate accomodations and for ancillary services used wI'ile the individual is confined as an inpatient for one or more conditions other than pregnancy: (i) First 30 days of the confinement $10 first day and $5 per day thereafter I (ii) 31st through 120th days of the confinement $5 per day II (iii) l2lstthrough300thdaysof theconfinement do III (b) Charges by a hospital for services rendered by it on a non-inpatient basis Same as for equivalent services under item 7. (a) Charges by an extended-care facility for ward or semiprivate accommodation and for ancillary services used while the individual is confined ` `~ as an inpatientfor one or more conditions otherthan pregnancy: - (I) First60 days of the confinement $2.50 per day I (ii) 61st through 120th days of the confinement do II (iii) l2lstthrough 180th days of the confinement_.. do Ill (b) Charges by an extended-care facility for services rendered by it on a non-inpatient basis Same as for equivalent services under item 8. Charges by a home health agency for home health services rendered by it under a plan except for services rendered in connection with pregnancy: (a). (i) First 90 days of the plan $2.50 per day of services rendered. I (ii) 91st through 180th days of the plan - do I 1 (iii) 181st through 270th days of the plan do Ill 9. Pregnancy-Charges for any of the services rendered to in items (1), (2), (6), (7), and (8) above when such services are rendered in connection with a pregnancy and any complications thereof duringthe period commending with the date of inception of the pregnancy and ending with the 90th day following termination of the pregnancy. PAGENO="0163" 905 Mr. RoG1~s. What would you say the overall assets and resources of your industry be, the 300 that you estimate? Mr. HOFFMAN. When you ask that, do you mean the total assets of the companies? Mr. ROGERS. Yes. Mr. HOFFMAN. Because many of the companies are life insurance companies; and although we have significant assets in the life insur- ance business, they are not very large in the health insurance business. Mr. ROGERS. I presume that Prudential, for instance, does both. This is what I was thinking. Mr. HOFFMAN. You are thinking in terms of company assets? Mr. ROGERS. Yes. Mr. HOFFMAN. I don't have a figure offhand, but it certainly must be well over a hundred billion dollars. May we submit that for the record? Mr. ROGERS. Certainly. (The following information was received for the record:) ASSETS OF MEMBER COMPANIES FOR 1970 The total assets of member companies of 1970 (the last year for which data is available) came to about $210 billion. The vast majority of these assets arise from the life and pension business of our companies and represent funds accu- muHted to pay benefits and cash redemption values to the life and pension policyholders. Funds set aside for present and future benefits to the policyholders of our member companies, for which they are contractually committed, amount to about 93% of the above assets. Mr. ROGERS. Now, how much of those resources would you estimate are being spent on research for improvement of health care or for improving living conditions of the American people? What would you estimate would be your percentage? Mr. HOFFMAN. It would be very difficult for me to estimate because I am not familiar with what companies other than my own are doing. I know in our case, a high-level committee of the Equitable has been studying how we could improve the health care delivery system and how we could develop the lIMO's. Over the past 3 years, we have spent, I would say, over a half million dollars. Mr. ROGERS. I wonder if you would let us know. I think it would be helpful to put it into perspective, what is being done by the insurance industry with respect to health, health education, health research, health programs, to improve the life of the American people as far as their health is concerned. I know when we got into this problem with the automobile industry, for instance, once they looked at it, they felt much more could be done by the industry itself in research and in some leadership. When people are paying for life insurance, it seems to me that a very active role should be played by an industry where resources are considerable. I was anxious to look at that and see. Mr. HOFFMAN. We will try to get a figure. We certainly agree such research is important. (The following information was received for the record:) SOCIAL RESPONSIBILITY IN HEALTH AREA OF THE INSURANCE INDUSTRY Insurance companies have long since ceased to regard themselves solely a~ "conduits for the flow of money." This was dramatized, most recently, by s Conference on Corporate Social Responsibility attended by nearly 100 heads ol PAGENO="0164" 906 insurance companies. The executives at that time voted to expand social concerns into a number of areas, health among them. One specific result of the Conference was the establishment of a Clearinghouse on Corporate Social Responsibility. The Clearinghouse will assist companies to better fulfill their social responsibilities in health, housing, job training, en- vironment, and corporate giving. With reference to the health area, this action reflects the growing involvement by health insurers in programs that go beyond the financing of health care to improving the organization and delivery of services- -through recognizing that the single greatest contribution of insurers to the better health of Americans remains removal of financial barriers to these services. Our statement c1early illustrates the active interest of insurance companies in experimental HMO programs. In addition, it is significant to note that more than $262 million out of the total commitment of nearly $2 billion under the urban investment program of the life insurance business has been for health facilities in low-income urban areas-such as health centers, hospital additions, nursing homes, professional buildings, rehabilitation clinics, and the like. The overall purpose of this program has been to `channel investment funds into the restoration and improvement of the cities. In all, insurance company investments in health care and related facilities totaled $2.3 billion as of July 1970 with an additional $546 million in outstanding commitments. In 1970, the Institute of Life Insurance and the Health Insurance Association of America surveyed 649 life and health insurance companies to determine, in part, their contributions to health facilities and services. Some 336 responding companies reported a total of $1.6 million in contributions to medical schools and scholarships for the period 1965-1969, and an estimated $500,000 in 1970. Also, the Life Insurance Medical Research Fund, over a period of 25 years had contributed over $26 million for research grants and fellowship awards. A substantial number of companies contribute to voluntary health agencies in such categories as heart disease, cancer, diabetes, cystic fibrosis, mental illness, epilepsy, eye disease, alcoholism, cerebral palsy, and others. Companies also provide developmental grants to national organizations, for fellowships and medical teaching and research programs, including the Na- tional Fund for Medical Education, the National Fund for Graduate Nursing Education, and the Education, Research Foundation of the American Medical Association, the National Fund for Dental Education, and the National Medical Fellowships, the latter two giving special attention to minorities. A number of companies contribute directly to local medical centers or other community health institutions for specific research and teaching projects. The foregoing statistics do not reflect the substantial commitment of the in- surance business in terms of the manpower and related funds devoted to its ongoing innovativ~e activities which cover such areas as comprehensive health planning, health care cost control and quality aSsurance programs, licensure laws as they pertain to the health professions, health care foundations, and~ health maintenance organizations, all of which are in the public interest. Industrywide information as to the dollar value of such commitment it not available. How- ever, it is significant to note that the HIAA has allocated for Its current fiscal year approximately 40% of its budget in these areas. Mr. HOFFMAN. I think I should point out that any costs of per- forming that type of activity, unfortunately, has to be passed on to our policyholders. Mr. ROGERS. Well, you do have considerable profit. Mr. HOFFMAN. Not in the health insurance business. Mr. ROGERS. I think in the overall. Some of it is life and some of it is health. As I recall, there are significant investments in real estate that bring in large profits that are not necessarily geared to health insurance. I am sure it would increase the assets of the company. Mr. HOFFMAN. Let me point out that in the case of my company and Mr. Sutton's company, we are mutual life insurance companies and we have no profits. Mr. ROGERS. No profit at all? PAGENO="0165" 907 Mr. HOFFMAN. We have no stockholders. The company is effectively owned by its policyholders. As a matter of fact most of these assets we were referring to earlier are really their money which we are hold- ing in the form of reserves for their future benefit. Mr. ROGERS. You do not hold any reserves for increased salaries or increased buildings or increased investments? You don't do any of that? It is all just paid out to the shareholder? Mr. HOFFMAN. In our operation we pay any excess of what policy- holders have paid us in premiums over the cost of their insurance coverage back to them in the form of a dividend. Now, we do keep small amounts that we put into special reserves, contingency reserves and surplus, to guard against unforeseen contingencies. Mr. ROGERS. Do you make investments in real estate or businesses? Mr. HOFFMAN. We certainly do. The return on that is passed, most of it, on to the policyholders. Mr. ROGERS. I think it may be well for us to get into a little bit of this. Mr. SUTTON. For example, in our company between 90 percent and 100 percent of our total gain from operations is paid out in dividends each year, and it is substantial, nearly $850 million a year. Mr. ROGERS. I think it would be good to spre.ad this on the record. Mr. SUTTON. I might mention, too, we have looked at some of these figures in our own company. While it may sound small in relation to our assets, we have spent several million dollars a year on various types of research, comprehensive health planning, `grants to United Fund Organizations, and just plain grants. I think tens of millions of dollars a year are invested in health facilities of one kind or another including HMOs. Mr. ROGERS. This could be so, and I would like the committee~ to know what is being done and whether it is commensurate with what should be done. So if we could get those figures supplied for the rec- ord, I think it would be helpful. (See "Social responsibility in health area of the insurance industry," p. 905.) Mr. ROGERS. Dr. Roy? Mr. Rot. Thank you, Mr. Chairman. What percentage of Americans have some kind of health insurance? Mr. HOFFMAN. According to our figures, it is over 90 percent. Mr. Roy. What percentage of the health care dollar is paid for by third party carriers, by third party payers? Mr. HOFFMAN. That is a complicated question because in answering it we need to take into account in the total health bill expenses like construction and so on, which cannot be covered by insurance policies. We have to take account of items which are included in the total na- tional health bill, which are obviously not insurable, like toothpaste and aspirin and the like. If you do all that I believe that the figure is over 50 percent. I would like to verify that. Mr. Roy. I have been doing you an injustice. I had some figures out of, I believe HEW, that indicate 38 cents out of each dollar is paid by Government, 38 cents out-of-pocket, and 24 cents by third party carriers. Do you think this is probably incorrect? Mr. HOFFMAN. Excuse me. I was counting what the Government paid as part of the insurance coverage. PAGENO="0166" 908 Mr. Roy. Thirty-eight plus 24 comes to 62 percent. Mr. HOFFMAN. Again, if we may submit the figures, because we have that all worked out. Mr. Roy. Could those figures be submitted, Mr. Chairman? Mr. ROGERS. Yes. (The following information was received for the record:) TOTAL NATIONAL HEALTH EXPENDITURES BY GOVERNMENT AND THE PRIVATE SECTOR F~R PERSONAL HEALTH CARE, HEALTH RESEARCH AND CONSTRUCTION During fiscal year 1970-71, U.S. national health expenditures totaled $75 billion of which $47 billion (62%) was spent by the private sector and $28 billion (38%) by government at various levels. Total expenditures included monies expended by government, and the private sector for both personal health care ($69 billion) as well as for health research and construction ($6 billion). Of the $47 billion spent by the private sector for health care in 1970-71, $41 billion was spent by consumers for personal health care. The remainder was spent, privately, for health research and construction and for health services provided through in-plant hospital-medical facilities. Private health insurance benefits during fiscal year 1970-71 totaled $16.6 billion or 41% of consumer expenditures for personal health care. This proportion was an almost four-fold increase over the 11% of consumer expenditures for personal health care which was reimbursed by private health insurance twenty years ago. During 1970-71, 73% of consumer expenditures for hospital care was reim- bursed by private health insurance, and 48% of expenditures' for physicians' services was reimbursed. The comparable percentages, twenty years ago, were, respectively, 32% and 11%. The foregoing relationships of private health in- surance benefits to total consumer spending for personal health care are of some interest but do not adequately portray the effectiveness of private health in- surance in reimbursing expenditures encountered by insured persons for items of health care which they have chosen to insure. Thus, recent studies of the Health Insurance Association of America indicate that under group policies, approxi- mately 80% of the charges incurred by insured persons, for the kinds of expenses which they have chosen to insure, are reimbursed. Over half of all such claimants are reimbursed for at least 90% of the charges, and about three out of four collect at least 70%. These proportions vary from 86% for the cost of hospital care to 77% of the cost for surgery to 61% of the cost for prescription drugs. At best, private health insurance is a low-profit business. In recent years, our profits in the aggregate on group health business have been nonexistent and have averaged only a little over two percent on individual health care business, Group marketing and administrative costs, aecotrding to a recent study of the Association, averaged only eight percent of premiums, exclusive of the 2.1% paid in State premium taxes. This is an overall average made up of group plans with less than 25 lives and jumbo eases involving 500 or more employees. For the plan which covers Federal employees, administrative costs have averaged less than four percent of premiums including a modest profit. Mr. HOFFMAN. As far as the amount of insurance benefits paid in comparison to the health costs of an insured individual, for which he has bought insurance, the number is over 80 percent. Mr. Roy. So your retention of the health insurance dollar is some- thing less than 20 percent? Mr. HOFFMAN. No. I was talking about benefits we pay compared to the individual's health cost, that is the bills that he must pay, not com- pared to the premium. It is how much the person's expenses are when he goes to the hospital and gets his bill,s from the doctor and so on, in contrast to what we pay. That is in the order of over 80 percent. Mr. Roy. I am lost as to the discrepancy in the figures. How many cents out of each health care premium dollar is retained by the company for administration or for profits? PAGENO="0167" 909 Mr. HOFFMAN. In the group insurance field, which I am most fa- miliar with, if you leave out premium taxes, it averages under 10 cents out of every dollar. Mr. Roy. Could you point out to us any presently operating for profit HMO's? Mr. HOFFMAN. I believe there is one on the west coast, Dr. Upjohn's HMO. I have not had a report on that but I gather they are beginning to start a successful operation. Mr. Roy. Do you know how long that has been in operation? Mr. HOFFMAN. I think since the end of last year~ Mr. Roy. Could you comment on the general role of profitmaking institutions in the health care industry? Nursing homes, and so on? Mr. HOFFMAN. We think in the hospital field that profitmaking institutions are able to provide better services at lower cost than non- profits in many cases. We see no evidence that one form is better than the other. Our position is that all forms should be permitted. I think that we should not rule out any approach at this stage of the game when so little is known about HMO's. It is a brandnew concept, and we think that legislation should not be so restrictive as to eliminate any sector of the economy from trying to improve the health care delivery system. Mr. Roy. Would you say that the concept of the health maintenance organization is a proven or unproven concept? Mr. HOFFMAN. I would say it is proven in the areas in which it has been tried out-in new communities and rapidly growing commu- nities. I don't believe it has been proven in any sense of the word as being a panacea for all of the health care problems. Mr. Rot. I don't think anyone is looking at it in that sense. Mr. HOFFMAN. We think it can be very helpful in many situations but I think we still have to learn in which situations and under what circumstances it can be of greatest value. Mr. Roy. Would you say that the nonprofit HMO is presently a proven concept? Mr. HOFFMAN. I don't think either one is. Mr. Roy. Certainly the for-profit HMO is not a proven concept. We have had one running only since the last year. Would you agree with that? Mr. HOFFMAN. It has only been recently that there has been sufficient interest in the HMO concept for profitmaking HMO's to be con- sidered. Mr. Rot. Why? Mr. HOFFMAN. I would think that the major reason is that it has only been recognized recently that strong changes in the health delivery system are necessary. I think that a business organization would have looked at the situation and felt that most people would prefer to stay with the existing fee-for-service system-by people I mean consumers-and there would not be much of a desire on their part to participate in a HMO. Mr. Roy. The nonprofit HMO's have been in existence for 30 years and it has been said they take care of over 6 million people. Should not one anticipate, if there is profit to be derived from this particular con- cept, that the for-profit HMO's would have been in there during the last 30 years also? PAGENO="0168" 910 Mr. HOFFMAN. I think with the exception of one or two of the HMO's, and which were developed under relatively unusual circum- stances, by that I mean in areas of rapidly growing population, that there has been no strong interest on the part of the consumer in the HMO approach. Mr. Roy. What are the present incentives for private insurance companies to develop HMO's? Mr. HOFFMAN. Because the companies recognize a need for a change in the health delivery system. We believe that this is one major way in which that might be accomplished. Mr. Roy. If they develop for profit lIMO's what is the necessary return on capital? Mr. HOFFMAN. I would say the normal return that we get generally in our investments. Mr. Roy. Which is what? Mr. HOFFMAN. It depends on the market. Mr. Roy. Can you~ give me a range of figures? Mr. HOFFMAN. At the present time, I would say it is in the area of 7 or 8 percent. If the interest rates drop generally, then the normal return would drop commensurately. Mr. Roy. Do you have any indication that there is this kind of profit available within the lIMO prototype concept? Mr. HOFFMAN. What I am referring to specifically is the return on capital investment; for example, if we were to put our money into developmental costs and start-up costs and even into facilities, we would need to get a return commensurate with normal returns, other- wise we would be penalizing our policyholders who have given us money to purchase life insurance and who expect a reasonable return on the reserves from their life insurance or pensions. Mr. Roy. Do you have any reason to feel that for profit lIMO's could bring about efficiencies that are not present in the nonprofit lIMO prototypes? Mr. HOFFMAN. Yes; I believe that for profit HMO~s will have more incentive to do a better economic job in the operation and I would also say that I believe that it is important that nonprofit lIMO's be competing with them, so that we will have a comparison of the two. If there are advantages to the nonprofit approach, then the profit HMO's would have to meet their competition in these respects. Mr. Roy. Could you specify what the for profit HMO might be able to do such as the Kaiser Permanente group, or other groups similar to that, that it is not presently doing to maximize savings or profits? Mr. HOFFMAN. For profit lIMO's would bring to it better manage- ment, better administration, and I am not criticizing Kaiser in the least, but I think it is the incentives and the type of managers that have have been developed under the profit system which could add consider- ably to the effectiveness and productivity of a HMO. Mr. Roy. This has not occurred during the time that there have been HMO prototypes. Mr. HOFFMAN. No; but I am sure it will if legislation permits it. Mr. SUTTON. If I could add a word, I think it would be wrong to state that there have not been obstacles toward the formation of any HMO. I think there have been particularly biases against for-profit in the medical care field. For example, the Blue Cross, Blue Shield organ- PAGENO="0169" 911 izations are nonprofit. Many of the State statutes relate to providing medical services through nonprofit entities. Even medical societies lean toward nonprofit organizations. Hence there is really a built in bias in some respects against for-profit entities in this field. It is only in the last 10 years or so that there has been a big advance movement in the for-profit hospital chains which have grown quite large and big growth in the nursing care and nursing homes. Mr. HOFFMAN. I would also like to add that at Equitable we have not even decided in our own minds whether we should, in developing a HMO, have it operate on a profit or nonprofit basis. Our position is, however, that we think profit ought to be permitted. The two HMO developments that we have been exploring we have designed in such a way they will probably end up as nonprofit operations. Mr. Roy. Let me state that I think certainly for-profit HMO's should be permitted. I think the critical question is how much should they be assisted. Do you think they can find their way in the marketplace without governmental assistance perhaps other than preempting State laws which are presently blocking a number of HMO's? Mr. HOFFMAN. They probably could. But I would think that we would want to promote them to the maximum extent. I think assistance like guaranteed loans would be helpful to encourage more profit- making organizations to undertake such development and those that do, to do more. For example, in the case of the Equitable, being that this is a rela- tively untried area, we feel, as a responsibility to our other policy- holders again that we should not risk too much in the way of funds on their behalf. Therefore, if we had guaranteed loans we would be free to undertake more lIMO developments than otherwise. I cer- tainly think that guaranteed loans would be very helpful to encourage profitmaking HMO's. In the case of grants and so on, I can understand your position. Our recommendation is that grants be provided only for feasibility studies and those are modest amounts. That again is simply to en- courage all types of organizations to undertake lIMO developments. Mr. Roy. I haven't seen any private money really flowing in this area. I wonder what would be critical to implement private money flowing into the area. I hope that which is critical is not indeed, an unwise action by the Government with regard to finances. Mr. HOFFMAN. No. I would say that private money certainty as far as insurance carriers are concerned will flow into it. I think that can be enhanced by guaranteed loans and small feasibilit~y grants. Mr. Roy. Do you have any idea how many lIMO's we might seeP de- veloped at the end of the decade by Blue Cross, Blue Shield and 111AM Mr. HOFFMAN. That is real crystal ball gazing. I would be hopeful that our companies would be able to create, say-~I am just pulling numbers out of the air here-maybe 10 or soin the next couple of years, and then gradually increase that to 25 in a few more years or something along that order. Mr. Roy. Could the HMO's bear full risk for all services except maybe catastrophic illnesses out `of `their emergency reserves? Mr. HOFFMAN..I think this is a difficult question. PAGENO="0170" 912 I think again the legislation should be flexible in this respect. The answer should be judged in terms of the HMO, itself, and where it is going to operate and how it is going to operate. For example, in rural areas perhaps the foundation HMO is the best approach. That needs to be tried out. I don't think foundations can take all of the risks. In such cases, I think there bught to be some flexibility and that there are other like situations. Mr. Roy. Would the reduction of risk probably equal redudtion of incentive? Mr. HOFFMAN. The minimum risk that an HMO should take should be on the physician services, I think. Mr. Roy. I hear rather consistent testimony as to the standard benefits pe~ckage. Should we perhaps require liMO's to be able to pro- vide a broader range of services in order that these options, mental health, dental care, and so on, would be open to HMO members? Mr. HOFFMAN. If they were options I would certainly agree. Maybe you might want to require `some of them to be options. But to require them to be in every package will simply make it unattractive to the prospective participant. Mr. Roy. Thank you. I think your testimony is excellent. I very much appreciate the endorsement of `the HMO concept by the Health Insurance Associa-~ tion of America and your excellent cooperation. Mr. HOFFMAN. Thank you. We appreciate giving it. Mr. ROGERS. Would you let us know for the record how many HMO's you think we should sponsor in effect by the figures you have recom- mended? You might break down those you think should be started, planning figures, development figures, for liMO's that you think will be realistic. Supply that for the record. (The following information was received for the record:) NUMBER OF HMO's PER YEAR THAT GOVERNMENT SHOULD SPoNsoR We have suggested an annual appropriation of $50 to $75 million for grants, contracts, and guaranteed loans to finance the stages of: (a) feasibility studies, (b) pliin development, and (c) start-up period and about $80 million for the construction of ambulatory care centers. We would estimate that 40 to 60 HMO's per year would ultimately be produced by these funds. We hasten to point out, however, that this is an extremely tenuous estimates principally because there is little prior experience on the rates of failure for each stage of development. The rate of failure is particularly important under our recommended approach since most of the required funds are for guaranteed loans, where a cost to the federal government arises only in the event that an lIMO should fail. In arriving at our figure, we have assumed that half of the projects that are awarded fessibility grants would decide to undertake the plan development stage and receive the necessary federal support. We further assume that half of these would become operational and that one of five which becomes operational would fail during the start-up period, with significant operating deficits to be covered by the federal guaranteed loans. We also take into account that perhaps one-third of the lIMO's would be poverty area projects, which are eligible for somewhat greater federal support. Of the $50 to $75 million, we estimate that about 15 percent will be needed f~r feasibility grants, about 35 percent for developmental costs, and the balance of 50 percent for guaranteeing start-np costs. It should be borne in mind that sirtce several years are required for an lIMO to be studied, planned and put into operation, a lesser number will emerge during the first several years of the program. PAGENO="0171" 913 Mr. ROGERS. Also let us know any studies you have done as to the cost factor and whether it would be affected by HMO delivery. Have you done any studies like that? Mr. HOFFMAN. We have~ not performed any such studies. I think our knowledge is the same as what the committee has, for example, the Kaiser results under the Federal employees plan. We will check but I don't know of any studies of our own. Mr. ROGERS. If you have any such studies I think they would be helpful. I share the feeling that your testimony has been excellent and most helpful. Thank you for being here today. Mr. HOFFMAN. Thank you very much. Mr. ROGERS. Our next witness is Dr. Robert M. Heyssel, associate dean for health care programs, Johns Hopkins University School of Medicine, on behalf of the Association of American Medical Colleges. I am delighted to welcome you, Doctor. I understand you will be accompanied by Dr. John A. D. Cooper, president of the AAMC, and Dr. William H. Stewart, who is chancellor of the medical center in New Orleans, Louisiana State University School of Medicine, former Surgeon General and an old friend of the committee. We are glad to see you back in Washington. Since you left here you have nQt been coming back very much. I can't say I blame you for that. But we are glad this drew you back at least this time, Bill. Dr. STEWART. Thank you, Mr. Chairman. I think this is the first time I have been back before a committee since I left. I would like to take the opportunity to congratulate you and this committee on the work you have done on behalf of educating the health professions in the country. It is deeply appreciated. Mr. ROGERS. And, of course, we are delighted to see Dr. Cooper, who has been helpful to the committee in many instances in the past. Doc- tor, we welcome you. Your statement will be made a part of the record, and any state- ments you care to submit we will be glad to receive. STATEMENT OF PANEL REPRESENTING THE ASSOCIATION OP AMERICAN MEDICAL COLLEGES: DR. ROBERT N. HEYSSEL, ASSOCIATE DEAN FOR HEALTH CARE PROGRAMS, JOHNS HOPKINS UNIVERSITY SCHOOL OP MEDI- CINE, BALTIMORE, ND., AND CHAIRMAN, HEALTH SERVICES ADVISORY COMMITTEE, AAMC; DR. WILLIAM IL STEWART, CHANCELLOR OF MEDICAL CENTER (NEW ORLEANS), LOUISIANA STATE UNIVERSITY SCHOOL OF MEDICINE; DR. JOHN A. COOPER, PRESIDENT, AAMC; AND DR. ROBERT KALINOWSKI, DIRECTOR, DIVISION OF HEALTH SERVICES, AANC Dr. HEYSSEL. I am personally pleased to be here this morning, and the Association of American Medical Colleges is grateful for the opportunity to give its views on this legislation. Dr. Stewart also is here as a representative of the Association of PAGENO="0172" 914 Academic Health Centers, as well as in his role in the AAMC as charLeellor of the Louisiana State University Medical Center. Rather than read the statement submitted to you, I would like to make less formal comments On behalf of the AAMC. Our interest in this legislation is threefold. We agree that health care is a right of all the people and should be equally available to everyone; that the present organization of medical care in the United States is inadequate to provide health care to everyone on an equitable basis; and that if reorganization of health services is necessary to achieve that goal, then the financing of health care and the education of health personnel must be considered at the same time as the reor- ganization of services. As academic medical centers, we provide practically all of the pre- doctoral physicians' education in the country and through our affili- ated teaching hospitals, community as well as university, the ma- jority of the postgraduate physicians' education and a major part; of the education of the so-called health professions. It is important and perhaps mandatory that if HMO's are to be the principal means of reorganization of health services, then aca- demic health centers and medical schools be involved and the educa- tional experiences of the next generation of physicians and other health personnel be related to these new institutions of medical care. Academic health centers have been involved, as you know, in a variety of earlier kinds of experimental delivery systems such as OEO neighborhood health centers, children and youth projects and, more recently, in the developemnt of HMO's, really before the name was coined or popularized. Examples are the Harvard Community Health Plan in Boston, the three Yale programs in New Haven, and the Johns Hopkins programs in East Baltimore and in the new city of Columbia. I might comment that well over 40 academic medical centers have indicated interest in HMO's and some are actively engaged in program planning at the moment, Washington University in St. Louis being an example of an institution which has been running a small pilot program for several years and now has plans to expand it. Academic health centers have, particularly in urban areas, strug- gled for many years with the operations of large out-patient depart- ments which are chronically underfunded and chronically the bleed- ing sores of the center and often of the communities they serve. I think we do know what the current health system is and what it is not, and what it does not do. We know how well it serves the people, where it fails and some of the reasons for failure. We want to be part of the effort to change that and are prepared to extend our present commitment t~ that end. To enable us to do so requires the kind of legislation embodied in the bills before the House at the moment, with some modification and recognition of added needs. Some general comments. First, we believe it important to recognize the necessity of dual choice, that is the right of an individual to enroll either in an HMO or to opt for the services, benefits, and kinds of insurance coverage now prevalent. We would urge, that if the Congress wishes the HMO concept to grow, then it enact legislation that requires dual option be mandated for all employed recipients of PAGENO="0173" 915 medicaJ health benefits, as well as mandated for Government-financed health benefits recipients. Secondly, we believe HMO's should not be required to meet stand- ards which are not applied to other providers. We do agree with the concept of quality assurance and the necessity for standards appli- cable to all HMO's. A Presidential Commission on Quality Health Care, as outlined in our testimony, plus an advisory panel, also ap- pointed by the President, to look at issues of quality assurance and to come up with standards for quality of care we think are necessary. I would like to comment that I think on the system side of an HMO it is possible now to get information which tells about the operation of the HMO in terms of numbers of visits, what kinds of visits those are, how many contacts there were in different areas what the preven- tive services are that are given, how many peop'e these are made available to, and so forth. The issue, however, of quality of care of individual patients and individual episodes of illness is a difficult one to deal with. Peer review is one way to do it. There are others such as measurements of the processes of medical care and outcome measurements. These approaches are experimental. It will take some time to develop them properly. So, we agree with the need for a commission which would examine this with expert advice. Third, we would hope that HMO's would not become yet another categorical program but would have the broad range which allows them to preempt other categorical programs which may exist, such as children and youth programs, medicaid, medicare, OEO, et cetera, where it is necessary for their growth. Fourth, we would hope that there is recognition of the differing needs and therefore the differing costs in communities and that even the benefits may be varied to meet certain local priority needs. As an example, the needs of an inner city community, are really quite different than, say, suburban areas or many rural areas. It may require, and it certainly does require, I believe, a different cost struc- ture on the capitation side to meet some of those needs, many of which are social and economic as opposed to being purely in the area of medical care. Finally, education for the people enrolled concerning care and their role and responsibility in maintained health should be an important part of the activities of the HMO. To turn to more specific comments with regard to comprehensive- ness of benefits: Basically, we feel, at the moment, at least, in view of the market- place and the reality of cost, that physicians' services in and out of hospital, health education, diagnostic lab and X-ray, rehabilitation, preventive services (to be defined), emergency services in-area and provision for payment for out-of-area emergency services and catastrophic coverage should be included in the package. We feel that other elements would increase the cost at the moment beyond what is possible to market or for people to meet. With regard to the issue of mandated open enrollment on an~ an- nual basis, this, I think, has some problems in it. The HMO, if it is required to have an open enrollment period, is very likely to enrol] a population over time which is actuai~ially unsound and quite differ- ent from its competition. PAGENO="0174" 916 I think if open enrollment is required, then it should really be man- dated for all sectors offering health services and health insurance to the population and not simply for the HMO. If it is required of the lIMO, then supplemental payments would have to be made, taking into account the quite differing populations that might be- come enrolled in the lIMO. With regard to the requirements for a certain proportion, either a ceiling or floor, of the recipients being enrolled from medically unclerserved areas, we agree with the great need for health services in the inner cities of America and in rural areas. lIMO's are certainly one way to do it. On the other side of the coin, the problems of enrolling a representa- tive sample of a metropolitan area in any given single delivery point are enormous. One would need a fairly narrow corridor running from the inner city out some place in the suburbs in order to do this. I think that the requirement should be that no one be excluded from enrollment in the lIMO for any reason if they live within the service area of the health maintenance organization. Finally, we would hope, also, that there would be preemption of state laws which inhibit the growth of lIMO's. I think those are the main points we would like to cover at this time. Mr. ROGERS. Thank you very much. Dr. Stewart, did you have a statement or comment? STATEMENT OP DR. WILLIAK H. STEWART Dr. STEWART. I would like to, if I may, Mr. Chairman, emphasize the desire to have flexibility in the definition of an lIMO. I must shade my remarks with what we have in Louisiana, because that is what I have been working with in the last three years. At the present time, the trick of lIMO's seems to be to put together a set of benefits and services in a package which can be marketed to a group of people so that you get 30,000 or more subscribers in a few years, break even financially and also provide quality medical care. So far, we have not been able to find that kind of package in Louisiana that we could sell to the people. There is no group that we can find that will generate 30,000 subscribers who could afford to buy the package that we would have to offer to meet the definition of an lIMO. Therefore, I think you have to have some flexibility in this definition of an lIMO so that it can fit a variety of situations. Perhaps there should be step increases or a sort of pre-HMO condition that you begin with. But if the benefits are too broad, I think it will be difficult to implement lIMO's in areas where the income is lower than the national average and where you don't have either an industrial complex, where you have a group of people who have a fair amount of health insurance or any other kinds of groups that you can get hold of, and also where the public programs, medicaid, particularly, are minimal in their im- plementation. The other thing I would like to say is that in the backup hospitahza- tion or the relationship of hospitalization to the effects of lIMO's, if you do not own a hospital or have sufficient control of a hospital, then you are more or less at the mercy of the hospital when you are PAGENO="0175" 917 bargaining for this relationship until you have become of sufficient size that you have bargaining power in a sense in relationship to a hospital. It may be that it is difficult to reach this savings aspect of HMO's in relation to hospitalization. Until you reach that size or until there is a relationship of control between HMO and hospital which allows one to have this flow of services where it is most likely needed, I think this is an area of lIMO which has not been emphasized as much as it needs to be as it is being developed. One other thing I would like to say is that as far ~s we see the situation in Louisiana, the interrelationship of the development of lIMO's to the development of health insurance in the company is intimate. It is impossible to see how the people would have the funds to buy the kinds of services we think would be good health service without some kind of flow of funds into national health insurance of a type that would provide them the purchasing power to buy this service. Therefore, I can't see how they can be separated. They have to be somehow related. Thank you, Mr. Chairman. Mr. ROOERS. Thank you very much. Dr. Cooper. STATEMENT OP DR. J~OHN A. D. COOPER Dr. CooPER. May I make a short statement on one other specific provision in the grants for planning and feasibility studies which we think should be considered by the committee. The utilization of funds is limited to 1 year. In discussions we have had with a number of individuals involved in initiation of lIMO's- they felt this would be too short a period. They hoped it could be extended to at least 2 years, and, if possible 3. It is very im- portant that adequate planning and feasibility studies be done before the lIMO is launched or we may end up with a number that are not fiscally viable. We would urge that this period be extended. (Testimony resumes on p. 925.) (The prepared statement of the AAMC follows:) STATEMENT BY THE ASSOCIATION OF AMERICAN MEDICAL COLLEGES Mr. Chairman and members of the subcommittee: The Association of Ameri- can Medical Colleges welcomes this opportunity to appear before the subcommit- tee during its consideration of legislation to improve the health care delivery system by, among other things, encouraging the establishment of health main- tenance organizations. Formed in 1876 to work for reforms in medical colleges, the Association has broadened its activities over the years, so that today it represents the whole complex of persons and institutions charged with the undergraduate and grad- uate education of physicians. It serves as a national spokesman for all of the 108 operational U.S. medical schools and their students, more than 400 of the major teaching hospitals, and 52 learned academic soceties whose members are engaged in medical education and research. Through its members, the concerns of the Association range far beyond medical education itself. They in~lude the total health and well-being oi~ all of the Ameri- can people. The Association is concerned with the education and training ot persons in other, related health professions and in allied health occupations. It i~ concerned with the conduct of a substantial portion of the nation's medical and health care research. It is concerned with the delivery of health care, directly PAGENO="0176" 918 through the facilities of teaching hospitals, and indirectly through the develop- ment of improved community health services. It is concerned with innovation and experimentation in all of these fields. The Association and its membership thus have a deep and direct involvement in the legislation this subcommittee is now reviewing. THE NEED FOR ACTION The number and variety of the currently pending legislative proposals directed toward new modes of health care delivery provide ample evidence of the broad, grass-roots agreement on the need for urgent national action to improve a health care system which is not meeting society's expe~tations. Such wide-spread agreement is encouraging. But the Association is constrained to emphasize a basic point The ultimate solution to the problem of more adequate health care will ndt be achieved through the enactment of yet another separate, categorical program of federal assistance. The ultimate solution requires the development of a clear coherent and comprehensive national health policy supported by stable financing. This policy should set forth the objectives to be sought, delineate the public and private roles, and provide the program strategy that will assure the availability of effective health services to all `the people of the nation. Without a coherent and comprehensive program strategy and a clear assign- ment of responsibility, neither a new set of national goals nor new financing mechanisms, alone, will solve the widely acknowledged problems of uneven dish tribution of health care personnel and resources, both in terms of geographic loca- tion and in terms of medical specialty; the ineffective utilization `of physicians, nurses and other health personnel; the overemphasis on treatment of sickness rather than on maintenance of heaith~ and the counterproductive fragmentation of health care, symptomized in separate and competing services for veterans, the military, `the elderly, the poor, the blind and so on. A direct confrontation of these problems in implementing a national health policy is central `to their resolution. There are a number of factors which will bear on achieving the goals. Com- peting economic pressures may limit the rate at which a full and comprehensive health care program can be instituted. There are also finite limits to the rate at which health personnel, facilities and other health resources can be made available and organized to provide comprenhensive care. ROLE OF THE HEALTH CENTER The Association of American Medical Colleges believes the nation's academic health centers can make a significant contribution in the development of more effective health care services, such as health maintenance organizations. Engagement with the problems of medical care and health services in the com- munity setting has become an essential part of the ed'ucation of health per- sonnel, By virtue of their special expertise, investigative capability and access to other university resources, academic health centers can contribute innovative approaches and concepts. The teaching hospitals and clinics of an academic health center are vital resources and can be made to serve as an integral component of the framework of community or regional health services. The role of the academic health center in HMO development will be a varied one-educator, sponsor, catalyst, affiliate for tertiary services-depending on the institution and the region involved. What is certain for the academic health center is that it will have a role and that the role will be an important one. One of the most important aspects of the role of the academic health center In HMO development will be in providing the educational framework for the pro- duction of personnel for liMOs and other primary care service. If the liMO, with its emphasis on comprehensive health and preventive care, services to defined populations and prospective budgeting of costs through prepayment, Is to emerge as one of the prominent organizations for delivery of health care in the future, it is essential that HM'Os become one of the settings in which medical students, interns and residents, along with members of other health professions and occupations receive a significant part of their clinical training. Full par- ticipation of the academic health center in liMO development is important in influencing the attitude, in'terest and involvement of physicians in this form of health service delivery. The concern of academic health centers in improved health care delivery baa already been demonstrated by their participation in a variety ~f innovative programs, particularly those developed by the Office of Economic Opportunity, PAGENO="0177" 919 those supported under the Comprehensive Health Planning Act and the full range of comprehensive child care programs of the Children's Bureau. Medical schools and teaching hospitals now participate in over half the comprehensive health services projects of OEO. The emphasis in these programs has been upon organized arrangements for providing comprehensive medical care and services to defined populations. An additional feature has been expanding interest in experi- ments with capitation payments through title XIX and employee health ben~fi* programs. Academic health centers provide ambulatory and acute hospital services to all segments of the population including the poor and near-poor. The health main- tenance organization concept affords an approach that will permit the academic health center to continue its concern for serving all soclo-economie groups in one system of care, and to do so in a manner that is acceptable and responsive to the health care needs of patients and has potential for positive impact upon their health status. HMO development should not be concentrated in urban areas only. There are large rural and migrant populations which have only thnited access to primary health care. Academic health centers located in these areas have oppor- tunities to participate in rural HMOs that could provide comprehensive health service, help redistribute health manpower and resources, and could create con- tinuity among primary, secondary and tertiary care. A recent Association survey shows that a number of academic health centers are already active in HMO development. Among the most outstanding of the new health care programs developed to provide prepaid health care to defined popu- lations are three sponsored by medical schools, the Johns Hopkins programs in East Baltimore and Columbia, Maryland, the Harvard Community Health Plan, and the three programs associated with Yale University. Other actademic health centers are now involved in planning and development of HMO programs. GENERAL ASSOCIATION VIEWPOINT At the outset of this statement, the Association wishes to stress its strong sup- port for the objectives and the general approach of the various legislative pro- posals before the subcommittee. They all provide federal support for the develop- ment of prepaid, comprehensive health services to defined populations in a frame- work that emphasizes preventive rather than curative action. This, we believe is an arrangement that offers considerable potential for advancing the general health condition of the nation. The Association particularly concurs in the legislation's effort to approach the development of a rational framework for the delivery of health services as a matter of prime importance, rather than allowing it to emerge merely as a de- rivative of the development of a national health care financing mechanism. At the same time, it is essential that there be a coupling of the objectives sought in health services delivery and the capabilities of both the financing mechanism and the available health care resources. The more detailed comments of the Association which follow are a consequence of sober assessments of the needed changes in the current health scene and the task of making such changes. As a result of these assessments, the Association will necessarily be critical of some of the provisions of some of the legislative proposals. Such criticisms are made, however, in a spirit of contributing posi- tively to a major reordering of the American health care system. In the Associa- tion's view, it is wiser and more likely of success to begin a deliberate and care- fully thought-through process of changing the health care system than to attempt to transform, in a single stroke, the complex and deeply entrenched pattern of providing health care in America. HEALTH MAINTENANCE ORGANIZATIONS THE HMO IN CONTENT The health delivery concept now commonly known as the health maintenance organization has grown out of the nation's 40-year experience with prepaid group practice. Prepaid group practice was initiated during the 1l~30s in a small, Elk City, Oklahoma, clinic and underwent its first large-scale implementation in the West Coast development of the Kaiser Foundation Health Plan. Broadly defined, prepaid group practice is a health care delivery system, accepting the responsibility for organizing, financing and delivering health serv~ ices for a defined population. Operating principles which set apart prepaid grour PAGENO="0178" 920 p~ractice from other health care plans, such as Blue Cross-Blue Shield, for ex- ample, include prepayment by subscribers for health services on the basis of fixed periodic payments; responsibility for organizing and delivering health services to a defined population; provision of a set of comprehensive, plan-pro- vided benefits normally including a predetermined period of hospitalization; corn- plet~ physician services, and laboratory, diagnostic and X-ray services; use of physicians in multi-specialty group practice; and compensation of physicians by a means other than fee-for-service. Because the Kaiser-Permanente Medical Care Program is so frequently thought of as the model for prepaid group practice, its organizational pattern is com- monly regarded as the only possible one. Actually a number of organizational patterns are possible. Kaiser-Permante is perhaps the best known of the hospi- tal-based plans, owning its own hospitals in which members receive care. Among non-hospital-based plans, which must supplement their programs with Blue Cross or similar insurance or contract directly with outside hospitals, the best known are probably the Group Health Association of Washington, D.C., and Health In- surance Plan of Greater New York. Variations on these patterns include physi- cian-run plans, such as the Ross-Loos Medical Group of Los Angeles, for-profit plans, and academic health center plans, such as the Harvard Community Health Plan, Yale's Community Health Care Center Plan, and Johns Hopkins' Colum- bia Hospital Clinic Foundation. Prepaid group practice has developed in settings offering the consumer an op- tion between prepaid group practice and other health delivery methods. Such an option should be retained in the development of health maintenance organiza- tions. HOUSE LEGISLATION There are three principal pieces of legislation designed to support develop- ment of health maintenance organizations. -HR 4170, introduced by Harley 0. Staggers, chairman of the Interstate and Foreign Commerce Committee, is known as the Physician Manpower Sup- port and Services Act. Title II of the bill is to encourage and assist academic health centers in the establishment of HMOs. The assistance is to consist of grants and loan guarantees for planning and feasibility studies, for initial de- velopment costs. for construction and renovation, for initial working capital and to offset anticipated initial operating deficits. The bill also creates a reinsurance fund, financed from HMO-member premiums, to offset losses due to abnormal deviations in requirements for health services. To receive assistance under the bill, an HMO would be required to provide "a wide range of health services" which "shell include at a minimum: inpatient hospitalizaton, physicion services in office and hospital, and preventive care as well as diagnostic laboratory and x-ray services." -HR 5615, also introduced by Chairman Staggers as the Administration bill, is known as the Health Maintenance Organization Assistance Act. The bill is to encourage the establishment and utilization of lIMOs, particularly in medically underserved areas. Assistance is not restricted solely to academic health centers. The assistance is to be provided through a combination of grants, contracts, direct loans and loan guarantees for planning, for initial operating costs and for construction. Priority assistance is to be given applications for providing new or expanded health services in medically underserved areas. The bill also allows health services for first Americans to be provided thrdugb health maintenance organizations. To receive assistance under the bill, an HMO would be required to provide "all those health services which a defined population might reasonably require in order to be maintained in good health, including as a minimum emergency care, inpatient hospital and physician care, ambulatory physician care and outpatient preventive medical services. -HR 11728, introduced by William B. Roy and others, is known as the J~Jealth Maintenance Organization Act. The bill is to provide assistance and encouragement for the establishment and expansion of health maintenance organizations. Through a combination of grants, direct loans and loan guaran- tees and interest subsidies, health maintenance organizations would be eligible for assistance to help meet planning costs, development costs, certain construc- tion costs and initial operating costs. In addition, assistance would be provided for special projects, management training and clinical training. Other provisions would require an evaluation of the HMO assistance programs, establish a National Advisory Council on Health Maintenance Organizations and preempt restrictive state laws. To receive assistance under the bill, an lIMO would be PAGENO="0179" 921 required to provide the following comprehensive health services: physician serv- ices (including consultant and referral services), inpatient and outpatient hos- pital services, extended care facility services, home health services, diagnostic laboratory and diagnostic and therapeutic radiologic services, rehabilitation services (including physical therapy), preventive health services, emergency health services, out-of-area emergency health services, and additional services at the discretion of the HEW Secretary. ASSOCIAI'ION COMMENTS The Association of American Medical Colleges supports the concept that access to adequate health maintenance and care is a right of all citizens. It believes that this right can be best served by means of health insurance and progressive change in the health care delivery system. The system must be a national one, with adequate provision for varying regional requirements. Universal entitlement should be based on financing from both public and private sources, either through insurance or prepaid group practice plans. Control of the system and fixing of national health goals and priorities require appropriate balance between public and provider inputs. Any system must assure simple and understandable access to primary care and prompt referral, in accord with individual patient needs, to progressively more sophisticated facilities and personnel. It must pro- vide for, and emphasize, preventive as well as curative care on an ambulatory basis. The system. should optimize quality of care and economy and should utilize incentives as an aid in cost control and in developing a more effective and responsive national mechanism for the delivery of health services. It must include a method for evaluating the overall operation and performance of providers. Following are specific Association comments on what appear to be the key policy questions contained in the legislation. Comprehensive benefits-There can be no compromise with the goal of devel- oping a national system capable of providing a full range of comprehensive health care services to all the people of the nation. This is the only adequate response to the high priority that every socioeconomic level of society places on health. At the same time, it would be sad indeed if the Congressional action to achieve this goal specified the essential package of services which must be immediately available in order to qualify for federal support in such terms that few organizations could command the resources to provide them and only a few persons or groups of persons could afford to purchase the package. The inevitable result would be the stillbirth of federally supported health maintenance organi- zations. To avoid such a situation, the Association suggests a more flexible defi- nition of what shall constitute a health maintenance organization. Thus, to qual- ify as an HMO, an organization would be required to embody the following characteristics: 1. The organization or group of cooperating organizations constituting the HMO shall constitute a comprehensive health-care delivery system with clearly identifiable points of responsibility for all managerial, administrative and service functions. 2. It shall assume responsibility for providing or effectively arranging for rea- sonably comprehensive health care services including at least physician services (including consultant and referral services); inpatient and outpatient hospital services; members' health education services and education in the appropriate use of health services; diagnostic laboratory and diagnostic and therapeutic radiologic services; rehabilitation services (including physical therapy); pre- ventive health services; emergency health service; out-of-area emergency health services; and such other personal health services as the new Secretary may de- termine are necessary to insure the protection, maintenance and support of human health, including health-center transportation and special services for the poor. 3. It shall receive compensation for such services to its enrolled participants primarily on the basis of a predetermined actuarially sound, periodic rate; how- ever, it may also serve non-enrolled beneficiaries on a fee-for-service basis and may require modest copayments as agreed upon in advance to supplement its periodic rate with respect to certain services to enrollees. 4. It shall be responsible for providing all covered services for a contract pe- riod within the revenue provided through the predetermined rate and copayment method of reimbursement, under arrangements whereby the organization bears, and the cooperating units within the organization share, financial responsibility PAGENO="0180" 922 for the appropriate and effective utilization of health care resources to meet the health care needs of the enrollees. Open enroLl~nent.-The issue of open enrollment in * health maintenance orga- nizations presents a hard choice between idealism and pragmatism. Unquestion- ably, the goal should be to accept periodically individuals in the order in which they apply, regardless of their health status or the requirements for providing their health services. Some universal financing mechanism, however, is essen- tial to the achievement of such goal. There is no universal financial entitlement at the present time, of course; and unless all carriers provide it, mandatory open enrollment for federally underwritten ilMOs would place them in a fiscally untenable position. This would be so because mandatory open enrollment imposed on HMOs but not on other health care arrangements would tend to generate ~ character of HMO membership that was actuarially unsound in the face of any conceivable financing arrangements. This becomes apparent when one considers the relative attractiveness of HMO membership to a large family with chronic, high-cost, health care needs. Multiply the financial impact of this family's enroll- ment by any sizable number of similar families living in, or moving to, the same HMO service area, and the potentially disastrous financial picture for the lIMO comes into clearer focus. To deal with this situation within the realities of present financing mecha- nisms, the Association recommends development of some appropriate legisla- tive provisions to encourage HMO enrollment of high-risk populations, perhaps through some form of additional, special reimbursement. At the same time, the Association strongly urges replacement of the mandatory open enrollment pro- visions by suitable language emphasizing a progressive lIMO enrollment policy aimed at producing an lIMO membership whose demographic composition was representative of the geographic area being served. Medically underserved areas.-Tbe Association supports without reserva- tion the emphasis in the legislation to extend health services to underserved areas. The Association hopes there is a clear understanding that special levels of health staffing and health care promotion will be required for the successful de- velopment and operation of lIMOs in such areas. All the same, the Association is concerned that well-intentioned efforts to include representation of broad socio- economic groups in health maintenance organizations do not result in unintended adverse side-effects. It would be unfortunate, for example, for a legislatively mandated percentage of membership from medically underserved areas to prevent a health maintenance organization from offering membership to neigh- boring residents. Rigid requirements for enrollment from medically underserved areas-whether conceived of as a floor or as a ceiling-could, in the view of the Association, be counterproductive. They could lead, for example, to grotesque gerrymandering of lIMO service areas. They could lead to actuarially unsound enrollments. In place of such rigid limits, the Association recommends develop- ment of language that would permit the Ifl~IW Secretary to determine on a case-by-case basis that federally supported health maintenance organizations contained a reasonably representative proportion of enrollees from medically underserved areas. Preemption of state laws.-Because of its overriding interest in the development of health maintenance organizations, the Association is particularly concerned by the exstence in many states of legal barriers to lIMO development. These barriers take the form of laws that restrict group practice, the corporate prac- tice of medicine, advertising and other practices. The Association supports en- actment of legislative proposals for the federal government to preempt such restrictive state laws and to assist states in amending their existing laws. Clinical, management training.-Phe education of health personnel must be closely related to the system for providing health services. As the lIMO concept diminishes the traditional process of dealing with illness only when it occurs, and generates a new emphasis on maintaining health, health personnel must be trained in the context of this changed approach. In fact, as future physicians and practicing health personnel, they must become thoroughly involved as students in the principles and techniques of preventive care for this shift in em- phasis to occur. Thus it is important for medical students, interns, residents and other health professionals to have their clinical training within a frame- work which provides for the delivery of comprehensive, primary health care in a setting that stresses preventive care and the use of a variety of health personnel in a team approach. When this happens, there are certain additional educational costs incurred, which must be met. The Association urges enactment PAGENO="0181" 923 of federal assistance for the purpose of covering these additional HMO expenses associated with the clinical training of health personnel, so that such costs are not borne by HMO enrollees. Since health personnel may receive a portion of their clinical training in a variety of HMO settings, the Association suggests that clini- Cal training grants to cover these costs be equally avalable for accredited pro- grams in all teaching HMOs. Recognizing the difficult problems surrounding the start of an lIMO and the great sophistication HMOs require in the areas of management control, mar- keting, contract negotiation, capital budgeting and financing, the Association urges enactment of federal assistance for training programs in lIMO manage- ment and administration. Quality of care.-Since pending legislation proposes to provide significant f~deral support for the development of the health maintenance organization concept of health service, and since that concept stresses new patterns in health care delivery, it is essential to assure that these new organizations provide the highest quality of care. Nationwide uniformity of standards is imperative for the development of national confidence in this new form of health care delivery. To meet these needs, the Association supports establishment of a mechanism within the federal government to set norms and standards for the delivery of health services. Standards of excellence in the provision of health care must be set and maintained. For this purpose the Association urges enactment of the following f~deral mechanism for setting quality-of-care standards: 1. Creation of a five-member, Presidentially appointed Commission on Quality Health Care. 2, Creation of a 12-member, Presidentially appointed National Advisory Coun- cil on Quality Health Care, comprised of suitable experienced and broadly repre- sentative members from the health professions, the academic health community, business, labor and other consumer interests, which shall advise and assist the Quality Health Care Commission. 3, Authority for the Commission, with the approval of the Advisory Council, to develop and establish within two years appropriate quality health care stand- ards and to prescribe necessary quality control systems. 4. Authority for the HEW Secretary to administer the resulting federal health care quality standards system and to provide technical assistance to health care providers in the development of quality control programs. 5. Transfer to the Commission of the National Center for Health Statistics and other appropriate functions as determined by the President. These suggestions are not greatly different from some of the provisions of some of the legislative proposals currently pending before the Congress. The Association is uncertain whether the Commission-as a policymaking body-should be established as an independent agency, separate from the De- partment of Health, Education and Welfare, or as a Department agency. There seem to be reasonable arguments for and against both approaches. The advan- tages of independence revolve around the problems of conflict of interest when the same federal agency is responsible for promoting and regulating a certain service. The disadvantages of independence revolve around the problems of further fragmentation of the federal health structure when a major, new, federal health agency is established outside the framework of the principal federal health establishment. Perhaps strong public participation through the Advisory Council in the actions of the Commission would offset the inherent conflict- of-interest situation if the Commission were located in the Department. The location of another major regulatory agency, the Food and Drug Administration, within the Department obviously provides some precedent for locating another regulatory agency within the Department. The Association is clear in its decision to recommend administration of the federal health care quality standards system by the HEW Secretary. Only in this way can creation of yet another massive federal administrative bureaucracy be avoided. The necessary administrative organization already exists within the Department of Health, Education and Welfare. The Association is convinced that it should be utilized. In~tiai HMO flnancingj.-Health maintenance organizations represent an info vation of great potential and considerable complexity. Financing for these pro grams should be at a level and for a duration sufficient to assure flexibility for experimentation in the full range of settings in which an HMO may exist, Tts programs should be fully funded for the duration of their planning, develop PAGENO="0182" 924 mental and early operational phase, specifically until enrollment is at a level that provides sufficient premium income to finance operations. There should be a single source of federal funding for these programs. Frustrating efforts to ob- tain financing and participation from numerous federal and state programs are a strong deterrent to participation in HMO development. The time, effort and complexity involved in such a fragmented approach will discourage many poten- tial HMO sponsors from becoming involved in HMO development. Both the time period and the budget for start-up must be realistic. In some instances two to three years may be sufficient but other longer periods may fre- quently be justified. One-year availability of funds is clearly inadequate. There is little in the way of real experience as to how long the start-up period should be. Numerous authorities have pointed out the difficulties that are involved h1 marketing and enrollment In communities where there is no experience with prepayment or an absence of large definitive groups that can be enrolled. Intense marketing activity may be required long after the first enrollees have received care from the program. In relation to capital finance, two types of support are required. Funds for construction and renovation are necessary because existing facilities are un- likely to meet needs for the organization of services required in an HMO. PHA mortgage and guaranteed loan provisions are associated with substantial negotia- tions and delay, and at the end point mortgage or loan dollars may only be avail- ble at very high interest rates. There is also need for initial working capital. In HMOs established to date, enrollment has lagged to such a degree that HMOs required outlays far in excess of what they took in in premiums for a considerable period. The full range of services, however, must be available to the first en- rollees in the program. Therefore, the lIMO requires support for a sufficient pe- riod to assure enrollment to a break-even point. HeaZth care flnancing.-Perhaps the most serious issue in the ongoing opera- tion of health maintenance organizations is the matching of premium income to the cost of providing health care services. Inherent in the concept of a health maintenance organization is the provision of a comprehensive package of health services. Although reasonable persons may differ over the makeup of a compre- hensive health care package, the implicit corollary of any package is that it can be supported through premium income, either from enrollees or from third-party payers. A commonly regarded source of such financial support is a program of national health insurance geared to provide reimbursement for the services pro- vided by a health maintenance organization. Again, as with the financing of initial HMO development, there should be a single source of funding for the fed- eral share of joint public-private health care financing. Such a national health care financing system would eliminate the present frustration of attempting to reconcile varying packages of services for which reimbursement is provided, varying funding cycles, varying-and sometimes conflicting-guidelines, and varying funding levels. Thus, it seems clear that an essential interrelationship must exist between the legislative development of a national health insurance system and a national health delivery ssytem. Since the present realities of the legislative process dictate that separate committees consider these matters, two courses of action appear possible. One is to allow the services subject to reimbursement through national health insurance to become the services required of a health maintenance or- ganization. This in effect permits the financing to determine the .program. The other course of action is to develop an imaginative, progressive, comprehen- sive health delivery system and to rely on the will of the people to urge enact- ment of an appropriate financing mechanism. This would follow the current practice of legislation authorizing a federal program, followed by subsequent legislation relating to the funding for the progratn. The record of the current practice in providing sufficient funding levels is not encouraging, however. Faced with these equally unpalatable choices, the Association wishes to sug- gest a third alternative. We ~suggest the development of a system of mutual working relationships between the legislative committees charged with develop- ing a national health insurance program and the legislative committees charged with developing health care delivery systems. These relationships could take the form possibly of select committees in each chamber comprised of members of the appropriate standing committees, or of a joint committee comprised of members of the appropriate standing committees'of both chambers. At least there should be an agreement of multiple referral for legislative provisions dealing with health care financing and health care delivery. Such an arrangement-in whatever form PAGENO="0183" 925 it developed-would pOrmit those concerned more directly with health legislation to work closely with their colleagues concerned with health care financing to develop a coordinated program to meet the health needs. Under such an ar- rangement, a national health program would not be the product of financing considerations alone, and the substantive health committees could gain the understanding and support of those with the charge of providing federal support for health cure through the Social Security system or a national health insurance plan. Dr. HEYSSEL. I would like to enlarge on something that Dr. Stewart was speaking to. Mr. ROGERS. Certainly. Dr. HEYssEI~. I think-I don't think we aye quite as badly off in Baltimore as you are in Louisiana-a premium of $50 to $60 per fam- ily per month is about average for the kinds of services we outlined. The only people who will really be entitled at those rates are those who happen to work in industries which have a large enough fringe benefit payment, or the upper middle class or, in the State of Maryland, medic- aid recipients. This would leave out about 30 percent of the popula- tion who would not be entitled under current insurance payments either from employers or from governmental sources. So that I would agree that if the concept is to grow, then some form of national entitle~- ment for these groups for benefits as outlined here would be necessary, unless HMO's are going to be for the very wealthy and the very poor and the middle class working groups. Mr. ROGERS. Dr. Roy. Mr. Roy. I have heard it said that any time a medical school is going to provide services it is going to cost a great deal more than if they are provided by some group other than a medical school, because some- how the education costs appear to be added into the service costs. Would you comment on this? Dr. HEY5SEL. We have three medical schools involved at the moment in the development of HMO's. We have been very careful to set them aside organizationally from the academic enterprise. So that the fi- nancing of the HMO's is not involved in any way with the financing of the medical school. However, if teaching programs and research into health services go on in those HMO's, which is really our reason for doing in most instances, then this will cost more. Some provision will have to be made to meet those costs. The exact percentage or amount of dollars I don't really know. The number that has been thrown around is 25 percent, approxi- mately. There would have to be an add-on. I might add that currently, as you know, the cost of postgraduate education is borne by third party insurance payers primarily. In an lIMO with 30,000 subscribers it is not appropriate to put all the train- ing load on that small number of people. I think other means of financ- ing the educational enterprise will have to be found. Mr. Roy. If we are to carry on health education within the HMO setting I presume it would be carried on by an ETMO which is part of a medical school or carried on by an independent lIMO. If we are to carry it on by an independent lIMO and if we are to provide funds, shall we provide those funds to the lIMO or should we provide them tc the medical school as a sort of pass-through mechanism, which would PAGENO="0184" 92fi then pay the health mahitenance organization for any educational function which they perform? Dr. HEYSSEL. I think the money should go to the medical school to purchase, in a sense, the educational environment and the educators in that HMO. I would comment on one other thing. Setting up an HMO as part of a medical school is perhaps too restrictive. Harvard, Yale, and Johns Hopkins are very much in control of their HMO's but they are not managed through the usual academic enterprise, that is, through the dean's office, as an example. They are set aside as separate corporate entities, and the physician groups are separate groups from the faculty payment mechanism. Mr. Ror. In other words, medical schools are presently sponsoring HMO's. Dr. HEYSSEL. They are sponsoring lIMO's. I think they have their names and reputations on `the line, but they don't have their fiscal lives oi~\ the line for these institutions; nor is the lIMO supporting the acad~mic enterprise. I think there are organizational ways to do this which clearly make a separation. Mr. Rot. Do you think the health maintenance organization is a proven coi~icept? Dr. HEYss1~r~. Yes. I think there are enough people enrolled in enough ar4as, that they are diverse enough, that growth has been striking en~mgh where the option as been offered to people, and that the perfori~nance to date makes me believe they are a proven enter- prise. Mr. Ro~r. Do you think the for-profit lIMO's have proven them- selves? Dr. HE~-ssEL. I don't knew one that is operational at the moment. Dr. COOPER. May I make a statement on the for-profit lIMO's which I think is important for this committee if it is going to include them? They should be required tO assume the same burden of distribution of patients that a nonprofit lIMO does. We are concerned that they may i~ot provide the same distribution of services to the same distri- bution of patients and thus in essence siphon off the patients that are more desirable. So, if for-profit lIMO's are included in any bill, we think `that the legislation should require the same distribution of patient load and burden of disease and enrollee economic level for for-profit lIMO's as for the not-for-profit lIMO's. Mr. Roy. I am working with admitted prejudice against for-profit operation because I have had experience with them. I would be very happy to have you gentlemen comment, either reinforce my prejudice or diminish my prejudice. Do you have any comment on what has been the experience in for- profit institutions in the delivery of health care? Dr. HEYSSEL. I think that the proprietary hospitals have, on many occasions, stayed out of areas that were expensive, as an example, the `provision of emergency services and other special kinds of services, which undoubtedly has enhanced their ability to show a profit, and have left the most expensive services to other institutions. I endorse the point Dr. Cooper is making that, if for-profit lIMO's are devel- oped, then they should be required to serve the same population with PAGENO="0185" 927 the same kinds of services and be held to the same standards as not- for-profit HMO's. Mr. Roy. Do you really think we can develop the ability to prevent skimming? We have built between our two general hospitals in Topeka, Kans., another structure which would like a hospital license. They say, "We can take that postsurgical patient from the fourth and seventh day and do it much less expensively." They can do it much less expensively, because the expenses are in the first to the fourth day. I can't help but wonder if we add the two up, in other words, acute hos- pital costs are bound to go up if they are caring only for the first to fourth day, if we are not increasing the total cost of the 8-day surgical patient. Do you think that we can develop methods to prevent skimming? My other question, of course, which is a question for the committee, whether we really want to put the effort in to provide methods to prevent skimming? Dr. HEYSSRL. Since an HMO has a defined population and, therefore, a denominator against which you can really measure the services delivered to a population, it is possible to get statistics that relate to a whole series of services provided, the number of physician visits, the percentage of the population visited. It is possible to get notions of consumer satisfaction, not only by enrollment performance of the HMO, but in terms of asking people whether the services they were promised in their contactual relationship with the HMO are, in fact, being delivered. I think it is possible to look at that aspect of it and also to be certain that a for-profit HMO would not exclude certain segments of the population because it might have an undue burden of disease, et cetera, or might be thought to be undesirable for other reasons. So I think it is probably easier to prevent skimming in an HMO kind of arrangement than it might be in other segments of the health care industry at the moment. Mr. Roy. Is it possible, then, to prevent skimming within the orga- nization? I suppose you really `address that with the same answer. Dr. STEWART. I am not sure I completely agree with that. It seems to me `that if we really have dual choice in the system, which I think is highly desirable, and the degree of marketing which is necessary, then it seems to me it is difficult to prevent the skimming within that kind of competitive situation. I think we have the lesser-of-two-evils kind of `thing. M~ Roy. We are coming face to face with another problem. Almost each witness has expressed it. It is impossible to provide health service to a population which cannot pay. These populations exist in many places in our society. We can have the potential to put HMO's in place in these underserved areas where these populations exist if we come up with some type of subsidization for those who cannot meet these costs. This has politial problems, I am sure, and it has many other policy problems. The medical schools I think especially may be physically located within these areas. Should we make an attempt in this bill to put the HMO's in these underserved areas by some type of sub- sidy or should we go the other route and admit that these HMO's are going to serve the same populations that presently have the ability tc acquire medical care? However, gaining from cost containment, per~ haps quality experience, we can then wait for the payment mechanism PAGENO="0186" 928 and assume then that there will be some possibility of putting lIMO's into the underserved areas? Also perhaps you can address yourself to what is going to happen to the underserved area when the payment mechnnism becomes available and there are not service facilities in place. Would you like to comment on this rather long statement- question? Dr. HEYSSEL. First, it is almost impossible for any group to move into the underserviced inner ghetto and systematically exclude 30 percent to 40 percent of the population. I think subsidies for lIMO's which are going to deliver medical care to underserved areas really should be made. As a practical matter, in East Baltimore that is essen- tially what we have. We have a grant under section 314(e) of the Public Health Service Act which actually pays the premium for some proportion of the enrolled population, the others being paid for by title XIX, medicaid. I think that short of some sort of universal en- titlement, a subsidy should be made available for the premiums of those people who cannot otherwise meet the cost and who do not qualify for lIMO's operating in underserved areas. Otherwise, I think lIMO's would get started and would, in fact, become a program for the middle class and for the upper working class of the country, with the underserved areas being left to shift as they may, as they are at the moment. Dr. COOPER. May I add one quick point to that? I think that in addi- tion a subsidy is required because an lIMO in a medically underserved area has a much greater responsibility to promote health than on in a community which is more accustomed to receiving health care. It does no good to establish an lIMO in an underprivileged area and just open the doors for those who happen to come in. You really have to promote health. I think this has been clearly demonstrated in the Port- land experience of Kaiser-Permanente. The subsidy has to include not only the payment for those services that cannot be covered by the regular premium, but to permit the lIMO in this area to carry on the kind of health promotion program that is required to bring people in deprived areas into the system. Mr. Roy. I have a dozen questions as to what we might expect or might not realistically expect from the medical schools but time has not permitted me to ask them. I appreciate your testimony. Mr. ROGERS. As I understand it you are not anticipating that every- one will belong to an lIMO? Dr. HEYSSEL. No Mr. ROGERS. Are you anticipating that its main thrust is to those in the poverty area or underserved area? Dr. HEYSSEL. No. Mr. ROGERS. Should they be required to serve a certain number of them or should it simply reflect the population of the area in which they exist? Dr. HEYSSEL. It should reflect the population of the area in which they exist. Mr. ROGERS. Currently, how do those who cannot pay get served? Dr. STEWART. In Louisiana we have a State charity system, and the Louisiana Medical School is responsible for the care of 600,000 people. It is subsidized by the State and medicaid and medicare. PAGENO="0187" 929 Mr. ROGERS. So I think this is pretty much accepted. If those who cannot pay are to get help even in the present setup of HMO's, those people must have some way of getting into the system by payment. Dr. STEWART. That is correct. Mr. ROGERS. I was thinking of going to this national health insur- ance. I am not sure it is a necessary requirement. I don't think every- body will get into an HMO~ Suppose they can get their care. For in- stance, the Governmentw ith medicaid can get people taken care of in an HMO, like one told us in California, for 2~7 percent less. Maybe it is not going to cost as much. Dr. STEWART, I think that without some health insurance aid at the present time none of those 600,000 people could be included in an lIMO. Now I have the feeling that HMO's provide a quality of medical care which is not attainable under the present system. Mr. ROGERS. You feel it will be an improvement? Dr. STEWART. It improves the quality of care. It improves access because it moves it out to the area where the people live rather than their having to come in and seek something that is given to them. But this depends on whether the present effort in HMO's is to try to de- velop an example of a system as we come along with our national health insurance, which is going to take considerable debate, or whether the present effort is to try to provide an entitlement for all kinds of people at the moment through the lIMO. I would think it is more of the former at the present time in the effort. I would hope, Mr. Chairman, even in the absence of the development of national health insurance or anything that takes its place over the next few years, that some experimental lIMO's in these underprivileged areas would be tried out and that there be provisions for ways of subsidizing those which may be somewhat different from what would be done if you were dealing with a middle-class community. Mr. ROGERS. I think that is a good suggestion. Thank you so much for your testimony. The committee is grateful to each of you for being here. Dr. HEYSSEL. Thank you. Mr. ROGERS. Members have to be on the floor at 12. Will it be con- venient, Blue Shield and Blue Cross, to come back at 1:30? I understand they will be back at 1:30 and are agreeable to it. Under those circumstances, the committee will stand adjourned until 1:30 this afternoon. (Whereupon, at 11 :55 a.m. the committee was recessed, to reconvene at 1:30 p.m. the same day.) AFTER RECESS (The subcommittee reconvened at 1:30 p.m., Hon. Paul G. Rogers (chairman) presiding.) Mr. ROGERS. The subcommittee will come to order, please, continuing hearings on proposed legislation for health maintenance organizations~ I am very pleased to have as our next witness Mr. Walter J. Mc- Nerney, president of the Blue Cross Association. We will be pleased to have you come to the table and any of your associates whom you desire to have with you. We will make your statement a part of the record, and we will be pleased to receive any comments you desire to make. PAGENO="0188" 93~0 STATEMENTS OP A PANEL REPRESENTING BLUE CROSS ASSOCIA- TION: WALTER 3'. MONERNEY, PRESIDENT, BLUE CROSS ASSOCIA- TION; LEO E. SUYCOTT, PRESIDENT, WISCONSIN BLUE CROSS PLAN, AND PRESIDENT, ASSOCIATED HOSPITAL SERVICE, INC., MILWAUKEE, WIS.; AND DAVID W. STEWART, MANAGING DIRECTOR, ROCHESTER BLUE CROSS PLAN, AND MANAGING DIRECTOR, ROCHESTER HOS- PITAL SERVICE CORP., ROCHESTER, N.Y. Mr. MONERNEY. I am pleased to be here in behalf of the Blue Cross system, which now serves approximately 100 million Americans through its public and its private programs. If I may submit the statement that I have in front of me for the record, I would like now to paraphrase it, and then ask David Stew- art, managing director of Rochester Blue Cross, and Leo Suycott, president of Wisconsin Blue Cross, to follow. Mr. Roofais. Certainly, that will be excellent. Mr. MCNERNEY. I will focus on system policy toward lIMO's and the involvement of the system in it. They, in turn, will put more em- phasis on the practical issues that' are faced in implementing lIMO programs. Each has a program in his area. In essence, Blue Cross supports both the lIMO concept and its de- velopment. We applaud the new emphasis being put on it by the pub- lic, by members of the profession, and by the Government. We have spent a great deal of time, money, and energy within Blue Cross on lIMO development. Mr. Chairman, there are now within the Blue Cross system some 13 operational lIMO's. In addition, four plans are marketing lIMO's and anticipate the start; of service delivery within 6 months. Eleven plans are developing lIMO's and are in the process of designing the operating capacity to implement the program successfully. Fifteen additional plans are in various stages of planning; 12 are in the ex- ploratory phase. Our corporate goal is to have 30 lIMO's operative by the end of 19'T~. The detailed descriptions of those that are operative and those in the planning stage are in the appendixes. Our long-term goal is 280 lIMO's by 1980, which would give us an opportunity to afford most of our subscribers a choice between competing methods of financ- ing and delivery. If I could simply summarize, I would say that, in general, Blue Cross prefers a reasonably flexible approach to lIMO's, with important principles defined in the law without the imposition of undue stric- tures. In the framework of that general feeling, we would like to sound two cautionary notes: First, I am sure that this committee is familiar with data which indicates that enrollees use a significantly lesser number of hospital days in the lIMO-type environment. It is important to note, how- ever, that these data are based on limited poi~uiations, not always cross- sectional; and they must be projected to the broader population with PAGENO="0189" 931 great care. As systems grow in size, they change in their characteris- tics. We have an appendix that deals with this issue. The second cautionary note is that the HMO is but one part of the total delivery and financing system. Its success inevitably will depend, in significant part, on the viability of the total structure. In the next sections of our statement, we deal with specific imple- mentation issues: Benefits, marketing, risk sharing, financing from public programs, community versus experience rating, payments with HMO's, whether they should build their own hospitals, the profit and nonprofit issue, the quality of care issue, Federal funding, and whether they should be required to operate in poverty areas and, if so, to what degree. The statements are there, and we shall be glad to answer questions in regard to them. I would'like now to move quickly to our conclusions: The HMO concept is now over 2 years old and has broad verbal sup- port. Greater commitment, we feel, is needed from both the public and private sectors. Issues surrounding the commitment are well known and have been long debated, and we hope fervently thaj this committee will make some decisions and report a bill to Congress. It is time to get going. In summary, a few points bear either repeating or elaboration. First, we must recognize that all of us want to measure HMO's by a number of criteria which are, in part, contradictory. We want them to provide comprehensive care, at lower cost. We want to regulate them carefully to insure quality, yet give them flexibility to innovate. We want to im- plement them quickly, yet some want to rule out the for-profit devel- opment and spend as little as possible for startup money. We need deci- sions now, but as we make them, we should not pretend that we know all the answers. We should make some judgments, take some risk, based on public interest and start; then make changes as we go along, based on experience rather than endless speculation. Uncertainty should not lead to hesitation, especially because we feel the potential gains outweigh the risk. Action by the Congress and the executive branch now are essential, we feel, to get things moving. The second point of summary is that in moving ahead we feel that Congress should focus on the national goals of the EMO movement. The Secretary of HEW and the agency administering the program would th.en be charged with specifying given result areas such as enrollment cost and data requirements. With these goals and guide- lines established, the HMO's should be reasonably free to achieve them according to their own means. In the HMO setting, we feel we should be less concerned about precise internal arrangements among the participating parties, par- ticularly with reference to rules~ processes, and standards taken from existing systems that we are trying to change; and more concerned about creating an alternate system and having it work effectively in the market. Under no circumstances, we have stated, should HMO's become a catchall for everybody's favorite reform remedy. The third general point in conclusion: If we are to be able to eval- uate progress in the years ahead, a relatively uniform data base will be essential to HMO's and alternative systems. We feel that the HEW requirements inevitably involved here should be consistent with HMO management requirement and not a needless added burden. That is~ PAGENO="0190" 932 there should be some minimum data, but not as an excessive burden to management. Fourth, because of the shortage of capital for new building and startup cost, we must make maximum use of existing facilities and have the wit to build around some of the inherent variations rather than to try to impose a stereo typed pattern on the communities. Fifth, an innovative and controlling force in development should be the exercise of consumer option in a situation hopefully free of current restrictions on the HMO pattern. Too much rigidity in designing HMO's makes it difficult to capitalize on assets and relies too heavily on theoretical gains at the expense of benefits realized by consumers. Next, the HMO concept can be oversold to its detriment, based on the valuable but limited experience we have had to date. Our objective should be to give it ample opportunity on a broad scale, then let it sell itself. Finally, I would like to come to what I think is a key point. Too little attention has been paid, we think, in the discussion of HMO's, about the enormous contribution that could be made by carriers' pre- payment programs, especially such as Blue Cross. For example, in talking about HMO development, here is what a carrier can bring to the program: Access to markets where HMO's can be offered on a dual or multi- choice basis; Skills to educate markets regarding HMO potential and enrollment service through widespread field offices; Ability to calculate and administer rates; Resources to help establish HMO's, capitalizing on existing staff and modest investments; Experience requisite to negotiations with institutional and profes- sional providers on reimbursement, utilization review, and other relevant matters; Capacity to absorb early inordinate risks, especially in the early days of the HMO; EDP and other systems capacity to provide key evaluation data and institute utilization review programs on an area basis; Ability to supplement HMO benefits with other benefits as required; and Machinery through which out-of-area benefits can be paid on a serv- ice basis and transfers from one HMO to another, or to an alternative program, can be effected without cessation in coverage. Blue Cross is committed and; involved. We have the wherewithal to make a major contribution. We stand ready to work with new pro- grams the Congress may propose, and we shall continue to extend our own programs. (Testimony resumes on p. 985.) (Mr. McNerney's prepared statement and attachments follow:) STATEMENT OF WALTER J. MCNERNEY, PRESIDENT, BLUE CROSS ASSOCIATION I am Walter J. McNerney, President of the Blue Cross Association, the national coordinating `body for the Blue Cross System. I am here representing 74 non- profit Blue Cross Plans which serve nearly 100 million Americans under public and private programs. With me is David W. Stewart, Managing Director of Rochester Hospital Service Corporation, and Leo B. Suycott, President of Associated Hospital Service, Inc., of Milwaukee, WisconSin. PAGENO="0191" 9~~3 I will discuss Blue Cross' policy toward, and involvement in, Health Mainte- nance Organizations and selected public policy issues from a systemwide point of view. My two colleagues, both of whom have been leaders in HMO develop- ment in their areas, will report on the practical issues that must be faced in the implementation of HMOs. I. BLUE CROSS POLICY For many years, Blue Cross has participated in group enrollment situations where the employee had a choice of prepaid group practice or more traditional benefits. Some Plans, in fact, have marketed prepaid group practice medical benefits in conjunction with Blue Cross institutional benefits for over 20 years. The HMO concept grew out of some of these earlier options. It has our support. We applaud the new emphasis put on lIMOs by the public, by many in the health professions, and by government. Attached as exhibit I is a policy statement passed by the BCA Board of Governors in August, 1971. The statement reads in part: "Recognizing that the basic concepts are not yet well developed and will long be subject to varying interpretation, Blue Cross supports the 11MG concept as a promising alternative form for delivery of health services in much the same vein as it has previously supported and been actively involved with development of prepaid greup practice programs. In line with this commitment, Blue Cross has helped to establish new prepaid group practice plans and has provided these new systems with critical access to large markets by offering the public the program benefits on a dual or multiple choice basis in open competition with more traditional insurance and delivery systems". BLUR CROSS DEVELOPMENTS WITE HMO'S Blue Cross has devoted a great deal of time, money, `and energy to HMO development. We now have ten Plans with thirteen operational HMOs. In addition, `four Plans are marketing HMO programs and anticipate the start of service delivery within six months. Eleven Blue Cross Plans are developing HMOs and are in the process of de- signing the operating capacity to implement the programs successfully. Fifteen additional Plans are in various stages of planning HMOs and twelve Plans are in the exploratory phase discussing the Idea with provider and con- sumer groups. Our goal is 30 operational HMOs by the end of 1972. Attached as Exhibit II is a report on Blue Cross involvement in Alternative Delivery Systems which includes brief descriptions of local developments. Ex- hibits III and IV describe briefly Blue Cross roles in various HMOs. The Blue Cross Association has conducted a number of educational confer- ences to familiarize Plan personnel with lIMO operations. These programs drew upon the expertise of speakers from Kaiser, HIP, GHAA, and other existing group practice organizations. Also, we are conducting a number of problem- oriented conferences to discuss specific areas associated with lIMO develop- ments, e.g., an actuarial meeting to discuss rating of lIMO benefits. We are convinced that carriers and Blue Cross, in particular, have a critically important role to play in HMO development. Blue Cross has the administrative skills needed to handle programs of such complexity; it has contracts with thousands of hospitals and a population in the private market of 75 million enrolled in 625,000 groups. Blue Cross sees the HMO not as the total answer to all delivery problems, but as an important option for consumers. Our long-term goal is 280 HMOs by 1980 offering virtually all of our subscribers a choice between competing methods of financing and delivery. The exercise of this choice promises to `be one of the most effective, innovative forces acting on the health delivery and financing systems in the years ahead. It will have the distinct merit of emanating from the grass roots close to the substantive problems involved, and reasonably free of the type of stereotyped solutions that are more apt `to `be imposed from afar. II. GENERAL ISSUES As we begin to formulate national public policy and legislative language for HMOs, we must keep in mind how complex and variegated this country and its health system are. Consumer attitudes and preferences vary widely as do the PAGENO="0192" 934 structure and traditions of the delivery system. For example, the number of hospital beds per 1,000 population varies on the order of two to one from one state to another, while the physician ratio varies by as much as four to one. Hospitals and other institutions operate under a variety of auspices, including federal, state, and local government, those operated for-profit, hospitals owned by religious groups, etc. Prepaid group practice has strong roots in some states and weak ones in others. Federal HMO strategy must accept and deal with this variety and not expect that change will occur easily, uniformly, or quickly. An important strategic question becomes how stringently legislation should define HMOs. Should the Congress be flexible and permit or encourage variations; or should it define benefits precisely, attempt to regulate quality explicitly, rule out for-profit organizations, ete? On one side of the question lies the risk of fostering an illusion of change while the health system continues in the old ways; and on the other, the danger of saddling HMOs ~~ith responsibilities substantially in, excess of what is required of other elements of the system, and, in the process, slow progress, reduce the number of potential participants, and incur excessive costs. In general, Blue Cross prefers a reasonably flexible approach to lIMOs. Im- portant principles should be defined in the law without the imposition, of undue strictures. Focus should be on improvement of productivity and access. And, suf- ficient base data should be required so that the effectiveness of various formats can be evaluated over time. Our hope is that the internal dynamics of HMOs will lead to lower costs, more preventive medicine, less reliance on acute services, and a system that is easier for the consumer to understand and use. The ultimate test will be consumer satisfaction and selection. In the framework of General Issues, two notes of caution should be sounded. First, I am sure this committee is familiar with data that indicate that enrollees use a significantly lesser number of hospital days. It is important to note that these data are based on limited populations, not always cross-sectional, and that they must be projected to broader population with great care. As systOms grow, their characteristics can change; advantages can be lost as well as gained. A eommeiitary on these points from the March, 1972, h~sue of Inquiry is attached as Exhibit V. This particular note~ of caution should not be interpreted as a vote against a strong push for and selective subsidy of HMOs. HMOs are not only of theoretical worth. Nine million people are enrolled in prepaid group practices, one form of HMOs. Also, we have subsidized the prevailing system for years with billions of dollars of Hill-Burton funds, tax deductions, regional medical programs, and others, while various antecedents of HMOs have been penalized by profes- sional and legislative discrimination. In fact, we have a heritage of shortsighted- ness to overcome. Second, the HMO is but one part of the total delivery and financing system. Its success will depend, in significant part, on the viability of the total structure. At some point, the HMO must be integrated into the larger concept of national health insurance. In this context, there remain major unresolved issues directly impinging on HMO development. III. FINANCING ISSUES There are a host of implementation isSues involved in structuring HMO leg- islation. I will comment briefly on those with which Blue Cross has relevant experience. Also, I will emphasize the essential role Blue Cross and other car- riers can play in starting HMOs and in sustaining them in the market. It is important that legislation recognize and make provision for carrler capacities and participation. A. BENEFITS Most communities now recognize that comprehensive health benefits are a de- sirable goal for HMOs and other delivery systems. But, the initial requirements for HMOs should not be overly idealistic. The resultant costs could be too far out of line with alternate systems. Also, some communities could not produce comprehensive services initially, without extraordinary subsidy. A limited scope of basic benefits, with strong emphasis on primary care and health education, would permit HMOs to structure themselves around available resources. Individual liMOs could offer several benefit options on a building- PAGENO="0193" c~3~ block basis at different prices, permitting subscribers choices based on their own perceptions of need and ability to pay. The benefits designed In H.R. 11728 in Section 1101 (2) are, perhaps, too ex- tensive. While the inclusion of extended care, rehabilitation, and other benefits is desirable In the long run, a lesser package will probably result In the devel- opment of HMOs in core communities Initially. Out-of-area benefits for emergencies and other special circumstances are vital for a mobile American population. Blue Crossoperates an extensive system to provide out-of-area benefits and transfer of coverage for persons moving perma- nently. Here, the carrier can play an important role in an liMO concept. B. MARKETING The HMO concept cannot grow at an accelerated rate without access to markets. No one has proposed that any given delivery system be compulsory- nor is it likely to happen. Blue Cross and other carriers have large field forces in active contact with corporate groups and extensive experience In account education and service. The fledgling HMO cannot hope to create this kind of marketing capacity in a reasonable amount of time, if ever. Without it, enrollment will lag and losses in the early years could be substantial. An affiliation with a major carrier, such as Blue Cross, can solve or mitigate many of these problems. In the market, periodic open enrollment should be required. There is an asso- ciated risk that this would lead to a disproportionate number of poor risks enrolled in HMOs. However, this can be helped by a carrier able to merge the experience with other groups in some manner. C. RISK SHARING H.R. 11728 requires providers to accept all risks up to $5,000 per case. We would suggest that this be modified to permit carriers to share in taking risks at all levels. This will have several salutary effects. It will decrease the likeli- hood of bankruptcy and the need to make extensive provisions for insolvency in the law. Also, smaller provider groups will be more likely to belong to HMOs when the risk taking required of them is within reason. Carriers, given this equity, will be encouraged to sell liMO coverage aggres- sively. A sharing of risks between carrier and provider is desirable to serve as an incentive to provider and carrier alike. D. FINANCING FROM PUBLIC PROGRAMS One of the ways to stimulate HMO development is tomake provision for their support from present federal programs. For example, Medicaid, in given states, has some 225,000 welfare recipients enrolled in various HMOs, such as HIP, Kaiser, and Group Health Cooperative of Puget Sound. A capitation rate is paid to the HMO, based upon the actuarial eciuivalent of the health benefits enun- ciated in the state legislative enactment which authorized the Medicaid program. Presently, the Medicare legislation does not make this possible. Some organi- zations, such as Kaiser, provide their regular HMO-type benefits to Medicare eligibles on a negotiated, cost-plus basis. H.R. 1 (if enacted in its present form) would change this and provide for payment to the HMO of 95 to 100% of the cost of benefits provided to other Medicare eligibles in a common geographical area. Present state leigslation prohibiting Medicaid capitation should be over~ ridden or changed. E. COMMUNITY VERSUS EXPERIENCE RATING Blue Cross has been through this complex issue many times. It is important to note that there is no "pure" way to rate equitably. For example, when Blue Cross community rated most of its enrollment (i.e., before commercial carriers caused Blue Cross to modify this principle by experience rating), areas where costs were lower subsidized areas where costs were higher. While governments extoll community rating, they are the first to demand experience rating for their employees (state and national). As long as carriers are permitted to experience rate, HMOs will require the same opportunity in order to compete. Carriers have much to offer here also. For example, if Blue Cross were to implement a network of liMOs to cover a given geographic area-say, a large 81-185 0 - 72 - pt 3 - 13 PAGENO="0194" 936 city served by 8 to 10 HMOs-it could come up with a composite rate among the liMOs and market this to large employers which have employees spread through- out the area. The rate could be based on the total experience of those enrolled or some modification of it. F. PAYMENTS wITHIN lIMOS This is another area where we need to resist the temptation to envelop liMOs in excessive rules and regulations; a variety of methods of reimbursement to hospitals and other providers should be tolerated, even encouraged. This area is currently the topic of much debate and experimentation. it is in the public interest that this search for better methods continue. In the long run, it is unlikely we will find "one best way". Experience among nations as well as in the U S has taught us that any given method of payment can be validated only by contrast with another. If there is a universal principle involved, it is that any reimbursement system should encourage provider risk assumption. Blue Cross and other carriers have extensive experience In reim- bursement and can play an important role in assistance. The question is often asked, "Should fee-for-service payments be permitted in liMOs?" We should avoid a false polarization here between salary and fee-for-service; there are a variety of ways to reimburse physicians, as there are other services. To achieve high performance, perhaps we can learn from other enterprises. Service and hard-goods organizations alike use a variety of schemes_-straight salary, commissions, Productivity bonuses, etc.-to determine income. Elements of the two approaches can be combined and adapted to the individual situation to stimulate performance. The Kaiser Plan and the Group Health Cooperative of Puget Sound permit up to 10% of physicians' income to be from fee-for-service; In newly founded liMOs, more flexibility might be an essential transitional device, We should keep in mind constantly that an essential merit of liMOs is their primary emphasis on ends, not means, and on active management, not imitation. 0. SHOUj~ lIMOS BUILD THEIR OWN HOSPITALS.? While new hospital beds may be needed on rare occasions, maximum use of existing facilities should be encouraged. In too many areas, we have an oversup- ply of beds and new ones will represent costly duplication. Funds for capital are in short supply in both the public and private sectors throughout the world. Spending liMO money on facilities on a broad scale could be expensive and add to current problems of overlap and fragmentation, In any event, liMOs must fall within the purview of state and areawide plan- ning agencies as a guard against duplication of resources. This assumes that these agencies are communlty-orient~~ and controlled, in some areas of the country, one sees a vast interest bias against HMO development. This, among other points, underscores the need for strategies parallel to liMO development within a larger framework. Investment in facilities or construction for liMOs should emphasize ambula- tory care and other underdeveloped services. We endorse Section 1104 of H.R. 11728 in this regard. H, PROFIT-NON-PROFIT Blue Cross believes deeply in the non-profit operation in the health field. But, non-profit organizations have not moved quickly into all rapidly expanding com- munities where, in some instances, proprietary organizations have. And, with the shortage of capital we face, access to all money markets will be needed. In some areas, for-profit enterprises have attracted capital more quickly than non-profit developers. For-profit organizations should be permitted to participate, but energetically required to meet community standards. Open enrollment, quality standards, pub- lic disclosure of financial and operating data, provisions against conflict of inter- est, control of equity return, and planning agency sanction can do much to insure accountability. Section 1101 (1) should be changed to permit for-profit liMO developments. I. QUALITY OF CARE This is a difficult issue.; the medical process is complex and evaluation of quality requires subjective as well as objective judgments. PAGENO="0195" 937 Importantly, liMOs should not be subject to unique standards not applicable to other delivery modes. This could lead to unwarranted discrimination. In this regard, we should keep in mind that group practice has effective quality control inherent in it. Physicians working closely together have ample opportunity to re- view their colleagues' work and establish pathways to obtain consultations on difficult cases. Also, liMOs are subjected to the same controls largely as the rest of the system, e.g., professional licensure, institutional licensure and accredita- tion, and consumer choice. With all of the above, it would be well to have part of the quality assurance program stipulate the need for a mechanism in HMOs that focuses on results. For example, of so many hypertension patients, how many died, returned to work, etc.? Too much current evaluation in most delivery systems is geared to input under the assumption that given methods or formats automatically pro- duce desirable results. Such a stipulation would assist the evaluation materially contemplated in Section 1110(a). We support Section 1110(a) of H.R. 11728 which would provide direct sub- sidies for evaluation. And, we support Section 1101(1) (G) requiring liMOs to have an "ongoing quality assurance program", and Section 1101(1) (H) requiring that data on cost and utilization be compiled and published. In essence, we need to evaluate the investments made in liMOs as we do In all systems. Data stipulated should not require extensive record-keeping or expensive computing that would burden the liMO. Rather, these data should be essential to the liMO for management purposes and, for the most part, be available in the normal course of events. Their disclosure to the public on a periodic basis will considerably enhance consumer option and serve as an effective internal discipline. J. FEDERAL FUNDING H.R. 11728 proposes a variety of grants, loans, and loan guarantees to sup- port various facets of liMO development. We support all of them. Federal money, judiciously placed, can and does speed developments. The agency charged with administering this program should evaluate alterna- tive methods carefully to see which provides the most leverage. K. REQUIRED SERVICE TO POVERTY AREAS PER SE By many, the HMO concept is seen, in one form or another, as an effective answer to the access and use problems of low-income urban and rural areas. In these areas, purchasing power, health facilities, and programs are often absent or weak. The liMO cannot solve all the problems. For the liMO to work in these circumstances, there must be: 1. Adequate public payment programs (Mediéaid, Medicare, FlIP, etc.). 2. Adequate grants and loans to meet specific government objectives-for capital and start-up purposes. It is unlikely that manpower will be attracted to selected urban and rural areas unless there are strong system and program ties established to a central unit of broad. scope and sophistication. Through such a satellite arrangement, quality can be protected, even with new and innovative uses of substitute skills, and highly trained professionals can be given the stimulation, mobility, and tools they require. IV. CONCLUSIONS I have stated Blue Cross' record and its views on a number of issues associated with HMOs. The HMO concept per se is now over two years old; it has broad verbal support. Blue Cross and. others in the private sector are attempting to get programs under way. Government has made selective investments. Greater commitment from both the public and private sectors is needed. The issues surrounding commitment are well-known and have been long- debated. I hope that this commitee will make decisions and report a bill to Congress. In summary, a few general points bear repeating or elaboration. A. We must recognize that all of us want to measure liMOs by a number of criteria-which are, in part, contradictory. We want them to provide compre- hensive care-at lower cost. We want to regulate them carefully to insure quality-yet give them flexibility to innovate. We want to 1mplem~nt them quickly-yet some want to rule out for-profit development and spend as little as possible for start-up money. We need decisions now, but, as we make them, we should not pretend that we know all the answers. We should make some judgments and take some risks, PAGENO="0196" 938 based on the public interest and what promises to work, and start. And, make changes as we go along, based on experience rather than endless speculation Uncertainty should not lead to hesitation, especially because potential gains outweigh the risks. Action by the Congress and the Executive Branch are essen- tial to set more forces in motion. B. In moving ahead, Congress should focus on the national goals for the HMO movement. The secretary of HEW and the agency administering the HMO program would then be charged with specifying given result areas, such as enrollment, costs, and data requirements. With these goals and guidelines established, the HMO should be free to use reasonable means to achieve them. In the HMO setting, we should be less concerned about precise internal arrange- ments among participants, particularly with reference to rules, processes, and standards taken from existing systems that we are trying to change; we should be more concerned about: Creating an alternate delivery system characterized by a specified pay- ment for reasonably comprehensive services in virtually every area of this country within some target date.. That this system should begin to develop effective incentives and controls and improve access to care. That innovations in the use of manpower, health education, etc. emerge in the process. It is difficult to describe the health care system in performance terms, but we need to learn. Under no circumstances should HMO's become a catch-all for everybody's favorite reform remedy. C. If we are to be able to evaluate progress in the years ahead, a relatively uniform data base will be essential to HMOs and alternative systems. HEW requirements, in this regard, should be consistent with HMO management re- quirements and not be a needleso, added burden. D. Because of the shortage of capital for new building and start-up costs, we must make maximum use of existing facilities and have the wit to build around some of the inherent variations-_rather than try to impose a stereotyped pattern on all communities. E. We should keep in mind that a major innovative and control force in- volved in HMO development will be the exercise of consumer option in a situa- tion prospectively free of current restrictions on the HMO pattern. Too much rigidity in designing HMOs makes it difficult to capitalize on current assets and relies too heavily on theoretical gains at the expense of benefits realized by consumers. F. The HMO concept can be oversold to its detriment, based on the valuable, but limited, experience we have had to `date. Our objective should be to give it ample opportunity on a broad scale. Then, let it sell itself. G. Finally, in the debate over lIMOs to dbte, too little attention has been given to the enormous contribution carriers, such as Blue Cross, can bring to HMO development. For example: Access to markets where lIMO's can be offered on a dual or multi-choice `basis. Skills to educate markets regarding lIMO potential and service to those enrolled through widespread field offices. Ability to calculate and administer rates. Resources to help establish new lIMOs, capitalizing on existing staff and modest investments.. Experience requisite to negotiations with institutional and professional providers on reimbursement, utilization review, and other relevant matters. Capacity to absorb early inordinate risks, especially in the early days of the HMO. EDP and other system capacity to provide key evaluation data and institute utilization review programs on an area basis. Ability to supplement lIMO benefits with other benefits as required. Machinery through which out~of-area benefits can be paid on a service basis and transfers from one HMO to another, or to an alternative scheme, can be effected without cessation in coverage~ Blue Cros.s is committed and involved. We have the wherewithal to make a major contribution. We stand ready to work with new programs the Congress may propose; and we will continue to extend our own programs. PAGENO="0197" 939 BLUE CROSS ASSOCIATION S ,~5 ~ T)P\F * ( 4~S_ ~ `~S * 329-6O~O October 29, 1971 TO: Chief Plan Executives FROM: ~4ntone G. Siz.gsen, Senior Vice President, Research and Development SUBJECT: POLICY STATENENT ON HEALTH MAINTENANCE ORGANIZATIONS HMO discussion continues to dominate the current health scene and impacts upon proposed Hill legislation, Administrationpostures, and HEW strategy. In its assessment of the efficiency and effectiveness of modes of health care delivery and financing, the Blue Cross Associa- tion supports the lIMO concept as a viable alternative form for delivery of health services in much the, same way it supported and developed prepaid group practice programs, Blue Cross Plans will continue to develop prepaid programs and offer then on a dual or multiple choice basis. At. the Board of Governors Meeting, August 22, 1971, the Blue Cross Association adopted the attached HMO policy statement. The statement includes a broad HMO definition and lists a nine-point set of guide- lines for Plan assistance in the development of HMO5 * The thrust of the Blue Cross position emphasizes the need for Plan involvement in lIMO development. It states however, that the effectiveness of the lIMO will depend upon its ability to offer alternative systems~and not simply to confine change to components, such as financing mechanisms and organizational flexibility. Such change may create the illusion of change, when in reality the delivery system continues to function in its traditional fashion. S As the lIMO concept develops into national policy and proposed legisla- tion is drafted into law, we will continue to assist Plans and provide then with technical ezpertise, position papers, resource and informational materials to meet ~this new challenge. S Distribution: Chief Plan Executives -- 250 Prepaid Group Practice Coordinators -- 12 Research and. Development -- 7 Provider Relations -- 22 Enrollment Managers -- National Account Representatives -- 6 Chief Marketing Executives -- 18 Serving the Nation PAGENO="0198" 940 HEALTH MAINTENANCE ORGANIZATIONS A Policy Statement by Blue Cross Association August 12, 1971 In the quest for improved access to and greater productivity in the delivery of health services, a great deal of interest has centered on Health Maintenance Organizations (I~MOs) in recent months. While lacking in precise definition, the I-JNO is generally characterized as an organized health care delivery system which promotes early detection and continuity of care by an arrangement which holds a single organization responsible for assuring delivery of an agreed set of institutional and physician services to an `enrolled population for a stipulated period of time in exchange for a fixed and periodic payment. There is great latitude in terms of what types of organizations or quasi-organizations may qualify as UMOs; the HMO is not limited to a particular organizational delivery form, provider reimbursement mechanism, enrollee payment or financing source, I~ather, it is a concept designating performance criteria to which ~ variety of systems may adhere insofar as each integrates (1) an overarching point of fiscal, legal and administrative account- ability with (2) a planned and coordinated service delivery system comprised of institutional and individual providers, (3) a review, evaluation and control mechanism, (14) an enrollment mechanism, and (5) a consumer payment mechanism. Recognizing that the basic concepts are not yet well developed and will long be subject to varying interpretation, Blue Cross PAGENO="0199" 941 supports the }~NO concept as a promising alternative form for delivery of health services in much the same vein as it has previously supported arid been actively involved with development of prepaid group practice programs. In line with this commitment, Blue Cross has helped to establish new prepaid group practice plans and has provided these new systems with critical access to large markets by offering the public the program benefits on a dual or multiple choice basis in open competition with more traditional insurance and delivery systems. In a similar manner, Blue Cross will promote the growth of HMO5 by stimulating their expansion through the marketing mechanism and by establishing new programs in which Plans themselves will operate }lMOs. To support these developments, Blue Cross will support the removal of artificial restrictions such as anti-group practice, anti-corporate practice of medicine, arid certain other licensure laws. liMOs will be expensive to launch. Substantial federal grants and loans will be needed. In many areas, an approach geared to building and elaborating on existing resources will be required in order to permit greater development with the limited capital and start-up funds which will be available. When assisting liMO development, Blue Cross will be guided by the following policies: 1. An HMO should be required to provide and make accessible to its enrollees full conrprehensive care (beyond the connotation of pending legislation) with strong emphasis PAGENO="0200" 942 on primary care and health education. it should use its potential to influence social and cultural forces which impact on health. 2. HM~~ development should fully utilize consumer involvement in the planning and organization of delivery of services. 3. lIMOs should be within the purview of planning agencies to prevent the creation of duplicate capacity and to ensure that community, program and facility needs are best served. A variety of organizational forms and methods of governance should develop. But to introduce these new schemes to the existing autonomous and heterogenous health care systems clearly requires realistic coordination and regulation of health care delivery on a community or regional basis. l~, Evaluation should be an inherent part of every lIMO. At this stage of preliminary development, divergent symtems are presented with the unique opportunity to establish a fact and data base that will permit careful and realistic assessment of the effect of such factors as changed manpower usage, alternative payment, reimburse- ment and delivery methods. This opportunity should not be lost in a short-sighted effort at hasty implementation. The efficacy of the lIMO option has yet to be systematically analyzed and correlated with performance criteria; however, comparison and results can only be derived from systematic analysis of functioning systems. Evaluation and development m~ist occur simultaneously over t ime. PAGENO="0201" 943 5. The liMO should be required to utilize a mechanism for evaluation of ir~stitutional. utilization, and to provide a mechanism for internal peer review. 6. Any provider reimbursemerrb methods adopted by the liMO should promote some provider risk sharing. Physicians and providers (through methods such as prepaid group practice, capitation payments, and prospective reimburse- ment) should in some way share responsibility for ~4O efforts to provide for greater efficiency of patient care for both Medicare and non-Medicare enrollees. 7. The liMO can help to meet the acute need which exists in many under-financed and medically needy poor and rural areas. Emphasis should be placed on providing an effective mechanism for improving access to its services for residents in such areas and for other under-serviced population segments. 8. The liMO should provide for open enrollment periods at least annually. 9. The liMO should provide a mechanism for out-of-area coverage, emergency services and referral services and should attempt to minimize as much as possible the need for cash indemnity in these areas. During the next decade which will be needed for liMO development and expansion, HMOs competing with more traditional delivery systems for consumer acceptance can provide a stimulus for progress. The outcome of these developments will depend upon the extent PAGENO="0202" 944 to which the HMO and the~more traditional financing and delivery systems recognize that each is a viable option mnong other competing alternative delivery systems. Progress will be reflected in the degree to which the HMO and traditional modes of care are able to produce payoff in terms of cost and health status through competitive sys tems which make dual or multiple choice valid and meaningful options. There is no magic inherent in HMOs. Solutions to cost and access problems are to be found in better organization and management, and real options. Even with appreciable success, the majority of care in the foreseeable future is likely to be rendered in traditional settings. The efficacy of the FINO will hinge upon its ability to promote a variety of alternatives without confining change to financing alone and without allowing flexibility of organization to foster the illusion of change while the delivery system continues to serve itself in traditional ways. PAGENO="0203" 945 ~ j( BLUE CROSS ASSOCIATION 840 NORtH LAKE SHORE DRIVE * CHICAGO, ILLINOIS 6061 * 329.6000 March 31, 1972 TO: Chief Plan Executives and Prepaid Group Practice Coordinators FROM: Antone G. Singsen, Senior Vice President, Research and Development SUBJECT: ALTERNATIVE DELIVERY S~HTEh~ PLAN STATUS REPORT, MARCH 1972 The attached Plan Status Report reflects Plan activities `in the develop- ment of Alternative Delivery Systems, and more specifically, prepaid group practice. For further information please contact Johanna Somnenfeld, Information Specialist, Research and Development. Distribution: Chief Plan Executives -- 25C Prepaid Group Practice Coordinators - - 36 8F485 1(~33 Serving the Nation PAGENO="0204" 946 TABLE OF CO~TEN~ PAGE Plan Status Report Definitions. 1 Alternative Delivery Systems Plan Status 2 Description of Plan Activity Albany, New York - Blue Cross of Northeastern New York, Inc Baltimore, Maryland - Maryland Blue Cross, Inc .. Boston, Massachusetts - Massachusetts Blue Cross, Inc.1 ... 5 Chattanooga, Tennessee - Blue Cross and Blue Shield of Tennessee . 6 Chicago, Illinois - Hospital Service Corporation 6 Cincinnati, Ohio - Blue Cross of Southwest Ohio 6 Concord, New Hanpshire - New Hanpshire..Ve,~ont Hospitalization Service.. 7 Denver, Colorado - Colorado Hospital Service 7 Des Moines, Iowa - Hospital Service, Inc., of Iowa 8 Detroit, Michigan - Michigan Hospital Service 8 District of Columbia - Group Hospitalization, Inc 9 Fargo, North Dakota - North Dakota Blue Cros$ and Blue Shield 10 Harrisburg, Pennsylvania - Capital Blue Cross 10 Kansas City, Missouri - Blue Cross of Kansas City 10 Los Angeles, California - Blue Cross of Southern California 10 Louisville, Kentucky - Blue Cross Hospital Plan, Inc 11 Milwaukee, Wisconsin - Associated Hospital Service, Inc 12 Newark, New Jersey - Hospital Service Plan of New Jersey 13 New Haven, Connecticut - Connecticut Blue Cross, Inc 13 New York, New York - Associated Hospital Service of New York i~# PAGENO="0205" 947 PAGE Oakland, California - Hospital Service of California . 1~4 Philadelphia, Pennsylvania - Blue Cross of Greater Philadelphia 1~ Pittsburgh, Pennsylvania - Blue Cross of Western Pennsylvania 15 Portland, Maine - Associated Hospital Service of MaiI~ie 16 Pràvidence, Rhode Island - Rhode Island Blue Cross and Blue Shield 16 Richmond, Virginia - Blue Cross and Blue Shield of Virginia 17 Rochester, New York - Rochester Hospital Service Corporation 17 St. Louis, Missouri - Blue Cross Hospital Service, Inc. of Missouri 17 St. Paul, Minnesota - Minnesota Hospital Service Association 18 Topeka, Kansas - Topeka Blue Cross 19 Youngstown, Ohio - Associated Hospital Service, Inc 19 PAGENO="0206" 948 ~RNATIVE DELIVERY SYST~S ~AYt2~ P0 iqj~p OPERATIc!~AL A Plan which does provide hospitalization through prepaid group practice programs, or is sponsoring, operating or underwriting (any portion) of such a program. IMPLEMENTING A Plan which is in the process of marketing a prepaid group practice program, although the program is not yet operational. This step usually precedes final program operation by approximately six months. DEVELOPING A Plan involved in actual hardware, software, and administrative design of~ a prepaid group practice program. Design of benefit packages, facility and administration relationships, determination of capitation and reimbursement amounts, and pre-selling of the program are all aspects of this level of involvement. PLANNING A Plan which has progressed in its nego- tiations with specific consumer and/or provider groups to such an extent that specific elements of methodology of such a program are being developed. These Plans have board or executive approval to begin planning for program implementation and are negotiating with a specific consumer and/or provider group to determine (a) the nature of the program, and (b) respective organi- zational roles in implementing and operating of the program. DEFINITIVE A Plan which is exploring specific alter- INVESTIGATION natives for prepaid group practice development with provider and/or consumer groups considered to be `serious" about program development. Such Plans are, or will be, willing to participate in ultimate program implementation. -1- PAGENO="0207" 949 ALTERNATIVE DELIVERY SYSTEMS April, 1972 +New Haven, ConnecticWb 4-Milwaukee, Wisconsin Boston, Massachusetts District of Columbia Los Angeles, California New York, New York St. Louis, Missouri +providence, Rhode Island Detroit, Michigan Oakland, California *Chicago, Illinois *Detroit, Michigan *Philadelphia, Pennsylvania *Kansas City, Missouri IMPI1EI'1TIN~ Chicago, Illinois Newark, New Jersey Baltimore, Maryland Philadelphia, Pennsylvania DEVELOPING Concord, New Hampshire Albany, New York St. Paul, Minnesota Chattanooga, Tennessee Cincinnati, Ohio Portland, Maine Rochester., New York Youngstown, Ohio Denver, Colorado Richmond, Virginia Topeka, Kansas PLANNING Salt Lake City, Utah Baton Rouge, Louisiana Rockford, Illinois Indianapolis, Indiana St. Louis, Missouri Columbus, Ohio Harrisburg, Pennsylvania Fargo, North Dakota -2- PAGENO="0208" 950 PlANNING - cont'd. Pittsburgh, Pennsylvania Cleveland, Ohio Kansas City, Missouri Des Moines, Iowa Tulsa, Oklahoma Wilkes -Barre, Pennsylvania Louisville, Kentucky DEFINITIVE Boise, Idaho INVESTIGA~ION Albuquerque, New Mexico Daflas, Texas Little Rock, Arkansas Cheyenne, Wyoming Durham, North Carolina Phoenix, Arizona Wilmington, Delaware Columbia, South Carolina Jacksonville, Florida Omaha, Nebraska Great Falls, Montana + Some Plans are involved with more than one prepaid group practice program. The New Haven, Milwaukee, and Providence Plans have two prograi~ each for which they provide services. These Plans are sponsoring, operating, underwriting (any portion) or providing hospitalization through a prepaid group practice arrangement for a government_fun~e~ program only. -3- PAGENO="0209" 951 A DESCRIPrION OF PLAN ACTIVITY IN ALTERNATIVE DELIVERY SYSTRNR March 1972 Blue Cross of Northeastern New York, Inc. (Albany, New York) The Board of Blue Cross of Northeastern New York, Inc., endorsed Blue Cross cooperation with the Albany Medical College in the estab- lishment of a series of OEO-funded neighborhood health centers. A change in emphasis broadened the idea into prepaid group practice programs. These centers would provide comprehensive medical care on a capitation basis to a cross section of the Albany population. The Northside Community Health Association, representing a ghetto section, is the first community group organised to work with the Medical School. The Whitney M. Young, Jr. Health Center, housed in temporary quarters, is the first to become operational, and provides services to a Title XIX population base. Blue Cross and the Albany Medical College are currently exploring how they can work together in further developing the program. Group Health Association of America became active in the Albany area September 1971, and initiated the formation of the Capital District HMO Planning Council, which incorporated January, 1972. The Blue Cross Plan was involved in all phases of this activity, participating in. steering committee meetings and the formation of the broad community- representative board of directors. Capital District HMO Planning Council has submitted a contract proposal to HEW to support its development. Seed money has been provided by the Plan ($2,500) and organized labor. The Plan estimates its program planning and development costs (start-up) at $208,216. It is anticipated the program will be operational in the Fall, 1973. Maryland Blue Cross, Inc. (Baltimore, Maryiamd) Maryland Blue Cross continued support of the Maryland Health Maintenance Committee and the concept of a network of prepaid group practice programs for the Baltimore Metropolitan Area. Approval of thi~ concept by aiX ini~1ve~ g~o'Lips in~1iIdiiig providers, con- sumers, labor, and management has continued to grow during the last year. Methods of implementing this program are still being developed. Blue Cross granted the Maryland Health Maintenance Committee $15,000 for developmental support at its inception. The Committee also re- ceived a $250,000 grant from HSMHA (HEw), July 1, 1971 to e,gtablish the network systen; Maryland Blue Cross provided staff support. The Committee now has over 60 representatives from the area. The Plan is in the final stages of developing a Health Maintenance Program to be offered initially through the Columbia, Maryland Medical Plan. It is expected that the program will be offered to the C & P Telephone Company employees in the Baltimore area sometime this year. Contracts are presently being evaluated, and promotional material, systems and forms developed. Johns Hopkins Universitlr Medical School is providing research and specialty care support to the Columbia Medical Plan, and the East Baltimore Medical Plan, which became 81-185 0 - 72 - pt. 3 - 14 PAGENO="0210" 952 operational last year. Maryland Blue Cross is currently negotiating with the East Baltimore Medical Plan. In addition, other existing fee-for-service and prepaid groups in the Baltimore area have ex- pressed interest in accepting private sector prepaid members. The Group Health Association of Washington, D.C., through its Maryland Group Health Association, has purchased the East ?oint Medical Group facilities in Baltimore and will begin restructuring that facility to deliver prepaid health care services. Blue Cross and the Maryland Health Maintenance Committee will begin negotiations with East Point in the near future. These three specific programs are the beginnings of the Mary- land Health Maintenance Committee's Baltimore network. MasachusettsBiue~~ Inc. (Boston, Massachusetts) The Harvard Community Health Plan (I-rcHp) became operational in October, 1969. The Plan's comprehensive benefits stress preventive care and a total range of physician services, as well as complete hospital service. Benefits include psychiatric inpatient and out- patient care (in acute conditions not requiring more than short term therapy), hone and extended care, and eye examinations. Inpatient treatment includes complete hospitalization including physicians' and surgeons' services, obstetric and maternity care. Hone visits by physicians and 21k-hour emergency treatment are also provided. Outpatient coverage includes laboratory and x-ray services, doctor office visits, immunizations, and health education. HCHP operates independent'y from Harvard University. The board of directors is drawn from a cross section of representative groups including labor, industry, consumers, and providers. Medical groups are drawn from four Harvard Medical School Teaching Hospitals: Peter Brent Brigham, Beth Israel, Boston Hospital for Women, and Children's Hospital Medical Center. Blue Cross and other insurance carriers guarantee enrollment, Massachusetts Blue Cross enrolled 15,000 of the current 23,000 enrollment; of the remainder, 3,500 are Medicaid recipients and 1~,OO~ are commercial carrier subscribers. Presently, Blue Cross enrollees are drawn from labor, local businesses, educational insti- tutions and federal employee groups. The Plan anticipates enrolling non-group members. The family rate per month is $56.86; the individual rate is $20.58. Massachusetts Blue Cross will market a prepaid group practice program being developed at the Fallon Clinic in Worchester, Massachusetts. Fallon Clinic, a fee-for-service group practice composed of eighteen physicians, will phase in a prepaid program. The Plan will underwrite i~he program and provide administrative services. The Plan hopes to have the program operational June, 1972. -5- PAGENO="0211" 953 Blue Cross and Blue Shield of Tennessee (Chattanooga, Tennessee) Blue Cross and Blue Shield of Tennessee have been involved with the Tennessee Group Health Foundation (TGBF) in the development of a prepaid group practice program. TGHF, a Group Health of America- sponsored program, received a $250,000 contract award from HE~W for lIMO development. TGHF has currently staffed key administrative positions and hopes to become operational July, 1972. Blue Cross and Blue Shield plan to underwrite all hospital benefits and out- of-area medical benefits for emergency accident or sudden and serious illness. Hospital Service Corporation (Chicago, Illinois) Chicago Blue Cross and Blue Shield are administering an experi- mental prepaid group practice program with the Clinic and Doctors Memorial Hospitalof Carbondale, Illinois. The first such program in Illinois with Blue Cross and Blue Shield participation, is being conducted under a Model Cities Demonstration Grant. To be selected for the program, families camnot qualify for public assistance, but their incomes must be low enough to make the cost of needed health care prohibitive. The 110 families enrolled have the option of choosing a group practice plan through the Carbondale Clinic or the traditional Blue Cross and Blue Shield fee-for-service program. Chicago Blue Cross and Blue Shield are participating in final negotiations with the Ravenswood Medical Group in which the Plan would underwrite, administer, and market the program. The group. will be located in the new Adler Pavilion of Ravenswood Hospital Medical CenterS The Plan hopes to become operational May 1, 1972 and to begin marketing in April. The Ravenswood Medical Group will serve subscribers throughout Chicago and suburbs, providing a wide range - of health services. Chicago Blue Cross and Blue Shield are involved with the develop- ment of a foundation program in Central Illinois. The experimental program will enroll an amticipated 3,000 members. The Plan is also discussing programs with two other county foundationp. Blue Cross of Southwest Ohio (Cincinnati, Ohio) Blue Cross of Southwest Ohio is currently developing a hospital- based prepaid group practice program. Conceived by the Central I~bor Council and Group Health Association of America, the program was originally planned as a newly constructed free-standing clinic. In the interests of areawide planning, it was decided to base the program at an existing hospital. The prepaid program will include a 20-man physician group serving 20,000 people enrolled from employer groups throughout Cincinnati. A separate division within the Plan would -6- PAGENO="0212" 954 operate the health plan, negotiating separately with the hospital and physician groups, marketing, enrolling, and billing. The program expects to be operational January, 1973. In Dayton, Ohio, two Family Practice Residency programs asked Blue Cross to enroll a prepaid population for each center in order to compare fee-for-service with capitated clientele. The ambulatory care centers are connected to Miami Valley and St. Elizabeth's Hospitals. A program, based at both of Springfield's city hospitals, is the subject of a 90-day feasibility study partially financed by the Plan. The two hospitals handle most of the city's obstetric, pediatric, and medical cases. Cinciannati's Midwest Foundation for Medical Care is expected to begin operations. Another foundation in Dayton is in the formative stages. Blue Cross and Blue Shield ma~ offer the Foundation as a third choice, along with traditional coverage and prepaid group practice. ~ 51n~9~ ~9~Serv1CCOflCOrd,Newp~j~) Blue Cross and Blue Shield have drafted contracts with the Matthew Thornton Health Plan in Hollis, New Hampshire and are ready to begin marketing the comprehensive health plan to employers, labor, and presently enrolled groups. The Matthew Thornton Health Plan received a $21,000 HSMHA developmer~t grant to plan the delivery system. Rates for the program will be family - $1~6.89, 2 persons - $36.78, and 1 person - $15.60. Six physicians plus ancillary per- sonnel have been operating on a fee-for_service basis since November, 1971, The HMO subscribers and physician capitatiom reimbursement will be phased in as enrollment grows. Hospitalization will be provided at Nashua Memorial and St. Joseph's Hospitals. The Plan anti- cipates the program will be operational July, 1972. Coloradcr}Iospjtal Ser~rice (Denver, Co1ox~ado) The joint Blue Cross and Blue Shield Panel Practice Program became operational in Spring, 1970, and is being offered as an alter- native to Blue Ci~oss and Blue Shield subscribers. The program emphasizes outpatient medical and diagnostic services provided by a panel of Participating physicians who operate out of their own offices and continue their private practices. The panel is composed of any licensed physician who voluntarily signs an agreement with Blue Cross and Blue Shield of Colorado. After signing the agreement the panel physician continues to fulfill amy past commitments and 1~is regular private practice. But, the physician must be free to care for any subscriber enrolled in the program. In June, 1970, more than 50 percent of the Colorado physicians had elected to parti- cipate in the Panel Program. -7- PAGENO="0213" 955 Surgically related physician care is fully covered. However, there is a 20 percent co-insurance charge for medically related physician services provided in a doctor's office, the home, or hospital outpatient department. All inpatient doctor care is fully covered; hospital care is covered in full up to 120 days per admission. Extensive benefits include eye examinations, ambulance service, emergency service, oral surgery and brief psychiatric therapy. Discussions have taken place with the University of Colorado Medical Center, a teaching hospital, exploring the federal funding of a proposed group practice. In addition, the Plan has been con- tacted by a number of interested potential providers, and is working closely with several of them in determining the feasibility of program development. Hospital Service Inc. of Iowa (Des Moines, Iowa) The board of Hospital Service, Inc., of Iowa authorized involve- ment with prepaid group practice programs. A task force of two indi- viduals was organized in early spring of 1971. In January, a full-time coordinator of Alternative Delivery Systems was assigned. Contacts have been made with a group of Des Moines physicians, and several meetings with representatives from the University of Iowa Medical School have taken place. Health Planning Council of Central Iowa is playing a key role in the development of a prepaid group practice program. Michigan Hospital Service. (Detroit, Michigan) Michigan Blue Cross and Blue Shield acquired Community Health Association (CHP~), Detroit, on January 1, 1972. The members of the Metro Health Plan (CHP~ renamed by Blue Cross and Blue Shield) will become Blue Cross and Blue Shield members and will continue to receive their health care through the facilities of Metropolitan Hospital and five satellite clinics. An essential objective of Metro is to broaden its availability to a larger sement of the public. Marketing to enrolled groups on a dual choice basis by Metro Health Plan specialists will take place at regularly scheduled reopening periods. The operational responsibilities of the new plan will be handled in existing departments of both Blue Cross and Blue Shield. Administration and general management have been delegated to a newly created section in the Plan called the Joint Department for Alternative Health Care Systems. Michigan Blue Cross and Blue Shield have signed a one year * operating agreement with the Detroit Model Neighborhood Program (Model Cities), giving its subscribers a choice between Blue Cross -8- PAGENO="0214" 956 and Blue Shield regular benefits and those provided at a new central clinic and affiliated hospitals, The pDogram, funded primarily through the Department of Housing and Urban Development, is aimed at making available a full range of health care services to resi~emts in the model neighborhood, The objective is to reduce impatient hospitalization. The Detroit Model Neighborhood Program signed a contract March, 1972 with the State to provide prepaid services to a Medicaid enrollment. Group Hospitalization,. Inc. (District of Columbia) Group Hospitalization, Inc. (GHI) has underwritten the hospitali- zation portion of the benefits of Group Health Association of Washington, D.C. (GHA) since 1965. GHA is a consumer owned, mom-profit corporation providing a wide array of diagnostic and therapeutic services on a prepaid basis. Primary and specialty care at the Association's three clinic-based facilities are provided by a full-time medical staff. The eighty full-time GH1~ physicians create a ratio of one physician per 1,000 enrollees. Comsultiug physicians provide additional diagnostic and therapeutic treatment to GH/~~ members. G}tE is currently negotiating with the George Washington Uni- versity Health Plan to provide prepaid health care initially to a Medicaid group of 2,000 eligibles. The George Washington Clinic, has developed a prepaid group practice program. Thysicians repre- senting various medical specialties will form the nucleus of the staff. Medical care will be provided at the physician's office (George Washington Clinic) with hospital services provided primarily at George Washington University Hospital. This new arrangement will provide comprehensive services to some 1~0,000 Washington residents. The Plan hopes to begin its ~marketing to groups July, 1972. GHI has received a proposal from Georgetown University to create a health care system to serve residents of: (1) Reston, (2) the Georgetown University community, including facu~lty, students and other individuals who live in the "University Neighborhpod," (3) residents of a Washington, D.C. Inner City area. It is proposed that a single fiscal organization and single physician group be developed to provide comprehensive medical care for these three groups, Organizational principles would be similar to those of prepaid group practice clinics, Hospital care would be provided at three or four hospitals having teaching affiliations with Georgetown University Medical School. GHI is considering the feasibility of developing compatible benefits as these and future prepaid programs are planned in the Washington area. -9- PAGENO="0215" 957 North D~, Cross and Blue Shield (Fargo, No Blue Cross of North Dakota has begun a study to determine the feasibility of lIMO development in the Bismarck and Fargo areas, and the role that the Plan will assume. The lIMO study began in February, 1972. The Plan received a $25,000 planning grant fron HSMH!~ and provided an additional $17,600 to complete the study. North Dakota Blue Cross intends to develop several lIMO models that would be practi- cal for implementation in North Dakota. The Plan is working with two group practice clinics, severaL independent physicians and three area hospitals. CrOSS The Board of Capital Blue Cross has recently authorized Plan execu- tive officers to enter into and sign agreements to develop prepaid group practice experiments. The Plan's role in marketing, underv~ritiflg, program review and provider relations is to be negotiated individually with interested groups. An internal task force, headed by a staff member reporting directly to the President, coordinates these activities. The Plan is presently negotiating with the Geisinger Medical Center in Danville, Pennsylvania. The Center is a large, multi- specialty medical clinic located in a rural area of Central pennsylvania. Geisinger Medical Center is the recent recipient of a $126,000 HSMHA~-lIM0 development grant to convert its present fee- for-service program to a prepaid group practice. Blue Cross recently completed a market survey of the service area and will market and underwrite the program. The physician group will assume risk for their portion of services provided. The program is expected to be operational June, 1972. Blue Cross of Kansas City (Kansas City, Missouri) Kansas City Blue Cross is entering into its second year of contractual agreement with the City Health Department whereby the Plan acts as fiscal intermediary in delivering comprehensive health care through the Wayne Miner Health Center, a prepaid group practice, to Model Neighborhood residents. Blue Cross of Southern California (Los Angeles, California) The Board of Blue Cross of Southern California has approved experimentation in alternative delivery systems including prepaid group practice. Two and a half years ago the position of Administrator, Product Research and Development, was created to plan all alternative delivery systems activities. Staff allocations and expenditures for / this development have amounted to approximately $150,000 for that period. -10- PAGENO="0216" 958 In March, 1970, Blue Cross of Southern California signed a master contract with the Ross-Loos Medical Group. Ross-Loos is the oldest and largest of the physician_run prepaid group practice plans. Its health plan and ~nedical services are owned and directed by a partner- ship of one hundred sixty three physicians who work primarily with three hospitals. The medical groups operate out of twelve offices throughout the Los Angeles County area. The Blue Cross/Ross -Loos program consists of an all-Blue Cross Plan and a combined Blue Cro~s/ Ross-Loos plan under which hospitalization is provided by Blue Cross and medical services are provided by Ross-Loos. Total Ross-Loos enroll- ment is ~ 000, 12,000. of which are Blue Cross subscribers. Blue Cross of Southern California is utilizing a network approach in it~ development of metropolitan prepaid group practice programs. A number of planning groups, clinics, and providers have contacted the Plan and expressed interest in participating in an lIMO network. The Plan is in the process of implementing a prepaid group practice dental program, which will include a network of fifteen dental groups. Benefits for enrolled subscribez~s will be comp- rehensive with minor co-pays. Marketing of the program will be handled by the Plan, as well as administrative, actuarial, and data- gathering functions with the assistance of a dental consultant. The program is expected to be operational by August, 1972. ~lue Cross Hospital Plan, Inc. (Louisville, Kentucky) Blue' Cross Hospital Plan, Inc., and Blue Shield are currently involved with several proposals representing alternative methods of health care delivery. Blue Cross and Blue Shield were asked to administer an lIMO proposed by the Hunter Foundation. The lIMO will serve 30,000 people in Fayette County and has been endorsed by the Fayette County Medical Society and the University of Kentucky Medical Center. A representative of the Group Health Association o±~ America (GHAA) met with Plan officials, representatives of labor, and providers of care in Louisville, seeking input to the development of a prepaid group practice. Louisville is one of the target areas under a Pitblic Health Service development grant administered by GHAA to organize a prepaid group practice. The Southeastern Kentucky Regional Health Demonstration Cor- poration is developing a Health Maintenance Organization to serve a l6.'county area. Initially, funds would be from the Appalachian Regional Commission. Kentucky Blue Cross and Blue Shield have been invited to particpate in the development and the administration of the project. -11- PAGENO="0217" 959 A study to determine the feasibility of developing a rural HMO in the five-county Pennyrile Area will soon be in progress. A Technical Advisory Committee including Blue Cross and Blue Shield as well as five other state and local health agencies has been formed to guide the study. Another study is underway in Lexington to ascertaim the fea- sibility of forming a statewide SMO through the contractors and building trade unions. This organization, Kentucky Health Care, Inc., has initiated contact with the Kentucky Plan. The Kentucky Medical Association and the Jefferson County Medical Society (Louisville) each established a committee to explore the Foundation for Medical Care concept. Both committees have had ex- ploratory sessions with representatives from some of the foundation "models" throughout the country. Kentucky Blue Cross and Blue Shield staff has participated in the sessions and both committees have expressed interest in Blue Cross and Blue Shield involvement. Associated Hospital Service, Inc. (Milwaukee, Wisconsin) Associated Hospital Service, Inc. and Surgical Care, the Blue Shield Plan of the Medical Society of Milwaukee County, has enrolled l1~,356 in Conpcare, Milwaukee's first prepaid group practice. It is being offered to subscribers on a dual choice basis. Initial marketing concentration has been on employee groups of 1,000 or more. Ulti- mately, all groups of lOQ or more in the Milwaukee area will be contacted. Compcare subscribers receive medical care from phy- sicians in the Northpoint Medical Group and hospital services from St. Mary's Hospital. Blue Cross and Blue Shield contract with the hospital and medical group, act as marketer, coordinate enrollment activities, provide actuarial and computer services and underwrite out-of-area coverage. Initial Plan investment is approximately $350,000 for both the Conpoare and Ma±uhfield programs. The Greater Marshfield Community Health Plan, a prepaid group practice program offered by Milwaukee Blue Cross and Blue Shield to residents of the Greater Marshfield area, began operations March 1, 1971. Services are provided at the Marshfield Clinic and St. Joseph's Hospital. Comprehensive health servtces will include iw~t~a~ions , preventive care, outpatient and inpatient care and medical services. Enrollment to date is 13,305. The Plan is currently involved with the Cream City Neighborhood Health Center Program in Milwaukee, negotiating with five member hospitals and seven physicians to provide Compcare-like benefits, on a scattered site basis, to an initially limited group of 6oo OEO eligibles. The Plan hopes to administer and market the program. The program is expected to become operational this summer. -12- PAGENO="0218" 960 New Jersey Blue Cross and Blue Shield are preparing to market a new prepaid group practice program in the Trenton area. The program "Medigroup," involves the Mercer Regional Medical Group, Inc., and the Mercer Hospital. Medigroup will provide comprehensive ser- vices at a separate facility located on the campus of the hospital. The Plan will begin marketing the program in April, 1972 to its large groups. Some marketing staff have been retrained to offer the dual choice option, with one staff member assigned full-time to this effort. New Jersey is one of the target areas under a Public Health Service development grant adninistered by GHAA to organize a prepaid group practice. Connecticut Blue Cross, Inc. (New Haven, Connecticut) The Plan is involved with two operational and one developing prepaid group practice programs: the Community Health Care Center Plan (CHCP), the Yale University Health Care Plan (YHP), and the Hill Health Corporation, The Plan has entered Into an agreement with the CHCP headed by 1.5. Falk, professor emeritus at Yale University. The Blue Cross Plan provides hospitalization, computer services, and claims review. CHCP will enroll a wide cross section of the greater New Haven community. About thirty industries, city and state agencies have a dual choice clause in their contracts enabling employees to choose between their present health coverage and that offered by CHCP. Subscribers will receive a wide range of outpatient services at the CHCP building. Hospital services, when necessary, will be provided at the Yale-New Haven Hospital. X'H? became operational in October, 1971. It is the first comprehensive prepaid medical care program in the country to be offered to an entire university community. A broad scope of preventive and treatment services are available on a voluntary basis to faculty members, other university enployees, and their dependents. AU stu- dents are covered automatically. Blue Cross is providing hospital coverage for all faculty and employees presently enrolled in Blue Cross and Blue Shield and those opting for TSP. Connecticut Blue Cross and, the Hill Health Corporation are planning to offer a prepaid group practice program to about 25,000 residents of the inner city section of New Haven. Hill Health is a non-profit corporation attempting to convert an existing neighborhood health center to a prepaid group practice plan. The Plan will under- PAGENO="0219" 961 write and provide administrative assistance. The comprehensive program will include dental and drug programs, and will be linked with the Yale Health Plan and the Community Health Care Center Plan. Associated Hospital Senrice of New York (New York, New York) Associated Hospital Ser~,ice of New York (AHS) provides hospital coverage for the Health Insurance Plan of Greater New York (HIP) Each of the thirty medical groups is independent but affiliated with HIP on a contract basis. The medical centers are o~med and operated by the group physicians who are paid by the Plan on a negotiated capitation basis at a specified rate per member. Government employees at all levels, Medicare and Medicaid account for 71 percent of the 733,000 subscribers. Plans for HIP reorgani- zation were recently announced. They call for the consolidatiom of the thirby medical groups over a two-year period into approximately twelve regionalized groups. Physicians will be committed to participation on a full-time basis. AHS is presently exploring the development of a hospital-based prepaid group practice program with Long Island Jewish-Hillside Medical Center, Hyde Park, New York. The Medical Center received a HSMHA development grant for $8I~,6l4i in January, 1972. A study to determine market potential is currently under review. One Plan professional has been assigned to devote 100 percent of his time to implement the development of this prepaid program. Hospital Ser~rice of California (Oakland, California) Hospital Service of California has been involved in the investi- gation and development of prepaid group practice programs since 1969. Originally coordinated by the Vice President of Marketing, the Plan's "multiple committee" approach is now directed by the National-Special Accounts Manager. The Plan is now contracting with the United Medical Clinics (UMC) to market and underwrite their prepaid group practice program. The UMC program includes two-hundred doctors working in four clinics located in Redwood City, San Jose, Sunnyvale, and the largest in Palo AltO. The clinics have a reciprocity agreement among themselves and are at~ risk for in-area non-emergency medical services. The Plan assumes risk for hospitalization and out-of-area coverage. Enrolled groups include Stanford University faculty and employees, Pacific Telephone and Telegraph, and other smaller groups. Blue Cross of Greater Philadelphia (Philadelphia, Pennsylvania) Blue Cross of Greater Philadelphia is involved in a wide range of activities to develop prepaid group practices. PAGENO="0220" 962 The formation of Group Health Planning (GHP) in l~7O represents one approach to comnunity~wide health care planning. GHP, a consortiwn of health-related consumer and private organizations, is a non-profit corporation whose purpose is to plan and develop a prepaid group practice program for a five county area including Greater Philadelphia. The program will be consumer-oriented and will make optimal use of existing health resources. It is estimated that the planning will take two years, after which GHP will be replaced by a permanent corporation. Philadelphia Blue Cross entered into an agreement July 1, 1971, with Temple University to provide backup hospital services to 12,000 Medicaid eligibles who will receive health services at two neighborhood health centers developed by Temple University. Blue Cross has enrolled 1,327 families. The program is being marketed by Blue Cross and twelve Blue Cross trained community residents. The program provides compre- hensive ser~rices including dental care, mental health, alcohol and drug programs. The rate is $74 a month per family. The Philadelphia Plan is involved in another prepaid program being organized at the Albert Einstein Medical Center, Daroff Division. The Plan anticipates the Philadelphia Medical Group, a group of ten full- time physicians who organized a prepaid group practice, will become operational in spring, 1972. The Plan will begin marketing the progran to employer groups and hopes to ultimately enroll 20,000 subscribers. The family rate is $59.05 per month. The Plan is working with the South Philadelphia Health Action (SPHA), an OEO funded project to develop a network of prepaid medical group practices to serve a significant portion of the area. The SPHA Board of Directors represents a consortium of providers and con- sumers, with consumers representing 51-70 percent of the Board's membership. SPHA hopes to begin an eduCation program in April with Blue Cross participation in benefit structure and marketing. Blue Cross of Western Pennsylvania (Pittsburgh, Pennsylvania) In its 1972 budget, Blue Cross of Western Pennsylvania allocated approximately $18,000 for prepaid group practice investigation and development. An Ad Hoc Committee, composed of representatives from all major areas within the Plan, has been meeting since September, 1971. The Plan is presently defining its role in relation to the Community Health Association of Western Pennsylvania, Inc. The CHA of WP, Inc. is a coalition of major unions with support from the University of Pittsburgh Medical Center, CHA. received a $200,000 HSMHA development grant Sponsored by the Allegheny County Labor Council in January, 1972. The prepaid program developed by CHA is expected to enroll 20,000 members initially with rapid expansion as new servicing centers are opened. -15- PAGENO="0221" 963 The Plan is also working with a neighborhood health center, three clinics and several physician groups in the metropolitan Pittsburgh area to develop prepaid group practice programs. Pittsburgh is one of the target cities in which GHAA and labor plan to develop prepaid group practice. Associated Hospital Service of Maine (Portland, Maine) The Board of Associated Hospital Service of Maine (AHS) author- ized the study of alternative delivery systems and assumed the role of administrative agency for the Penobscot Bay Medical Center. Penobscot Bay Medical Center, non-profit corporation, designed an ambulatory care oriented program which will provide a total spectrum of health services to the mid-coast population of Maine. The program will proceed through two phases. Phase I established a population base by using the existing OEO/Medicare/Medicaid base, which currently provides a level of comprehensive medical care as defined by Title XIX coverage for the State. Penobscot Bay received a HSMHA grant for $107,000 to implement Phase I. Services offered to the Phase I group will be available to the remainder of the population initially on a fee-for-service basis. Phase II will eventually provide comprehensive care to the entire population base in the area on a capitation bas is * Blue Cross and Blue Shield are planning to market this program after a trial period of operation during which the Plan will study the initial experience of the program for more effective rating and marketing. The Penobscot Bay Medical Center, and a program developing in Farnington, Maine, comprise a broad approach to the provision of medical care. The programs aim toward comprehensive coverage in- cluding outreach programs and the creation of transportation networks to provide access to facilities. Rhode Island Blue Cross and Blue Shield (Providence, Rhode Island) In March, 1970, the Board of Rhode Island Blue Shield resolved to "authorize the administrative staff to explore with any interested group the possibility of prepayment for comprehensive care medical coverage allowimg for free choice of physician, and to report its findings to the Board." The Plan is involved in two prepaid group programs. Rhode Island Blue Shield and Blue Cross have contracts with the Rhode Island Group Health Association, a prepaid group practice organized by the Rhode Island AFL-CIO and the Group Health Association of America which became operational June, 1971. Blue Cross provides hospitalization coverage and Blue Shield provides in-area and out-of- PAGENO="0222" 964 - area emergency and referral coverage for physicians' services. -Blue Cross and Blue Shield are also performing several administrative services for the program. Current enrollment is 5,758. Blue Cross and Blue Shield, in cooperation with the Bristol County Medical Center, an existing group practice, developed a program neeting the HMO requirements proposed under pendimg health care legislation. The program has been operational Since June, 1971. The program received a HSMHA grant of $23,500 to create and evaluate a statistical data base for marketing. ~ ~ (Richmond, Virginia) Blue Cross and Blue Shield are presently involved in a prepaid group practice experiment developed with the University of Virginia in Charlottesville. The University of Virginia Health Care Center program will initially be available to Some 5,000 of the University's faculty and employees. The Plan will market the comprehensive program on a dual choice basis. Subscribers will receive medical care from a physician group drawn from the Medical School and hospital services at the University teaching hospital. Contrac~s are in the final Stage of negotiation and the program is expected to become operationa], in May, 1972. Rochester Hospital Service Corporation (Rochester, New York) The Blue Cross Association, the National Association of Blue Shield Plans, and the Group Health Foundation (the research arm of the Group Health Association of America) were awarded a HSMEIA grant for $500,000 in September of 1971 to establish within an 18 month period a prepaid group practice program in Rochester, New York. The l8-month time allotment is significantly shorter than the generally accepted three year period for program implementation, Blue Cross and Blue Shield's participation should help cut down on the planning period. For the first nine months of progran~ development, HSMHA has awarded $261,250 with Rochester Blue Cross and Blue Shield contributing $1~8o,7lo; }ISMHA support for the second nine months is expected to be approximately $2L~0,OO0, Blue Cross Hospital Service Inc of Mis (S~ The Labor Health Institute (LHI), a prepaid group practice providing comprehensive family health care, was incorporated in 19)45 at the initiative of Teamster Local 688 in St. Louis. Though currently self-supporting, the L}tt initially was Teamster financed. LHI presently enrolls 30,000 members. -17- PAGENO="0223" 965 Lift is a non-profit corporation governed by a President and a 27-member Board of Trustees representing employer, union, and general public groups. The Board is advised on matters involving medical services and professional staff by a Medical Conference Board. The Corporation maintains its own single central clinic facility. LIII medical staff, consisting of five full-tine physicians, L~8 part-time physicians and 12 full-tine and one part-time dentist, is reimbursed on a salaried basis. A full-time Medical Director heads the operation. Comprehensive coverage includes all physician services, ~tn- cluding hone visits, x-ray, and other diagnostic tests, visiting nurse services, necessary house calls, dental care (excluding orthodontia), 30-days hospitalization per year for psychiatric treatment and consul- tations, mental health benefits, eye examinations and refractions. Hospital room and board is covered for up to 90-days with a co~insuraflCe rate of $5 per day. Blue Cross Hospital Service, Inc. of Missouri covers hospitalization on a cost-plus basis. A Board Committee of the St. Louis Plan has been formed to study prepaid group practice. The Board has "authorized exploration of hospital-based prepaid group practice arrangements and other types of Health Maintenance Organizations." The Plan has engaged in preliminary discussions with providers interested in developing a prepaid group practice delivery system. Minnesota Hospital Service Association (St. Paul, Minnesota) Under the direction of an lIMO Coordinator, a committee of Plan vice-presidents, including members from Marketing, Actuarial Research, and Professional Relations, is investigating prepaid group practice. Two studies have been conducted with Plan participation that relate directly to prepaid group practice activity. "Minnesota Health Care Opinion Survey," completed in November, 1971, includes a maj or section on Minnesota residents' reaction to prepaid programs. The samples included responses from consumers, providers and financiers of care. The second study deals with patient origin and utilization in a clinic setting. The Blue Cross experience in St. Paul is unique in that providers have been most responsive in their expression of interest in prepaid group practice. Thirty-two provider groups have contacted the Plan expressing a desire to proceed. In addition, several large unions along Minnesota's iron range, in the northern part of the state, have agreed to work with Blue -18- PAGENO="0224" 966 Cross in developing a prepaid program. Their interest has been in the expansion of benefits at a rate they can afford. The United Steel Workers Union is seriously promoting prepaid group practice for its members. It is anticipated that during the calendar year of 1972 Minnesota Blue Cross will undertake prepaid group practice developmental acti- vities in the northeastern part of the state and in the Twin Cities metropolitan area. Hennepin County Medical Care Foundation represents a group of providers usii~g the foundation approach~ who are opening new channels of communic~.tion. Minnesota Blue Cross provides funding, technical support and utilization data to the foundation. Topeka Blue Cross (Topeka, Kansas) In January, 1971, Topeka Blue Cross appointed a Plan Staff Task Force representing professional relations, marketing and research personnel to investigate prepaid group practice. The Plan is holding preliminary discussions.with the. Wichita Clinic, a group of phy- sicians now practicing on~a fee-for-service arrangement, which has expressed interest in establishing a prepaid group practice program. Associated Hospital Service, Inc. (Youngstown, Ohio) Associated Hospital Service, Inc. is assisting the Bellaire Medical Foundation, a prepaid group practice, implement its program to deliver health services to a mainly indigent population. The Bellaire program received a HSMHA grant for $1.6 million to start the program. The Plan will market the prog~an on a dual choice basis and underwrite emergency out-of-area hospitalization. Bellaire had been providing its own hospitalization; however, Blue Cross may ultimately provide hospitalization for Belaire enrollees. The Beilaire Medical Foundation, heavily financed by the United Mine Workers Union and OEO grants, has been providing services to its 10,000 subscribers for several years. PAGENO="0225" 0 V i~A. bsT J2E BUlB CROSS AND BIXJE S ELDACTI FATE DEflEVERYS'1STEB~ APRIL 197 operational Progralfls* BLUE CROSS PLAN AND PROGRAM PlAN ROlE RATE ($/M0STH) MEMBERSHIP enrollment Boston, Hessachusetts o Harvard Cosssinity Health Plan Blue Cross markets health plan and assumes shared utilization and enrollment risk. $20.58 per individual $56.86 per family 23,000 total HCI~ 15,000 Blue Cross enrollment District of Columbia o Group Health Association . . Blue Cross provides hospital benefits and subcontracts with health plan to provide certain administrative services. PEP high option $26.71 per individual $68.12 per family 82,500 Los Angeles, California o Ross-LooS Medical Group Blue Cross role is that of marketing, administration, and providing hospital portion of health plan. $1~2 - $50 range for Blue Cross/Ross-Loos combination l~42,000 total Ross-Loos enrollment 12,000 Blue Cross enrollment Milwaukee, Wisconsin o `Compcare" o l4arshfield Community Health Plan * Blue Cross and Blue Shield planned, developed, and in- plemented both health plans. Blue Cross and Blue Shield share risk with hospital and doctor group. $21.00 per individual $57.00 per family $17.00 per individual $1~9.80 per family ~ l1~,356 13,305 ~ ~ enrollment New York, New York 0, Health Insurance Plan of New York (HIP) Blue Cross provides hospital benefits for health plan. $lii.56 - current rate for Hew York City employees enrolled under HIP/Blue Cross, family rate. 733,000 total itt? 625,000 Blue Cross enroll- ment . ~ *A Plan which does provide hospitalization through prepaid group practice prugra~,, or wbjch is sponsoring, oper~Aing or undeiwril4ng (any portion) of such a program. PAGENO="0226" Page 2 BLUE CROSS AND BIDE SHIELD ACTIVITY IN ALTERNATIVE DELIVERY SYSTEMS, APRIL 1972 Operational Programs BLUE CROSS PLAN AND PROGRAM PLAN ROLE RATE ($/MORTH) MEMBERSHIP Providence, Rhode Island o Bristol County Medical Group Rhode Island Blue Cross and Blue Shield implemented both programs. Blue Cross and Blue Shield share risk with doctor group and hospital. $17.10 per individual $1~3.00 per family No enrollment to date, however, for the first year, enrollment will be limited to l~,000 $18.50 per individual $l~3.8O per family 5,7l~0 ~ o Rhode Island Group Health Association St. Louis, Missouri o Labor Health Institute Blue Cross provides bos- pital benefits for health plan. No rate schedule, program handled on a cost-plus basis. 30,000 , ~ New Haven, Connecticut o Community Health Care Center, Inc. - o Yale Health Plan Blue Cross provides certain administrative services and hospital benefits for both programs. $17.85 per individual $53.50 per family !~,6O0 $23.36 per individual $56.97 per family 18,000 ~ Detroit, Michigan o Metro Health Plan (previously c/h/a) ~ * Blue Cross and Blue Shield s~t up a joint operating committee and assumed res- ponsibility for the sanage- ment and administration of Metro. Marketing to en- rolled groups on a dual choice basis will take place at regularly scheduled re- opening periods. $16.00 per individual $50.00 per two persons $52.00 per family . . ~ 80,000 ~ * ~ . ~ . PAGENO="0227" BUJE CROSS !iND BlUE SHIELD ACTIVITY IN ALTERNATI Operational Programs DELIVERY SYSTEMS * APRIL 1972 BlUE CROSS PLAN AND PROGRAN PlAN ROLE RATE ($/M0HTH) MEMBERSHIP Subscribers Oakland, California o United Medidm]. Clinics ~ Blue Cross role is that of marketing, administration and providing hospital portion of health plan. Stanford University 8,190 Blue Cross Program $19.21 per individual . $51.05 per family Page 3 PAGENO="0228" BLUE CROSS AND BLUE SRIEID ACTIVITY ]BT AITERYATIVE DELIVERY SYSTEMS, APRIL 1972 ~ ~`)~ Implementing Programs* BLUE CROSS PLAN AND PROGRAM PLAN ROLE PROGRAM(S) INCEPTICN DATE Blue Cross will market, administer August 1971 pi~oa RAN(S) ANTICIPATEL ~- Chicago, Illinois Ravenswood 0 PRRATICNAL DATE 1972 Medical Group and underwrite the program with some risk sharing on the part of the medical group. The Blue Cross . Plan is assuming risk for hospital and other institutional services. New * * o Newark, Jersey MEDIGROUP The Plan has developed the MEDI- September 1969 GROUP program through arrangements * November 1972 with an evolving medical group and participating hospital. Coverage . * includes: Comprehensive Hospital, ECP, and Home Care; Ambulatory . Health Maintenance services through the medical group; and Out-of-Area Emergency benefits. 0 Baltimore, Maryland Maryland Health Maintenance Committee Blue Cross is actively participating inthe Maryland Health Maintenance October 1970 July 1972 . * Committee, a group of individuals , and agencies interested in estab- lishing a network of prepaid group practice programs. Blue Cross initially granted the Committee $15,000 for developmental support . and provided expertise in the . * preparation of a funded HSMHA grant ($250,000). Blue Cross will provide technical expertise to developing programs, marketing the various pro grams to its enrolled groups on a dual choice basis. *A Plan which is in the process of marketing a prepaid group practice program, although the program is not yet operational and providing services. This step usually precedes final program operation by approximately- six months or less. C PAGENO="0229" BlUE CROSS AND BlUE SHIELD ACTIVITY IE ALTEUEATIVE DELIVERY SYSTE?~N, APRIL 1972 Implementing Programs BlUE CROSS PlAN AND PROGRAM PlAN ROLE PROGRAM(S) ANTICIPATED o Philadelphia, Pennsylvania Group Health Planning, Inc. Blue Cross is a provider member of Group Health Planning, Inc. (GRP), a consortium of health- related consumer and provider organizations whose purpose is and develop a prepaid December 1970 . One program opera- tional July 1971, one program to be opera- tional summer 1972; several other de1iver~ points to be opera- , plan for the tional 1973. . . group program greater Philadelphia area. The Blue Cross role is one of coor- dinator of the multi-group complex developing prepaid group practice programs. Blue Cross continues its involvement with GHP, which may become the coordinating agency for all prepaid group pracJ~ice programs in the Phila- delphia area. * ~ . . . . 8~-i8~ ii~u Page 2 PAGENO="0230" John M. Glasgow 972 The inability of our present health care system to provide the quality of care de- sired to all the population in an economic fashion is a much discussed topic. Indeed, so universal is the concern about the effi- cacy of health care organization and de- livery in the United States that the cur- rent situation has been described as a crisis.1 It is not my intent to discuss the mag- nitude of the crisis. That has been done elsewhere in both professional and popular publications.2 Yet it is important to note that the health care crisis does manifest itself in a fragmented and uncoordinated delivery system, with its attendant prob- lems of inadequate and poorly distributed resources, soaring costs, and duplication; in the increasingly evident ecological and environmental problems which plague our nation, and particularly the urban areas; in the excessively high mortality and rear- bidity statistics; and in the wide discrep- ancy in health conditions among citizens of differing income, residential, and racial backgrounds. John M. Glasgow, Ph.D. is Assistant Professor, Department of Community Medicine and Health Care, and Special Assistant, Office of the Vice President (Health), University of Connecticut School of Medicine, Hartford. Valuable assistance in the preparation of this ar- ticle was received from colleagues in the Depart- ment of Community Medicine and Health Care. The author is also indebted, for views expressed, to representatives of major prepaid group plans visited during the course of the study; and to individuals connected with the Connecticut Re- gional Medical Program. Finally, the author ac- knowledges the helpful comments of two anony- mous referees. Financial support for part of this study was pro- vided through the Connecticut Regional Medical Program. Prepaid Group Practice as a National Health Policy: Problems and Perspectives It is important to note the extent of the crisis which prevails, despite the very sub- stantial expenditures being made,3 because it does explain the sense of urgency sur- rounding discussions of that crisis and the search for viable solutions. Most impor- tant, recognition of the magnitude of the crisis should suggest the danger of pre- cipitous actions, which at best attack only symptoms while leaving causal factors un- affected. There is no question that the na- tional concern will translate itself into an ever increasing desire to rationalize the health care system. Efforts along these lines are well-advanced already. For ex- ample, many of the proposed national health insurance plans currently pending before the Congress provide for extensive changes in the method of delivering health care services along with a change in the financing mechanism.4 But is the "rationalization" process tak- ing place rationally? Are the suggested re- forms really reforms? Will the proposed changes improve the system or merely confound the problems? Providing an un- equivocal answer to these questions is diffi- cult, perhaps impossible. However, it would appear that, in the rush to find solutions, many basic issues are being ignored or in- adequately examined. It is to an exami- nation of some of these issues as posed by a proposed major structural change that this paper is directed. That proposed change, which is included in most of the major health insurance plans currently being discussed, is expanded acceptance of group practice as a method of improving the accessibility and availability of medi- PAGENO="0231" Inquiry/Volume IX, Number 1 ~973 cal services, particularly in the case of those now less able to effectively utilize the prevailing system (i.e., the urban poor and the rural populations). Specifically, this paper will be concerned with a) the realism of the benefits to be realized from group practice; b) the real- ism of the assumptions being made about the ease of developing the necessary re- sources to offset the expected increase in demand; and c) the realiäm of budget pro- jections, given the attributes used to de- scribe the functions of the proposed prac- tice operation. A further purpose will be to suggest certain implications of the ad- vocacy of prepaid group practice as a na- tional health policy for health service re- search and for implementation of other programs. Promoting Group Practice of Medicine The concept of group practice of medicine is neither new nor newly advocated. Adop- tion of this organizational form was urged by the Committee on the Costs of Medical Care in 1932 ;5 recommended by the Ameri- can Public Health Association in a 1949 policy declaration ;6 and endorsed as vital to the nation's health and economic wel- fare in numerous recent books, articles, and government reports.7 Even an Ameri- can Medical Association study committee publicly recognized a number of advantages which might occur with acceptance of the group practice form.8 Advantages Claimed for Group Practice Why is the adoption of group practice being encouraged? What are the specific benefits to be expected if group practice- did become the dominant delivery organi- zational form? In attempting to answer such questions, there is an obvious danger of over-simplification or undue generaliza- tion. Nevertheless, several advantages are frequently claimed for group practice per se. These potential advantages have been described at some length in the literature and need only be summarized here.° They include: the introduction of sources of economy of operation; a better division of labor and increased capital utilization with a consequent improvement in productivity; and improvements in the quality of care rendered. The apparent advantages to the provider and to the public explicit in the foregoing suggest that group practice should be em- braced by both sides. And it is true that the number of group physicians has al- most tripled-from 15,009 in 1959 to 40,093 in 1969. The total number of groups more than doubled, perhaps even tripled.10 How- ever, these numbers are misleading: hid- den within the totals are specifics which indicate that the overall growth rate, par- ticularly for prepaid, multispecialty group practice, has been less than is often as- sumed. Further, much of the increase in number of groups may be attributed to the formation of small, single specialty groups. In fact, between 1959 and 1969 the forma- tion of small groups was such as to reduce the average size of groups from 8.4 physi- cians to 6.3 physicians each. Second, de- spite the fact that 60.7 percent (24,349) of the total group physicians practiced in multispecialty groups, the prevalent form of group practice remains the single spe- cialty groups. Indeed, as a percentage of total groups, between 1959 and 1969, sin- gle specialty groups increased from 25.4 percent to 49.7 percent. Third, and most significant, the available data strongly sug- gest that the number of groups with a significant amount (50 percent) of prepay- ment activity is not increasing and may be decreasing.1' If, as argued here, professional response has been limited and public endorsement lukewarm despite the logic and promise of the group practice concept, there would seem to be ample reason to examine the validity of the imputed benefits and to at- tempt a more realistic assessment of the ability to realize those organizational bene- fits which may exist. In so doing, the first point to be made is that any group practice will be designed to serve the interests of those who control it. Since many groups have been formed by physicians,'2 it should be clear that the primary purpose of these particular groups is to meet physicians' needs. From this 4 PAGENO="0232" 974 Prepaid Group Practice as a National Health Policy relatively simple, but central, idea flows two related conclusions. One, there is no reason to expect that any savings in the operation of the physician dominated or owned group will be passed on to the con- sumer. On the contrary, the most reason- able expectation is that there may be a tendency to add on costs; for example, to order more tests per patient to ensure full utilization, and therefore lowered cost per unit, of expensive diagnostic equipment. Two, if the formation of a group is de- signed to benefit the physician, the re- sulting organization may not conform to patient or society views on the proper de- livery form. For example, Weinerman has noted that: the emerging pattern is that of large assemblies of medical specialties in imposing modern edifices.... This Noah's Ark model - one or two of every known medical species under One roof-is fine for the preservation of the genus or for specialized consul- tation services, but seems increasingly irrelevant to the distribution of need for health care which arises from an unselected population.13 A second point to be made is that the advantages to be gained by society from a widespread adoption of the group practice concept assume, to a great degree, the adoption of a specific form of group prac- tice - the large, multispecialty, prepaid group health plan. Yet, it is equally clear that many physicians and patients oppose the adoption of this organizational form at the present time. This remains true re- gardless of inherent logic or potential ben- efit. The strength of the resistance, im- plicit in the growth data cited, is explicitly reflected in substantive membership turn- over, the use of non-group provided ser- vices by group members, and the various legislative restrictions which presently pre- va~l.14 Depending upon one's definition of acceptance, the reported data on choice of prepaid grou~p coverage by potential sub- scribers having alternative choices also strongly suggests evidence of resist~nce. However, the wide range in the percentage of persons eligible for membership who actually join-from as low as 2 percent to as high as 80 percent, as reported in vari- ous studies-does not allow definitive con- clusions. It does appear clear, however, that acceptance of prepaid groups depends significantly on the absence of a prior patient-physician relationship.15 Realism of Benefits Provided Many of the personal and legal obstacles to the institution of prepaid group prac- tices are circumvented in the evolving na- tional legislation. For example, there are 22 states which prohibit such plan~. To overcome these barriers to the develop- ment of prepaid group health plans, a re- cent congressional action enables the Sec- retary of Health, Education and Welfare to authorize prepaid group health service coverage in states where it is not avail- able.16 But even if it is assumed that pre- paid multispecialty groups will emerge as the dominant practice form, this does not mean that the assumed potential benefits will be realized: for example, the alleged availability to such a plan oi~ certain econo- mjes of scale. Bailey,17 following a long- term empirical analysis of San Francisco Bay Area medical practices, denies the existence of such economies in the produc- tion of medical services. Perhaps it would be more correct to say that he denies that the economies are internal economies. Ar- guing that physician practices must be viewed as multiproduct firms, Bailey claims that physician time-intensive services (i.e., the physical exam) tend to exhibit con- stant returns to scale. Thus, Bailey main- tains that physician productivity per se is the same regardless of the form of prac- tice. Second, he argues that the growth of specialized firms such as commercial labo- ratories and business management con- sultants enable the non-group physician to avail himself of the economies of scale in that area. A number of criticisms can be made of Bailey's methods and conclusions.18 Never- theless, his basic argument would appear to contain sufficient merit to question 5 PAGENO="0233" Inquiry/Volume IX, Number 1 975 whether it is the form of practice or th~ type of services rendered that provides the economies. The desirability of closer ex- amination of the alleged existence of econ- omies of scale in prepaid group practice seems even greater when one reviews the evidence in support of the existence of such economies. Usually the argument for their existence as an organizational character- istic of prepaid group practice depends upon their existence in other sectors of the economy. For example, Fein states: Even as economies of scale exist in other sectors of the economy, so do they exist in the medical care sector, * for example, in hospitals. We can also expect that they would be present in groups as contrasted with solo prac- tice. It is surely the case that solo practice involves more lumpiness, more discontinuities, more large discrete jumps, and therefore, less likelihood of operating in an optimal manner than would be the case in larger units.19 This a priori assessment of the nature of hospital cost functions may eventually prove to be true; however, it has not yet been shown to be true. In fact, if one reads the hospital cost literature, it would appear that-depending upon the particular au- thor read-hospital costs are subject to increasing, constant, or decreasing returns to scale.2° This confusing, even nonsensical state of affairs is to be explained both by the state of the art in estimating cost functions and the nature of the firm whose costs are being estimated. A recent ar- ticle by Judith and Lester Lave well sum- marized the problems associated with hospital cost function estimates.21 In es- sence these problems stem from the multi- product nature of the hospital. The Laves, utilizing a technique designed to minimize these problems, studied cost data from 74 Western Pennsylvania hospitals covering the period 1961-1967. They concluded: if economies of scale exist in the hospital industry they are not very strong. In most cases the sign of our K variable was negative which means that as a hospital grew it captured some economies of scale. The sign, however, rarely attained significance, which accords with the results of Ing- bar and Taylor, Berry, and M. Feld- stein. In short, the evidence available, while subject to question, does not tend to sup- port a hypothesis of significant economies of scale in hospitals. Therefore, an infer- ential extension of the certainty of such economies to groups becomes even more suspect. Other reasons, less theoretical and more practical, might be advanced to support the view that the claim of group practice economies may be more potential than realizable. For example, Egan has sug- gested that groups with less than 80 phy- sician members are unlikely to achieve internal financial returns to scale.22 If Egan's size requirements estimates are correct, it is instructive to observe that the average size of prepaid groups in 1969 was 16.5 physicians. Since this figure re- flects the size of the prepaid giants (Kaiser Permanente and Health Insurance Plan of New York), it is even more significant that the median size group is only 4.8 physi- cians. In fact, only 8-10 percent of all pre- paid groups would be of sufficient size at present, according to Egan's calculations. But even were the necessary size to be obtained, there is some reason to suspect that the area of operation within which economies of scale give way to disecono- mies is relatively small. Thus, Max Schoen, a pioneer in the field of dental prepaid groups, has written: Probably the biggest misconception is that a group practice is much more economical to run than a solo fee-for-service practice. Most over- head costs are in salaries and, inas- much as an efficient group increased the number of auxiliary personnel, we can expect hourly operating costs to go up. [Further,] as the office gets larger, the structure gets more complex . . procedures involving time and, conse- quently, money have to be instituted.23 6 PAGENO="0234" 976 Prepaid Group Practice as a National Health Policy None of the foregoing, of course, dis- proves the potential existence of real in- ternal economies or proves that sufficient size to capture these is impossible to ob- tain. It does suggest quite strongly the gap between potential and actual. More to the point, it suggests that in the desire to correct obvious defects in the present sys- tem we may construct solutions which at- tack only the symptoms. Specifically, the real problem would appear to be not in the organization of practice, although that may further exacerbate the situation, but in the way in which medical care is de- livered in every form of practice. Inc!reased Physician Productivity Claims The point being made might be best illus- trated by reference to a second claimed advantage of group practice-the oppor- tunity to increase physician productivity by better utilization of his own time through task delegation to ancillary per- sonnel. To support this claim, several studies24 have pointed out the greater non- physician personnel to physician ratio and the higher average physician incomes which tend to prevail in groups despite a work load substantially sinsilar to that of non-group practices. It is assumed that the very presence of more non-physician personnel proves task delegation of part of the physician function. In the same way, the higher average income is taken as evidence of the increased productivity resulting from such task delegation. Admittedly, the problems of productivi- ty definition and measurement are yet un- solved. As a result, proxy variables must be substituted. Nevertheless, it is difficult to understand why so little attempt has been made to demonstrate that function transfer is in fact greater under group arrangements than in other forms of prac- tic~. Even more difficult to understand, much data which tend to disprove that groups do in fact increase function trans- fers or result in better utilization of phy- sician time is virtually ignored. For ex- ample,~ the Survey of Group Practices, referred to earlier, found that the number of employees increased with the size of the group and at an increasing rate, but that this increase was composed primarily of clerical workers. Size of group did not statistically influence the ratios of regular professional support personnel per physi- cian. That is, increased size creates more clerical work, but the workers added were not those most likely to relieve the physi- cian of his professional tasks. Another study25 found that the number of professional workers increased as the size of practice increased, but that with increased numbers there was also a definite tendency to assign non-professional tasks to professionals (i.e., the use of registered nurses for clerical or secretarial tasks). Klarman26 also has questioned the exist- ence of greater physician productivity in groups than in non-group practices. Even the National Advisory Commission on Health Manpower, a proponent of prepaid group practice, included in its Report the following comment on the Kaiuer Founda- tion Medical Care Program: the study group [did not] find evidence of major innovations in the practice of medicine. Kaiser physi- cians use standard medical practices and procedures during their contacts with patients, and there does not ap- pear to be unusual substitution of ancillary personnel for physicians.27 More important, when one turns again to those involved in prepaid plans, there is little support given to the idea of more effective manpower utilization, For ex- ample, I. S. Falk, a leader in both the pre- paid plan movement and the advocacy of national health insurance, has said, "You can't do very much to the group practice arrangement of personnel to deal with the rising cost of an inpatient day of care, but you certainly can cut down on utilization of an inpatient day of care."28 Similarly, Malcolm Peterson, reporting on the first year experience of the Johns Hopkins plan in Columbia, Maryland, noted their cost savings were due to fewer and shorter hospital stays, not better manpower utili- zation.29 Given the conflict in evidence, one has 7 PAGENO="0235" Inquiry/Volume IX, Number 1 977 to agree with Donabedian's assessment that "prepaid group practice has the po- tential to increase physician productivity [but] the extent to which this potential has been realized has not been clearly established."30 Control Over Care These arguments support the view that the major source of economy is in the con- trol exerted over what medical care is pro- vided and where it is provided. Thus, unless groups can demonstrate increased con- trol over members' total (not just hospi- talization) treatment patterns, there is little reason to favor such a group. Even then, the decision to foster groups as a method of increasing control must insure that the members-and not the physician members-will be the major financial ben- eficiary. It is argued, of course, that increased control over the quality and quantity of care is a prime characteristic of group practice. To a very real degree, however, this would appear to be true only in se- lected instances, such as Kaiser. The more usual case-if one separates specific ex- amples of group practice structure from theoretical expectations in the literature- is for physicians to operate more or less independently of each other, effectively separated not only by specialty interest bat also by patient loads, compartmental- ized work areas, and professional ethics. As Weinerman has noted, "Group confer- ences, medical audits, and informal office consultations . . . [are] common in the descriptive literature but infrequent in daily practice."31 This assessment of the limited extent of peer review and interac- tion even within the group setting is sup- ported by the studies of Freidson and Rhea.32 Admittedly, the kind of group proposed in the various health programs is often a specific organizational form: the giant pre- paid group practice typified by the Kaiser Program. The question therefore seems to be one of determining the more diffiôult task: overcoming the apparent reluctance to belong to many of the prepaid groups and to actually realize the positive bene- fits; or developing effective control mecha- nisms in something other than a Kaieer type approach. The evidence one way or the other would not appear clear-cut. It is true that the weight of the avail- able evidence supports the view that pre- paid groups exhibit lower hospital utiliza- tion rates for comparable population groups than do other forms of practice. However, studies are available which suggest that non-prepaid practice forms can be con- trolled and can realize comparable utiliza- tion decreases.33 Further, it is not clear whether the cost experience of the various groups reflects the form of the organiza~ tion, the composition of the patient popu- lation, the type of physician attracted to a group setting, the use of services outside the group, or some other factor. Conse- quently, arguments that the development of prepaid group practices will necessarily lead to improvements in the quality of care rendered, to innovative methods of deliv- ery, or to huge savings in physician time and patient expense, which other practice forms by their very nature can not pro- duce, would seem premature. On the other hand, the use of a prepaid program as a method of distributing the cost of care over time and over the total popul~ti4n has obvious merit. Realism of Resource Availability Assumptions Underlying most of the proposed national health insurance plans is the assumption that concurrent with increasing the ability to demand services, provision must be made to increase the ability to supply ser- vices. Thus, many of the plans include various financial incentivas to encourage the group practice of medicine as a pro- ductivity increasing vehicle; the produc- tion of more manpower of all types; the relocation of new and existing resources to areas of greatest need; and the construc- tion of additional facilities. The issue is not whether to increase capacity, bat whether the proposed attempts in this di- PAGENO="0236" 978 Prepaid Group Practice as a National Health Policy rection will be successful. For several rea- sons, the success of supply and productivity increase efforts in the limited time avail- able-in many cases, a one- or two-year period-seems very doubtful. The degree of innovation, in a cost-cut- ting sense, within prepaid plans has already been questioned. The failure to date to increase productivity through improved task transfer would appear to result less from a lack of motivation than from more fundamental factors. Indeed, in addition to certain organizational constraints such as licensure statutes and malpractice awards, much of the problem exists independent of the organizational form. Physicians are trained to follow certain accepted patterns of diagnosis and treatment; and the health professions are trained independently of each other. Yet these individuals are ex- pected tQ work productively as a team in ways that violate the concepts they were taught were necessary to the provision of quality care. Even assuming the physician's legal ability and desire to transfer traditional physician tasks to others, there remains a practical question of obtaining the re- quired types and numbers of allied health workers. Numerous studies suggest that, despite substantial increases in the num- bers and types of workers employed in the health occupations in recent years, the out- look is for significant continuing shortages. Moreover, the area of greatest shortage is likely to be in the allied health or non- professional fields.34 Expansion of the source of recruitment, adequate wages, substantive job content, and improved ver- tical and horizontal occupational mobility no doubt will substantially increase the supply of health manpower. In the interim, however, the futility of advocating the "more efficient use of the physician's time by making him the leader of a team of non-existent people" should be recognized. Again, even assuming prepaid plans under the pressure of demand increases would be forced to improve manpower utili- zation practices, there is little reason to expect that the productivity gains would offset the vast expansion of demand which can be expected. The actual level of de- mand increase is difficult to estimate in the absence of a specific plan's coverage and benefit structure. However, some in- dication of the magnitude is possible by reference to known experiences or needs. For example, in the Peterson article pre- viously cited,2° it was reported that one result of reducing hospital stays in the Columbia plan was to increase the number of office visits. Indeed, the net effect of reduced hospital visits, use of non-physi- cian personnel when appropriate, and in- creased office visits was about a 50 percent increase in demand on physician time. It should be noted that quality of product considerations under different practice forms are basically irrelevant here. The issue is one of ability to render volume required. Prospective Demand for Dental Care Medical services would appear to represent a relatively minor demand increase in com- parison to what one might expect from national health insurance coverage of den- tal visits. At present, about 12 percent of U. S. children below age five see a dentist. Visits then increase with age, reaching a maximum in the age group 16 to 24 years. The demand increase potential can be il- lustrated by reference to a specific age group. Surveys have shown that the six to 16 years age group averages two dental visits per year.35 Adjusting for those who have never seen a dentist, the average number of visits for those who do see a dentist is probably about foqr per year. Since there are about 50 million children in these age brackets, a successful pro- gram would result in approximately 25 million children added to the number visit- ing a dentist. At two visits a year (the rec- ommended semi-annual checkups), there would be 50 million additional visits. At four visits per year, the current rate for those who do go to dentists, the increased demand would approximate 100 million visits. This might be compared to the cur- rent annual number of visits by the total population of about 320 million dental 9 PAGENO="0237" Inquiry/Volume IX, Number 1 979 visits. Thus, just to include children from ages six to 16, a program would, at opti- mum operation, increase the demand for dental care by about one third. Increases in demand of this magnitude have to strain both present resources and facilities, as well as the national ability to provide sufficient funds for new resources. Additionally, the ability to provide re- sources of the magnitude indicated, wheth- er through increases in supply or increased productivity, must be considered in terms of a) the time required to train new man- power of various types; and b) a definite tendency toward greater educational prep- aration for many types of workers. There- fore, from a time, professional, and cost point of view, an increase in supply of the magnitude required seems unlikely-par- ticularly when one remembers the cost must include not just new personnel and service facilities, but also educational fa- cilities and faculty. Realism of Budget Estimates Cost estimates attached to most of the national health insurance proposals must be recognized as just that-estimates. Con- sequently, they are subject to wide dis- agreement. For example, Senator Ken- nedy, testifying at the Senate Finance Committee hearing (April 27, 1971) in support of his measure (S. 3-Health Security Act), stated the cost would be $68-billion. In addition, another $15-billion would be needed to finance medical re- search, the medical services of the Vet- erans Administration, and other programs. The $68-billion figure was some $27-billion more than Kennedy's 1970 estimate for an essentially similar plan, and $12-billion higher than his previous estimates for his current Bill. Health, Education and Wel- fare Secretary Elliott Richardson at the same hearings claimed the Kennedy pro- posal would cost $77-billion plus the addi- tional amounts for the non-personal health aspects. To further confuse the cost picture, a comprehensive actuarial study of all the major proposals for national health in- surance prepared by the Department of Health, Education and Welfare predicted that the total cost to the Federal govern- ment under the Kennedy Bill would total $81.6-billion in fiscal year 1974, bringing overall expenditures for health in the United States in FY 1974 under this Bill to an estimated $113.8-billion.36 Similar differences in estimates could be demon- strated for the other proposals. Given the wide differences of opinion as to the actual costs involved, the cost esti- mates become almost irrelevant. What is not irrelevant, however, is the assumption underlying many of the plans that the total cost would approximate present levels of expenditures. The basis of this assump- tion is that the present "waste" (variously estimated at 10 to 40 percent of total ex- penditures) could be saved by use of the prepaid approach. As documentation, the comparative cost of the Kaiser type pro- gram is used to illustrate the potential savings-which could then be used to ex- pand services and coverage.37 Expectation Questioned At least four factors subject this expecta- tion to question. First, it has been argued that the Kaiser operation, whil~ self-sus- taining, owes much of its capital expansion success to measures not available to other groups. For example, Carnoy argues that much of the financial backbone for capital expansion in the past has come from funds provided by the Kaiser Family Foundation, whose income is derived in large amount from its ownership of stock of various Kaiser industries.38 Obviously, access to long-term, low cost loans and/or outright gifts have significant implications for p1a~ expense and for subscriber premiums. Carnoy further argues that much of the construction is performed by Kaiser com- panies using Kaiser products. The impli- cation is that capital costs are less than what a comparable project would cost a group without such an intimate industrial tie-in. Second, while it is true that a general experience of prepaid plans has been a reduction of cost per individual served, 10 PAGENO="0238" 980 Prepaid Group Practice as a National Health Policy there are1 also a number of built-in con- straints which tend to limit the amount of savings possible. In addition to the obvious need to retain quality and maintain a mini- mum manpower mix, these constraints in- clude the fact that participating physicians receive salaries equal to the national aver- age plus an incentive compensation; that care received outside the Kaiser system, and those high-risk groups now excluded would be included in a national prepaid system; and that inflation in general is controllable only to the extent that the price increases are within those areas in which the plan can effect economies or in- crease productivity. Thus, it is not alto- gether clear how, should prepaid groups become a dominant organizational form, savings of the magnitude envisioned will be realized. Indeed, even without the in- clusion of high-risk groups, the rate of increase in medical expenditures of the Kaiser Health Plan, although less than that 9f Californians in total, is not much less than the rate of increase of the health sector as a whole. Kaiser Health Plan rates increased an average ~f from 6 to 8 per- cent a year from 1957 to 1966, and from 11 to 14 percent from 1966 to 1970. More- over, an 18 percent increase was instituted in early 1971.~~ Third, for a number of reasons one has to use the various cost comparisons made between prepaid and non-prepaid programs with a great deal of caution. It is clear that much of the claimed40 cost reductions result from reduced hospitalization and re- duced manpower levels. In contrast, the volume of outpatient activity has signifi- cantly increased. To many this is a re- warding development because it indicates a possibility of reducing barriers to seek- ing early or preventive care; and because ambulathry or outpatient care is less costly than hospital care. However, prepaid groups, like the Kaiser Plan, do not pro- mote preventive care as much as commonly assumed. Indeed, in one of its publications, the Kaiser Plan argues against programs emphasizing preventive medical care.41 Furthermore, the cost of outpatient ser- vices in these plans is greater than in private practice. Consequently, the reallo~ cation of demand may be from a more ex- pensive to a less expensive service, but not necessarily to the least expensive service. Finally, it is not altogether clear that the removal of the financial barrier has only desirable effects on care seeking. Dr. Sid- ney Garfield, founder of the Kaiser-Perma- nente groups, has written: Only after years of costly experience did we discover that the elimination of the fee is practically as much of a barrier to early sick care as the fee itself. The reason is that when we re- moved the fee, we removed the regu- lator of flow into the system and put nothing in its place. The result is an uncontrolled flood of well, worried- well, early-sick, and sick people into our point of entry-the doctor's ap- pointment-on a first-come first-served basis that has little relation to priori- ty of need. The impact of this demand overloads the system, and, since the well and worried-well people are a con- siderable proportion of our entry mix, the usurping of available doctors' time by healthy people actually interferes with the care of the sick.42 Fourth, and most important, the plan being proposed in most of the national health insurance programs is not a Kaiser type plan. Thus, using a Kaiser-approach budget as a potential savings guide is invalid. This last point needs to be fully under- stood. The kind of program being promoted is not at all similar to that being delivered by existing prepaid plans. Despite this fact, the budget estimates are based on those of a prepaid plan. Close examinatien of the objectives of the proposed national prepaid program makes it clear that what is being suggested is an organizational ar- rangement that would provide services more characteristic of neighborhood health centers.43 That is, there would be compre- hensive services, including preventive care; non-medical services such as social work, nutrition, and education; actual use of 11 PAGENO="0239" 1nquir~j/ Volume IX, Number I 981 teams of professionals and non-profession- als; and major attention to improving the availability and accessibility of care to all groups. Recognizing that the cost experience of most neighborhood health centers, aimed as they are at low income, urban minority groups, would not be typical of a national program, the fact remains that their costs were substantially higher than those re- ported by the Kaiser plan.44 One would therefore expect health expenditures to continue to rise, both in total and as a per- cent of national income. Implications for Research and Policy This discussion has had a consistent theme that might be summarized as the need for a more complete examination of the com- plex factors involved in the choice of a social policy recommendation. Ideally, the goal would be the development of an ana- lytical approach which would allow judg- ments to be made, at least in terms of pre- dicted direction, of the difl~erential cost implications of various policy choices. Ob- viously, the ideal is not obtainable at the present time. However, the fact that it is difficult, even impossible, to specify all the forces at work and their interactions, which influence the ultimate value of an action, should not prevent attempts to specify as * much as possible. One should hesitate be- fore embracing recommendations based on simplistic, partial analyses of highly com- plicated issues; analyses which, moreover, often omit factors as crucial, or more so, than those included. Space and knowledge constraints pre- clude extended discussion of examples of the type of factors not generally con- sidered in the evaluation of a reorganized health care system focused around a pre- paid health plan. However, some examples of areas which require further research and examination might be illustrated by reference to a number of issues that were raised or implied in this discussion: 1 A primary objective in the promotion of prepaid groups is to redirect demand from "high cost" hospital stays to "lower cost" ambulatory or extended care ser- vices. The value of this action obviously depends upon the existence of adequate outpatient and ambulatory services of desired quality. Since one of the present complaints is a patient demand already in excess of what these services can handle in most urban areas, the true reduction or increase in costs is not clear. Despite this, research in ainbula- tory medicine has been conducted by relatively few investigators in the past. Even when done, the emphasis has been on epidemiological studies, case reports, selected natural history experiments, and descriptive reports. It would appear much more work is needed on the quali- ty and cost implications of a redirected demand. 2 It has been argued that increased de- mand for services result in substantial increases in investment in capacity im- provements. This implies, in a stable or declining economy, the transfer of re- sources from some other sector to the health sector. Even in a growing econo- my, there will have to be some redirec- tion of the increased productive capacity into the health sector-requiring use of governmental fiscal and monetary poli- cies to a great extent. The end result might be either good or bad. For ex- ample, it is generally accepted that ac- cess to medical care services has less potential for reducing the morbidity and mortality associated with given health problems than do improvements in the total environment. Yet the potential ef- fect on ability to improve the environ- ment of adopting a policy of financing prepaid group plans by a national loan guarantee program is often ignored. This is true despite the fact that direct Feder- al government borrowing plus Federally- assisted borrowing from the public, even without inclusion of the prepaid group loan guarantee proposed by the Nixon Administration, may be as high as 40 percent of the total demand on all credit and capital markets in FY 1972.~~ Similarly, a point which has been 12 PAGENO="0240" 982 Prepaid Group Practice a,s a National Health Policy raised, but not extensively discussed, has been the disemployment potential in plans financed by taxes imposed on em- ployers. The Nixon health program, for example, calls for the employers' pre- mium share to rise to `75 percent in 1976. Given an initial program cost es- timate of almost $3-billion a year and medical care cost increases of about 15 percent per year, the impact on em- ployer wage costs could be significant. Clearly the need for further research on the distributional and macroeconomic effects of the financing mechanism is great. 3 Berki~° has noted that much attention has been directed to the equity of the tax base used to finance proposed na- tional health insurance plans and their constituent elements, but relatively little to the effect of the tax chosen on state and local government taxing options. That is, an income tax might be chosen at the national level because of its pro- gressivity. However, if by so doing, state and local governments are forced to uti- lize regressive taxes to finance their health expenditure needs, the net overall effect may be either progressive or re- gressive. A basically similar view was expressed by Irving Lewis.47 Yet virtu- ally no attention is given to this factor in the discussions of the desirability of the specific financing mechanism pro- posed.48 4 Much of the current debate cont~erns it- self with the definition of the most ef- fective and economic system for deliver- ing health care. Notably absent from the discussion, however, has been any consideration of the impact on the cost and effectiveness of any system of the increased mobility o. the population. To talk about provision of care being com- prehensive and continuous when the pop- ulation is stable is one thing. A popula- tion in which 25 percent moves each year would seem to have some major structural requirements if those same goals are to be realized. At the least, there would have to be established a, records transfer system. This, however, is a major cost operation. For example, Kissick49 noted that American Airlines and IBM invested $30-million in the de- velopment of a reservation system which was uncomplicated in comparison to the problems involved in a computer-stored medical records collection and transfer system. In short, much of the discussion sur- rounding the financing and delivery of im- proved health care would appear to assume the program developed will operate in a world of its own and not as part of a total system. In fact, of course, it won't. References and Notes 1 See, for example: "The Nation's Health Care Sys- tem: Remarks of the President, HEW Secretary Robert H. Finch, Assistant Secretary Roger 0. Egeberg, and Undersecretary John G. Veneman," July 10, 1969. Weekly Compilation of Presidential t~ocuments, Vol. 5, No. 28 (Washington. D. C.: Office of the Federal Register-National Archives arni Records Service, July 14, 1969) pp. 963-969. 2 As examples, see: the series of articles on "Our Ailing Medical System," Fortune 81:79-99 (Janu- ary 1970); Health Crises in America. Report by the American Public Health Association (New York: APHA, 1970) ; the entire issue of the Journal of Medical Education (February' 1970) devoted to "The Health Care Dilemma"; and Gar- field, Sidney R. "The Delivery of Medical Care," Scientific American 222:15-23 (April 1970). Also see: U. S. Senate, Committee on Government Op- erations, Subcommittee on Executive Reorganiza- tion. Health Care in America. Hearings . . . 90th Congress 2nd Session, 2 Parts (Washington, D.C.: GPO, 1968). 3 In FY 1970, medical care expenditures reached $67.2-billion and represented 7.0 percent of GNP. Private funds continue to account for the bulk of the expenditures (63 percent in FY 1970), but the introduction of Medicare and Medicaid has substantially increased the public share. For ex- ample, the Federal share of total expenditures in FY 1966 was only 13 percent; by FY 1970, the Federal share reached 25 percent. Within the pri- vate sector, the growth of private health insurance has reduced substantially the proportion of total health expenditures paid for through direct pa- tient outlays (from 59 percent of the total in FY 1950 to only 35 percent in FY 1969). For more 13 PAGENO="0241" 983 Inquiry/Volume IX, Number 1 detailed reporting of health and medical. care ex- 13 Weinerman, E. Richard. "Editorial: Group Prac- penditures, see the annual report on "National tice Revisited," Medical Care 7:173-174 (May- Health Expenditures" found in the Social Security June 1969). Bulletin. 14 For more extensive discussions of these forces, 4 An excellent, recent study of the principal pro- the interested reader might consult: Weinerman, visions of the major national health insurance pro- E. Richard. "Patients' Perceptions of Gtaup posals may be found in: A Study of National Medical Care," American Journal of Public Health Health Insurance Proposals. A Report to the 54:880-889 (June 1964); and Freidson, Eliot. Congress, by the Department of Health, Education Patients' Views of Medical Practice (New York: and Welfare (March 1971). Russell Sage Foundation, 1961). 5 Committee on the Cost of Medical Care. Medical 15 Donabedian, "An Evaluation of Prepaid Group Care for the American People (Chicago: Univer- Practice," p. 10. sity of Chicago Press, 1932). 16 Title IV of Public Law 91-515 permits the Secre- 6 American Public Health Association: Subcommit- tary to authorize certain carriers to issue con- tee on Medical Care. "The Quality of Medical tracts for comprehensive medical services from a Care in a National Health Program," American group practice organization. Eligible carriers are Journal of Public Health 39:898-924 (July 1949). those which contract with the Civil Servlce Com- 7 See, for example: Fein, Rashi. The Doctor Short- mission to administer the Federal Employees age: An Economic Diagnosis (Washington, D. C.: Health Benefits Program. Eligible beneficiaries The Brookings Institution, 1967); MacColl, Wil- are any person in any state. ham A. Group Practice and Prepayment of Medi- 17 Bailey, Richard M. "Economics of Scale in Medi- cal Care (Washington, D. C.: Public Affairs Press, cal Practice." In: Kiarman, Herbert E. (ed), 1966); President's Commission on the Health Empirical Studies in Health Economics (Balti- Needs of the Nation. Building America's Health, more: Johns Hopkins Press, 1970). A slightly Vol. 2 (Washington, D. C.: GPO, 1952); U. s. expanded version of this paper, "Philosophy, Faith, Department of Health, Education and Welfare, Fact and Fiction in the Production of Medical Ser- Public Health Service. "Promoting the Group vices," appears in: Inquiry 7:37-52 (March 19'~0). Practice of Medicine," Report of the National 18 See, for example, the comments by Melvin Reder Conference on Group Practice (October 19-21, on Bailey's paper in: Kiarman, Empirical Studies 1967); and National Advisory Commission on ~ Health Economics, pp. 274-277. Health Manpower. Report, Vol. 1 (Washington: 19 Fein, The Doctor Shortage, p. 98. GPO, 1967). Also see: Somers, Herman M. and 20 For a critical review of many of these studies, Somers, Anne R. Doctors, Patients and Health see: Mann, Judith, and Yett, D. E. "The Analysis Insurance (Washington, D. C.: The Brookings of Hospital Costs: A Review Article," The Jour- Institution, 1961); Harris, Seymour E. The Eco- nal of Business 41 :191-202 (April 1968). nomics of American Medicine (New York: Mac- 21 Lava, Judith, and Lava, Lester. "Hospital Cost Millan, 1965); Greenberg, Ira G. and Rodburg, Functions," American Economic Review 60:379- Michael L. "The Role of Prepaid Group Practice 395 (June 1970). in Relieving the Medical Crisis," The Harvard 22 Egan, Douglas M. "Income and Productivity of Law Review 84:887-1001 (February 1971); and, Physicians in Fee-For-Service, Multisperialty Donabadian, Avedis. "An Evaluation of Prepaid Group Practice." Cited in: Bailey, Richard M., Group Practice," Inquiry 6:3-27 (September 1969). "Production of Medical Services," p. 51. 8 Report of Committee on Planning and Develop- 23 Schoen, Max H. "Group Practice Owned by a ment, Board of Trustees, the American Medical Partnership Using Salaried Dentists and Con- Association (1969). tracting Directly with Purchasers of Group Dental Care," The Journal of the American Dental As- 9 See: Fain, The Doctor Shortage, pp. 94-111; sociation 62:397 (April 1961). and President's Commission, Building America's 24 Fain, The Doctor Shortage. Also: Boan, I. A. Health, pp. 243-244. Group Practice (Ottawa, Canada: Royal Commis- 10 The inability to precisely measure the increase is sian On Health Service, 1966); and l~ett, D. E. due to a discrepancy between the total groups "An Evaluation of Alternative Methods of Esti- listed in a given year and the total which should mating Physicians' Expenses Relative to Out- have existed at a past date given the stated age put," Inquiry 4:3-27 (March 1967). of the group. For example, the 1965 AMA "Sur- 25 Yankaurer, Alfred; Connally, J. P.; Andres, P.; vay of Group Practice in the United States" in- and Feldman, J. J. "The Practice of Nursing in dicated a total of 4,289 plans. However, in the Pediatric Offices-Challenge and Opportunity," 1969 Survey responses to a question on length of The New England Journal of Medicine 282:843- existence indicated there were 4,870. Similarly, 847 (April 9, 1970). tha difference between "counted" and "in exist- 26 Klarman, Herbert E. "Approaches to Moderating anca" totals in 1959 was 1,546 and 3,234, or basi- the Increases in Medical Care Costs," Medical cally a 50 percent undercount. See: McNamara, Care 7:175-190 (May-June 1969). For a critical Mary E. and Todd, Clifford. "A Survey of Group comment on the article, see: Shapiro, Sam. "Com- Practice in the United States, 1969," American ments on Approaches to Moderating the Increases Journal of Public Health 60:1303-1313 (July in Medical Care Costs," Medical Care 8:88-89 1970). (January-February 1970). 11 All the data discussed in this section are drawn 27 National Advisory Commission, Report, Vol. 1, from McNamara and Todd, ibid. p. 207. 12 HEW, "Promoting the Group Practice of Medi- 28 Falk, I. S. "National Health Insurance." Presen- dna." tation at the Connecticut Hospital Association's 14 81-185 0 - 72 - pt. 3 - 16 PAGENO="0242" 984 Prepaid Group Practice as a National Health Policy Administrators' Conference, December 18, 1969, New Haven (Transcript of a recording). 29 Peterson, Malcolm L. "The First Year in Co- lumbia: Assessments of Low Hospitalization Rate and High Office Use," Hopkins Medical Journal 128:1523 (January 1971). 30 Donabedian, "An Evaluation of Prepaid Group Practice," p. 20. 31 Weinerm~n, E. Richard "Problems and Perspec- tives in Group Practice," Group Practice 18:80 (April 1969). 32 Freidson, Eliot and Rhea, B "Processes of Con- trol in a Company of Equals," Social Problems 11:119-131 (1962). 33 See, for example: Densen, Paul, et al. "Prepaid Medical Care and Hospital Utilization," Jiospitals 36:63-68, 188 (November 16, 1960). For a recent evaluation of the evidence from a number of studies of utilization in prepaid groups and other practice or financing forms, see: Donabedian, "An Evaluation of Prepaid Group Practice." Also avail- able as a guide to the prepaid practice literature is: U. S. Department of Health, Education and Welfare, Health Services and Mental Health Ad- ministration. "Selected Notated Bibliography on Health Maintenance Organizations (HMOs) with Special Reference to Prepaid Group Practice" (July 1971) 35 pp. 34 See, for example: U. S. Department of Health, Education and Welfare. Health Manpower Source Book: Allied Health Manpower, 1950-80, Public Health Service Publication No. 263, Section 21 (Washington, D. C.: GPO, 1970); and U. S De- partment of Health, Education and Welfare. "The Allied Health Professions Personnel Training Act of 1966 As Amended," Report of the President and the Congress (Washington, D. C.: GPO, 1969). 35 For current estimates of morbidity, mortality and frequency of visits in the U. S. population, see: Current Estimates From the Health Interview Survey, Public Health Service Publication No. 1000-Series 10 (various reports) (Washington, D. C.: GPO). 36 United States Congress, Committee on Ways and Means. "Analysis of Health Insurance Proposals Introduced in the 92nd Congress," Committee Print (August 1971). Tables in the study show estimates of the various proposals' cost to the government, the level of national health expendi- tures from all sources, and the additional costs to Federal taxpayers. 37 See, for example: U. S. Department of Health, Education and Welfare. Towards A Co,nprehen- sive Health Policy for the 1970's: A White Paper (May 1971). 38 Carnoy, Judith M. "Kaiser: You Pay Your Money a~id You Take Your Chances," Ramparts 9:28-31 (November 1970). 39 Williams, Greer. Kaiser-Perinanente Health Plan: Why It Works (Oakland, Calif.: The Henry J. ~Kaiser Foundation, 1971) p. 63. 40 OOe Washington-based columnist noted that two reports prepared by statisticians in HEW raise critical questions about the cost experience of the two top prepaid group practice plans-Kaiser and HIP. See: Blazda, Jerome, F. "Washington Wire," Modern Hospital (April 1971) p. 82. Ef- forts by this author to obtain these reports and/or ascertain the points at issue b~ve been unsuccess- ful to date. 41 Williams, JCaiser-Permanente Health Plan, p. 75. 42 Garfield, Sidney R. "The Delivery of Medical Care," Scientific American 222:15-23 (April 1970). 43 Discussions of the functions expected vlrithin a prepaid operation (whether called an HMO or ~omething else) may be found in a variety of sources, including the Senate and House speeches accompanying the introduction of specific Bills and the HEW "White Paper" cited in Reference 37. However, perhaps the most complete func- tional description is that prepared by Weinermsn in a background paper for the Committee for Na- tional Health Insurance, the group which prepared the measure sponsored by Senator Kennedy. See: Weinerman, Richard. "Organization and Quality of Service in a National Health Program~" Un- published background paper (December 1969), es- pecially pp. 13-14. 44 Cost data from neighborhood health centers have been reported in a number of articles. See, for example: "Dilemma in Health Care: Rising Cost and Demand," New York Times (September 13, 1971). Gerald Sparer and Âme Anderson, in a paper presented at the 1971 annual meeting of the American Public Health Association, "Cost of Services at Neighborhood Health Centers: A Two- Year Comparative Analysis, 1969-1970," provide data from a cost study of six neighborhood health centers. Of interest to the debate on potential savings available from the adoption of the pee- paid approach is their claim that, for comparable types of services provided, unit costs in these centers are competitive with other institutional providers, including hospitals and large prepaid group practices. 45 Gaines, Tilford. "Through the Looking Glass," Manufacturers Hanover Trust Economic Report (February 1971). 46 l3erki, Sylvester E. "Economic Effects of National Health Insurance," Inquiry 8:37-55 (June 1971). 47 Lewis, Irving J. "Government Investment in Health Care," Scientific American 224:17-25 (April 1971). 48 A notable exception is found in: Waldman, Saul. Tax Credits for Private Health Insurance, Office of Research and Statistics, Staff Paper No. 3, Social Security Administration (October 1969). Also, see: Fein, Rashi. "Impact of National Health Insurance Plans on Financing," and the discussion by Mark Pauly in: Eilers, Robert D. and Moyerman, S. S. (eds.) National Health In- surance: Conference Proceedings (Homewood, Ill.: Richard D. Irwin, Inc., 1971). 49 Itissick, William L. "Health Policy Directions for the 1970's," New England Journal of Medicine 282:1343-1354 (June 11, 1970). 15 PAGENO="0243" 985 Mr. MCNERNEi~. Now I would like to ask Mr. Suycott, who has started two programs in Wisconsin-they are operative, they are suc- cessful-to reflect a little more specifically on the gut experiences he has been through. STATEMENT OP LEO E. SUYCOTT Mr. SUYCOTT. My name is Leo Suycott. I am president of the Wis- consin Blue Cross plan. I was employed in 1949 and spent 14 years in the marketing area of Blue Cross, so if I flavor my remarks with reconunendations in that area, you will know why. We have 1.5 million people enrolled in our State in our private sec- tor business. We are operating as an administrative intermediary to medicare. We also handle medicaid. We operate a shared computer system for hospitals. So you can fit in some new projects as you go along and still make them go. I am haj~py to be here today. My only concern is that I may not be able to project as many of the important points as I want to. I hope you will understand the complexity of this and the difficulty of capsuliz- ing, if you will, two major projects. So, I will do my best on that. I have made available a packet in which I have tried to describe the two HMO's, with key facts about each of them. Perhaps you will have the time to look those over and als~ ask me some questions, for which I hope I have answers. (The packet entitled "Introducing: the Compcare Health Pro- gram-Northpoint Medical Group-St. Mary's Hospital (Milwaukee) Wisconsin Blue Cross and Surgical Care Blue Shield-A new kind of comprehensive coverage your family needs today," may be found in the committee files.) Mr. Suycorr. We have been involved in these two HMO's in Wis- consin for about 1 year; actually a y~ar in one case and about 10 months in the other. We think they are ex~cellent models. They are real, they are living, they are breathing entities. From them we are trying to learn some lessons that I hope, perhaps, I can explain here to con- tribute to your deliberations. I might ~ay as background that we became interested as a result of heavy consumer interest in rising costs and in how difficult it is to get access to medical care; not necessarily because they don't have sufficient funds, but to find their `way through the maze of people that one has to deal with to get into a comprehensive medical care system or get comprehensive treatment. We have used all of the normal means that our plans had in terms of controlling `cost, in trying to conserve resources, such as utilization review techniques, home care programs and preadmission testing pro- grams; but they simply weren't doing enough in our judgment and we felt impelled to enter into this kind of project to see if we could not come up `with a better answer. We didn't know precisely what we were going to get into in the way of commitment, time, or energy when we began, but we did know this: To start an HMO we must have a doctor's interest. Consequently we began to seek out areas in our State where we thought we might be able to get some doctors interested. I think we were especially fortunate in that we had some awfully good luck and I guess we made some good management selections and PAGENO="0244" 986 decisions. We wanted to develop two liMO's that had some contrast to them so that out of this contrast could come some variations in them, if yOu will. We wanted a rural one. We looked around our state and located the Marshfield Clinic in a town of 14,000. We knew they were progressive-minded. We knew they had a very high quality of mech- cine. This is acolalmed naturally by their success. They had a hundred doctors working in a group setting on a salary basis, and we thought they would be an ~xceilent prospect. When we called on them we found this group had been talking to a number of organizations which had promised them an interest but they had never followed through. The main question they asked us was, "Are you serious about your interest?" We assured them that we were and we intended to be. So we got into partnership with them. This clinic, incidentally, serves a local population area of about 20 to 25 miles surrounding that area in terms of their primary local market. They really only get 25 percent of their business in this mar- ket. Interestingly enough, only 10 percent of their revenue comes from there. Seventy-five percent of their business and 90 percent of their revenue is referrals from outside of this city. We wanted another one in a metropolitan area. We found two doc- tors who were inspired by our president, Walter McNerney, who made a speech in Estes Park, Cob., 3 years ago saying we ought to change the delivery system and try alternatives. These fellows caught fire and asked us if we would be interested in helping them develop a pro- gram. So we opened two discussions in the ideal areas of our interest about the same time. We appointed a vice president of marketing to act as coordinator of this project. We wanted to bring the projects into effect by Janu- ary 1, 1971. We didn't make that schedule. We were a little optimis- tic. We came into being on March 1 in Marshfield and May 1 in Milwaukee. We took the doctors who were interested and toured the country. We looked at all the leading prepaid group practice plans, including Kaiser and HIP in Washington. We talked to all the critics and the advocates. We hoped we would be able to sift out the very best ideas of all of them. We had a consulting firm help draw up a "cookbook." We hoped this would be a logical step-by-step thing that we could come to a con- / clusion as to how to do it. If we found a way in whi~h to bring about an HMO, we did not want to keep it a secret; we wanted to share it with others because we wanted to help our other plans. Both of these arenas did provide some distinct and separate prob- lems. We are fortunate that they did because they gave us a study base. In Marshfield there are a hundred clinic doctors and a 400-bed hospital in a town of 14,000. These hundred clinic doctors form the entire staff of the hospital. So there are no fee-for-service physicians in competition with them except in nearby towns. There were one or two such physicians who were incorporated into this whole operation on a fee-for-service basis later. But we did encounter substantial suspicion on the part of small hospitals in the area which worried whether we were going to draw off their business. It required a high degree of diplomacy, sales skill, marketing skill, if you will, to over- come these obstacles of fear and suspicion. They do lurk there. PAGENO="0245" 987 In Milwaukee, in contrast to that situation, we had six or seven doc- tors who had to face their colleagues, some ~,OOO, who were deeply suspicious over abandoning a fee-for-service concept and going into a salary basis for medicine. It was a very, very delicate situation. There also was concern that we were building an HMO in Milwaukee around a single hospital while there are 13 other hospitals looking around to see if they were going to lose business. So it was necessary to employ the leadership of an organization such as ours as a moving force to develop the strategies, to develop the edu- cational media, everything that you could think of. to overcome these fears and problems, and at least get these pi~ograms to be accepted on' a basis of "Let us try them." I think those are fairly general circumstances for any HMO that is going to come into business any place in this country, especially if there is a capitation method incorporated with it. We are going to have to overcome general resistance and the fear of change. I think it requires more than just leadership. It requires an enormous amount of determination on the part of some central force because providers in these instances would weaken in their determination to move in the face of resistance by their colleagues. They needed some urging and pushing and, if you will, encouragement. I give these people in our State great credit for having the courage to move ahead, because now I feel we have been able to break down the wall to a considerable extent. During the period of time we were sell- ing and reselling the providers on continuing to try to achieve this HMO,. we had to be developing all the things that go along with it. We had to develop the set of benefits ourselves. We had to do market research and market surveys. We had to worry about the legal documentation that went with it and the kind of risk- sharing that would be reasonable for two different organizations, one in Marshfield and one in Milwaukee. We had to estimate the cost of the providers, the doctors in the hospitals, going tltrough the literature, training marketing men, and so forth, and of course holding endless meetings, taking up enormous amounts of time. In Milwaukee we also incorporated into this Compcare program specialty hospitals in order to conserve the resources and not duplicate them. We brought in the Milwaukee Children's Hospital to serve as the pediatric center. We brought in a psychiatric hospital to handle that so that `the central hospital would not have to duplicate the costly facilities that had already been negotiated. Negotiations surrounding all of these had to be carried out by some central førce, and we were that force. We decided we would have to involve the community. We developed a community `advisory group, which checked everything that was done and gave its blessing to it. Some 16 to 18 months after we began our initial development of this program we were ready to say to the consumers in our area, "We `are ready to serve yrni with a high quality, comprehensive health care program, assuring you of one-door access to medical care for your family." We knew these programs were constructed logicallr and soundly. They were geared to provide broad benefits. They attacked the areas of cost and access. They had incentives built into them. I have recited the pi~oblems and complexities to illustrate that or- ganizing and developing an HMO to the point of actual delivery is PAGENO="0246" 988 one major task in itself that involves a. great deal more than money or. a mandate because we didn't have either, as an outside organization. Money is not to be discounted, and I would like to make that point very clear. We put the top experts from our staff in this picture. We had computer experts, actuarial experts, hospital and doctor relations experts, marketing, public relations and advertising. We brought into play practically everyone involved in our company and in a sense an lIMO is really a su'bcompany and maybe a sub-Blue Cross and Blue Shield plan, in effect. You do have to have the skills and talents there to do this. I think the significant thing is that we proved to ourselves and perhaps to others that a Blue Cross and a Blue Shield plan can, without any out- side help, rally a group of providers together and get a major under- taking like this underway, using local resources and ingenuity at the same time. I might sa~ in this respect that in the Marshfleld area, develop- mental costs of the program which we incurred as a result of our staff involvement was Some $282,000. This is a recoverable item and we invested it on that the basis that it would be recoverable on surplus in terms of repaying ourselves so that we could go on and do some more development in other areas. In Milwaukee we had a different situation. We had to develop a cash flow there for the physician group. Here we had to guarantee 15,000 enrolk~es. That faced us with an entirely different problem. That could have generated a liability upwards of $800,000, but we only had to pay them the difference between the enrollment we had and the 15,000 guarantee. The total amount of cash flow we had to generate there was about $387,000. So we had that invested. It will be recoverable again and I hope usable in other HMO development projects. But once we were ready to sell these services, it wasn't any surprise to us that we really didn't find any lines forming outside the building asking to jump in. We didn't find any tele~hones ringing off the walls saying, "Please let us in that HMO you just started." We had beautiful literatere and held many, many meetings with major groups, with unions, with management groups, with a broad section of the people, saying, "Here is a new development whjch an- swers many of your problems. Join and help us make it go." We knew it was going to be a marketing project and it turned out to be. It became evident that forming it is one thing, but marketing it is quite another; and in my judgment that could well be the most vital part of the whole program. I think I would really like to stress that. We did have a hard-hitting marketing plan in our organization. We had developed it. We had excellent, dedicated salesmen, who were well trained. . Even then it took some 15 to 16 months to finally get about 15,000 people in both organizations. I would like to close by touching on a few of the results that we think we got out of those two programs. At the end of the first year in Marshfield, we found a slightly lower use of in-hospital days. We had calculated 850 admission days per thousand people at Marshfield. It came out about 711. That is not an insignificant amount, but 139 days is what we saved. PAGENO="0247" ~89 In Milwaukee we estimated they would use 7~0 days per thousand. There we had an interesting figure of 538 patient-days per thousand, so we have realized a very substantial differential in the use of the hos- pital. We surveyed our customers aand found that they were satisfied to a large degree, although the acid test on that comes when they make their choice as to whether they want to stay with it another year. The competition that exists gives the doctors great concern and they want to do the very best job they can in order to keep that customer there. That element of competition, I think, is very important. We did underprice our product a bit as we searched for the perfect pricing mechanism at the beginning. So we are going to have an in- crease in the cost of both of these HMO's, but the price will still, be quite competitive. In both cases the community committees have ap- proved them. I think that we have played an important role, and the role Blue Cross and Blue Shield ought to play, which was a negotiation role. We negotiated in both areas and bargained prices on the initial rates that were to be constructed by the providers themselves. We are encouraged but not overconfident with the results we have had. We intend to start three more lIMO's in Wisconsin in 1972 to begin operation in 19Th. Based on the results we have had I would like to make a few recoin- mendations to you gentlemen: 1. We think that lIMO's are an excellent alternative delivery sys- tem and while a fee-for-service element can be incorporated into some parts of the lIMO, we do feel that capitation offers the greatest potential. While an optimum size category would be 25,000 to 30,000, I would say that we feel we are breaking even at 15,000 and we are pleased with the 15,000. I do believe that if any substantial number of lIMO's is going to be developed in a relatively short period of time, we must have a catalyst force and it has to be a force such as a carrier, Blue Cross or Blue Shield, to give the direction that is so essential to keep these people moving forward once you get the providers involved. I think we are prepared to do this locally and nationally. I believe we have the right motivation, which is a critical factor as well. We are detached, if you will, from preserving the status quo. We are not committed to it. In fact, we are competing with ourselves in a sense, but we think this is a healthy attitude and healthy atmosphere. We `believe we have the expertise to get them underway in a minimum period of time. We had 18 months in the first round. It must be understood that marketing is a major part of the game. The better mousetrap still does not sell itself and neither do lIMO's. It is a way of life with Blue Cross and Blue Shield. We are in com- petition across the country. We understand the marketing game. Even though we have had a better product, we would say with some im- modesty, we have always found it essential to market it. I think that is healthy. Competition is a very vital thing for us. It does require a high de- gree of salesmanship to pull a lady away from her family doctor with whom she has been for many, many years and put her in a different system. PAGENO="0248" G90 Here is where you begin to run into the salesmanship aspects. Money is really needed, but in my opinion I think that the secretary should hate broad discr~tionary power so that he can enter into some joint venture agreements with as little redtape and constraints as pOssible~. I think risk is an important element. It can be involved in an HMO area. It can be modified to fit circumstances. it is essential it be there, that somebody be at risk, with failure or success depending on their ability to do a good job. I think if the secretary were to be able to select areas where peo- ple have some knowhow and a track record, he could accomplish a lot of major objectives in a very minimum amount of time. But if we have to go through a long-winded route of grants and reels of redtape, we are going to get to where we are too weary to carry it out. At least we don't get nearly as many projects underway. I think the instance which we cite in Wisconsin demonstrates you can have a variable amount of investment from private resources. How much we would call on the Government to subsidize us in Wis- consin, I could not tell you. We do believe that where we have been able to generate a situation in which we can recover our investment, we are perfectly willing to move that route. We think we could use some Federal money to help develop the programs and those amounts ought to be, as I say, not too rigid. I would like to close by pledging to you and the Nation that we intend to keep our efforts up. I think I would like to wind up with a quote from Cardinal Newman that summarizes our broad philosophy about HMO's. I would encourage it to be included in other people's thinking: Nothing at all would be done if a man waited until no fault could be found with it. I don't think the perfect HMO exists; we have to work with many different models. Thank you. (Testimony resumes on p. 1001.) (Mr. Suycott's prepared statement %nd attachments follow:) STATEMENT OF LEO ID. SUYCOTT, PRESIDENT1 ASSOCIATED HOSPITAL SERVICE, INC., AND PRESIDENT, WISCONSIN BLUE Cnoss PLAN Mr. Chairman and members of the Subcommittee, my name is Leo Suycott, President of the Wisconsin Blue Cross Plan. I've been employed by the Wisconsin Blue Cross Plan since 1949 and spent fourteen years in the marketing area of our organization before assuming the Chief Executive's role in 1903. I am pleased to appear before your Committee today and I sincerely hope that my testimony will add meaningful input for your deliberations and final decision making. The si~ibject is so very important.. . so complex, and so much depends on arriving at livable solutions that I am worried about my ability to capsulize and project the most important points. . . but I will try best to do so. We are forunate to be deeply involved in two HMO's in Wisconsin that are serving as excellent models for us to work with, analyze and evaluate. Since they have now been in business for a year in one instance and eleven months in the other, we've generated some actual organizational and operating facts that I want to share with you. To conserve your valuable time, I've prepared a more detailed information packet with a fact sheet about lIMO's and, consequently, I intend to verbally present a general background and description, outlining some of the problem areas and then conclude with my personal feelings about alternative delivery systems of HMO's as I perceive these systems from our experience to date. As a background, we of Wisconsin Blue Cross became interested In the lIMO concept primarily as a response to the consumers we serve.., who said, in effect, PAGENO="0249" 991 there must be a better way to deal with rising costs of health care and the way in which people must seek their medical care. As a Plan, we had employed all of the normal costs control measures such as utilization review, home care programs, educational programs, and while they bad considerable merit and some results, they were not enough. Not precisely knowing what would be involved in the commitment of resources and energy, we did conclude that the first step had to be to determine whether any doctor interest existed. Despite all our good intentions ar~d desires, without the doctor, we knew that nothing could be accomplished. In this important area we were blessed with some truly good luck and a for- tunate decision. We wanted to develop a HMA in a more rural area and one in a metropolitan area and for the rural area we selected Marshfield, Wisconsin, a town of 14,000 where a famous medical group, the Marshfield Clinic has been operating since 1919. We knew they were progressive-minded and that the quality o~ their medicine was oui~stanUing and acclaimed. .. that 100 doctors involving all specialties were available - . . that they were already on a salaried basis and so we selected them as a likely prospect. We were delighted when we called them to learn that they were greatly interested. . . had been thinking about a program * . . had talked to some others who promised an interest but never followed through. All the Clinic wanted from us was a pledge that we meant business and we did. This Clinic serves a local population area in general of about 30,000 people. They only draw, however, approximately 25% of their patients locally and only about 10% of their revenue. In Milwaukee at the same time, two doctors had been inspired by Walter J. McNerney, at an Estes Park Colorado meeting, about changing our delivery system and after a telephone call to us asking if we would be interested in sup- porting a program, we opened discussions at the same time in both areas. I appointed our Vice President of marketing, to act as the coordinator of a project that would bring two lIMO's into being by January 1, 1971 (and we didn't make that schedule.) We involved the doctors and toured the country and care- fully researched the leading prepaid group practice plans, we talked to the lead- ing advocates and critics and we employed a consulting firm to help us develop a "how to do it" cookbook.. - that we hoped would give us a logical step by step method of reaching the successful conclusion and we began to develop the pro- gram of benefits as well as conceptualize the roles and relationships of doctors, hospitals, Blue Cross and Blue Shield. Both arenas provided separate problems to be overcome. In Marshfield. - - the 100 clinic doctors consitute the total staff of St. Joseph's hospital, and thus there were no conflicts with other fee for service doctors, except in the nearby towns. We did encounter, however, a suspicion and concern from hospitals in surro'und~ ing areas who wondered if they might not lose business. It was necessar~V to hold many educational meetings and to use all possible diplomacy to get around those obstacles. In Milwaukee, however, we bad six or seven doctors facing 2,000 concerned colleagues, and thirteen major hospitals who wondered what would happen if we instituted an HMO around a single hospital (St. Mary's Hospital.) Again, it was necessary to employ all possible skill and diplomacy and we of Blue Cross acted as the coordinator of all the strategies, documenting facts, preparing brochures, bringing together examples and selling features to emphasize the need for change or for at least permitting models to come into being. I am sure that those are fairly general circumstances for any HMO that wants to get underway. . - at least those that involve a p~repaid group practice setting and capitation method. To get through this maze' of resistance to change and misunderstanding requires patience but more than that, an absolute determina- tion to keep going and succeed. Blue Cross and Blue Shield simply refused to be deterred and it takes precisely that kind of force. During this period of selling and reselling the providers that we could actu- ally get a HMO underway, we were developing all of the other ingredients that are essential. The set of benefits themselves - . . actuarial calculations and projections, surveying the market . . - worrying about all of the legal docu- ments necessary - . * the kind of risk sharing involved . . . estimating the costs of the providers - . - doctors and hospitals . . . drafting of legal contracts - - developing literature - . - training marketing men - . - establishing marketing goals and objectives . - . and throughout it all holding endless hours of meet- ings and negotiations with providers. In Milwaukee we invOlved a Children's Hospital to supply pediatric services and specialty hospital to supply psychia- PAGENO="0250" 992 tric services, th~ V.N.A. for Home Care and these new providers brought all the negotiation areas to be repeated. We decided quite properly to involve the Community . . . and In both pro- grams we developed a Community Advisory Committee . . . who viewed the projects from the consumers interests. We checked everything through this Committee. Finally, after Innumerable delays, we were ready to market the product. At this point we had Invested sixteen to eighteen months just getting ready to say to the consumer, "We are now ready to serve you with a high quality, ex- tremely comprehensive medical and health care program. . . assuring you a one door access to medical care for you and your family." We felt confident that the programs were constructed to meet the major problems of cost and access. They were geared to provide broad out-of hospital benefits, thus conserving costly beds. They Incorporated financial incentives to achieve that goal of reducing unnecessary hospital admission. The use of exist- ing clinic facilities at Marslifield minimized costs. The non-duplication of fa- cilities was achieved by utilizing the hospital outpatient faclities in Milwaukee, and other specialty hospitals. We felt they provided a setting to maximize the physicians medical skills. In general, they were and are soundly constructed and well conceived.. . but I have recited the previous problems and complexities to Illustrate that orga- nizing and developing an lIMO to the point of actual delivery is a major task involving much much more than money or mandate. . . though money is not to be discounted. The top experts from my Staff were almost continually involved . . . com- puter experts, actuarial experts, hospital and doctor relations people, market- ing, public relations. . . practically every dimension of our Plan, and since, in a sense, an lIMO is a sort of complete sub-Blue Cross, Blue Shield Plan, its easy to see why so many are necessary. 1 think the significant fact, however, in that we proved that a Blue Oross~ Blue Shield Plan without outside help could rally the providers together and get such major undertakings underway. it demonstrates that using local re- sources and Ingenuity you can go a long way! Once ready to sell the services, we found, not surprisingly, that no lines formed outside our building, phones didn't ring with buyers insisting to be included. In Milwaukee we had to guarantee the medical group an enrollment basis of 15,000 so they could meet their expenses . . . in Marnhfield this wasn't necessary. In short, while there was a healthy interest, there was a general reluctance to change . . . there was a wait and see attitude . . . a prove `It first attitude, and it became quite evident that forming an lIMO is one thing and marketing is quite likely the most vital part of it all. Fortunately, we had developed a hard-hitting marketing plan and some ex- cellent and dedicated salesmen who carried out their role extremely well. Even so, it took fifteen. months to finally achieve some 15,000 people in both areas. in closing, i'd like to touch briefly on results . . and then a few recommenda. tions. At the end of the first year in Marshfield, we found a slightly lower use of Jn-honpita~ days . . the big clinic was previously doing a good job In this area. in Milwaukee we had a substantial change in hospital days used. We estimated they'd use 790, and the last figures were 538 patient clays per 1000 persons! We've surveyed customer satisfaction and find that the vast majority are happy and encouraging others to join. The doctors and hospitals feel they've made great progress and are proud of their commitment and achievemen~ and are anxious to continue. The normal and understandable resistance to change has been broken to the extent that we are now plannin.g three more lIMO's to be initiated in 1972 and to start in 1973. Because of too conservative actuarial estimates in the first year, we were underpric,ed, but the new prices are still quite competitive and we have played our role in this area by negotiating the best possible bargain for our customers. We are encouraged but not overconfident with our results to date and on the basis of this would: like to offer you these recommendations: 1. lIMO's are an excellent alternative delivery system and while fee for serv- ice systems can be incorporated, I feel that capitation methods offer the greatest potential. While an optimum size could be 25,000 to 30,000, we are breaking even at 15,000. PAGENO="0251" 993 2. If any substantial number of HMO's are to be developed In a relatively short period of time, a catalyst force such as Blue Cross-Blue Shield must pro- vide the central force and direction. We of Blue Cross, locally and nationally, are prepared to do this. We have a motivation that is detached from preserving the status quo and we have the expertise to get them underway in a minimal time. In Wisconsin we now feel we can get one operational within six months. 3. It must be understood that marketing is a major part of the game. The better mousetrap still doesn't sell itself and neither do HMO's. Again, market- ing is a way of life with Blue Cross-Blue Shield. With no immodesty intended, we've always bad the better product . . . but have found It essential to market our product. I cannot overemphasize how important it is to sell the customers on such a change. It requires a high degree of salesmanship. 4. Money is needed but in my opinion the Secretary of HEW should have as broad as possible discretionary power so that he can enter into joint venture agreements with as little red tape and constraint as possible. If he can select those areas where people with know-how and a track record exist, he can accom- plish major objectives in minimum time. If grant applications and endless reels of regulatory red tape and guidelines and constraints are involved, we're all just going to get too weary to carry on, or at least get many projects underway. In addition, the amount of money needed to get an HMO underway will vary widely by geographic location, existing facilities, type of HMO, and the talents and know-how that are available. I think the amounts to be allocated should be loose . . . not rigid. Gentlemen, I can pledge our continued interest and concern in Wisconsin and further assure you that we will not relax our efforts to find and support better ways to deliver medical care. A quote from Cardinal Newman summarizes our philosophy about HMO's: "Nothing at all would be done if a man waited until no fault could be found with it." Tna GREATER MARSHFIELD COMMUNITY HEALTH PLAN OBJECTIVES The Marshfield Clinic, St. Joseph's Hospital, the Wisconsin Blue Crest Plan and Surgical Care Blue Shield have united their abilities and resources to create a comprehensive health plan responsive to community need's with these policies as guidelines: 1. To provide as broad a range of Hospital Service `and Medical Service as possible with emphasis placed on the prevention of illness, early disease pre- veiriion, health maintenance and alternative to Inpatielti services. 2. To seek through the prepayment mechanism `to reduce administration costb. 3. To stabilize rising health care costs `through administering the program within a yearly budget that calls for the effidieiri use of medical and paramedical personnel and physical facilities and equipment 4. To endourage the use of Outpatient, Skilled Nursing Facilities and Home Care Services, rather than inpatient hospitalization whenever consistent with the medical needs of the patient. ELIGIBILITY Open to all people under age 65 who work or live in the target area (within about 20 miles of Marshfield). Total population in areas about 48,000. ENROLLMENT As of May 1, 1972 enrollment in TGMCHP totaled 13,665. FACILITIES St. Joseph's Hbspi'tal-408 beds, acute general be~pital, full range of services including open heart surgery, renal dialysis, iuten5ive care. Marshfield Clinic-100 phylsieians, representing virtually all specialties. BENEFIT SCOPE Visits for illnesses and accidents covered in full. 365 day's-per-admission inpatient hospital care coverE~d in full. Specialists' care and consultation covered in full. PAGENO="0252" 994 Surgery and intensive care covered in full. X-ray examinations, chemical and biological tests and procedures covered in full. Coronary care covered in full. Radiation therapy covered in fulL Non-bed outpatient care covered in full. Treatment of allergies, including injections, covered in full. Visiting nurse covered in full. Rome calls by physician, when medically necessary, covered in full. Maternity care: delivery and care before and after birth, plus well-baby care, covered in full. Mental care: 70 days per period of disabilIty, 90 day separation, plus 10 clinIc visits, covered in full. Out of area care, covered for emergency conditions. Use of extended care facilities. Two days for each day of hospital care, cover- ing convalescent and long-term illness. Vision care: eye examinations and prescriptions for glasses. RATES Community Rated. Single-$17.oo per month. Famlly-$49.80 per month. INCENTIVE PROGRAM O.E.O. studies of the Greater Marshfield Area conducted through the State University at Stevens Point indicated existing hospital usage to be .86 days per person per year. Incentive program for the reduction of in-patient care was established at .85 days per person per year, with hospital days counted as 1 for 1, ECF days as 2 for 1 and VNA visits as 4 for 1. Fifty percent of the savings are paid by the fund to the Clinic - . 25% to the hospital in recognition of its cooperation and to reimburse it, to some extent, for the loss of income on the reduced days. and 25% to Blue Crosa-Surgical Care Blue Shield as a return of development costs. In each succeeding year, the actual days used per participant per year will be increased by .05 days as the basis for calculating the incentive savings as of that succeeding year. RISK SHARING The Greater Marshfield Community Health Plan is a joint venture by the Marshfield Clinic, St. Joseph's Hospital, Blue Cross and Surgical Care Blue Shield. At the termination of the program and after all obligatio~ save been paid (or at least calculated) any remaining funds or deficiency will be shared equally by all parties. SATELLITE CLINICS Members of TGMCIJp can receive services on a fee-for-service basis from physicians at the Colby Clinic and Stratford and Pittsville, small cities within the target area. ADVISORY COMMITTEE Members of the community serve on an Advisory Committee which meets monthly to: 1. Provide local community direction and responsiveness to existing conditions. 2. Assist in establishing interest and gaining support. for foundatic,ns~ 3. Recommend policy to the Operating Board (The Clinic, Hospital, Blue Cross & Surgical Care Blue Shield). 4. Provide an avenue of communication from members to the operations of the program. 5. Review and recommend on financial matters. 6. Review and recommend on benefit changes and areas. PAGENO="0253" Participants 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 PGP ENROLLMENT GROWTH IN MARSHFIELD 11,623 9,800 8,197 5,380 6,000 5,000 4,000 3,000 2,000 1,000 4,065 C;' MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY PAGENO="0254" ~96 MILWAtYKEE COMPCABE PROGRAM - OBJECTIVES The Northpoint Medical Group, Ltd., St. Mary's Hospital, the Wisconsin Blue Cross Plan, and Surgicat Care Blue Shield have united their abilities and re- sources to create a comprehensive health plan responsive to community needs With these policies as guidelines: 1. To provide as broad a range of Hospital Service and Medical Service as possible with emphasis placed on the prevention of illness, early disease pre- vention, health maintenance and alternatives to Inpatient servicon 2. To seek through the prepayment mechanism to reduce administration costs. 3. To stabilize rising health care costs through administering the program within a yearly budget that calls for the efficient use of medical and paramedica~l personnel and physical facilities and equipment. 4. To encourage the use of Outpatient, Skilled Nursing Facilities and Home Care Services, rather than inpatient hospitalization whenever consistent with the medical needs of the patient. ELIGIBILITY Offered to groups with 25 or mo~~e employees in the greater Milwaukee area. ENROLLMENT Participants in the Compcare program totaled 15,112 as of May 1, 1072. FACILITIES St. Mary's Hospital-acute genergl hospital with 306 beds, intensive and coronary care and burn center. Twenty-six physicians `representing the major specialties as well as general practice. Milwaukee Children's Hospital-for pediatric services. St. Mary's Bill Hospital-for psychiatric services. DePaul Rehabilitation Hospital-for alcoholic services. Visiting Nurse Association-for Home Care. BENEFIT SCOPE Visits for illnesses and aecidents covered in full. 365 days-per-admission inpatient hospital care covered in full. Specialists' care and consultation covered in full. Surgery and intensive care covered in full. X-ray examinations, chemical and biological tests and procedures covered in full. Coronary care covered in full. Radiation Therapy covered in full. Non~bed outpatient care covered in fulL `Treatment oct allergies, including injections, covered in full. Visiting nurse covered in full. Home calls by physician, w~hen medically necessary,, covered in full. Maternity care: delivery and care before and after birth, pins well~baby care, covered in full. Mental care: 70 days per period of disability, 00 day separation, plus 10 clinic visits, covered in full. Out of area care, covered for emergency conditions. Use of extended care facilities. Two days for each day of hospital care, cover- ing convalescent and lung-term illness. Vision care: eye examinations and prescriptions for glasses. RATES Community rated. Single-$2L90 per month. Family-$'57.33 per month. INCENTIVE PROGRAM Experience indicated that in Milwaukee our subscribers were using 1.0 days per participant per year. We discounted this for the full one-third savings in in- patient days expected in a P.'G.P. environment. Accordingly, we established .og PAGENO="0255" 997 days per participant per year as the base from which we would calculate incen- tive savings at the rate of $100 per day. FIfty percent of the savings between "calculated" and "actual", aceruen to the Northpoint Medical Group LTD. The balance remains in the fund for the bene- fit of the participants. In each succeeding year, the actual days used. per participant per year will be increased `by .05 days as the basis for calculating the incentive savings as of that succeeding year. RISK SHARING Because Northpoint Medical Group, LTD., was a fledging organization unable to commit itself to an equal share of any loss. . . an.d `because St. Mary's Hos~ pital wished to limit its loss potential to $100,000 . . the joint venture was written in such a manner that the parties to the agreement would share equally in any surplus on dissolution of `the joint venture, but the deficiency was to be shared as follows: Norhpoint Medical Group LTD. Return of all funds reccived above actual cost, not to exceed 25% of the de- ficiency. St. Mary's Hospital $100,000, not to exceed 25% of the remaining deficiency after settlement by the Clinic. Blue Cross/Surgioal Care 25% each of the `balance of the deficiency after settlement by the hospital. ADVISORY COMMITTEE Members of the community serve on an Advisory Committee which meets monthly to: 1. Provide local community direction and responsiveness to existing conditions. 2. Assist In establishing interest and gaining support for foundations. 3. Recommend policy to the Operating Board (The Clinic, Hospital, Blue Cross & Surgical Care Blue Shield). 4. Provide an avenue of communication from members to the operations Of the program. 5. Review and recommend on financial matters. 6. Review and recommend on benefit changes and areas. PAGENO="0256" Participants Enrolled 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 PAGENO="0257" 999 ADMINISTRATION Blue Cross performs the marketing, billing and collection functions of the Greater Marshfield Community Health Plan and Compcare Insofar as the sub- scribers to the program are concerned. In addition, Blue Cross maintains the finanrial accounts of the funds, receiving monies from the subscribers, from interest and from subrogation and coordination of benefit recoveries, and pay- ing the providers of care. This latter payment function includes the monthly capitation to the Clinics, per diem and out-patient payments to the hospitals, along with payments to out-of-area doctors and hospitals for referrals and emergency medical and accident cases. Marketing and Actuarial consultation services are provided in the evaluation and rating of the program and Blue Cross/Surgical Care staff personnel are available for periodic meetings with the clinics, hospitals and advisory boards. The Blue Cross charge for administration is $1.00 per participant per month on less than a 5% retention. RENEWAL New rates are being negotiated for renewing the respective contracts July 1, 1972. These new rates in Marshfield will include several new controls- 1. All married persons will need to be covered by a family plan-no two single contracts will be available for married couples. 2. Any person hopping out of the plan who becomes a member again will be subject to a six month waiting period before services for pre-existing condi- tions are covered. 3. Most importantly physicians and the hospital will truly be on the risk. The Marshfield Clinic will receive a capitation payment as payment in full for physician services rendered by the Clinic. Physicians are more involved in the economics of health care than ever before and are assessing the quality of care. The hospital is also truly sharing the risk in accepting the negotiated agree- ment as payment in full. SUMMARY To summarize, briefly, we have to give the customer what he wants-true value for his health protection dollars. One of our objectives is the stabilization of costs through less reliance on in- patient hospitalization. We have lowered in Marshfleld inpatient hospital utili- zation to .707 days per person. This is vitally important if we are to make any real progress in holding down health care costs. And yes, we now have physicians and hospitals agreeing to truly share tfle risk. This does not happen over night, but comes with working together and facing community problems together. Our experience with POP plans is somewhat limited. But we are encouraged by our steady membership growth, our customer satisfaction, and the increased cooperative efforts of the physicians and hospitals we work with. (The following letter was received for the record:) BLUE Cnoss ASSoCIATIoN, Washington, D.C., May 31, 1972. Hon. PAUL 0. ROGERS, Interstate and Foreign Commerce, $ubcommittee on Public Health and Environ- ment, 2125 Rayburn House Office Bwtlding, Washington, D.C. DEAR CONGRESSMAN ROGERS: You will recall that on May 10 the Blue Cross Association testified before your Committee on HMO legislation. One of your witnesses, Leo E. Suycott, President of the Wisconsin Blue Cress Plan, reported on the experiences of his organization in establishing two HMOs in the State of Wisconsin. Attached is a press release from the Marshfleld News Herald of May 22, 1972 which provides some further details on the operation of the Greater Marshfleld Community Health Plan. Very truly yours, GEORGE J. KELLEY, Vice President, Washington Representation. Attachment. 81-185 0 - 72 - pt. 3 - 17 PAGENO="0258" 1000 [From the Marshfield News-Herald, Monday, May 22, 197~} COMMUNITT HEALTH PLAN RE-OPENING ENROLLMENTS The Greater Marshfleld Community Health Plan is celebrating its first ann!- versary by re-opening enrollment until July 1, according to a joint announcement by the program's sponsors-St. Joseph's Hospital, the Marshfleld Clinic, Wiscon- sin Blue Cross and Surgical Cars Blue Shield. Enrollment presently is 13,665-the largest rural prepaid group practice com- munity program of its kind in the nation. Persons living or working in the Marshfleld area are eiigible to join. Physicians in Pittsville and Stratford and the Colby Clinic have also been participating in the program. Services are now being expanded to include the city of Abbotsford. Program sponsors also announce that new rates effective July 1 will be $25.95 for single co(rerage and $56.90 for family. The new rates are based on the actual cost of the community program for the past year. To encourage a fuller participa- tion of family membership, the sponsors are requiring all members to enroll by marital status. Husbands and wives now holding two single contracts will now be required to switch to a family contract. There is no recovery factor buiLt into the new rates. Both the hospital and clinic have agreed to a set capitation, and if services rendered cost more than provided, the hospital and clinic will stand the loss. Committed to the highest quality of health care, both institutions are actively seeking more effec- tive, economical ways to deliver health care. This positive program should have the effect of slowing the escalation of health care costs in the future. David R. Jaye Jr., president of the hospital, said, "To some extent the hospital has subsidized the operation, of the Greater Marshfleid Community Health Plan in its first year because of a difference between the amount received in payment of hospital services provided members of the Plan and the actual costs of ration of the hospital on a per day basis. We will continue to explore every feasible avenue toward new cost saving efficiencies ~nd are committed to our belief In the Greater M'arshlleld Community Health Plan as the way of the future." Dr. David Ottensmeyer of the clinic, expressed his institution's concern With holding down costs ~vherever possible without sacrificing quality of health care. He explained, "The clinic is :stcadfastly working toward the installation of new procedures and efficiencies which will continue the quality of care being rendered and decrOase the cost of delivery of tbese services." Dr. Ottensiueyer pointed out that during the plan's first year of operation, an average of 1,528 members sought services from the clinic each month, included among the services to members were 12,753 office visits, 23,529 diagnostic labora- tory tests, 1,520 eye exams, 1,262 pre and post operative exams and 865 complete histories and physicals. During the open enrollment period all pre-existing conditions, except mater- nity are acceptable. Benefits under the health plan include a wide range of preventive, diagnostic, medical and surgical treatment including office calls, X-ray therapy, treatment of allergies, physical examinations, physical therapy, immunization and immunizing agents. Other benefits include 365 days of inpatient care in a semi-private room per admission, all supporting treatment services and medication required during hospitalization plus emergency care. Maternity benefits cover pernatal services, delivery, post-natal services and well-baby pediatric care. Treatment of mental disorders is covered for 70 days plus 10 outpatient visits. House calls are coy- ered when medically necessary and Visiting Nurse service is covered as well. Out-of-area coverage provides for treatment of emergencies occurring while a member is away from Marshfleld. It will also apply to the rare cases in which the nature of the illness calls for highly Specialized treatment not available at the clinic or hospital. Persons living or working in the following areas are eligible to join: Sher- wood, Lynn, Fremont, Colby, Mayville, Unity and Sherman townships in Clark County, Brighton, Eau Pleine, Cleveland, Emmet, Spencer, MeMillan, Day and Green Valley, Holton and Hull townships in Marathon County and* Lincoln, Rock, Cary, Cameron, Richfield, Auburndale, Arpin, Hansen, Milladore, Sherry and Sigel townships and the city of Marshfleld and Wood County. Mr. ROGERS. Thank you very much for' an excellent statement. PAGENO="0259" .1001 STATEMENT OP DAVID W. STEWART Mr. STEWART. Mr. Chairman and gentlemen, I come from a small town in a relatively rural area that does not have an HMO going yet. So we are trailing along. Our area encompasses a population of just under a million people. Under local leadership, spearheaded by Marion Folsom, it has developed a lot of programs in health care, par- ticularly involving organization and health planning and cooperative action. Mr. ROGERS. The committee is familiar with the fine contribution Mr. Folsom has made since he was Secretary. Mr. STEWART. I swear he is just as sharp as ever. Mr. ROGERS. He is amazing. Mr. STEWART. Despite all of this, we found ourselves with premiums skyrocketing in the middle 1960's and after medicaid they accelerated at even a faster rate. In this environment, Blue Cross, hospitals, doctors, and planners joined together at the request of Rochester industry to take some con- structive action about the problem. You have a copy of the community committee report with a list of the membership. I won't go over that. I think it is interesting that such a mixture of people came up with this kind of paper. In essence, they felt that while some shprt-range economies could be made in the current system, just as they could be made in. any sys- tem, for really significant long-range impact this group felt they had to point toward a greater degree of change than could realistically be expected from the current system. Six months after their first meeting the group recommended estab- lishment of a closed panel prepaid program and they asked Blue Cross and Blue Shield to carry this out for the community. In response, the Blue Cross-Blue Shield boards-the State of New York requires that they be separate corporations-the boards voted a $600,000 imple- mentation budget. Now, this is back a ways before grants were coming around. We started, and about 8 months later the Department of HEW through the Group Health Association of America and the Blue Cross Associ- ation and National Association of Blue Shield Plans gave us a grant of about half a million dollars to demonstrate the establishment of a group practice program in a sort of world record concept: we would do it in an 18-month period, which was less than half the previous time. Following this we now have a new coporation called the Genesee Valley Group Health Association and a new board made up of repre- sentatives not chosen by Blue Cross, but by all groups committed to the success of the program. You have a list of the membership of the board, I think, in the material. We have an executive director and medical director and we have a medical center designed and ready to go on the site of a community hospital which we are trying to get access to, but that is a zoning problem and nothing that we can do anything about. But it is an illustration of the infuriating frustrations that you can get in the business. There isn't a hand raised to help, I tell you. Our new budget totals approximately $4 million. That includes about 3.25 for the health center which will serve about 30,000 to 40,000 PAGENO="0260" 1002 people. The Federal grant goes for startup expenses. All expenses, all deficits, will be absorbed by Blue Cross and Blue Shield. There will be a single overall administrative group for all of the programs. There is a single administrative group for Blue Cross and Blue Shield now and the group practice will become part of that in order to provide maximum flexibility and simplicity and economy for the program and its subscribers. Even more important than the tan- gible signs are the attitudes that we think have been developed in the community toward this program. This is essential because, mind you, the original source of energy did not come from the health field in this regard or from the Government. Rochester business, industry and labor communities are not only supportive of this program, they are participants in the creation and organization of group practice. We anticipate no problem with the key issue of availability of choice of group practice as an option to the overwhelming majority of people in the Rochester ari~a. We feel that every area of the country has a certain local strength to progress which varies with different factors. The structure of Blue Cross and Blue Shield, which is locally oriented, enables the plan to make maxi- mum use of this local strength. We think the fact that Rochester industry and labor turned to Blue Cross and Blue Shield as their unanimous choice to carry out this program is evidence of this capability. No question but that group practices encounter a basically hostile environment and their creation requires all the strength and local expertise that you can summon. I will just add one more point. The $4 million that we are committed to-you were speaking about assets this morning briefly-is over 15 percent of the total assets of our corporation. We are really going with this thing all the way. We are going to do it and you can't sit back and play with this any more than you can with the establishment of any other sort of revolutionary business. You have to go all the way. That is what we are doing. (Testimony resumes on p. 1006.) (Mr. Stewart's prepared statement and attachment follow:) STATEMENT OF DAVID W. STEWART, MANAGING DIRECTOR, ROCHESTER ROSPITAL SERVICE CORPORATION, ROCHESTER, Nuw YORK; AND MANAGING DIRECTOR, Rocii- ESTER BLUE CROSS PLAN THE ROCHESTER GROUP PRACTICE STORY The Rochester Blue Cross Plan encompasses a relatively small area in Upstate New York with a total population of just under a million. The Rochester area problems in providing and financing health care are similar to those encountered in most other sections of the nation. By the middle 1960's Rochester, under the leadership of Marion Folsom, had spent twenty years building a program of health planning and cooperative ac- tivity. The Rochester Blue Cross Plan had the broadest basic contract in the country available to all people in the area at a community rate which was one of the nation's lowest. But even so, premiums were accelerating at about 10% each year with no end in sight. Even Medicare caused only a temporary pause in rates which then proceeded upward 50% faster than before. In this environment, everyone, Blue Cross, hospitals, doctors, planners, in- dustry and labor, joined together at the request of Rochester industry for an analysis of What positive action.s could be taken to change direction. You have their report. In essence, they felt that some short-range economies could be made in the present system. But their primary concern for more effective use of health care dollars pointed them toward a greater degree of change than could realis- tically be expected of the current system. The most promising development which PAGENO="0261" 1003 had demonstrated both greater economy and accessibility and which bad stimu- lated constructive competition was the Kaiser type of group practice. Six months after their first meeting, the group recommended the establishment of a closed panel pre-uaid program. The report, now generally called the "von Berg Report," said, "Blue Cross and Blue Shield should do the job." It also recommended that a Foundation program be made available to provide a broader range of individual choice and for more effective comparison between systems. The selection of Blue Cross and Blue Shield was quick and simple. No other organization had the same combination of ability and desire to establish a pro- gram involving such great change. The Blue Cross-Blue Shield Boards responded by adopting a $600,000 `implementation budget. Dr. Ernest W. Saward, Medical Director of the Kaiser-Portland program, acted as consultant to this early group effort. Subsequently he became Associate Dean of the University of Roches- ter School of Medicine and has provided the basic expertise in fast tracking our program. Following the establishment of the budget, a Coordinator was employed in early 1971 and the program started its struggle through the labyrinth of obstacles that surrounds the successful creation of group practice. In July we were awarded a grant of almost half a million dollars by the Department of Health, Education and Welfare through Group Health Association of America, the Blue Cross Asso- ciation, and the National Association of Blue Shield Plans, to demonstrate the establishment of a group practice in 18 months' time. This was less than half the previous world record. We now have a new corporation, the Genesee Valley Group Health Association; a new Board made up of representatives of groups committed to the success of the effort: a cooperating community hospital; an Executive Director; a Medical Director; and a health center designed and ready to go on a site on the grounds of the Rochester General Hospital. Unfortunately, we have lost 3 months trying to get access to the site. Our new budget totals approximately four million dollars, including three and a quarter million for the medical center to serve 30-40,000 members and the rest for start-up expense and initial losses. Outside the Federal grant, expenses will be paid by Blue Cross-Blue Shield. There will be one overall administrative group for Blue Cross, Blue Shield and the Genesee Valley Group Health Association in order to provide maximum flexibility, simplicity and economy for programs and subscribers. Even more important than the tangible signs of success are those which involve attitude. The Rochester business, industrial and labor communities are not only supportive of this effort, they are participating in its organization through the new Genesee Valley Group Health Association Board of Directors and other related activities. We anticipate no problem with the key issues of the avail- ability of the choice of group practice as an option to the overwhelming majority of Rochester employees. Every area of the country has a certain genius of place-a local strength or ability to progress which varies with issues and time. The multiple plan structure of Blue Cross~ and Blue Shield with their local orientation .and understanding enables these Plans to make maximum use of this unique strength. The fact that Rochester industry turned to Blue Cross and Blue Shield is tangible evidence of this capability. Group practice programs inevitably encounter a basically hostile environment. Their creation requires all the support and local expertise available. Where it is possible to establish group practice, Blue Cross presents the best opportunity for success in multiple locations across the country. REPORT or THE ROCHESTER COMMUNITY ADvISoRY COMMITTEE To STurDY THE FINANCING AND DELIVERY or HEALTH CARE In Rochester-and in the nation as a whole-there are serious and basic problems concerning the organization, financing and productivity of health care. Significant improvement has been slow. But now, the extraordinary in- crease in the cost of the traditional patterns of health care, particularly hos- pital care, demands bolder community moves with greater impacts than have characterized the past. It's time for action. It's time to take all the best ideas now at our disposal and press on to put them to work. This Committee unanimously feels that changes in the system of financing and controlling medical care offer great opportunity for improving both the PAGENO="0262" 1004 cost and the effectiveness of health care. While such opportunity and potential are constantly discussed at the national level, it is only at the local level where such innovation can be accomplished. The Rochester area, ~because of its size, organization, strong interest in health planning, high quality of medical care and facilities, and unusual depth of enrollment in Blue Cross and Blue Shield, has a capability to effect change that is truly unique. The Committee unanimously believes that new systems should be available for the choice of the people in the area which place a new emphasis on preventive care, review of effectiveness, improved use of health manpower and overall econ- omy. The Committee unanimously recommends that Blue Cross and Blue Shield take the necessary steps to establish a Comprehensive Prepaid Group Medical Practice in this community to be operational in 1972, and that the recently an- nounced Monroe County Medical Society's "Monroe Plan" for medical care be implemented as promptly as feasible. This Committee recognizes the parallel objectives of both these Plans, and concludes that availability of more than one new program will provide the community with greater choice, make possible more effective system compari- sons, and be generally in the best interests of the public. The recommendations by this Committee are founded on the concept that greater emphasis on basic ambulatory care and preventive techniques can re- duce institutional care, which is primarily bed-oriented and most expensive in nature, and effect an overall improvement in the use of the community's health care dollar. Both Plans contain the criteria of guarantee of comprehensive care, physician control and review of quality, freedom of subscriber choice in- cluding option to leave or enter program annually, premiums to be self-sustain- ing, and program available to Medicare and Medicaid subscribers. 1. Cost.-The already high cost of our current system of health care has an apparently built-in annual rate of increase over 10%. Major infusion of gov- ernmental funds via Medicare and Medicaid have eliminated financial barriers to health care on the part of many, but they have also contributed to the ac- celerated rate of cost increase for all. There is every reason to expect that without built-in systematic changes which insure delivery and control expense, the pouring in of additional governmental funds will continue current trcnds~ These recommendations hold the promise of demonstrating the capability of new systems. 2. Quaiity.-Despite the high reputation of our medical community, there is an almost complete absense of established, written standards by which to meas~ ure the effectiveness of patient care. The Committee charges the providers, financers and planners with chtabliuhing basic data which will enable the Rochester community to effectively evaluate its health care programa 3. Manpower.-All categories of health personnel are in short supply. On the one hand, the supply of physicians in proportion to the population is always below demand-on the other, we know that use of new less~than-physician pro- f~ssionals has the potential to dramatically increase physician productivity. This, in turn, involves the need for whole new concepts of team care~ In Rochester, the Genesee Region Educational Alliance for Health Personnel is ready to com- bine its efforts to create new methods of training new types of health personnel. The proposed Group Practice promises the opportunity to explore this potential of "physician-expanders" to an unusual degree. FEATURES OF THE COMPREHENSIVE PEEPAID GROtIP PRACTICE PLAN The Committee believes the Comprehensive Prepaid Group Practice Plan has de~monstrated unusual success in tackling the basic problems of cost and organi- zation in other areas of the country. Specifically, Group Practice, as recom- mended by this Committee, involves: Payment of premiums higher than present because almost all medical care is covered. It te believed this broader scope makes it possible to use the meet appropriate rather than the most expensive services. The program actually guarantees its subscribers comprehensive care including home and office care, consultant service, well-baby care, preventive care, emergency care, ~te. Delivery of care is provided by physician groups or partnerships which will contract with Blue Cross-Blue Shield to provide comprehensive services for an annual fee. In effect, this provides an organizational framework for the delivery of care that can uSe the management skills of planning, budgeting and programiping. The reward for all parties is in keeping the patient well and PAGENO="0263" 1005 using economical means of care. This system stimulates the effective use of new health professionals. The ability to use a team with ambulatory patients makes physicians more productive-makes it possible to introduce the new health careers our local institutions wait to train. Oontrol of effectiveness is maintained by constant peer review within the group. Utilization review, traditionally performed only in the hospital, con- tinues for routine care. Unit records, where every service ren1dered is seen by every physician procviding care, improves both quality and economy. Establishment of a group building close to or part of a community hospital which has the desire to encourage and work with such a program is needed. The Committee clearly understands that these factors represent both suc- cess and resistance. In general, it is hoped we can obtain the reduction in hos- pital days of about one-third which has been demonstrated in other areas. Premiums are bound to be higher than currently by reason of expanded benefits. However, long-run savings should accrue to the entire community as enrollment grows and inappropriate use of hospital beds declines. IN SUMMARY A Community Committee was formed to study the problems of health care. The Committee feels that the basic problems are common to all parts of the country, including Rochester. The Committee feels the community will benefit if new and promising methods of providing health care are made available in the area so that people have a choice of the ways in which their health care is organized. It is recognized that one single program may appeal to some and not to others. But there is more than enough room for all programs meeting the cited reasonable criteria. The Committee feels it is essential for the community to have some method of evaluating and measuring the effectiveness of different ways of providing and financing its health care. For the reasons already covered, the Committee believes the establishment of a Comprehensive Prepaid Group Practice and the implementation of the Monroe Plan would be important forward steps. Starting any innovative health program of broad scope requires not only approval but significant community support. The use of the existing Blue Cross-Blue Shield organizations offers the poten- tial of extraordinary savings in that they eliminate the need for creating a new and competitive business or financial organization. It is based on this background of priority and urgency affecting the entire community that this Committee has recommended that Blue Cross, Blue Shield, hospitals, doctors, business, labor and industry accept this challenge to proceed with the effort necessary for starting two innovative health care plans. THE COMMITTEE E. Kent Damon-Vice President, Secretary-Xerox Corp. Gerald L. Glaser, M.D.-Past President, Monroe County Medical Society. Hon. Harry P. Goldman-Presiding Justice, Appel. Div., Supreme Crt. NYS. William E. Green-Lawyer, Vice President FIGHT, Industry Training School. Harold A. Mosher-President, Genesee Region Health Planning Council (CHP). J. Lowell Orbison-Dean of Univ. of Rochester School of Medicine. John B. Stevens, Jr.-Administrator, Highland Hospital. Norbert B. Stevens-President of Local 509, IUE, AFL-CIO. William L. Sutton, M.D.-Medical Director, Eastman Kodak Company. LaRoy B. Thompson-Vice President, University of Rochester. William G. vonBerg-Executive Vice President, Sybron Corporation. Mrs. Robert H. Wadsworth-President, Neighborhood Health Centers of Monroe County. Philip M. Winslow, M.D.-President, Monroe County Medical Society. William B. Woods-Administrator, Park Avenue Hospital. GENESEE VALLEY GROUP HEALTH ASSOCIATION-BOARD COMPOSITION 4-Blue Cross: Corporation President Banking Executive PAGENO="0264" 1006 Corporation Division Manager Industrial Association Director 4-Blue Shield: Physicians. . .2 Corporate Public Relations Executive Corporate Vice President 4-Hospital: Physician Construction Executive Oorporate Executive Banking Executive 1-President AFL-CIO Central Trades and Labor Council 1-Ainalgamated Clothing Workers 1-Communications Workers of America 1-League of Nursing 1-Oorporate Executive 1-Neighborhood Health Centers 1-Citizens Planning Council 1-Comprehensive Health Planning 1-County Government Executive 1-Board of Education and Housewife 1-Physician Head of University Student Health 1-President Urban League and Professor 1-Retiree 1-President Aged Council 1-Neighborhood Organization President 1-Physician-County Medical Society Mr. ROGERS. Thank you very much for very I~e1pfu1 statements. Am I right that you intend to have 280 HMO's by 1980? Mr. NCNERNEY. In the decade, that is right. Mr. ROGERS. This is by 1980, or 10 years from now. Mr. MONERNEY. By 1980. Mr. STEWART. It depends on how you count these things. By 1980, we anticipate having a network of at least 10 centers. When Mr. MoNerney gets a count from Rochester , that is one. We are having a ~ingle structure that is forming a complete network in the entire area serving all of the people in the area: Rural, inner city, and working population. Mr. MCNERNEY. Of course, that pattorn might vary outside of Roch- ester to more autonamous situations. If you pin me down too tightly, you will cause me difficulty here. Two hundred and eighty, approximately. Mr. ROGERS. It could be more? Mr. MONERNEY. Yes. Mr. ROGERS. What is the population that you feel is necessary to make an HMO a paying organi~aJtion? Mr. SUY0OTT. We would like 20,000 to 30,000. We are settling for 15,000. We are breaking even with it. It is a functioning affair. I be- lieve that is a sufficient amount, 15,000 people, in one pot. Mr. ROGERS. As I understood, you have one that has been in exist- ence for a year. Mr. Suycorr. For a year. It has roughly 15,000. We are stretching a bit; about 13,500 in now. Mr. ROGERS. All of these people were your policyholders before they joined? Mr. SUYCiYPr. No; they weren't. In Milwaukee, our eompcare program is available to groups of peo- ple on a dual choice basis. PAGENO="0265" 1007 In Marshfield, a rural area, it was available on an open enrollment basis, come one, come all. So, we have a contrast there. Many of them were not our subscribers. Mr. RoGERS. As I understand in Marshfield you have 100 doctors. Mr. Su~com One hundred doctors. Mr. ROGERS. They are all in the system? Mr. 5uyc'o~r'r. They are all in it. Mr. Rooio~s. Is there any for-fee service? Mr. Suycopp. No; it is all capitation. Mr. RoGERs. There is no choice there? Mr. Suycorp. In Marshfield, there is no dual choice. You take that one or you can choose a private market program. But there is no dual choice option available to you when you go up to enroll in that program. Mr. ROGERS. Also, you can't get any medical care unless you join? Mr. Sr~~com Well, you can have medical care and be a member of the Aetna Insurance program or Travelers or something like that, but you are not involved- Mr. Roo~s. Not in HMO? Mr. Srjycorr. In the sense you get the same sort of treatment, be- cause you are working with the clinic group and you are working with the hospital there. But it is a little different scope of benefits. You don't have the preventive kind of medicine involved in the programs. Mr. ROGRRS. I think it would be well if we could have for the record what you feel the benefits should be, the basic requirements. Maybe you have given us that in your basic statement. Mr. Suycorrr. I gave it in the presentation and in the booklet I gave you is the set of benefits. They are precise in both areas. Mr. ROGERS. What are you finding on costs? Mr. MONERNEY. Could I make a comment before you move to costs? Mr. ROGERS. Certainly. Mr. MONERNEY. There should be some flexibility in your mind iii regard to the benefits. If you were to strike a countrywide standard, in my mind it should be low. You can build on it with building blocks, supplement it by an overarching type program, but this would enable you to accommodate to two things: One, the varying capacity of communities to deliver benefits; and Two, the willingness of the people in the area to pay the amount, whatever it is, or to give up their other buying habits over night. I hope you have a feeling, Mr. Chairman, of flexibility in this regard. Mr. ROGERS. What is your feeling about setting basic benefits for all insurance policies? Mr. MONERNEY. You mean countrywide? Mr. ROGERS. Yes. Mr. MCNERNEY. Whether they are ilMOs or not? Mr. ROGERS. Any health insurance policy. Mr. MONERNEY. I think when the Congress addresses that issue you have national health insurance. At this point, some mandated mini- mum benefits would be a desirable thing. My only concern is that this would unleash yet more purchasing power if it is not aimed with a total program of areawide planning, utilization review and support mechanisms, to control the inflation that now plagues this field. PAGENO="0266" 1008 So, that point should not be considered, (a) in isolation, or (b) just in conjunction with HMO's. It should be part and parcel of a total con- cept of national health insurance. Mr. ROGERS. Did you think you can only go when you have national health. insurance? Mr. MCNERNEY. I am using the words "national health insurance" to describe a program that addresses the total population even though the Government participation would be selective. For example, the Government might concern itself directly with medicare., a federalized medicaid, and there would be a mandated pro- gram which would be essentially private. That is national health insurance. But, in addressing that issue~, one has to come to terms with the control and incentive situation or what you will do is end up creating more money to buy service and a response that is likely to be quite inflationary. Mr. Rot. If we mandated a certain package of benefits in all health insurance policies, would we thereby presently price some people out of the market who can presently buy some health insurance? Mr. McNERNEY. The answer is "yes." The number would depend on the level. We can make a categorical statement that the level of benefits in the private market has been growing steadily. Not as fast as some of us would like, but it is on a progression. Mr. Rooi~s. So have the costs, `haven't they? Mr. MCNERNEY. That is right. Mr. Suyco'rr. As we developed the set of benefits that could be sold in both of these HMOs, we had to compromise the scope of coverages in some areas to get within a price range. Our HMO tends to be, on the average, a little more expensive than the conventional program because it includes more benefits. Over the long pull, we know we are going to be able to produce more coverage and more services through the HMO concept. Mr. MCNERNEY. You mean for the same price? Mr. SUYCOTT. For the same price. We didn't put drugs in the program, for example; we didn't put in dental care and a couple of other things. We think we can build those in as we see the opportunity and `as we realize the economies that we know are coming out of this program. I think they will shape up very well. So, when you mandate the benefits precisely you might tend to reduce an awful lot of coverages to the minimum where you don't really want to do that. Mr. ROGERS. Now, you have done this without any Federal grants or planning money. Mr. MCNERNEY. Mr. Suycott did it without. Mr. Stewart did it with. Mr. STEWART. $450,000; something of that sort. Mr. ROGERS. It is my understanding you feel that Federal grants for planning and development should be part of the program that we would pass. Mr. MONERNEY. They are a desirable catalyst. I think our major point is that they are catalytic; they are not the answer. The real ingredient that is important is the expertise of some orga- nization across a broad line of activities, actuarial, sales-I am using sales in the `health sense-marketing, provider relations, relations with doctors and hospitals, et cetera. PAGENO="0267" 1009 To me, a. compelling reason for you to be interested in the carrier role is that if you were to start to subsidize universities or other cen- ters to train these type people your pay-off would come 5 to 10 years from now. We are trying to call to your attention that there is a repository of that type skill in some corporations which I think the Government should pull into its thinking in terms of how to work through them. This would mean instant startup as opposed to a 5- to 10-year lag. Mr. ROGERS. Do you think anything should be put in the law giving priority to the use of such organization? Mr. MCNERNEY. I don't like to say priority explicitly, but I think that you could stipulate what the needed skills are, with great sin- cerity, incidentally, to make these things move; and then say whoever can meet these should receive some assistance. In other words, when you focus on assisting just building or just the HMO, possibly you overlook the assistance that flowed to Mr. Suycott or Mr. Stewart. Mr. Suycorrr. I would like to add in this instance that I can envision putting out $500,000 to an organization to do a feasibility study that could wind up in a stalemate at the end of the year. If you put $500,000, for example, into an organizational structure that knows bow to develop and get them going, you could have maybe three HMO's moving. That is what I meant when I said broad discretionary power on the part of the Secretary to move where he can see expertise available. It is not always necessarily going to be our organizations. There are many capable people in the country today demonstrating their abilities. Mr. MONERNEY. This does bring a point to mind, Mr. Chairman. Maybe what you need is a revolving fund. Mr. ROGERS. To be paid back after so many years? Mr. MONERNEY. Yes; that would regenerate itself. You would let it sit out there for a 10-year period but ultimately it would come back. Mr. SuvooTr. That is the way we look upon our own investment, as a revolving one, because we intend to recover that and immediately re- invest it and keep it moving. Mr. ROGERS. Thank you. Mr. Nelsen. Mr. NELSEN. I notice on the letterhead "Blue Cross Association." Is the same title granted to your company that provide the policies for your policy holders? Mr. Suyoorr. In our instance, we do put them out under our cor- porate name, Blue Cross and Blue Shield. Those are the policies that are issued in our Wisconsin lIMO's. Mr. STEWART. A Blue Cross-Blue Shioid policy. One of the factors involved in this, Mr. Nelsen, is that we want the people of the area to have an easy choice. We have other programs going, too, that we haven't talked about here that will enable people to move from one to the other within the same framework. You mentioned, Mr. Chairman, the problem of enrolling people who had health problems. I guess my response would be we don't care whether they have health problems or not; they will have absolute total choice of where to go because we have these people mostly enrolled already, you see. PAGENO="0268" 1010 Mr. MONERNEY. Blue Cross operates on a tradition of open enroll- ment. Mr. STEWART. Anybody can enroll in our program any time, any- how. Mr. NELSEN. Then you are policyholders, are you not? Then you go into the health care delivery system sponsored by the company that writes the policy. Am I right in my understanding? Mr. STEWART. Yes. Mr. Str~coi'r. Yes; I thing you are. In our instance, there are two separate corporations, a medical corps and a hospital corps, and we draw a contract with both of them. We become their representative and agent for certain functions that we perform for this group. Mr. STEWART. Again, it combines the money gathering with the provision of health care for the first time. This has never been done. Mr. NELSEN. The attitude of those I have talked to in the medical profession, generally speaking, have not been friendly to the idea, and. they are skeptical. I would not say they are unfriendly but that they are skeptical as to the direction we are going? They wonder if we are going to have a Government-operated health system? I think perhaps, this is the basis of concern to them. Maybe it is justified; maybe it is not. At least, they are cautious. Now, I have had a bit of a problem out in my district because the doctors claim they are harassed by Blue Cross requirements involving them in too much redtape in the application for the medicare bene- fits. This has been one of the problems I have run into. Maybe it ties in with some `of their apprehensions. Now, if you move progressively into the field of health care de- livery, as an insurance company, will you have competitive advantage because you have Blue Cross as a backup? Will you have an advantage because of your insurance feature? This bothers me a bit. Mr. MCNERNEY. If I could comment on that a bit. The answer is "yes," but it is an advantage that automatically re- dounds to the credit of the community. Mr. NELSEN. We hope so. Mr. MCNERNEY. Well, we are a not-for-profit corporation so that any advantage we have gets translated either into more benefits or a better price. Now, the advantage that I think we are talking about, Mr. Nelsen, is this: Because of our persuasiveness in the market, it would be pos- sible for us to deal with a network of lIMO's and rate them in such a way that there could be a merge of the risk and therefore, the young one getting going, that is somewhat disadvantaged, could be assisted. Or if one were serving a disadvantaged population, let us say, an in- ordinate number of poverty people who had extraordinary expenses, then through a merger of a rate, let us say, of the network it would be possible to make them able to offer benefits at a competitive rate. Now, I hope I am using the word advantage in the way it should be used. It is an advantage to the community. It is nOt a self-seeking advantage as far as we are concerned. But we see a tremendous role that Blue Cross can plan in that regard. PAGENO="0269" 1011 Mr. NELSEN. I am sure that the economic analysis you make is sound and I am sure that you can do a good job. However, I think, too, that we need to be very careful that we don't set up a situation that puts other health care delivery systems at a disadvantage. This I would not want to happen. Now, who is going to say where you can establish an HMO? Within your vast operation, who locates them? Mr. MCNERNEY. Could I make two remarks? Mr. NELSEN. Yes. Mr. MCNEcRNEY. One, we are talking about this as an alternate delivery system, not an imposition on the practice of medicine. Mr. NELSEN. I understand. Mr. MCNERNEY. The decision as to the blend of liMO versus other types of practice will be made by choice, that is, by the consumers. That will not be our decision. The second point I think is this: Where they will be located I hope will be under the strong influence of areawide planning because it is critically important that we not build an additive system. This should be a substantive phenomenon. Therefore, there needs to be a discipline at the State level with, hopefully, some very strong Federal guidelines that determines throug~h certification of need whether this institution is needed or not. Finally, I would say I hope sincerely that we build as much as possible on existing institutions. This, to me, is critical. There is not a reason in the world, since most communities already have too many hospital beds, to build more beds. Use the existing hospitals, use their outpatient departments as much as possible, build as little capital as you can get away with. Mr. NELSEN. Now, Mr. Suycott, your liMO was financed by funds raised by your group, was it not? Mr. Suyco~rr. Yes. Mr. NELSEN. Are these funds that came from Blue Cross? Mr. STJYCOTT. These are funds that came from our total plan opera- tion, from our subscriber revenues and reserves. Mr. NELSEN. In other words, there are funds available to you that would not be available to just everybody? Mr. STJYCOTT. Well, 1 think they are available to health insurance carriers in the same magnitude, perhaps more than we, because we are very conservatively reserved in our organizations across the country. I think this is a matter of determining how you use your money to do a better job and respond to the problems of cost, you see. Mr. NELSEN. Mr. Stewart, your half million dollars was from HEW; is that correct? Mr. STEWART. That is correct. Mr. NELSEN. Negotiated privately with them? Mr. STEWART. Yes; but, of course, the rest of the money does come from the Blue Cross and Blue Shield financial structure. Mr. NELSEN. The hospital that you will be working in or with would also have had some assistance, would it not, in the original structure? Mr. STEWART. Absolutely not. They have a very fine hospital with a lot of land around it. Walter mentions that in New York State all of this is required by law; you PAGENO="0270" 1012 can't put up anything costing more than `$50,000 without having to go through areawide plans. I commend that to your attention. Mr. NELSEN. I have no objection at all to that. Mr. STEWART. All we have done is negotiate with the hospital for the lease of their land. Now we are negotiating with them for sup- portive services because we don't want to build a huge laboratory and a health center, which is really a physicians' office building, 150 yards from the hospital itself; and we don't intend, for example, to provide psychiatric service, ourselves. It will all be done on contract with the Mental Health Center which is also part of this hospital and which has been constructe4 by tax funds. Mr. NELSEN. I want to make it very clear my auestions are not in- tended to be a criticism of your plan. I only wish £~ be sure that what- ever we do is not done in a manner that puts any delivery system at a disadvantage giving another group an advantage, because we need all of them. Mr. MONERNEY. We stressed this in our testimony. There is only on~ remark that is immediately called to mind and that is, of course, we subsidized through Hill-Burton other programs for 20 years for the other system. Maybe there is a small deficit to be made up, without apology. Mr. NELSEN. I have no objection. Thank you, Mr. Chairman. Dr. Roy. Mr. Roy. Mr. McNerney, what do you see as the major problems in our health care delivery system? Mr. MCNERNEY. One: cost, which relates to productivity; and sec- ond: access. Mr. Roy. Would you comment on quality? Mr. MCNERNEY. On quality? I think in general the quality of care in this country is good. What I am most impressed about when I try to answer your question is that I don't know for sure and that points up that we don't have good measures of quality. I understand the circumstances do not warrant making a large generalization on the subject. I do think that one of the things we have to get at is the development of instruments that make it possible to evaluate that point that are now pretty conspicuously lacking. Mr. Roy. Can the health maintenance organization address itself better to cost and to accessibility than the present indemnity insur- ance for-fee service hospital? Mr. MONERNEY. I am confident of one more than the other. I think a person can find his way in, through, and out of an liMO concept probably better than a disparate system. On cost, I throw in a word of caution. We have experience with certain plans for li~nited populations. Their productivity is apparent insofar as use of the hospital is concerned. Their total productivity, and particularly if they are applied to a cross section of the commun- ity, is something that we have to learn more about. I think the access aspect here is of sufficient importance, and the savings aspect, so that we plunge ahead hoping to nchieve some econ- omies but not basing a total national program on the assumption that a great deal of money will be saved. PAGENO="0271" 1013 Mr. Roy. Am I wasting my time having too much concern about for- profit HMO's? Mr. MCNERNEY. Yes. Mr. Roy. Why? Mr. MCNERNEY. I think one of the major problems is capital. It is a shortage with the Federal Government; it is a shortage in the private sector. We have seen, for example~ burgeoning communities on Long Island where the population has increased 600 percent over a short period of time. Let us face it; the only people who have gotten into there are proprietary institutions. I might not consider that my style but they have met a need. The trick, to me, is to capitalize on that type of ingenuity, that source of money, and meet the requirements of the community by the conditions under which you support them. That would be, in my opin- ion, that they are approved by areawide planning; that there is a limit on the return on investment; that there is no conflict of interest so that the people making the decisions on a policy level benefit from those decisions; and that there are qualitative elements built in the best we can. Given those circumstances, as much as I favor my own corporate form which is not for profit, I would say I wouldn't worry that much. I would be prepared to come down hard if there were exploitation. Mr. Roy. Do we need to make special utility-type rules for profit that we don't necessarily need to make for nonprofit or do the same sets of rules to cover both? Mr. MCNERNEY. I would start, in my own opinion, by applying the return on investment just to the profits. I don't see a problem on the other side that has to be dealt with that way yet. Mr. Roy. Is there enough fat, in the way health care is being de- livered that indeed they can make the same savings as nonprofit plus additional savings and thereby there is money to be made and the attraction for capital? Mr. MONERNEY. I think if a proprietary institution has to meet all the requirements of a nonproprietary institution, then there will be slim returns on investment except if an area is unattended or there is a conspicuous unmet need. I have not seen demonstrated all the management expertise we hear about applied to the field and resulting in a great gain, but the prob- lem here, of course, is that the populations that some of these pro- prietary institutions serve are different from the others and, therefore, the comparisons are not valid. Mr. Roy. Why have there not been proprietary HMO's up until this time? Let me add, by the way, in spite of the fact that they are pres- ently essentially unregulated? Mr. MONERNEY. I think the answer to that is in Mr. Suycott's and Mr. Stewart's comments. They are putting something together on the intricacy of a Swiss watch that took a great deal of expertise and it meant you had to go on the line with some powerful groups. Ordinarily, a private venture does not want to hurt that much. They take an easier path. Mr. STEWART. It is very clear; there is one compelling reason why we won't see the commercial carriers, for example, going into it. PAGENO="0272" 1014 Closed panel group practices inflame the medical profession and make them very, very upset, and commercial carriers are not about to go into the business that upsets the private practice of medicine today. Mr. Roy. Why, then, should Blue Cross and Blue Shield? Mr. STEWART. Because we are a different kind of critter than they are. Mr. Roy. I just came from Kansas last Sunday where again they were going to decide whether the physicians should sever their rela- tionships with Blue Cross and Blue Shield. Do you feel you can go ahead without cooperation? Mr. STEWART. We don't have any cooperation from physicians in our group practices, and we will make it go. Mr. Roy. What do you mean you don't have any cooperation? You must have some doctors that are working; somebody is providing the medical component of care. Mr. STEWART. We are going to enlist physicians who are interested. We are talking about the body of men in the private practice of fee- for-service medicine; they do not support, actively support, all of these organizations. You can find people who will. Mr. MCNERNEY. I want to compensate for Mr. Stewart's feistiness, but go ahead. Mr. SUYCOTT. I think Dave speaks of a situation that is of the mo- ment. I think there is a noticeable, a very definite, change in the philosophy of physicians. We see this. I think we know how to read it and capitalize on those who have the courage and get their backing. Now, we enlisted in our Milwaukee program men of great medical standing in the community. They had a great private practice. They were deans, if you will. They weren't the young turks. They came into this on a basis of confidence in the philosophy of it. Consequently, I think it is going to take some selling skill. I believe the receptivity of the physicians in general is open for this kind of thing, not on a mass basis, and it will never be a mass replacement of the fee-for-service. But there is certainly a willingness of physicians, in my judgment, to be sold and they will let groups of 10 or 15 or 20 go out and hack it out and try it alone. I think that is all we need to get moving. Then let these HMO's either prosper and succeed by consumer choice,. which is the whole game, or fail. Mr. Roy. Are you saying there is a difference in the attitude be- tween physicians generally and organized medicine specifically? Mr. SuycoTT. I think organized medicine in general is beginning to. say this has to be tried; its time has come; let us endorse a model sys- tem to be put in the marketplace. Mr. MONERNEy. Let us face it. There has been `a shift in the past 5 years between resistance to `and "at least let us experiment." That is movement. You ask what is in it for us. I will make it real fast. We also live with seven of the largest 10 industries in this country, with manage- ment and labor, ~ho want evidence that we are not just trading bugs, that we are interested in productivity and in better delivery. That pressure is predominant. PAGENO="0273" 1015 So, if we had ever taken. the point of view that because it is tough we will ignore it, we wouldn't have the size market that we have, in my opinion. Mr. Ror. Thank you, Mr. Chairman. Mr. ROGERS. Your testimony has been most helpful. The committee will have to vote. We have one more witness. Could we adjourn for one-half hour while we vote and be back at 3:30? Thank you for your presence here. Mr. MCNERNEY. Thank you. (A brief recess was taken.) Mr. ROGERS. The subcommittee can come to order. We will proceed. The members are on the way. The last witnesses for today represent the National Association of Blue Shield Plans, Mr. James Knebel, the principal witness. If you would like to, identify your associates. First of all, I want to say I appreciate your patience in bearing with the committee in giving your testimony. We are sorry we could not get to you earlier but it has been along day. STATEMENTS OP A PANEL REPRESENTING THE NATIONAL ASSOCI- ATION OP BLUE SHIELD PLANS: JAMES D. KNEBEL, EXECUTIVE VICE PRESIDENT, NABSP; ALBERT H. YUEN, ADMINISTRATIVE PRESIDENT, HAWAII MEDICAL SERVICE ASSOCIATION, BLUE SHIELD PLAN IN HAWAII; JOSEPH R. VELTMANN, EXECUTIVE VICE PRESIDENT, HAWAII MEDICAL SERVICE ASSOCIATION, BLUE SHIELD PLAN IN HAWAII; AND LEONARD J. CARAMELA, DIRECTOR, ALTERNATE DELIVERY SYSTEMS, NABSP Mr. KNEBEL. We understand, Mr. Chairman. We appreciate the opportunity to appear and present our views. Before delivering them, I would like to express Blue Shield's ap- preciation to you for appearing before our group last October on the subject of health maintenance organizations. We found your remarks very helpful and they were much appreciated. Mr. ROGERS. I am also delighted to see in the room Mr. Charles Sonneborn, who is well-known to the committee, and very active in helping the Congress in its consideration of health matters. Mr. KNEBEL. Mr. Chairman, with me today are Joseph R. Veltmann, executive vice president of Hawaii Medical Service Association, a Blue Shield plan in Hawaii; and Albert H. Yuen, who is administra- tive vice president of that plan. Also with me is Leonard J. Caramela, from our staff, director of alternate delivery systems. He will assist me in providing some detail. Mr. Chairman, my name is James D. Kiiebel. I am executive vice president of the National Association of Blue Shield plans. We welcome the opportunity to appear before you and present Blue Shield's views on H.R. 11728 and H.R. 5615, and on some of the issues surrounding the health maintenance organization concept. We 81-185 0 - 72 - pt. 3 - 18 PAGENO="0274" 1016 hope that these observations-drawn from over 30 years of experience in financing health care delivery-will be helpful to the committee. While I must necessarily comment on the broader aspects of HMO's in relation to the Blue Shield system, Mr. Veltmann and Mr. Yuen, whose plan is now operating what we regard as an HMO, will provide the committee with specific operational information. We commend the effort and work that resulted in H.R. 11728. The thoughts of a great many people were undoubtedly sought in drafting the bill, and the final version reflects those efforts. At the outset, I want to say that Blue Shield believes the HMO idea has merit; we believe Blue Shield must work. to make this option available. Over the years, the fee-for-service system has demonstrated its strengths in such areas as productivity and adaptability. We believe the HMO method can also make significant contributions. The HMO should provide an alternative to the existing health care delivery system-an alternative that permits both the patient and physician to choose the system that best meets their needs. The HMO should not be considered a replacement for the fee-for-service system, now or in the future. It follows, then, that lIMO's should not be promoted to the detriment of other systems. The lIMO-at least as represented by prepaid group practices-has proven its potential for success. But there is still much to be learned about lIMO's as effective health care delivery vehicles on a national scale. As we work within the concept, we will learn more about the lIMO's capabilities, and its effectiveness in various forms. Blue Shield plans were founded to finance medical care. They began as local organizations, responding to widely divergent circumstances, and only later evolved into a national system. These plans can work effectively to offer the HMO option. But they will need the same flexi- bility and freedom to respond that they had in their own develop- mental periods. Therefore, we strongly emphasize the need for the greatest possible flexibility in lIMO legislation, to not only accommodate present sys~ tems, but to allow the fullest development of the concept, including yet undiscovered systems. Unnecessary restrictions at the start of the HMO program will seriously hinder its development. lIMO DEFINITION At this point, Mr. Chairman, we would like to outline some criteria which incorporate the kind of flexibility and responsibility we would like to see built into the lIMO concept. We think an lIMO should contain these four elements: 1, The capability to provide or arrange for the health services a population might reasonably require. This includes health manpower and facilities, although not necessarily from the same source, nor on the same financial basis. 2. A managing organization which assures legal, fiscal, public and professional accountability. 3. A defined population which has agreed to pay premiums to the lIMO, and for whom, in turn, the organization has assumed responsi- bility for health care services. 4. A financial entity, underwriting all or part of the costs of the contracted services on a prenegotiated and prepaid basis. PAGENO="0275" 1017 Although all four elements must be present in an HMO and all must play an active role, any one element could be the focal point for organizing and managing an HMO. This does not mean that a sponsor could merely provide a legal shell for health care providers. It must take on responsibility and accountability for quality, cost, availability, and accessibility of services. BLUE SHIELD HMO INVOLVEMENT Using these broad guidelines, Blue Shield plans are becoming in- volved in HMO's. Five plans are operating HMO prototypes; another plan will launch an HMO in 1973; three plans have received Federal aid to develop HMO programs; and several plans have submitted grant requests to HEW. Some Blue Shield plans are involved in lIMO activity through the partial conversion of existing fee-for-service group practices to capitation practices. This approach is being used in the rural area near Marshfield, Wis., and in Rhode Island. Rhode Island is testing an approach that allows physician groups to participate in a capita- tion system on a part-time basis. If the program is successful, the plan predicts it will be able to offer 50 percent of its population an lIMO option in the next 2 or 3 years. A few months ago, Detroit Blue Shield and Blue Cross absorbed the Community Health Association of Detroit, one of the largest pre- paid group practice programs of its type in the country, with 72,000 subscribers. This move is part of a continuing program by the plan to develop a broad variety of health care delivery systems, and make them available to the people of Michigan. In Rochester, N.Y., Blue Shield, Blue Cross, and the Group Health Association of America are building a prepaid group practice, and trying to do it in about half the normal time. We hope that out of this project will come guidelines that will be useful to all plans. And in Hawaii, Blue Shield has developed and implemented an lIMO tailored to fit the geographic, population, and medical man- power characteristics of that island State. The objective of the Hawaii program is to develop an lIMO which will give a subscriber multiple options for health care. Mr. Veltmann and Mr. Yuen will tell you more about Hawaii's efforts. Our efforts, Mr. Chairman, are still in the early stages. Our cur- rent capitation enrollment is around 100,000. But we believe Blue Shield is off to a good start. My point is to demonstrate that Blue Shield has the potential to seize the numerous opportunities that lIMO's offer in developing new health care delivery systems. Further, we think the above examples indicate Blue Shield's capacity to meet and deal with the health care needs of people in an imaginative way. We urge, once again, that the concept of maximum flexibility and freedom in the development of lIMO's be an integral part of the com- mittee's deliberations. Mr. Chairman, we would now like to comment on some specific as- pects of the lIMO. They include medically underserved areas, the role of the consumer, quality of care, profit versus nonprofit lIMO's, the overriding of State laws, benefit structure, and funding. PAGENO="0276" 1018 MEDICALLy tTNDERSERVED AREAS The HMO appears to have the capability to deal effectively with the problem of medically underserved areas because of its size, finan- cial base, and capacity to develop ancillary personnel. However, we are concerned because most thinking about this problem revolves around setting an HMO's enrollment characteristics and size require- ments, instead of finding ways to tap the inherent potential of the concept. We note that H.R. 11~T28 plans to attack the problem by requiring an HMO to enroll at least 40 percent of its subscribers from medically underserved areas. We are concerned that such a requirement may very well hinder the development of the HMO concept. Besides posing a stiff enrollment goal for the HMO, the requirement may, in some cases, be interpreted as establishing a separate system for the poor. It may also limit the HMO's ability to appeal to a broader portion of the population. If one thrust of HMO development is to foster competition in the interest of improving all systems, the requirement may prove a severe handicap. A more equitable rule would be to require the HMO to make every reasonable effort, as determined by the Secretary, to have its total enrollment comparable to a cross section of the community in which it is located. We think this cross section could be achieved by requiring the HMO to have an open enrollment period at least once a year-after it be- came a viable entity. To protect the HMO from adverse selection that might prove ruinous in its initial stages, we suggest that the legislation permit a reasonable waiting period for specific condtions existing on the date of enrollment. All other illnesses and accidents would be covered on the date HMO membership becomes effective. Priority could be given to those HMO's that locate in medically underserved areas, but care should be taken that such priorities do not sidetrack the entire HMO concept. ~We would like to point out that section 1106 of H.R. 5615 provides such an option. We recommend a similar approach to the committee. In our view,, the physician must be encouraged to locate in medi- cally underserved `areas and to remain there-at least for a certain pe- riod. A method must be found to overcome such `barriers as a lack of facilities and support services, isolation, a generally high workload, and the fact that the physician does not want to live there for per- sonal and professional reasons. The HMO, we feel, can do this through a satellite service. Tinder this concept, a central HMO could establish satellite offices in medically underserved areas. These offices would be the primary entry point for the HMO's patients who were remote from the central lo- cation. The availability and continuity of the full range of services provided by the HMO would be on call as the patient needed them. The physician in the satellite office could enjoy the personal and pro- fessional benefits of a relatively large organization, including eventual transfer to other locations. This or similar methods that attempt to solve the problems of medically underserved areas should be given priority in HMO developments. PAGENO="0277" 1019 BENEFIT STRUCTuRE ILR. 11728 outlines the range of services an lIMO would be required to offer its members. While we recognize the merit of the benefit package outlined in the bill, we caution against legislating specific benefits an lIMO must offer. Within reasonable limits, the responsibility for benefit design should be the underwriter's, whether they be physicians or a prepay- ment organization. The lIMO concept, itself, dictates certain direc- tions. But some flexibility is necessary. For example, a mandated bene- fit structure could price the lIMO out of the market, making it help- less to compete successfully with other programs. Mr. Chairman, we believe an lIMO should be able to finance itself successfully after its original developmental costs have been met. Im- plicit in this is the right of the lIMO to succeed or fail-as in all en- terprises. But we believe the concept should not be straitjacketed at the start. We believe lIMO's should determine the benefits `a defined popula- tion will need, then decide which of those benefits can be realistically offered in terms of cost, facilities, and manpower. These determina- tions could be required in the planning stages of an lIMO, and be one of the factors for the Secretary's consideration deciding whether to grant Federal aid. We also note that lI.R. 11728 calls for the lIMO to assume full fi- nancial risk until a member has received at least $5,000 in comprehen- sive health care benefits, after which it can share its risk. We support the principle of the lIMO's `accepting risk. But again~ in the spirit of flexibility, and in the interest of promoting develop- ment of small scale as well as large organizations, we would prefer to see the lIMO permitted to share risk with more freedom. There is, we think, an instance in addition to the individual catas- trophic illness in which secondary coverage may be needed. This is when a significant number of lIMO members are involved in a disaster or epidemic and need immediate medical attention. Such an occurrence can require the simultaneous effort of a great many professional people, exceeding the lIMO's capacity and necessi- tating outside professional help. Also, some lIMO subscribers could be taken to other facilities, while remaining the financial responsibil- ity of the lIMO. The resulting burden could at least potentially jeop- ardize the subscriber's interests. We also are concerned about how the precise extent of an lIMO's liability would be determined. A fixed dollar amount, is not, in our view, always the most practical method. In effect, it requires the lIMO to establish an in-house fee-for-service system to monitor the costs of illness. This means a dual bookkeeping effort. This is not necessarily impractical. The approach is being used by Blue Shield and Blue Cross in Marshfield. But the facilities, equip- ment, technical personnel, and data to implement such a program were already in existence. In this situation, it works very well, and we rec- ommend its acceptance-but certainly not as the only way to record and price services. PAGENO="0278" 1020 PROFIT VERSUS NONPROFIT H.R. 11728 excludes profitmaking HMO's from receiving Federal funds, while H.R. 5615 would make loans and loan guarantees avail- able to profitmaking HMO's. Blue Shield plans are nonprofit medical service corporations. But we do compete with profibmaking organizations. We believe this com- petition has benefited ourxubscribers, and the public. To us, the profit versus nonprofit question is a matter of objectives. Within the private, profitmaking sector, there is venture capital and management expertise. If the Federal Government wants to tap this talent and money, it should permit the formation of for-profit HMO's. However, in providing incentives for private enterprise, there should be provisions to protect the public against abuses that might result in inadequate treatment and poor quality care. We recommend that for-profit HMO's be required to comply with the same provisions applicable to nonprofit HMO's, to the extent that a given function or activity is comparable. ROLE OF CONSUMER H.R. 11728 calls for the HMO to assure "its members a meaningful role in the making of policy." We believe an enrolled member of an HMO should have a voice in policy concerning consumer-oriented problems. Physicians and pro- fessional administrators are generally more capable of making respon- sible decisions about the medical needs of patients and the necessity of new equipment or facilities. While the enrolled member should be permitted and encouraged to comment onthe quality of services, and on the HMO's operation, and to make constructive suggestions, the potential variety of HMO structures may make it impractical for this to occur within the govern- *ing body. The subscriber advisory committee is a very effective mechan- ism for some Blue Shield plans and we recommend that such committees be strongly encouraged within HMO's. We would particu- larly advise againest requiring formal "grievance procedures" in lieu of a simple mechanism to receive and consider complaints. QUALITY OF CARE H.R. 11728 and H.R. 5615 would require HMO's to meet quality standards established in accordance with regulations of the Secretary. Although there is no mention of how the standards would be de- termined, we believe the HMO should be required to demonstrate that the care it delivers is in accord with the quality standards of the community at large. The HMO should not be singled out to adhere to unique standards of quality. We believe emphasis should be placed on the efficient operation of the HMO as a whole. Criteria for reasonable performance could then be established through such indices as patient satisfaction; compari- son of the HMO's medical practices with those of the community; and financial data, as indicators of the HMO's efficiency. We also are concerned about how much authority the Secretary will have over H~O's, and for how long after the HMO has discharged its obligations to Government. It seems unreasonable to require that PAGENO="0279" 1021 an HMO originally assisted by the Government meet an indefinite series of standards set by the Secretary after it has met its originally agreed-upon obligations. Ultimately, competition should be a major force in lIMO regula- tion. Subscribers should be given the choice, at least annually, whether to remain in the lIMO or opt out. Dissatisfied patients leaving the lIMO and enrolling in another health-care financing plan will consti- tute the strongest pressure for quality of service. PREEMPTION OF STATE LAW ELR. 11728 provides for overriding State laws that restrict the establishment of lIMO's. This concerns us. Where State laws specifi- cally restrict the establishment of lIMO's, the preemption of such laws may be necessary. But the overriding provision should not leave a regulatory vacuum. State laws frequently provide protection for the subscriber, and-to this extent-they should be retained. We believe that any overriding provision should both state and limit what exist- ing State laws Federal directives may override and, further, that the Federal preemption should carefully preserve those State laws that provide protection for the consumer. We are pleased to note that the overriding provision in ELR. 11728 (section 1116) requires the Secretary to "insure the efficient and eco- nomical provision of quality health services, as conditions of issuance" of the preemption. We would specifically preserve and apply to the lIMO any State requirement imposed for subscriber protection upon other health pre- payment organizations regarding audit and e~xamination of financial condition; filing of reports, fair trade practices, and fair advertising practices. FUNDING OF lIMO'S Mr. Chairman, we support the funding pattern incorporated in lI.R. 11728. This includes the grants, loans, loan subsidies and loan guarantees. We believe that the funding program is comprehensive and well integrated. We are pleased to note that these sections of the bill permit funding at each specific stage of development of the lIMO, from plan- ning stage through operation of the lIMO, and that each stage is con- tingent upon satisfactory completion of the preceding stage. We are also pleased to note sections 1111 and 1112, calling for train- ing of management and clinical personnel for lIMO development. As lIMO's develop, they will increasingly demand specialized manage- rial, administrative and technical personnel. They also will need the services of allied health personnel to permit the physician to use his time and talents most efficiently. These sections will help substantially to develop personnel with those specialized skills. The section establishing special project grants and contracts for lIMO's is also noteworthy. It will stimulate experimentation with various health care programs and may result in innovative new forms. We encourage this type of activity. Mr. Chairman, we appreciate this opportunity to express our views. At this point, I would like to introduce Mr. Albert Yuen. PAGENO="0280" 1022 Hawaii BIi~e Shield conceived, developed, and put into operation an HMO that, since February 1 of this year, has been serving the people of that State. Mr. Yuen has firsthand experience of what that en- tailed, and can share that knowledge with the committee. Mr. ROGERS. Thank you. Mr. Yuen, the committee will be pleased to hear you. STATEMENT OP ALBERT H. YUEN Mr YUEN. Mr. Chairman and members of the committee, my name is Albert H. Yuen. I am the administrative vice president of the Hawaii Medical Service Association, Honolulu, Hawaii, With me is Mr. Joseph R. Veltmann, executive vice president of our association. The Hawaii Medical Service Association, known in Hawaii as "JIMSA," is a consumer, member-owned association. A board of 27 directors publicly elected by these members serves; without compensa- tion. Our bylitws assure that the board represents a broad cross section of community interest such as business, labor, education, religion, gov- ernment, hospitals, medicine, and the public at large. More than 56 percent of the people of Hawaii are members of our association enrolled in fee-for-service, free choice of provider pro- grams. We als~ serve as fiscal administrator for Champus, medicare part "a", and thedicaid. Our health care programs emphasize ambulatory care and begin with coverage for initial home and office visits, preventive services, diagnostic services, out-patient surgery and out-patient psychiatric care. Additional coverage is offered for prescription drugs, vision care and dental care. The usual, customary and reasonable method is used to compensate for professional service. Payment controls are made part of all contracts, and take into consideration the Hawaii Consumer Price Index and per capita personal income indices. As a direct result of both the broad scope of coverage and an effec- tive utilization control program, the level of institutional care experi- enced by HMSA members is well below national averages. An HEW publication reported the experience of our 51,000 HMSA Federal em- ployee's plan members whose overall in-patient hospital incidence has been decreased to the present 433 days per 1,000 persons.' Mr. ROGERS. What was that reduced from? Mr. Ytn~. From about, I think, 535 to begin with during the first year. Mr. ROGERS. What would you say was the cost saving in that hospitalization alone? Mr. YUEN. I do not have the figure. Mr. ROGERS. Could you supply that? Mr. YUEN. Yes; we can supply that. Mr. ROGERS. I think that would be helpful. Thank you. (The following letter was received for the record:) Reported by Mr. George S. Perrott in a document entitled "Enrollment and Utilization of health Services Federal Employees Health Benefit Program 1961-68," U.S. Department of Health, Education, and Welfare. PAGENO="0281" 1023 HAWAII MEDICAL SERVICE AssocIATION, Honolulu, Hawaii, May 1~I, 1972. Hon. PAUL C. ROGERS, Chairman, U.$. House of Representatives, ~8ubcommittee on Public Health a~nd Environment, Washington, D.C. Dr~n CONGRESSMAN ROGERS: We sincerely appreciated the opportunity to appear before your Committee on May 10, 1972 to present testimony of the Hawaii Medical Service Association's (HMSA) development of an Health Maintenance Organization (HMO) in the State of Hawaii. On page 2 of our testimony, we made reference to a reduction of the level of institutional care experienced by HMSA members under our Federal Employees Plan (The Perrott report). You requested information on an estimate of the number of dollars savings as a result of this reduction in hospital incidences. We provide the following projections based on 1972 hospital cost data: 1. The decrease of 102 days per thousand persons from our 1961 experience level for our Federal Employees Plan produces a saving of $429,323.00 for the year 1972. 2. When this ratio is applied to our total membership, the result would be a saving of $2,796,291.00 for the year 1972. 3. Further, if the hospital utilization rate for all of our members was equal to the average of the two largest carriers in the Federal Employee Plan, our benefit cost would increase by $14,337,748.00 and this would require a rate in- crease of 34.1 percent in our monthly dues for 1972. We would welcome the opportunity to further share our experience with your Committee, hopefully by an on-site visit to Hawaii. Sincerely yours, J. R. VELTMANN, Eccecutive Vice President. DEVELOPMENT OF A HEALTH MAINTENANCE ORGANIZATION Mr. YUEN. While HMSA had developed and successfully marketed an extensive ambulatory based fee-for-services program, there was still a firm belief within the association that additional progress could be made in providing programs which would truly answer the health care needs of our members. Our planning began in 1968 and culmi- nated in the design of a program which would offer a choice of health care systems to our members. We believed that the delivery of some types of care could be best provided under the controlled environment of an lIMO, that is, preventive services, maternal and infant care clinics, special chronic disease service, more effective use of para- medical personnel and consumer education programs. An additional motivating factor was the desire to improve access to medical care for people in remote areas of the State. UMBRELLA HMO CONCEPT Our lIMO is based on the design of a single statewide comprehens- ive benefit. IIMSA contracts with physiciati groups to provide services which their range of specialties permit. The physician group agrees to take the responsibility and make arrangements for all medical care, with HMSA assuming responsibility for those areas of care not within the capability of the group. We will be creating a network of group practice health care throughout the State wrhich will offer a single level of services regardless of the size of the physician group delivering the service. This type of system has been referred to as an umbrella lIMO. Our concept has been to make use of existing medical facilities wherever possible so as not to require the expenditure of larger sums PAGENO="0282" 1024 of money to create new and possibly redundant medical facilities. The use of existing medical facilities permits the consumer to continue to utilize services in familiar surroundings. Consumers will have a choice of either a fee-for-service or an HMO program and, further, within the HMO system will have a choice of receiving primary physician care from several physician groups. This approach allows an lIMO member a degree of mobility. Changes of residency can be accommodated without the member being forced out of the lIMO system. Each year members have an oppor- tunity to change physician groups. Dissatisfaction can be alleviated without forcing the member out of the system. The umbrella concept offers the potential of taking successful in- novations accomplished by one group practice clinic and expeditiously implementing them in other clinics within the network. Examples of this would be simultaneous research projects of health-screening tech- niques in one area and a consumer health education program in an- other, which could, upon successful completion, be implemented throughout the network. SERVICES OF THE PROORAM The benefits consist of four components of services. 1. Physician group services are those services within the medical group's capabilities. There services are fully within the control of the physician group. The group assumes full financial risk and is paid by a prepayment rate determined annually. A medical service agreement between HMSA and the physician group delineates the specific re- sponsibilities of both parties. 2. Referred basic services are those commonly provided services which are not within a physician group's present delivery capability. These services will be provided by the medical group by arrangement or contract through another source. The method developed to deliver this capability was to set aside a portion of the prepayment rate for those referred services. Reimbursement is made to the referred provider and charged to this assigned portion of the rate~ A portion of any remaining funds at the end of the contact year are returned as incen- tive payments to the physician group; any overruns are underwritten by IIMSA. 3. Insured services include referrals for highly specialized skills and procedures such as psychiatric care, renal dialysis, organ transplants, et cetera. These services are provided by referral, and the referred physician is paid directly on a fee-for-service basis. HMSA assumes the financial risk for the cost of this care. HMSA uses its existing mechanism to pay a percent of reasonable charges for emergency care provided outside of the area. In order to insure access to care, HMSA has established a method which schedules and pays for intrastate air transportation to highly specialized services and facilities for patients in remote areas. I would like to point out with this map our geographical problem. We are an island with many areas, with central Oahu with primary facilities for specialized services. Our service pays for transportation from Molokai, Maui to Kauai, as the needs require. 4. Institutional care provides full coverage for hospital care, ex- tended care facilities and home health care services, all up to 365 days PAGENO="0283" 1025 of care for each illness. To encourage better utilization of institutional facilities and to involve physician groups in risk sharing, an incentive program was developed. The program provides the physician group with monetary incentives for reducing the number of hospital days from an established target level and provides limi'ted risk assumption for hospital usage in excess of the targeted level. In order to discourage under utilization, no incentives are payable to the physician group after utilization has dropped 30 percent. Institutional care is not provided through the mechanism of con- tracting with institutions for beds in that we feel that this method limits the flexibility of the HMO. Hospitalization in Hawaii is pro- vided in either a rural setting where there is no choice of which fa- cility is to be used or in the single metropolitan area of Honolulu. Hospitalization in Honolulu is provided, to a great extent, through specialty facilities, that is, OB-GYN hospital, children's hospital, rehabilitation institute, with other acute hospitals specializing in fields of renal dialysis, acute coronary, psychiatric care, et cetera. By not making n contractual commitment for a specified number of beds from each of these specialty hospitals, we are able to direct patients into the most appropriate facility at any given time. We have begun development of a method for patient referral be- tween physician groups in the HMO. A. system of patient referral will allow members to receive complete care when traveling over a larger service area, and will provide a broader range of physician skills to small physician groups under the capitation arrangement. LONG-TERM IMPACT Our first goal is to make the HMO available on all islands. This will allow our members a choice of health care systems. We are pleased to report that effective February 1, 1972, the program was offered to the public on the Island of Maui. Within 60 days, our enrollment ex- ceeded 500 members with interest growing rapidly. The initial public response would indicate that a substantial portion of our population will choose the HMO system, and thereby provide viable competition within the medical care field. A second physician group on another island is ready to announce introduction .of the program. Other inter- ested physician groups are exploring implementation and it is our hope to have the program available shortly on all Islands. We believe that our approach and system can be implemented in others parts of the United States and offers a practical, speedy way to make prepaid group practice programs available. Wherever there are groups of physicians desiring to move into prepaid group practice, you have the elements of a potential HMO. We plan to provide a single statewide level of benefits to assure that the citizens in the most remote geographical area can have access to the HMO option. Thank you. Mr. ROGERS. Thank you, Mr. Yuen. Mr. KNEBEL. That concludes our presentation, Mr. Chairman. Mr. ROGERS. Thank you. It is most helpful. Let me ask: Have you actually established your HMO operation? Mr. YIJEN. Yes, sir. Mr. ROGERS. How long has it been in effect? PAGENO="0284" 1026 Mr. YUEN. On the Island in Maui, we have had it since February of this year. Mr. ROGERS. Your experience has been good with it? Mr. YUEN. The public acceptance has been tremendous. The physi- cians are very pleased with the fact that this option is working. I think from an administrative standpoint we are also very pleased that the mechanics are working out very well. Mr. ROGERS. Do you have the HMO in one setting or do the doctors separate and go around and visit? Mr. YUEN. The Maui medical group is centrally located in Awiluku. the metropolitan area in the Island of Maui. It also has a clinic in Lahaina, `Maui, which is the old first capital in the State of Hawaii, which is basically agricultural ranching. There, also is some resort development there. The group has two clinics operating, and the doctors move from one area to the other. Mr. ROGERS. These are full-time doctors with HMO? Mr. YUEN. Yes. Mr. ROGERS. Now, when people join the plan, when they come in for the whole system there, do you pay the HMO at the beginning of the year? How does this work out? Mr. YUEN. The arrangement is that the enrolled group makes a pay- ment to the HMO. We in turn deduct the estimated cost of those serv- ices, referred service or institutional services, and then make payments directly to the provider for the services. The HMO panel of physicians under our system is allocated a por- tion of that for total care of the patient, and for the management of the care of the patient. Mr. KNEBEL. Administratively, we determine an annual payment, but we break it into 12 equal monthly installments. Mr. ROGERS. So that they can buy it as they do any policy? Mr. KNEBEL. That is right; we get the money from our member- ship a month at a time. Mr. ROGERS. Is it more costly? Mr. YUEN. Our broad-~based, fee-for~service program costs about $3 less then our HMO program. So, we allow every enrolled group the choice of either option. Mr. VELTMANN. Mr. Chairman, may I comment on that? I think it is important for the committee to recognize that the reason this differential is this small, and you have heard other comments today that they could be much greater, is because we have had for 34 years the ambulatory care in our basic program. As an illustration, our basic program for a family of two or more people, including major medioal, is $38 a month. Our HMO rate is $41 a month. This is the $3 Mr. Yuen referred to. I think it is well for the committee to recognize that in many geographical areas where there is not a comparable ambulatory care program you are going to find a larger disparity in the rate for HMO than you would in a regular company program. Mr. ROGERS. How about transportation? Do you own your own planes? Mr. YUEN. At the start of the program, we have two commercial airlines which serve the i~lands, Hawaiian Air Lines `and Aloha Air- lines. We will be working with these airlines to meet transportation needs. PAGENO="0285" 1027 We have been in discussions with smaller charter plane groups that serve the islands and several have expresesd interest, as our groups become larger, to agreeing to have one of their planes equipped so that it can serve almost like an air ambulance service. In the meantime, we are using the commercial transportation system. Mr. ROGERS. In your HMO policy, are you giving any more benefits than you do in the other policy? Mr. YuEN. Yes. To begin wi~th, the HMO will provide physical examinations, well- baby care, immunization programs, and we are also working on de- veloping systems for health education, chronic care, diabetic, or gout clinics, which will be a group kind of therapy within the system. Mr. ROGERS. How many office visits or home visits do you allow? Mr. YTJEN. There is no limit on the number of visits for this type of care, For a model medical group, there is a $1 charge for an office visit and a $10 charge for a home visit. We are ready to write models where they want to do away with this. But this was started to be sure that the rate was not overly priced at this particular point. Mr. ROGERS. Thank you. Dr. Roy? Mr. Roy. I was wondering if you would differentiate between an HMO as we perhaps define it in H.R. 11728 and a standard Blue Shield Plan? What do you see as the major differences? Mr. YUEN. The major difference, I think, has been touched on by Mr. Veltmann. And that is the fact that our free choice, fee-for-service program is so expansive and extensive in the way of outpatient bene- fits, that the HMO is adding these features. We have tried to get a rate, for instance, from our physician group on what to pay for physi- cal examinations and the range of estimated charges is very wide. Another thing is well-baby care. The use of paramedical personnel to conduct some of these clinics is not available under the fee-for- service model. We would be paying for professional services rendered by a physician. Under the HMO model, all of this would be geared to a change in attitude of the public or the consumer receiving service as well as the professional providing care. I feel that under the HMO arrangement, the physician can have much more effective control over the management of his time, and the delivery of care can be more carefully planned, rather than treat- ing episodic illnesses. I will cite an example, Dr. Roy. In our earlier discussions with one group of physicians, one doctor said, "I understand the HMO very clearly; it is coming through clearly. We had been warned by the Department of Health 3 months ago that we would be faced with an episode of rubella." He said, "We all know that for the last few weeks we have been working long hours, taking night calls, treating children with high fever, and dealing with parents who are afraid 9f having their young- sters come into our office for fear of passing rubella on to the other patients. If we, had been under an HMO, we would have been alerted to the fact that we should have given immunizations back in November rather than waitifig until rubella appeared." PAGENO="0286" 1028 Under fee-for-service, this would generate more office calls, whereas under an lIMO there would be a planned system to act beforehand. So the lIMO can tell the enrollee of the planned immunization pro- gram and the patient can receive preventive care which would be less expensive. Mr. Roy. Will you provide health care personnel and health care facilities whether or not presently available? Mr. Y1JEN. Where they are not presently available. For example, let us look at the Maui medical group which includes 15 doctors. As we talked with the group about the different disciplines of care and the whole concept, the physicians began to realize that perhaps the one specialty they lacked, and which was needed on the island, was an orthopedic man. So, they engaged an orthopod. But, throughout the developmen.t of the program, they felt they would probably be using the technicians more effectively. They would retrain their nurses to become assistants, physicians assistants, of some sort, instead of just doing a lot of paperwork. So that, we believe it will bring about by some kind of slow evolu- tion, the public acceptance to going to a well-baby clinic. The mother will take the nurse's instructions rather than say, "I must see the doctor." Mr. Roy. We have been urged and you again urge us to emphasize flexibility in the Federal lIMO legislation and you mention benefits and risks and consumer participation and so on. Are there any areas in which you think we should be inflexible? Mr. YTJEN. Inflexible? Mr. KNEBEL. I think in terms of accountability. Organizations should make a commitment to the consumer that they will provide the necessary health care. There should be some inflexibility, if you will, in an organization's commitment, in its accountability in meeting its responsibilities. I think there needs to be some regulation, definitely. Mr. Roy. This requires defining benefits, then? Mr. KNEBEL. Yes. I think we have to redefine inflexibility in that regard. In terms of defining benefits, we can define them in terms of scope, but in defining each particular item within the scope we need flexi- bility because we must go to a medical advisory committee to determine medical policy. The practice of medicine from one physician to another may differ somewhat, so we need peer review. We need flexibility to come up with our interpretations of specific benefits within the contract. Mr. IRoy. There would be no argument with in-patient and out- patient physician care? Mr. YUEN. No. Mr. Roy. We all know what we are talking about in that respect and that needs no interpretation. Mr. YTJEN. That is correct. Mr. KNEBEL. There would be a need, I think, of a manual of some sort as we have done within Blue Shield, We have a comprehensive program that we insist all member plans make available. This compre- hensive program is divided into 26 different types of medical care for which we would insist the availability of coverage. So, we break it far beyond in-patient and out-patient. We break it into 26. PAGENO="0287" 1029 Mr. Roy. You have open enrollment; is that correct? Mr. YUEN. Yes. Mr. Roy. Do you then rate people or do you encourage them on a community rate? Mr. VELTMANN. On the HMO or regular plan? Mr. Roy. Both, actually. Mr. VELTMANN. Under our regular plan, there is no particular open enrollment except every day if a person leaves a group and is without employment for 30 days and he joins another company he is eligible to enroll in the other company's program. Under the HMO, we would definitely, and do have in effect, an open enrollment period once each year. Mr. Roy. For a period of 30 days? Mr. VI~LTMANN. Yes; that is correct. Mr. Roy. For individuals? Mr. VELmrANN. Yes; for anyone who is enrolled in the lIMO, to determine whether they want to stay in it or if `they want to go back to the fee-for-service arrangement. Mr. Roy. What about the people who are outside getting in? Mr. VELTMANN. As it stands now, Dr. Roy, if a person chooses, during the open season he can leave the regular group and go into the lIMO. In the future, I think it will apply to both. Mr. Roy. If I move to Maui, can I get into the lIMO? Mr. VELTMANN. If you enroll in our troops some place else. Mr. Roy. Only if I am enrolled? Mr. VELTMANN. That is correct. It is not open to individuals yet. Mr. Roy. Do you anticipate it will be open to individuals? Mr. VELTMANN. I hope it will be. Mr. KNEBEL. Can I comment on this subject of open enrollment? First, we have to separate group and nongroup. Our marketing approach is to contact each group at least once~' each year and give it the opportunity to exercise the option that would occur at that time within the group. In the other market, those that come in through open enrollment, I think again you have a separate category; those for which Blue Cross and Blue Shield handles all of the marketing arrangements. In this case, we could have an open enrollment period each year because we are handling all marketing arrangements for the lIMO. But if we are just one organization of several health carriers who may be marketing for that lIMO, then I think we have to find some new arrangement to assure a particular open period of 30 days. So this would be aji administrative detail that lIMO would have to- Mr. Roy. Does Blue Shield have open enrollment for individuals? Mr. KNEBEL. Yes, sir. For individuals, there is normally a 30-day period once a year. Mr. VELTMANN. We have it three times a year. Mr. Roy. Does that require physical examination? Mr. VELTMANN. No, sir. Mr. Roy. What if they are a poor-risk individual? Mr. VELTMANN. Just a health statement they prepare. Mr. Roy. And preexisting conditions, then, are not covered? Mr. VELTMANN. Well, they have a waiting period. We enroll them but they have a waiting period for the preexisting. PAGENO="0288" 1030 Mr. Roy. This is not true for the HMO at the moment but you anticipate it will in the future? M~. YUEN. Specifically as it relates to Hawaii, yes; our group enrdliment permits enrollment of a group as small as a single in- dividual employed person or an employee with one dependent. The workingman has an entree into the system. When we talk about an open enrollment for a nongroup, this is the general public or those who are not employed or who have no other means of buying a health insurance program. That we do three times a year. We do not have this HMO option available to this group at this time but we do intend to extend it in the future. Mr. KNEBEL. Dr. Roy, I would like to add that for what I believe to be the pattern nationwide within Blue Shield, that we have moved more to the single open enrollment period and have begun to eliminate exclusions from Blue Shield contracts to the extent that we can. As far as preexisting conditions are concerned we are primarily limiting exclusions in that area to obstetrical care. Mr. Roy. How many people are on Maui? Mr. VELTMANN. 36,000. Mr. Roy. How many physicians? Mr. VELTMANN. About 40 physicians. Mr. Roy. You are working with all 40 physicians? Mr. YUEN. No. We are now working with a group that has 16 physicians but intends to expand to about 18 very shortly. Mr. VELTMANN. There is another group, Dr. Roy, in the same geo- graphical area that we worked with before and I have a feeling they will work with us. Mr. Roy. Is the group of 16 working only on prepayment at the present time? Mr. YTTEN. No. By trying to develop this network we are trying not to disturb the current practice and current facilities. So, this group, the Maui medical group, is operating a fee-for-service on a fee$or-service basis. We are introducing the HMO as an additional option and offering both systems simultaneously. This is the model we intend to use throughout the islands. Mr. Roy. Are you concerned that they will maximize their variable income and then take care of the HMO patients maybe after five? Mr. YUEN. No; we have plans to develop a consumer panel within each geographical area and they are not there just to hear complaints. We intend to have a cross section of labor-management representatives who usually negotiate the programs, the housewife, a member of the group, and a member of ours to sit and evaluate services and to be sure that the complaints or the suggestions are used for improving the services. Additionally, one of the requirements of the medical group is to have effective peer review to assure that the utilization level is equiv- alent between the fee-for-service and HMO. Mr. Roy. Thank you, gentlemen. Mr. ROGERS. Dr. Carter. Mr. CARTER. Thank you, Mr. Chairman. Certainly, I want to welcome you here. I was in Hawaii in 1944 from the 22d of January to the 17th of July. To me, it is the nearest place on earth to what I imagine heaven might be. PAGENO="0289" 1031 Mr. YUEN. Aloha. Mr. CARTER. It is a wonderful place. I have been back a few times. It is really wonderful. Even the trees bloom there. Mr. Roy. Do you think we ought to go out there for a week or two, maybe, and look at this program? Mr. VELTMANN. I want to offer you an invitation. Mr. CARTER. I would like to see the program. I think it would be interesting. Then the fringe benefits would be marvelous. I wanted to ask you about the method of payment. How much do you charge the members in your HMO? Mr. VELTMANN. We discussed that earlier, Dr. Carter. Mr. CARTER. I am sorry I wasn't here. Mr. VELTMANN. Our regular comprehensive program, which in- cludes all the ambulatory services which we have been including for 34 years, is $38 a month for a family contract which is two or more people. Our HMO contract is $41 a month. Mr. CARTER. Your are not selective in your choice of people who join your HMO? Mr. VELTMANN. That is their voluntary privilege~ Mr. CARTER. How do you pay your physicians? Mr. VELTMANN. On the usual and customary approach for the fee- for-service program but the HMO is on a capitation basis. Mr. CARTER. Is that the same way in Detroit? Mr. KNEBEL. Yes. Mr. CARTER. What is the extent of your coverage? Mr. VELTMANN. We cover 56 percent of the eligible population. Mr. CARTER. In the HMO? Mr. YUEN. We begin on our fee-for-service program from the very first office visit for an il:lness all the way up to $20,000 of major medi- cal coverage. We are very proud of the fact that our ambulatory services include such things as psychiatric care, outpatient surgery, the diagnostic procedures done outside the hospital; those are all covered. Mr. CARTER. What about manpower? Do you have enough medical manpower to take care of your HMO? Mr. YUEN. The medical manpower in Hawaii is at a good ratio. We have one physician to about 900 people. The distribution may not be as clearly defined as you would like by geographical location. So, we feel, through an HMO system, we can extend the highly specialized skills of the central Metropolitan Honolulu area into the~ more rural - areas as well as the neighboring islands. Mr. CARTER. You are thinking of extending this into Maui? Mr. YTJEN. It is in effect on the island of Maui. The Maui medical group became the first of our HMO panels, soto speak. Mr. CARTER. What about the big island, Hawaii? Mr. YUEN. This will be commissioned very shortly with the Hilo medical group. In Kauai, we have had a tremendous number of meetings with two separate groups. The island of Kauai will be coming along very soon. Mr. CARTER. Now, about the planning of it, how much does the Fed- eral Government give you? - Mr. YUEN. We started to look at this alternative to our fee-f or-serv- ice program in 1968. Last year, we applied for a HEW grant and PAGENO="0290" 1032 received $125,000. Now, none of this has been used to develop the Maui HMO panel. We intend to utilize the $125,000 to support groups of physicians who are interested in getting into this model through helping with the legal fees and the actuarial fees, to look at their side of the program. And then the fund wil:l be used to develop an information system for HEW to diagram exactly what we are doing. So, we have not put in any of thegrant money into our developmental efforts to date. Mr. CARTER. This is mostly for planning and for education? Mr. YUEN. Planning and development; yes. Mr. CARTER. What about the future financing of these groups? Will you lean to the Federal Government to help you? Mr. YUEN. The only need I see at this point would be after the $125,000 for the next year has developed the information system and has helped some other groups start, the Federal Government may want to do an evaluation of the program, the network that we have developed. Then I think additional funds would be needed for us to work up that kind of evaluation. Mr. CARTER. You think the financing of future HMO's can be done locally, with local funds? Mr. ThEN. In Hawaii? Yes. Mr. CARTER. Financially, your HMO's have done all right; is that true? Mr. YUEN. It just started 60 days ago. We believe at this point that we will probably not require any out- side assistance; we can do it by ourselves. Mr. CARTER. Thank goodness. I hope that more can be like you, and more power to you, by the way. What about in Detroit? What about your HMO there? How is it doing? Mr. KNEBEL. it is doing quite well, it has a big job to accomplish. I don't recall the date that we became involved with CHA but we have some 69,000 to 70,000 people that we are concerned with now. We are trying to help them improve their HMO operation. Furthermore, the Detroit plan now is using this as a springboard, if you will, for its planning to bring help to communities throughout the State of Michigan. Mr. CARTER. Have you had to have much Federal help? Mr. KNEBEL. I am not aware that any Federa~l help `has gone to the Community Health Association. Mr. CARTER. You are not going to need Federal funds? Mr. KNEBEL. In the use of Federal funds beyond what has been de- scribed here, we needed a small grant of some $23,000 in Rhode Island, primarily for documentation and evaluation of our approadh. But the venture capital came from the Blue Shield plan and the Blue Cross plan in Rhode Island. Mr. CARTER. And it is working quite well? Mr. KNEBEL. It is working quite well. In Rochester, N.Y., which was brought out earlier, our association, National Blue Shield-Blue Cross Association, the plans in Roches- ter, N.Y., and the Group Health Association of America in Washing- ton, D.C., all have banded together and do have Federal grant funds of about $400,000 to $500,000. PAGENO="0291" 1033 They are using those funds to develop manuals necessary for other groups to launch a new HMO from where there are absolutely no re- sources within 18 months. Mr. CARTER. Do you think that using the concept which you have had that we can similarly establish HMO's throughout our country? Mr. KNEBEL. I think our orientation, Mr. Carter, is toward those areas where there is need. We are local community organizations. I think more and more Blue Shield plans, together with their com- panion Blue Cross plans, are beginning to accept the HMO concept as an opportunity to do something in those areas that need some assist- ance. Mr. CARTER. You have the expertise. Mr. KNEBEL. We have the expertise. We have, as I say, some venture capital in terms of the reserves that our other subscribers have put up which we can put to use. We also know what the physician community will accept and what it is unlikely to accept and what our subscribers are likely to accept and unlikely to accept. Mr. CARTER. Do you think we need massive infusion of Federal money throughout the country for the establishment of HMO's? Mr. KNEBEL. Mr. Carter, it is my opinion we want to stay away from setting up a dual system of health care in the Nation, one for the rich and one for the pooi~. We are going to need some subsidy for some of the poor who cannot afford on their own to get into these programs. We will try to bring in the middle class. It is absolutely necessary that these programs stem from middle America. Some people just, absolutely can't get in without some help. I think the Federal Govern- ment is going to have to help. Mr. CARTER. Middle America is composed of those who pay, any- way. Mr. KNEBEL. That is right. Mr. CARTER. Do you think with your concept and with the type of initiative which you use that there should not be a greater need for infusion of Federal money; is that correct? Of course, I realize we will need some. Mr. KNEBEL. We have expressed our approval and endorsement of the patterns of assistance that are laid out in H.R. 11728. I think we see a need for some developmental grants, as Mr. Yuen has indi- cated. It is not just us; it is the physicians, themselves, who will have to reorganize and they need some help in that reorganization. I think at this point in time there is a need for some grants and for some loans and so forth. Mr. CARTER. HMO's similar to yours could be built, though, with- out Federal assistance, is that true, other than planning? Mr. YUEN. I think the model with which we are working would be the least costly because we are not structured from mortar and stones to create a structure but using the existing facilities and using them to get the model transferred to this kind of pattern of medical care. Mr. CARTER. Do you think that the Federal Government should build approximately 1,000 or 100 lIMO's throughout our country at one time or should we begin small and build, say, 100, something like that, to begin with? PAGENO="0292" 1034 Mr. VELTM~NN I have an observation, Mr. Carter. I am a great believer that where you have ingenuity and where you have expertise the voluntary movement can eventually get you where you want to go. I think there would be duplication if the Govern- ment went out and bujlt~~ Mr. OARTER. Should we staff these Places put the physicians on, let their salaries be paid by the Federal Government? Mr. KNREEL. Dr. Carter, I think we believe that the Federal Gov- ernment should give us some direction and some Priority and some advice and some help in comprehensive health Planning, but I don't believe that we feel in Blue Shield that we should run to Washing- ton with Our hands out. Mr. CARTER. Thank you, gentlem~~ I think you have made a won- derful statement, very enlightening Thank goodne~5 we have people who depend on their owii initia- tive and enterprise and don't come to the Federal Government with ~thejr hands out, screaming for more money. Thank you so much. I want to go back to that beautiful island one day. Mr. YUEN. Thank you. Mr. Ro~ (Presiding). I have no further questio~5 if you have no further questjon~, Dr. Carter. Thank you, gentlem~~ for being with us. This concludes the hearing for today. The subcommittee stands adjourned until io o'clock tomorrow morning. (Whereupon, at 4:35 p.m., the subcommittee adjourned to recon- vene at 10 a.m., Thursday, May 11, 1972.) PAGENO="0293" HEALTH MAINTENANCE ORGANIZATIONS THURSDAY, MAY 11, 1972 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON PUBLIC HEALTH AND ENVIRONMENT, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Wa$hingto"iD.C. The subcommittee met at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. Paul G. Rogers (chairman) presiding. Mr. ROGERS. The subcommittee will come to order please. We are continuing hearings on legislation which has been proposed to establish health maintenance organizations. Our first witnesses this morning are from the American Associ- ation of Foundations for Medical Care. The committee knows very well their Washington representative, James Bryan. We are very pleased to welcome for their testimony Dr. F. William Dowda, presi- dent of the Georgia Foundation for Medical Care; Dr. Wallace A. Reed, vice president of the Maricopa Foundation for Medical Care in Phoenix, Ariz.; and Dr. James J. Schubert, president of the Medical Care Foundation of Sacramento, Calif. We welcome you gentlemen. We will be pleased to have you come to the table. Your statements will be made part of the record without objection and we will be pleased to receive whatever statements you desire to make. STATEMENT OF A PANEL REPRESENTING THE AMERICAN ASSOCI- ATION OF FOUNDATIONS FOR MEDICAL CARE: DR. F. WILLIAM DOWDA, PRESIDENT, GEORGIA FOUNDATION FOR MEDICAL CARE; DR. WALLACE A. REED, VICE PRESIDENT, MARICOPA FOUNDA- TION FOR MEDICAL CARE, PHOENIX, ARIZ., AND MEMBER, BOARD OF DIRECTORS, AAPMC'; AND DR. JAMES J. SCHUBERT, PRESIDENT, MEDICAL CARE FOUNDA TION OF SACRAMENTO, CALIF. Dr. DOWDA. Mr. Chairman, ~we are grateful for the opportunity of being here this morning. To identify our people who are here at the table, Dr. James Schubert is on my far right. Dr. Wallace Reed is on my immediate right. You have already identified these gentlemen as to whom they are. Mr. James Bryan is on my left. I will proceed with our testimony. Again we are grateful for the opportunity of being here. Our pri- mary purpose today is to persuade you, beyond any reasonable doubt, (1035) PAGENO="0294" 1036 that as a matter of sound public policy the Congress should recognize foundations as a major category of health maintenance organization for the purposes of the legislation now before this committee. The foundation for medical care is the most far-reaching, realistic effort that American medicine has made during the past 30 years, to meet the needs of the people for a better system of medical care de- livery. Foundations are soundly conservative in that they build solidly on the community's existing health care facilities and they seek to improve rather than to displace the worthy characteristics and potentialities of our traditional medical ways. At the same time, foundations are profoundly progressive, since they strive to engage every physician actively in the common effort to achieve maximum productivity in all aspects of medical service. The basic objectives of the foundation for medical care are: 1. To monitor the quality of care provided by community physicians on a continuing basis; 2. To ascertain that each medical service is rendered in the most appropriate and least expensive setting; 3. To help assure that scope of care rendered each patient is suffi- cient to his need, but not excessive; 4. To determine that the price of medical service-by whomever rendered-is reasonable; 5. To guarantee accessibility into the health care system. Working together in self-contained communities of manageable size, the medical profession has accepted and is learning how to dis- charge its collective responsibility for providing comprehensive medi- cal services at predictable costs to the individual or the group contract- ing for service. Participating physicians have vested their representatives in the foundation structure with, first, the power to contract. for provision of their services and to monitor and evaluate their services when rendered. These physicians, on the broadest scale, are encouraged to participate in the evaluation processes. Second, through the founda- tion mechanism, solo physicians thus achieve for themselves and their patients the factors of quality control and efficiency that are usually attributed to group medical practice. In effect, the foundation for med- ical care functions as a "clinic without walls." Our national experience with medicare and medicaid has clearly demonstrated the need to improve health care management and deliv- ery systems before pouring more tax funds into the present system through a national health insurance program. The foundation for medical care has shown that it can make indi- vidual practice competitive with an equal to group practice. Congress has an opportunity~by simultaneously encouraging the develop- ment of group practice and individual practice foundation pro- grams-to give people a choice between equally desirable alternative health service plans. The Group Health Association of America has testified that it would be practicable to set up 1,200 prepaid, closed-panel, group practice HMO's by 1980, each serving an average of 50,000 people. This modality would then be available as an option to perhaps 80 percent of the people, while actually serving about 20 percent. The cost of each such lIMO, from drawing board to break-even operation, PAGENO="0295" 1037 is set at $2.5 million exclusive of hospital construction~ Thus, for $3 billion we could provide a group practice program for one-fifth of the people. The foundation program could and would meet the needs of the remaining four-fifths of the population much more rapidly, at an incomparably lower cost and with maximum acceptance by ths medical profession. Indeed, a major advantage of the foundation program is its availability to the total population in its area of service. We would list the main elements of an ideal medical care program as follows: 1. Accessibility of care. If I have your permission, I would like to digress from the pro- pared testimony for a moment to bring up examples of accessibility that are now occurring in different parts of the country, with particular reference to the State of Georgia. We now in Georgia have inaugurated five access stations. Four of these have occurred in rural settings and one has occurred in a ghetto setting. These access stations pro- vide paramedical personnel who have the ability to provide cardio- pulmonary resuscitation on an emergency basis, emergency-type medi- cal care; for example, the miliworker who recently servered his radial artery and had an arm saved by such an individual in the paramedical station. These individuals also can arrange for transportation to doctors' offices and they are able to arrange for appointments with physicians at an appropriate time. We feel that the access station itself is a new idea. This certainly will serve many of the ghettos and many of the rural areas in a new and exciting way. We are very pleased with the results of our access stations to this point. To move on to the second point, we believe in the provision of a com- prehensive range of medical service. No. 3, an economic and appropriate use of manpower and facilities; and, No. 4, reasonable costs. Again I would like to point out the impact that the foundation pro- gram has had on the medicaid program in Georgia. During the past year we had budgeted for Georgia a total of State and Federal match- ing funds of $155 million. The impact of the foundation program on the State medicaid program during this past year was so substantial that during the recent legislative session the budget committee re- moved funds of sufficient magnitude that has reduced this budget by $12.5 million already. The savings since the legislature met 2 months ago indicate that the total savings in this particular program by the impact of the foundation activities will range in excess of $15 million or in excess of 10 percent of the total budget. I think we can back up the reason- able cost factor which is listed as item 4. No.5 is a choice among alternative delivery systems. No. 6, encouragement of the private relationship between a respon-~ sible private doctor and the patient. No. 7 is the maintenance of quality and No. 8 is improved health education. I think one of the most difficult problems that faces the educational system in America today is the maintenance of adequate and respon- sive postgraduate educational programs. In our monitoring of the PAGENO="0296" 1038 medicaid program iii Georgia not oniy have we saved $15.5 million, but in addition we have found a method by which we are able to pick up deficiencies that exist and provide the educators in our State a method for developing the post?graduate~ programs that aie necessary to correct these deficiencies in the he~alt1i care delivery systems. And we are as excited about the improvement of health education and the maintenance of quality-in fact more so really-than we are about the savings we have made in this program over the past year. because in the long run, this will benefit the pat;ient more. We submit that Government should encourage active competition between the major modalities of medical care in every geographical area-stimulating efficiency-and permitting cOml)a.risOfl between systems. The major function common to all foundations is peel review. The foundation makes peer review available to any health or inedica.l pro- grams operating in its area. The foundation peer review program uses contract laiiguage to describe medical practice as it is ideally prac- ticed, and to pay for it in the community settings most appropriate to such care. This permits coverage of an optimal range of benefits. Foundations encourage as many physicians as possible to participate in peer review. This makes them ac.t.~ve I)a.rtlie.rs iii that role, and it motivates high standards of performance in their own practices. Indeed, the essence of the foundation's contiibiit.jon to modern imiedi- clue. is its rovoluntary etlect on the educational p1oess(~s of medicine. The physician's relationship to the foundation peim1~s him to take full advantage of the health care delivery opportunities which his community and scientific advances offer him without fear of recrimi- natory liability. While only physicians can evaluate professional service, as the core function of leer review, we feel that the patient must. have a way to obtain strong assurance. that. the review pioceclures are effective and fair and that the scope. cost.. and availability of services are reason- able and that the future health needs of the country are being NO- gressively met. Mr. Chairman, Secretary Elliot. Richardson of the Department. of Health, Education, and Welfare ha.s expressed belief that. the. present language of H.R.. 11728 would exchude foundat;ions from recognition as HMO's. Assuming that it is the intent of the authors audi sponsors of this bill-as it is of those who wrote and sponsored T-T.R. 5(15-to permit foundations to qualify as HMO's, we should like t.o submit sug- gested language changes which we feel would help clarify this point. Foundations for medlic.al care have. growii out of a. recognitioii l)y the medical profession that. it is challenged to put its own house in order, and to demonstrate its ability to assure the. highest posSil)ie qual ity of professional performance by each i ml i vi dual physi man. The development of foundations for medical care, andi their hoped for recognition and encouragement. by tIme Federal Government as a basic. type of health maintenance organization, will bring time medical profession and government, together in a practical working rela- tionship. whatever its nature and scope. This development will hell) PAGENO="0297" 1039 to break down the continuing lack of mutual trust and* cooperation which has kept so many Federal medical care programs from operat- ing with real efficiency and satisfaction to the patient, the doctor and the Government. It will help progressive medical leaders to mobolize the great potentials that lie within the medical profession for respon~- sible and effective community service. On behalf of the American Association of Foundations for Medical Care, I wish to thank you, Mr. Chairman, and the members of your committee for theo pportunity to present their testimony. And now may I call on Dr. Wallace Reed to describe some of the achievements of the Maricopa Foundation for Medical Care. Mr. ROGERS. Thank you, Dr. Dowda. Dr. REED. STATEMENT OP DR. WALLACE A. REED Dr. REED. Mr. Chairman and members of the committee, I am Wal- lace A. Reed, M.D., an anesthesiologist who has practiced in Phoenix, Ariz. for the past 24 years. I am a cofounder with John L. Ford, M.D. of the Surgi-Center, an innovative concept in medical care delivery which has to do with care of patients through surgical conditions that are too difficult to treat in the doctor's office but are not so demand- ing as to require hospitalization. I am a vice president of the Maricopa Foundation for Medical care in Phoenix, Ariz. and a member of the Board of Directors of the American Association of Foundations for Medical Care. You will recall that in Dr. Dowda's testimony `he quoted a statement of the Group. Health Association of America that an HMO serving 50,000 people could be set up for two and a half million dollars. Dr. Dowda went on to make the claim that the foundation program could be instituted at considerably lower cost. In Maricop'a County, Ariz., we have living convincing evidence which goes a long way toward substantlating this claim. Our founda- tion was formed in I)ecember of 1969. So it is a relatively new one. Startup money was obtained in the form of contributions of $50 from each of 800 physicians who joined. This gave us a kitty of $40,000. A summary of the achievements in two and a half years' time is as follows: 1. Employees of 26 different groups or organizations are covered. Included among these are employees of such private companies `as Motorola, on the one hand, and employees of municipalities and school districts, on the other. 2. 110,000 lives are covered `by foundation-sponsored plans. This represents greater than 10 percent of the population of our county. 3. 81,000 of these people have voted to be included in the foun- dation's certified hospital admission program, `better known as the CHAP program. This is a program patterned after the one initiated in Sacramento by Dr. Schubert's group. You will be hearing from him later. Through this program the number of days of hospitalization per covered Motorola employee has been reduced from 6.75 during 1970- PAGENO="0298" 1040 71 to 5.6, a saving of greater than 1 day. While it is difficult to trans- late this into dollars saved, it has been reliably estimated that, the savings run in the hundreds of thousands of dollars and we know the Motorola Co. is very pleased. 4. The foundation-sponsored programs have been well received by the community. Now while our foundation is not exactly an HMO- indeed ~ve are not sure yct. exactly what an HMO is going to be-we do offer many of the services mentioned in the legislation under review. We submit that 110,000 people covered within two and a half years' time on a startup cost of $40,000 is a record worthy of note. We in Maricopa County are not unique in our accomplishment.. Similar semiiniracles are being wrought in California, in Colorado. in New Mexico, in Georgia. awl in other areas where concerned and dedicated doctors are bringing foundations into existence. Now we would like to call the committee's attention to the need to broaden the scope of minimum services to include specifically vision care, dental care, and mental health care, services which, if we read this correctly, have, not now been listed as a requirement under H.R.. 117~8. We would emphasize that. it would be. well to consider phasing these and other minimum services into the program over several years' time, since it may not. be economically feasible t.o include all of them at the outset.. Finally, we w-ould recommend that. the. committee include a.s covered services those which are. provided by approved ambulatory care facilities such as the Surgi-Center. As things st.aiicl now, part A of the Governments' medicare program is the last to provide beiie- fits at the Surgi-Ceiiter. The reason is that the law as originally written was so restrictive that there was no provision for `approving worthy innovations. We would hope this unfortunate experience could be avoided in the pre- sent bill by including appropriate language allowing for adminis- trative liberalizations. In conclusion, then, we believe that the performance of foundations for medical care has earned them the right to be recognized in the new order of things and therefore urge the. committee to provide: Oiie, that foundations for medical care be permitted t.o qualify as }TMOs and, two, that the language of the bill not be so restrictive as to ex- clude worthy innovative efforts already in existence such a.s the. Surgi- Centers and others which may be discovered and developed in the years to come. We thank you very much for this opportunity to appear as witnesses. Mr. ROGERS. Thank you, Dr. Reed. Dr. DOWDA. I would like to call on Dr. James Schubert. STATEMENT OF DR. JAMES J. SCHUBERT Dr. SCHUBERT. I am Dr. James Schubert, a practicing orthopedic surgeon foim Sacramento, Calif. As Dr. Dowda mentioned, I am president of our Medical Care Foundation. PAGENO="0299" 1041 In 1969, our Medical Care Foundation attacked the problem of private doctors in sole practice by joining them together in a founda- tion competing directly with the closed panel program. We felt that the most opportune method of competing would be to develop an effective utilization program involving the use of the hospital. We initiated the program which we called CHAP, Certified Hos- pital Admission Program, in 1969, in a private health insurance pro- gram designed for the printers' union. Mr. RoGERS. That is in 1969? Dr. SCHtTBEBT. Yes, sir. This program was extremely successful in this private group, re- ducing hospital costs by 18 peréent. In April 1970, the title XIX program in Sacramento was added to our CHAP program. Over 1,000 individuals are currently covered by CHAP in Sacramento. In each one of the groups we have had we have reduced the number of hospital days used. During 1971, in our CHAP program there were 87,569 hospital days certified for payment. We have the right to certify that a hospital stay is immediately necessary and that the length of stay is proper. With this certification, the fiscal intermediary for the Government agency will then make payment for the indicated numbers of days. We certified for hospital payment 87,569 days. We denied for pay- ment 4,731 hospital days, and we tranferred people from acute care facilities to extended and lesser levels of care. Some 15,147 hospital days were transferred. Pre-admission screening and length of stay monitoring by pro- fessionals is the key to our program. It continues to be an effective program and it will be the essence of the peer review part of our foun- dation's prepaid health plan. I might mention here, Mr. Chairman, that our Foundation has put together a prepaid health program utilizing facilities within the community, private practitioners in sole practice, private hospitals throughout the community, pharmacists throughout the community, all of whom have signed an agreement with the Medical Care Foun- dation to participate in risk sharing. This program will begin the first of July under title XIX. It is modeled after Dr. Harrington's program in San Joaquin except that we have now extended it to include other providers of care. I have `brought along some examples of how a foundation HMO differs from a closed panel HMO. Mr. Bryan has supplied some diagrams. This diagram shows the ordinary indemity plan. It demonstrates that an agency or employee group pays the insurance company a certain amount of money. Then the patient will seek out care from the individual providers, on his ,own volition. He receives a bill from the providers; the providers in turn will fill out a claim form, send it to the insurance company, and the insurance company may send the payment to the patient or may send the payment to the providers. It is a very `awkward system for most of us. The next page is a closed panel prepayment program in which the Government agency or employee pays a certain amount of money, PAGENO="0300" PAGENO="0301" 1043 PAGENO="0302" PAGENO="0303" PAGENO="0304" PAGENO="0305" 1047 Tinder the circumstances, if we wish to include foundations, as I said I can speak only for myself, that perhaps we had better make it very, very clear. Do you feel that the foundation, the lIMO without walls, can have essentially the same cost saving as the HMO with walls? In other words, you feel that you may or may not be at a disadvantage because of the fact that they share more facilities? Dr. DOWDA. I think actually we could probably do better. If I may bring an illustration to you. Everyone is familiar with the hospitality workers union. At least, I hope this does not imply what one would ordinarily think. These are the people who are the busboys and waiters and other people who manage the hospitality services in hotels. We have a contract with them in Atlanta to provide total medical care. This contract we were able to sell to the hotel employers and they felt we could do such a good job with it that they, themselves, wrote the reinsurance for the program; they took the risk for x number of dollars. This program has now been in operation for a full year. This in- volves the entire package of first dollar coverage, with no exclusions; it includes a hospitalization program and major medical. Our experience with this particular union organization indicates that the cost that actually has been realized under this one program is about 50 percent less than the cost as predicted by the actuary. We feel that we would be under no competitive disadvantage from the dollar standpoint, at least from the operation of our own founda- tion structure. Walley, do you feel there is any dollar disadvantage in operating without walls? Dr. REED. No. Dr. SCHUBERT. There is one disadvantage, Dr. Roy. In our community, we did a survey of the people in the community receiving care from the private physicians as well as those from the closed panel program in Sacramento. We found that a high percentage of people enrolled in the closed panel program do receive some of their services outside the prepaid group, which means that probably many of the families have dupli- cate coverage and may be using some other plans first and using their closed panel as a last dollar coverage. So, there is a possibility of not competing exactly. We think, with the mechanisms that we have, all things being equal, we can compete. Mr. ROGERS. If the gentleman will permit, could you supply for the record those cost figures, the savings and so forth? Dr. DOWDA. Yes. Mr. ROGERS. If you could, outline those for us for the record. Dr. DOWDA. I will supply them in writing. (The following information was received for the record:) 81-18~ 0 72 - pt. 3 - 20 PAGENO="0306" 104S TJTILIzATI0N A~D CosT DATA Popu1ation~ Approximately 600 persons. Period: May 1, 1972, to August 31, 1972. Encounters: Total program 436 May 1, 1972, to August 31, 1972 175 Total cost of encounters: Total program $7, 831.06 May 1, 1972, to August 31, 1972 $2,568. 50 Cost per encounter: Average cost per encounter: Total program $17.96 May 1, 1972, to August 31, 1972 $14. 08 Lab (exclude EKG): Total program $3.05 May 1, 1972, to August 31, 1972 $1. 77 Injections: Total program $ .96 May 1, 1972, to August 31, 1972 $1. 70 X-Ray: Total program $2.46 May 1, 1972, to August 31, 1972 $1.97 EKG: Total program $ .26 May 1, 1972, to August 31, 1972 $ . 09 Average cost of office visit, examination, or consultation: Total program $18. 11 May 1, 1972, to August 31, 1972 $12. 15 NOTE-In the hO months of operation of thli~ plan, only eight persons have used more than $100 worth of primary services. Mr. Ror I would be interested, also, in any indication you have as to what leakage is on closed panels. We have been trying to determine this. Everybody seems to be aware there are some. Dr. SCHUBERT. The leakage in our community is that many of the specialty services that are ordinarily available to people are not avail- able in some closed panel programs. Mr. Roy. I am aware of the problem. There is not a dermatologist, and so on. We have trouble measuring the extent of the problem. I was interested in the access stations you have set up in Georgia. I praise you for your innovation in this respect. Do you feel that these access stations are subject to the epithet of being called second-class medicine? Dr. DOWDA. No, sir; I don~t think so, simply because they don't operate. this way. They are not competitive with the medical system. They are a supplement to the medical system. If you will recall, the four functions I outlined for the access. stations are: No. ~1, they are quipped to provide immediate cardiopulmonary resuscitation which we feel is a critical provision in remote areas, whether this remote area be a ghetto remoteness because of lack of transportation, lack of sophistication, or whether it is an area remote- ness such as is exemplified by rural Georgia. The second thing the access station is able to provide is emergency type service. The problem of taking care without damage of an injured individual in a plant, an individual who has severed a blood vessel or has a compound fracture, who has an injured back. These people are trained to handle them in such a way that they will get to the nearest center without irreparable damage to them. PAGENO="0307" 1049 The third thing that they are capable of doing is the provision of transportation services. In other words, they are able to coordinate the transportation available, and where there is none provided. The fourth thing they are capable of doing is arrangement of ap- pointments with a physicians' office. With these access stations set up, with the cooperation of the sur- rounding medical services that are available 30, 40, 50 miles away oT 30 or 40 minutes away or 10 minutes away because of the ghetto, these paramedical personnel can obtain appointments to the physicians' offices considerably easier than the patients themselves. Mr. Roy. Why do physicians seek to form foundations? Dr. DOWDA. I think that is a simple question, really, and it is one that I am delighted you asked. Mr. Roy. A simple question or a question with a simple answer? Dr. DOWDA. It is a simple answer. I am sorry. I apologize. It is a question with a simple answer. It is one that we should have brought up. Foundations for medical care are an outgrowth of the frustrations of the medical community over a period of many decades of trying to wrestle with the problems that the difficulties of practing community medicine present to the physician, hampered in all sorts of ways by legal restrictions and the inability to coordinate activities. We look at the foundation for medical care as a health care delivery system. It has the infinite flexibility of being able to handle any com- munity problem that comes along in coordination with all the rest of the community. We can coordinate with the banker. We can coordinate with the chamber of commerce in their programs. We can coordinate with the citizen in the ghetto. There are no real hang-ups because of our past associations. It gives us an opportunity, really, to have a very flexible type of health care delivery system that can meet the demands of changing times. Mr. Roy. I again could not agree with you more fully about the ne- cessity for mutual trust and cooperation among government, patient, and physicians. I am extremely pleased with what you gentlemen are doing. I feel very strongly again that these things can be best done on a local level. If. I were assured everybody would move the way you are moving, I think the Government could almost keep hands off, which I think would be desirable. I am really quite pleased with your testimony and your efforts on the local level. I think this is where it has to be made. Again, coopera- tion of the medical profession is so important and I think you represent that type of cooperation. Thank you. Mr. ROGERS. Dr. Carter Mr. CARTER. Thank you, Mr. Chairman. You feel that we should build on existing health care facilities in the future, that they should be the basis of an improved health pro- gram in the United States? Dr. DOWDA. Yes, sir. PAGENO="0308" 1050 Mr. CARTER. Particularly such facilities as you have in your group; is that correct? Dr. DOWDA. I think our facilities are more a philosophy than facili- ties. We have a willingness to accept the problems of a community or a State and to wrestle with these problems to come to a solution that is desirable for the people that we must deal with. In olden times, it was very simple. I had an uncle who practiced medicine between 1903 and 1950 in a county in Texas. My uncle said, "These are my people and my responsibility is to take the best possible medical care of them that is available." He sort of served as the health maintenance organization in this rural area for a long time. I think actually what we are saying is that we will accept the respon- sibility for the people of Atlanta or the people of Georgia and solve these problems in cooperation with them. We have found that where there is a desire to solve these problems, the money and the facilities are forthcoming. Mr. CARTER. You do not feel that we need a great infusion of Federal funds for assistance? Dr. DOWDA. We have a great fear of an infusion of Federal funds for one reason. I think that I need to explain this very carefully. The people in our area who have expressed the greatest interest in the HMO activity have been what we would call marginal people. Actually those in the medical profession, as exemplified by the Ameri- can Association of Medical Clinics here, the American Association of Foundations for Medical Care, have not needed tremendous infusions of money in order to innovate their programs. These are doers and people who can and indeed will handle the problems of the community if given the opportunity. They may need a little help but not a lot of help. I think Dr. Reed's testimony indicates that this is the way it is. With $40,000, they have covered what the average HMO would cover and would ordinarily have cost in the vicinity of $2 million to $2.5 million, to start. I think where there is the willingness, the money requirements drop off considerably. * Mr. CARTER.. I certainly agree with what you are saying. I think, as a usual thing, a group of doctors, in fact, any physician really that has ability, can obtain money from private sources. I feel a foundation can do likewise. You say that your facility started with only $40,000? Dr. DOWDA, Dr. Reed's facility started with $40,000; yes, sir. Mr. CARTER. If the Federal Government did this, it would cost $2.5 million; is that correct? Dr. REED. That is the estimate that was given by the Group Health Association of America. Mr. CARTER. It is refreshing to hear such testimony from people who are actually in the field in this type of work. I believe you stated that Health Care Management and delivery systems should be improved before more Federal funds are poured in; is that correct? Dr. DOWDA. Yes, sir; I did. I think that the problem of accessibility has been and does remain a major problem, not only in rural America but in urban America. PAGENO="0309" 1051 This is one of the management features that needs to be handled. Inadequate funds, I think, have been expended out of the health care dollar to attack the problem of simple access into the system. This is one of the main managerial problems that needs to be solved. Mr. CARTER To make the physician group more accessible? Dr. DOWDA. Yes. . Mr. CARTER. I believe one of the present bills envisionS forming 1,200 HMO's is that correct? Dr. DOWDA. Yes, sir. Mr. CARTER. Would you establish all these 1,200 at once at the cost of $2.5 million each? Dr. DOWDA. No, sir; I would not. I feel that the Foundation for Medical Care, with considerably less infusion of money, would be able to cover the health needs of the people and that the main money infusion would need to be again directed toward the problem of access into the system. Dr. SCHUBERT. I would like to add to that. We received an HMO grant last year from HEW of $90,000. We spent $40,000 of it surveying our communities to find out where the problems were, where the access problems were. The other half we spent on developing our organization, management, actuarial support and so forth. Now we will be operational in 8 weeks. I think the Foundation has a tremendous advantage over any closed panel program. We have the bricks and mortar there; we have the physicians, the hospitals, the pharmacists. Mr. CARTER. All that needs to be done is proper planning and coordination. Dr. SCHUBERT. That is right. Mr. CARTER. And determination to succeed. Dr. SCHUBERT. That is right. Mr. CARTER. And with a lot of self-dependence, which is rather rare these days. Most people want to depend on the Federal Government for assistance when they might do it themselves if they had the will- power; is that correct? Dr. DOWDA. I think so; yes, sir. Mr. CARTER. Would you suggest if we go into the HMO thing that we begin small, begin wi'th just a few HMO's if they are federally financed? Dr. DOWDA. I think there certainly would be an advantage; yes, sir Mr. CARTER. You would build on this; is that correct? Dr. DOWDA. I think the system as defined is essentially untried. 1 would certainly hate to see the entire country covered at one fell swoop with a new system that has yet to prove itself without the incorpora- tion, really, of all of the expertise that, for example, the foundations can give to this particular subject. I think Dr. Schubert has something he would like to add to that. Dr. SCHUBERT. I think you should try different models. Let us not try stereotyped models of the HMO. Some of us have better ideas. Mr. CARTER. I agree with you. I would like to see private enterprise, private physicians, as far as possible, develop these with their own funds and with as little ex- penditure of Federal funds as necessary. We all know that when we start Federal funding, staffing, and so on, as well as construction, PAGENO="0310" 1052 it does not stop; it keeps on. If they ever get hold of that they don't want to turn loose. Mr. ROGERS. That is the second call to the floor. Members will have to go vote. We will stand in recess until this vote is over, which should be, hope- fully, in 5 or 10 minutes. Dr. DOWDA. May I make one last comment, Mr. Chairman? I think one of the real elements of the HMO's is the ability of the physicians to share risk for cost containment and quality control. We stand ready to share this risk. Mr. ROGERS. We have `a few more questions. So, if you will excuse us while we answer the call, we will be back. Dr. DOWDA. We will stay. Thank you. (A brief recess was taken.) Mr. ROGERS. The subcommittee will come to order, please. I would like for you to spread on the record for us now, so that people when they read this record will know what a foundation is, how does it operate, what happen's to the physicians, what relation- ships do they have to it, how are they paid, how are services obtained, what kind of records are kept? Could one of you speak to this point? Many people don't know how foundations operate. I think we should have it on the record. Dr. DOWDA. I think we ought to divide this in three parts and have each one of us take part of it. The definition, basically, of a foundation, for the record, is that the foundation for medical care is indeed basically and primarily a health care delivery system. It has been designed by the physicians of a com- munity to handle the health care problems of a particular community. This community may be defined either as a town or a county or, in some instances, a State, if the problems are such that they spread over a larger geographic area. This health care delivery system involves the acceptance of certain prime principles. No. 1 of which is access, as I mentioned, into the health care system. The second principle is that of the maintenance of quality of medi- cme through appropriate input from a peer review system into a postgraduate educational prpgram, and the definable part of quality that is obtained by having ~omeone else look over your shoulder as one performs a daily activity of delivery of health care. The third feature is that of cost containment. This cost contain- ment has been thought of by some people looking at the foundations as being a matter of containment because of the elimination of unneces- sary services. More and more, our records show that this cost containment basi- cally is there because of a revolution that is occurring in the delivery of health care and that this revolution is the removal from the institution, whether it is hospital or otherwise, but a removal from the institution of health care and the placement of it back into the physician's office' where it was a long time ago. The delivery of care in the physicia~n's office, be it clinic or solo, is a less expensive type of care and, when properly monitored_-which we are able to do through peer review- PAGENO="0311" 1053 gives all of the same control mechanisms that are available under in- stitutional care. This cost containment has been reflected in the ability of the foun- dation to modify insurance programs. Health insurance heretofore has been primary hospital insurance, but more and more in areas where the foundation has been operative, health insurance has come to include outpatient types of coverage. These are the basic ingredients of a foundation. The one concept that it does not involve-and it is important to put this negative concept into it-is the necessity that many people feel for centralized bricks-and-mortar structure that brings all of the physicians who participate in it under one roof. We feel that the foun- dation concept has allowed these doctors to function under the um- brella of a community rather than under the umbrella of a single asphalt or concrete roof. These are the essential ingredients. I would like to pass the ball to Dr. Schubert. Mr. ROGERS. Let me ask this question at this point. Are the foundations generally nonprofit or profit? Dr. DOWDA. They are all nonprofit, or at least those associated with us are all nonprofit. Mr. ROGERS. Could there be a foundation for profit? Dr. DOWDA. It is conceivable that a foundation for medical care could be developed outside an organized medical structure that could be for profit. As long as they are associated with the medical structure of a community, I would assume that they would all be nonprofit. Mr. ROGERS. Now, let me ask you this: If a doctor says he will join this foundation, does he devote all of his time to foundation work, to referrals from the foundation, or to the setup with the foundation, or does he carry on his normal practice as well as serving the foundation? Dr. DOWDA. In our experience to date, there are no communities that I know of in which all citizens are totally covered by the foundation. So these physicians devote part of their time to the foundation activity and the remainder to people who are not covered under the foundation programs. Mr. ROGERS. In the foundation you have, do all of the doctors in the community belong to the foundation or do part of them belong? Dr. DOWDA. The average sign-up rate. has been that somewhere be- tween 80 and 90 percent of the physicians have become participating physicians. Mr. ROGERS. Wherever they have been founded? Dr. DOWDA. Yes, sir. Dr. SCHUBERT. I might mention that the nonprofit organization aspect includes a board of trustees which manages the affairs of the corporation. Mr. ROGERS. Do you have consumer representation on the board? Dr. SCHUBERT. Yes. On many of the foundations, there is consumer representation. On our board we have one public member. Mr. ROGERS. Out of how many? Dr. SCHUBERT. We have 15 members. Mr. ROGERS. One is a public member? PAGENO="0312" 1054 Dr. SCHUBERT. Yes. We have 12 physicians and three nonphysicians. Two of the nonphysicians are hospital administrators who are nomi~ nated to our board by the hospital council. The public member serves in the area of consumer affairs, patient affairs, and works in the area of grievances and so forth. The foundation allows the luxury of the patient being able to choose his primary physician so that he can volutarily choose from a foundation physician and, in some cases, from a nonfoundation physi- cian. The freedom-of-choice aspect should be emphasized under the foundation type of program. Mr. ROGERS. Does the foundation pay for a person to go to a doctor that is not a member of the foundation? Dr. SCHUBERT. In most foundation programs, that is true, but, he would receive no more than if they had gone to a foundation physician. Mr. ROGERS. So, he would have to make up the difference? Dr. SCHUBERT. The nonfoundation physician is also subject to the peer review scrutiny of the foundation. Although we may have 80 percent of the physicians agreeing to the foundation program, all the physicians who treat patients in our programs must come under the peer review system. Mr. ROGERS. Suppose they don't want to allow you; you do not pay them? Dr. SCHUBERT. We do not pay them; that is right. Mr. ROGERS. Have you had any resistance? Dr. SCHUBERT. Yes. Mr. ROGERS. What was the result? Dr. SCHUBERT. Peer review is very effective. The most interesting thing about it is that we can deny payment for unnecessary services. Mr. ROGERS. I mean where you had the resistance, did you overcome that resistance? Dr. SCIrUBERT. Yes, sir; we did. Dr. REED. One additional point is that the basic tenet of the founda- tion approach is that the care for the patient should be provided in the most appropriate place, wherever that may be. If it is institutional care, it is provided there. If it can be rendered outside the hospital, it can be rendered there. For example, in the laboratory outside the hospital or in an ambula- tory care facility or in an extended care unit or in the home. The point is that it should be rendered at the most appropriate place. Mr. ROGERS. Now, how do you exert peer review if the records are all spread in everybody's office? Dr. SCHUBERT. That is the advantage of a foundation. All the rec- ords must come to a central point for payment in our area. Dr. Har- ington, of course, is a pioneer in this. From these claims he has been able to extract information not only on the patient, and to consolidate medical information on the patient, he has also been able to consoli- date a tremendous amount of information on the individual proce- dure. Within the foundation, we do have a central record system. Mr. ROGERS. Are you computerized? Dr. SCHUBERT. It is computerized at San Joaquin. It is being com- puterized in many other foundations. Mr. ROGERS. Whom do you have exercise peer review? Is it members of the foundation or board? PAGENO="0313" 1055 Dr. SCHUBERT. The peer review activities generally are carried out by foundation doctors who are appointed by the board of trustees. In most foundations, these doctors are nonjinated by the specialty groups, including family practice, to serve in peer review activities. Mr. ROGERS. How long do they serve Dr. SCHUBERT. One year, 2 years, 3 years, depending on the individ- ual and the group that nominated him. Mr. ROGERS. Do you have any outside peer review at all ~ Dr. SCHUBERT. We have outside peer review in that many of the peer review decisions which may be questioned are referred to the medical association or medical society for independent judgment to review our particular activity. Mr. ROGERS. Is there an appeal mechanism that you have ~ Dr. SCHUBERT. Yes; we have an appeal mechanism. Mr. ROGERS. I think it would be well to let us have some of the de- tails for the record, how do you effect peer review, the utilization committees, how all of this is checked. Dr. SCHUBERT. Yes, sir. (The information requested was not available to the committee at the time of printing.) Mr. ROGERS. How do you make sure that a patient is going to get treatment promptly when the doctor may have other patients that he can get more money for in giving the same type of treatment ~ Dr. SCHUBERT. The patient chooses the physician. If the physician does not perform services which are acceptable to the patient, the patient changes physicians. This is true whether insured by the foun- dation or whether insured by the Blue Shield or idemnity carrier. The relationships is one-to-one, doctor-to-patient. This is what we want to maintain. If the patient is unhappy with the physician, he may go to another physician. Mr. ROGERS. You feel there is protective machinery that solves that problem ~ Dr. SCHUBERT. It solves that particular problem. Dr. DOWDA. There is a little more to it than this. I am not sure what it is. Wally may want to put his own input into it. When physicians become involved ii~ the solution of community problems, the practice of medicine takes on an aspect it does not take when you simply say," I am going to take care of the people who come and see me and the community can fall down around me." The foundation concept says, you know, "The health problems and their many, many ramifications are our problems. It is necessary to solve them." The physicians' participation in this become more alert, becomes more responsive, and it becomes a dedication; one goes from becoming a good doctor to a good citizen and this combination is almost unbeat- able. We have found that there is a difference and a change in the quality of taking care of the patient with the onset of the foundation activity. Mr. ROGERS. Suppose you have a doctor that all your patients are beginning to avoid? What do you do? Do you let him continue in the foundation? What happens? What method do you have for discipline where improper procedures are being carried out? / PAGENO="0314" 1056 Dr. SCHUBERT. Of course, the first discipline we have in our peer review is denial of payment for the services. During the course of the denial of payment, the physician in the same field of practice will call this physician into a peer review committee meeting and go over all the activities which they have reviewed and go into quite a bit of detail. The one thing that most physicians cannot tolerate is peer scrutiny, peer criticisms. This usually involves the vast majority Qf problems within the peer review area. For those are resistant to change or nonconformist and so forth. they can be disciplined even further. Now, we have not expelled anybody from the foundation but we have had people resign because of our activities. They voluntarily or involuntarily resigned. They don't want this scrutiny. Mr. ROGERS. Do they also resign from the medical society and from practice? Dr. SCHUBERT. They can resign from the medical society. Mr. ROGERS. I am sure they can but, as a matter of fact, is there any followup with the medical society if he is practicing medicine at such a low standard that he cannot pass peer review? Dr. SCHUBERT. Yes; there is. Mr. ROGERS. Do you have an obligation, would a foundation have an obligation, to take it up with the State medical society? Dr. SCHUBERT. Yes; we have referred physicians to the board of medical examiners in-the State. They have gone over these particular people in various parts of the State. Some physicians have been placed on probation and so forth. Mr. ROGERS. So, you have taken action? Dr. SCHUBERT. Yes. Mr. ROGERS. Have you, too, Dr. Reed? Dr. REED. Yes; in Maricopa County, we have done the same thing. We have referred these to the board of medical examiners, in certain instan~es. If I may say a word in reply to your question about the quality of care to foundation-covered patients or nonfoundation-covered patients. I think very few physicians look first at the type of insurance cover- age that the patient has. They look first at the patient's illness or- his complaint. They take care of this aspect of the patient. Mr. ROGERS. I would think that may be so. Maybe his nurse looked complaint They take care of this aspect of the patient Dr. REED. I think that speaks for itself. Dr. DOWDA. I have two comments I would like to make on previous questions. One is the public member. We have found that actually a single solitary member or two operating on a board, for example, Blue Shield or other boards at home, have been reasonably unsatisfactory. We have therefore gone to having an advisory board composed of all disciplines of lay people to handle problems which we refer to them or which they, themselves, want to generate and come back with sug~ PAGENO="0315" 1057 gested solutions. We have found this a considerably more satisfactory method. Mr. ROGERS. I think that might be well to describe that in detail for the record. Mechanisms like that, the committee would be interested in. Mr. Rocmns. Also, do you have any outcome review? Dr. SCHUBERT. We have outcome reviews. We very recently re- viewed a very complicated problem in our peer review committee where a medical problem we felt was handled rather improperly and underutilization, failure to diagnose and so forth. rfhis was discussed very frankly by the individuals on the committee. Mr. ROGERS. So you are using some technique of an outcome evalua- tion? Dr. SCHUBERT. Yes, sir. Mr. ROGERS. Should this be a requirement of an HMO or a founda- tion? Dr. SCHUBERT. I think peer review is esential and outcome evalua- tion is absolutely essential. Mr. ROGERS. And outcome, too. I think it would be well to let us know how this functions, as well, your outcome review, the technique you use. (The information requested was not available to the committee at the time of printing.) Dr. DOWDA. I would like to add a little bit to the outcome review. Johns Hopkins has come up with a health analyst. We have added one of these people to our program to try to figure out how they func- tion. I am not really sure of the appropriate method of measuring outcome. Mr. ROGERS. We are still in the early stages of it, I guess. There is much to be done. Dr. DOWDA. I don't think there is any question about the appropri- ateness or necessity of outcome review but I think the method is very much in doubt as to how to go about it. Mr. ROGERS. I understand much work needs to be done. This has been most helpful. I think your testimony has really im- pressed the committee. We may be back in touch with you to give us specifics. I think it would be helpful, also, if you would look over the proposed legislation and let us have any suggestions you have on the wordage of the bill. Dr. DOWDA. Thank you. (The information requested was not available to the committee at the time of printing.) Dr. DOWDA. If we may make one final statement. I think our entire pitch has been that of equal treatment for a plurality of systems which I hope will come out of this bill. Dr. Carter mentioned the limitation of the initial numbers which seems to be reasonable. I think the major thing we would like to see is not only would we like to be included in this bill but be sure that all groups and innovative type systems are admitted, sponsored and sub- PAGENO="0316" 1058 sidized in a similar fashion, until we see how far along this system will go. Mr. ROGERS. I think it would be well for you to let us know the record of your foundation as to startup `cost, planning, development, and any attendant costs you see coming up. Dr. DOWDA. Thank you, sir. We are grateful for this opportunity. Mr. ROGERS. Our next witness, representing the American Associa- tion of Medical Clinics, is Dr. Walter Buchert, from the Geisrnger Medical Center, Danville, Pa. Before we begin, I would like to call on one of ~ur distinguished colleagues, who is a member of the full committee and takes a very active interest in all of the health legislation, and he has been most helpful in exerting leadership in that area. I think he would like to introduce a panelist in this group. So, I am delighted to welcome you, and call on Congressman Clarence J. Brown of Ohio. STATEMENT OP HON. CLARENCE I. BROWN, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP OHIO Mr. BROWN. Mr. Chairman, I appreciate the opportunity to sort of Intersperse an introduction here of a gentleman who is going to be on a later panel, Dr. Frederick Smith, of my district, whose father served in the Congress and came to Washington in 1938 when my father was also first elected and when, incidentally, Chairman Mills was first elected. Dr. Smith, while his father was pursuing political activities, ran the clinic back home which I think you will hear about in the discus- sion which will be part of his testimony. It has become a very success- ful clinic, serving a very worthy purpose and meeting a real need in our area. Dr. Smith and his brother, Dr. Philip Smith, who also serves the clinic, have been friends of mine for a long time. The Smiths, the Browns, and, interestingly enough, at that time a Congressman Jones from Ohio, were all associated together for a number of years when I was here as the son of a Congressman. As a matter of fact, there was occasionally some embarrassment when they would be in a receiving line being introduced as Congressman Brown, Dr. Smith and Congressman Jones, because the hostess thought she was being put on. I am sure Dr. Smith will be able to illuminate your hearings. I hope to be here to hear. But the day being what it is, maybe you won't be here, either. Mr. ROGERS. Thank you. In that area, they certainly must have had good, well baby care in the early days. PAGENO="0317" 1059 STATEMENT OF A PANEL REPRESENTING THE AMERICAN ASSOCI- ATION OP MEDICAL CLINICS: DR. WALTER I. BUCHERT, MEDICAL DIRECTOR, GEISINGER MEDICAL CENTER, DANVILLE, PA., AND PRESIDENT, AAMC; DR. G. STANLEY CUSTER, MARSHFIELD (WISCONSIN) CLINIC, AND IMMEDIATE PAST PRESIDENT, AAMC; DR. TOHN MEYERS, PALLON CLINIC, WORCESTER, MASS.; DR. EDWARD M. WURZEL, EXECUTIVE DIRECTOR, AAMC; DR. WILLIAM W. HOFFMAN, DALLAS MEDICAL AND SURGICAL ;CLINIC~, AND COMMISSIONER OP ACCREDITATION, AAMC; DR. LOREN N. VORLICKY, ST. LOUIS PARK MEDICAL CENTER, MINNEAPOLIS, MINN.; DR FREDERICK G. SMITH, FREDERICK C. SMITH CLINIC, MARION, OHIO; DR. LOMAN C. TROVER, MEDICAL DIRECTOR, TROVER CLINIC, MADISONVILLE, KY., AND SECOND VICE PRESIDENT, AAMC; AND DR. J~AMES M. BAEHR, WICHITA (KANSAS) CLINIC Dr. BUCHERT. My name is Walter I. Buchert. I am medical direc- tor of the Geisinger Medical Center, Danville Pa. I am appearing here today as the president of the American Association of Medical Clinics. With your permission, I would like to read a summary of our state- ment and, also, with your permission, I would like to submit a copy of our full testimony for the record. Mr. ROGERS. Without objection, it will be made a part of the record following your summary. Dr. BUCHERT. Attached to this testimony is a copy of our directory, a copy of our accreditation protocol, copy of "A Credo for Our Times," an indices to the testimony, which includes a list of our committees and shows location of our clinics.' With me today are several of my colleagues who will be available to answer questions concerning group practice and health maintenance organizations. With the exception of Dr. G. Stanley Custer and Dr. William W. Hoffman, each of these physicians represents a group practice par- ticipating in the American Association of Medical Clinics HMO project. Dr. G. Stanley Custer, immediate past president of the Association, is from the Marshfield Clinic, Marshfield, Wis. `The "Appendices to the AAMC Testimony Oli Eealth MainteSanee Organizations- May 11, 1972," and the "Directory-1972-American Association of Medical Clinics," may be found In the committee files. PAGENO="0318" 1060 Dr. Hoffman of the Dallas Medical and Surgical Clinic, our asso- ciation's commissioner of accreditation, is here to answer any questions you may have about our unique approach to quality evaluation for ambulatory medical care facilities. S Dr. Loman C. Trover, second vice president of AAMC, is medical director of the Trover Clinic in Madisonville, Ky. Or. James M. Baehr is from the Wichita Clinic in Wichita, 1(ans. Dr. John Meyers is from the Fallon Clinic, Worcester, Mass. Dr. Frederick Q, Smith is from the Frederick C. Smith Clinic in Marion, Ohio. Dr. Loren N. Vorlicky is from the St. Louis Park Medical Center, Minneapolis, Minn. Dr. Edward M. `Wurzel is the executive director of the American Association of Medical Clinics, a closely knit, voluntary, nonprofit, professional association, representing almost 10,000 physicians in over 270 group practices located in 41 States; AAMC members treat about 17 million patients annually. The association was formed in 1949. Its objectives include elevating the standards of medical practice in group practices, improving grad- uate medical education and research in medical group practices, increasing scientific knowledge relating to group practice, and provid- ing two-way communications between the legislators and regulators in the health care field and the physicians and other professionals engaged in the group practice of medicine. AAMC maintains an accreditation program, publishes a monthly journal, a monthly newsletter and an annual directory, as well as topical bulletins. It sponsors national and regional conventions, has an associated research foundation, and supports 17 committees. The committees conduct activities in the fields of education and utilization of allied health personnel; use of automated systems; graduate and continuing medical education; liaison with other national organizations and with medical schools; prepaid medicine; and professional standards. The majority of members are multispecialty, fee-for-service groups, but there are also single specialty groups, prepaid groups and a good number of groups that combine fee-for-service and prepayment. This point should be carefully noted. There is little justification for the often quoted but fallacious state- ment that prepayment and fee-for-service cannot exist side by side in the same clinic. Many of our members have been operating success- fully both systems for many years in the same clinic with the same professional aud management personnel. Some member clinics organized group practices 50 or more years ago. This represents a noteworthy, naturally occurring experiment in the organization of health care delivery systems. They have solved a multitude of organizational problems and made significant contri- butions to both the science of medicine and the distribution of health care. They include clinics in the inner city, in urban, in suburban, and in rural areas. Most provide primary care as well as serve as referral centers. Some are world renowned as centers of diagnostic and ther- apeutic excellence. They demonstrate a variety of legal and economic PAGENO="0319" 1061 organizations, partnerships, professional associations, corporations both profit and nonprofit. The association is currently deeply involved in a number of efforts designed to improve the health care delivery system, including the development of HMO's. Funded by an HEW contract, we are directing activities designed to help a number of our clinics modify and expand their present activities into those described in our definition of an HMO, which is suggested later in my testimony. Seven member clinics are now participating in this project. We expect a number of them to be treat- ing HMO members by July 1, 1972. In reviewing the bills before this committee, we feel that a few general areas bear comment in our oral summary. We urge that for-profit HMO's not be discriminated against in any legislation and all portions of the bill include for-profit private organizations. In efforts to develop new and improved approaches to health care delivery, the American public should not deny itself the advantages of the profit-motivated know-how which has a long history of success in developing fresh ideas and innovative approaches for increased productivity and cost controls. We suggest that all of section 1101 (1) of H.R. 11728 be deleted in favor of the following relatively simple but adequate definition of an lIMO: An HMO is an organization which, through its own service cap- abilities, or through arrangements with others, assumes the responsi- bility to provide reasonably comprehensive health care services, in- cluding at least those basic physicians, hospital and health mainte- nance services generally available in the lIMO service areas to a' group of voluntarily enrolled participants in a defined geographic population for a prenegotiated premium on a capitation basis, which may be supplemented by copayment and which may include various options. This lIMO will differ from currently existing prepaid practices in that it must strive to find in this prepaid capitation based payment both the incentive and the reward for adding additional services in the areas of health education, preventive medicine, and rehabilitation to the services already available. Section 1101(2) dealing with definitions is too detailed. Some of the services required are not usually available in many communities and would not be available to an lIMO attempting to start up. If it is felt that some description of the services is necessary, we prefer the words used in H.R. 5616, which are: Emergency care, inpatient hospital and physican care, ambulatory physician care, outpatient preventive medical services. The term "catastrophic health services" should not be defined. Open enrollment periods will introduce difficulties and should not be a matter of legislation until more experience is gained with the problems involved. Community versus experience ratings fall in the same category of undersirable subjects for legislation. Reporting requirements must be kept to a minimum. Quality control mechanisms should consider the use of AAMC accreditation procedures as a model. PAGENO="0320" 1062 Since we are represei~iting established group practices and believe that the most efficient approach to a test and development of the HMO concept is to build upon the experiences and the base of the pre-existing group practices, we are less than enthusiastic about the large sums of money that the legislation could make available to a group to start from scratch to do experimental things that c-an be tested in well- established groups at less expense. Since the HMO concept remains experimental, we believe that it should be tested in existing group practices rather than support the development of new, groups starting from scratch. This is based on our knowledge of the difficulties encountered in establishing a suc- cessful group practice. We do not believe it wise to burden an HMO with the necessity for first achieving an operational group. This compounds the diffi- culties' involved in the development of a group practice with those involved in the establishment of the new concept of an lIMO. We would suggest that the legislation consider support for the for- mation of group practices per se~ once in existence, they will then become fertile ground for the estabiishment of lIMO's. This will elimi- nate an unwise risk of money and increase the chance of success. We believe that there is a better, more efficient, faster, and less ex- pensive way of testing and developing the requirements for an lIMO than to make grant money available at this time for the de novo for- mation of lIMO's. We strongly urge that legislation support the established group practices, both fee-for-service and prepaid, as the basis for develop- ment of lIMO's. Let me' emphasize that when an lIMO is developed as a func- tioning part of an already established group practice many advantages are gained: start-up costs are minimized; success is more probable; minimum size required for a free-standing lIMO does not apply. A group practice partial conversion can bring successful lIMO ac- tivities to its community with a relatively small portion of the group practice servicing the lIMO function. In conclusion, I want to emphasize that we wholeheartedly support the lIMO development effort as a means for improving the delivery of `health care. Our objective in this testimony has been to insure that the incentives so necessary to enlist the enthusiastic support of health care professionals for improving the health care delivery system are not strangled by over restrictive legislation.- (Testimony resumes on p. 1096.) (-Dr. Buchert's prepared statement and attachments follow:) STATEMENT OF DR. WALTER I. BUCHERT, PRESIDENT, AMERICAN ASSOCIATION OF MEDICAL CLINICS My name is Walter I. Buchert. I am Medical Director of the Geisinger Medical -Center, Danville, Pennsylvania. I am appearing here today as the President of the American Asnociati-on of Medical Clinics. With me are several of my col- leagues who will be available to answer questions concerning group practice and health maintenance organizations. With the exception of Dr. G. Stanley `Custer and Dr. William W. Hoffman each of these physician's represents a group practice participating in the American AsSociation of Medical Clinics HMO project Dr G Stanley Custer immediate Past-President of the AAMC, is from the Marshfield Clinic, Marshfiel'd, Wisconsin (approximately 15,000 population). The clinic, founded in 1916, is a 104 physician, largely fee fOr service multispecialty group, which developed a prepaid program of considerable interest about 11/2 years ago. The clinic provides comprehensive PAGENO="0321" 1063 medical services for most of the northern half of Wisconsin and nortiiern MIchigan; 50% of the clinic's patients live within 50 miles. Dr. Hoffman of the Dallas Medical and Surgical Clinic, the AAMC Commissioner of Accreditation, is here to tell you of this unique approach to quality evaluation for ambulatory medical care facilities. Dr. Loman C. Prover, Second Vice President of AAMC, is Medical Director of the Prover Clinic in Madisonville, Kentucky. The clinic, founded in 1953, is a 53 physician multispecialty clinic serving a rural area of 200,000 popula- tion in western Kentucky, many of whom are farmers and coal miners. The Trover Clinic, largely fee-for-service, also has 8,000 prepaid patients. Dr. James M. Baehr is from the Wichita Clinic in downtown Wichita, Kansas. The clinic, founded in 1948, is a 64 physician, fee for service, multispecialty group serving a catchment area of 300,000, including large portions of Kansas and northern Oklahoma. The Geisinger Medical Center, Danville, Pennsylvania. The clinic, founded in 1951, is a 90 physician, fee for service, inultispecialty group in a rural town of 12,000, serving an area with a radius of 100 miles. Geisinger Medical Center owns and operates a 378 bed general hospital. New construction how underway will increase the bed capacity to 500. Dr. J. Charles Dickson is from the Kelsey-Seybold Clinic, Houston, Texas (population 1,200,000). The clinic, founded in 1956, is a 59 physician, fee for service, multispecialty group serving a catchmen area of 50 square miles around Houston. Dr. John Meyers is from the Fallon Clinic Inc., Worcester, Massachusetts. The dinic, founded in 1929, is a 17 physician, fee for service, muitispecialty group serving a 20 mile radius eatehmen area of 200,000 people. Fallon Clinic is in the process of tripling its present capacity and doubling its staff. It intends in this addition to devote itself substantially to the development of an HMO. Dr. Frederick G. Smith is from the Frederick C. Smith Clinic in Marion, Ohio (population 37,079). The clinic, founded in 1926, is a 24 physicIan, fee for serv- ice, multispecialty group which `serves Marion County (population 68,000) and an estimated area population of 257,000, because approximately 25 to 30% of the clinic's patients are from outside Marion County. Dr. Loren N. Vorlicky is from the St. Louis Park Medical Center, Minneapolis, Minnesota. The clinic, founded in 1951, is a 71 physician, fee for service, multi- specialty group serving a total of 1,000,000 people, including 500,000 in the Minneapolis area. Dr. Edward M. Wurzel is the Executive Director of the American Association of Medical Clinics, a closely-knit, voluntary, non-profit, professional associa- tion representing almost 10,000 physicians in over 270 group practices located in 41 states; AAMC members treat about 17,000,000 patients annually. The Association was formed in 1949. Its objectives include elevating the standards of medical practice in group practices, improving graduate medical education and research in medical group practices, increasing scientific knowl- edge relating to group practice, and providing two-way communications between the legislators and regulators in the health care field and the physicians and other professionals engaged in the group practice of medicine. AAMC maintains an Accreditation Program, publishes a monthly journal, GROUP PRACTICE, a monthly newsletter and an annual Directory as well as topical bulletins. It sponsors national and regional conventions, has an associated research founda- tion, and supports 17 committees. The committees conduct activities In the fields of education and utilization of allied health personnel, use of automated systems, graduate and continuing medical education, liaison with other national organiza- tions and with medical schools, prepaid medicine, and professional standards. Because our accreditation program Is of particular value In the development of HMOs, we have appended to the original of this statement a copy of the protocol for our accreditation survey of group practices. In this accreditation survey we emphasize quality of health care, cost effectiveness, group effective- ness and ethics. The Association is currently deeply involved in a number of efforts designed to improve the health care delivery system, including the development of HMOS. AAMO members include medical centers renowned for their clinical excellence, their research contributions and their teaching record. The world's largest center for postgraduate medical education is a member as are both the largest prepaid and fee for service group practices. The majority of members are multi- specialty, fee for service groups but there are also single specialty groups, 81-185 0 - 72 - pt.3 - 21 PAGENO="0322" 1064 prepaid groups and a good number of groups `that combine fee for service and prepayment. This point should be carefully noted. There is no justification for the oft quote~J but fallacious statement that prepayment and fee-for-service cannot exist side `by side in the same clinic. Many `of our members have been successfully operating both `systems for many years in the same clinic with the same professional and management personnel. Some member clinics organjze~j group practices fifty or more years ago. This represents a noteworthy, naturally~oc~rrj~g experiment in the organination of health care delivery systems. They have solved a multitude of organizatio~~l problen~s and made significant contributions to both the science of medicine and the distribution of health care. They include clinics in the inner city, in urban, iii suburban and in rural areas. Most provide primary care as well as serve as referral centers. Some are world renowned as centers of diagnostic and therapeutic excellence. They demonstrate a variety of legal and economic organizations Partnerships, professional asso- ciations, corporations both profit and nonprofit. I will not take further time before this `committee to provide additional details about the A~soeiation; I believe that most of `the members are already familiar with it. I am, however, attaching to the original of this statement a Directory. and additional information about the AAMC. (May be found in Com- mittee files.) Evaluations of the urgency of the problems and nature of the defects in the health care delivery system are available from many well-qualified sources. Their judgments vary from an "all-is-well" verdict to the oft heard pronounce- ment that a crisis exists. it is rarely noted that a large percentage of the Amen- can people are experiencing no problems with their health care. It would be a great mistake if the benefits of a health care system `which seems to be provid- ing the best care in the world for a majority of the American people should be scrapped because of the problems that exist for a very significant but nonetheless minor Percentage of our people. We do not believe that this is wise. Our proposals for improvements are designed to maintain the best in the current system, while improving rather than scrapping it to substitute an untried system in the hope that It may be more effective. Our proposals favor an evolutionary, not a revolu- tionary approach. The AAMC concurs with the statement made by the Honorable William R. Roy on 11 November 1971 in his speech submitting this bill to Congress~~~a~ the bill has important implications for every American, and that it deserves close scrutiny and careful consideration. Because of our strong agreement with this sentiment, we are appearing today to provide the Committee with the results of more than two years of developing the HMO concept and testing its potentials. We will comment on the preliminary statements of the Honorable Mr. Roy before discussing the substance of the proposed legislation. How will the HMO affect the maldistribution of health care manpower? We believe that the HMO has within it an indirect method of correcting this mal- distribution. We have first hand information about the factors that influence the site in which a physician elects to practice medicine. Some of the factors that explain why they do not go into practice in rural and inner city areas cannot be affected by group practice, others can be. Many physicians fear professional isolation and the separation from consultation, sophisticated diagnostic and therapeutic equip- ment and technical personnel and facilities. Group practices supply these needs and assure the physician of peer evaluation, education and stimulation. Thus group practices have been able to establish excellent medical centers In rural areas. Group practices in the HMO mold will find satellites very effective. The development of satellites by strong parent group practices can do much to cor- rect the manpower maldistribution Accessibility of health care will be greatly improved by our concept of the HMO for the reason discussed above. We feel that continuity of care is a problem which has been solved by group practice and will continue to be available from that part of the HMO system which is based on group practice. Our HMO experiments are developing Sound approaches for cost effective health care. Although the physician has borne a large share of blame for the in- crease in costs, much of this increase has been generated by others and does not reflect the cost of the physician's role in the health care industry. Discussion of this point becomes academic, however, since the HMOs will control these costs PAGENO="0323" 1065 by reducing the most expensive factor in health care, namely, hospitalization, and improve the cost effectiveness of all other factors of the health care delivery system. Dr. Roy wisely suggests that incentives be provided to control the cost of the health care system. We concur wholeheartedly, and wish to assure that in our testimony on this and other legislation, our objective is to assure that incentives will be maximized for the members of the health care industry to participate in making high quality health care economically available and accessible. This legislation strives to assure that an HMO deliver comprehensive serv~ ices and that these services be available at all times-highly desirable require- ments-but difficult to assure by legislation. We suggest the laws of the market- place be given an opportunity to fulfill these requirements. This is a difficult task but not an impossible one. If controls could be limited to such essentials as anti- trust laws and conspiracy in restraint of trade; if we could stimulate competi- tion, and educate the consumer in health care matters-then HMOs, guided by physicians, based within the community, oriented toward the consumer and motivated by appropriate incentives, could provide free enterprise an opportunity to nourish the HMO concept. We agree with the desirability of having consumers play a role in the health care delivery system. A variety of ways to assure an appropriate role for the consumer are being tested. However, since the manner in which the consumer can participate in the planning and operating of the HMO is not clear at this time, we suggest that each HMO be permitted to develop an appropriate consumer participation. We should not require a group of health care professionals to assume risks that are not statistically sound. We must find a way of allowing the lIMO to utilize insurance mechanisms for protection against certain unacceptable risks. However, insurance mechanisms must not be utilized to eliminate the financial incentive for the physician to reduce medical costs. At this point we would like to call attention to what seems a rather peculiar tendency on the part of many today to ask the insurance companies, experts in statistics, insurance and business management, to monitor professional aspects of the delivery and the quality of health care. This is the role of the physician for which he has been trained and for which he should be responsible. We cern- plete the absurd cycle b~v asking that the physician play the role of the insurance company in assuming risks and gathering actuarial data and developing business methods that are not part of his training or requirements of his profession. This matter should be rethought. I do not believe that any significant number of American patients want to place their physicians in this kind of financial risk nor do we see any hope that physicians in their right mind would opt for such a system. The objective of this committee is to institute legislation that will assure far reaching changes in the health care delivery system. A gulf exists between the desires of our people for better health care and the capabilities of the present system. Superficial changes will not succeed In bridging this gulf. We must fur- ther realize that to achieve in depth substantial changes in our health care delivery system, we will need that enthusiastic support of the medical profession. In the introduction to this bill it is pointed out that this can be achieved by providing Incentives. In our evaluation of this and other legislation, we are im- pressed by the difficult course we must steer between the need for Insuring in- centives, and the danger of strangling these incentives by too much legislation, control inflexibility, and bureaucratic shackling. We understand full well that when large sums of taxpayers' money are involved, legislators and regulators have a responsibility to require wise controls. As a practical matter, however, the controls frequently stifle incentives. This fact is basic to our further recom- mendations and testimony before this subcommittee. There is little hope that HMOs will be developed and supported by health care professionals if they are fraught with restrictions, dif~lculties, and problems that do not beset competing delivery systems. HMOs should not be expected to oper- ate with controls that are not practical nor desirable for the rest of the health care system. We strongly urge that legislation and regulation designed to guard against possible malfeasance or nonfeasance in the HMO be kept to an ab- solute minimum. It sometimes seems that there is less confidence in the ability of the HMO than in that of the current delivery system to provide good health care and hence the need for restrictions and legislative controls. If we believed this we would not be supporting the development of HMOs. It is our belief that PAGENO="0324" 1066 this system has inherent safeguards and advantages which will function more effectively than legislative restrictions. Doctor I~oy's bill points out that this will not provide a panacea for the im- provement of all the problems that beset the health care field. We agree but be- lieve it is a desirable experiment and that legislation should be enacted to assure that it can be tested. The health care delivery system requires more fundamental changes than merely changes in the manner in which health care is priced or paid for. An in depth change in the entire philosophy and implementation of health care delivery requires that the physician assume a role On the health care team in addition to his current role on the medical care team. We need the enthusiastic support of the physician, we must make sure that the legislation does not alienate him. Comments on the section by section review of the bill will be directed to- wards this goal. COMMENTS ON SEC. 1101 (1) We urge that for profit HMOs not be dis?riminated against in any legislation and all portions of the bill include for profit private organizations. In efforts to develop new and improved approaches to health care delivery the American public should not deny itself the advantages, of the profit motivated know-how which has a long history of success in developing fresh ideas and innovative npproaches for increased productivity and cost controls. The profit motive can be diluted when public funds replace private capital. However, the private capital sector should not be penalized by competing with those who do not pay for developmental costs. It seems particularly unfair that the for profit organizations who pay taxes should be denied the use of this tax money and required to compete `With those to whom this money is granted. We suggest that all of Sec. 1101 (1) be deleted in favor of the following rel- atively simple but adequate definition of an HMO: An HMO is an organization which through its own service capabilities, or through arrangements with others, assumes the responsibility to provide reason- ably comprehensive health care ~services, including at least those basic physician, hospital and health maintenance services generally available in the HMO serv- ice areas to a group of voluntarily enrolled participants in a defined geographic population for a pre-negotialed premium on a capitation basis, which may be supplemented by co-payments which may include various options. This HMO will differ from many currently existing prepaid practices in that it must strive to find in this prepaid capitation based payment both the incentive and the reward for adding additional services in the areas of health education, preventive medi- cine and rehabilitation to the services already available. Sec 1101 (2) dealing with definitions is too detailed. Some of the services re- quired are not usually available in many communities and would not he avail- able to an HMO attempting to start up by providing the same health care for such a community as that which it now has, Extended care facilities services and rehabilitation services are not available in many communities where lIMOs can be developed. It would be better to use the term comprehensive medical and institutional services similar to those currently available in the community and not attempt to spell out the individual services. If it is felt that some descrip- tion of the services is necessary we prefer the words used in HR 5d15, which are: "Emergency care, inpatient hospital and physician care, ambulatory physician care, outpatient preventive medical services." The term catastrophic health services should not be defined. COMMENTS ON SEC. 1102 (a) Comments on for profit organizations as discussed under 1101 (1) apply here. (b) Speaks of people with previous experience and expertise in the health maintenance organization field. We request that care be exercised in the tendency to equate HMQs with prepaid medical care. We feel that prepayment is of itself not the essence of the HMO; it may be a necessary element for this experiment but it is far from sufficient. A prepaid medical system should not be considered an HMO unless it has been successful in making the prepaid charge both an incentive and a reward for improving health and not just payment for treating illness. In our judgment there are currently many good prepaid medical systems but no true HMOs. (c) This undesirable restriction will operate in a negative rather than pos- itive way and serve no good purpose. We would like to see it deleted. We believe PAGENO="0325" 1067 that the formation and experience with HMOs is a sufficient good in itself, If they are developed a~ we propose they will result in service to these unserved areas without any special effort being made in the legislation to assure it. Section 1103. See comments under Section 1101 (1). Rather than discuss each section of the remainder of the bill, we would like to make a general observation about these sections. Since we are representing established grou~ practices and believe that the most efficient approach to a test and development of the HMO concept is to build upon the experience and the base of these preexisting group practices, we are less than enthusiastic about the large sums of money that the legislation could make available to a group to start from scratch to do experimental things that can be tested in well established groups at less expense. Since the lIMO concept remains experimental, we believe that it should be tested in existing group practices rather than support the development of new groups. This might sound like a self serving suggestion but it is certainly not meant that way. It is based on our knowledge of the difficulties encountered in establishing a successful group practice. We do not believe it wise to burden an HMO with the necessity for first achieving an operational group. This compounds the diffi- culties involved in the development of a group practice with those involved in the establishment of the new concept of an HMO. We would suggest that the legislation consider support for the formation of group practices per se; they will then become fertile ground for the establishment of HMOs. This will elimi- nate an unwise risk of money and increase the chance of success. We believe that there is a better, more efficient, faster, and less expensive way of testing and developing the requirements for an HMO than to make grant money avail- able at this time for the de novo formation of HMOs. We strongly urge that legisltation support the established group practices, both fee-for-service and prepaid, as the basis for development of HMOs. The established medical societies and similar organizations can form foundations as a basis for development of other HMOs. This would avoid the risk of large sums of money in what we consider a dubious approach. We have referred to the AAMC lIMO project which we will de~cribe briefly. Funded by an HEW contract, we are directing activities designed to help a number of our clinics modify and expand their present activities into those described In our definition of an HMO. Seven member clinics are now participat- ing in this project. We expect a number of them to be treating lIMO members by July 1, 1972. In this project our definition of an HMO is carefully evaluated. When agree- meat is reached that this experiment provides the physician a desirable oppor- tunity to participate in determining the conditions under which he will be practicing medicine in the future, the ways in which the clinic can develop and test HMO concepts are discussed and problems identified and solutions suggested. Task forces are assigned to further test solutions and time schedules and development contracts established. In general, our groups determine a percentage, usually 10-20%, of their patient treating capability that they can assign to the HMO experiment. This is trans- lated into number of panel members by using the conservative figure of one M.D. per 1,000 panel members. This number of panel members is translated into contracts by using average family size and family to single subscriber ratios. The number of contracts that can be handled is thus determined. The benefit package is designed and priced and marketing methods are determined. Task forces then turn to solving problems of a legal nature and deciding staffing, organizational and facility patterns to serve the HMO. Health educational pro- grams and preventive and rehabilitation services are developed. Communications are maintained between those developing HMOs through AAMO and constant contact between all parties and the cognizant HEW office is effected. HMOs are thus being developed with different solutions to problems, with particular attention to local requirements and by established group practices maintaining a flexibility that assures capability to utilize the combined experi- ence of all parties. Much of the substance of this report and the basis for our oral response to your questions is based on experience already gained through these efforts. A number of general suggestions will conclude our testimony. Open enrollment periods will introduce difficulties and should not be a matter of legislation until more experience is gained with the problems involved. Community vs. experience PAGENO="0326" 1068 ratings fall in the same category of undesirable subjects for legislation. Report- ipg requirements must be kept to a minimum. Quality control mechanisms should consider the use of AAMC accreditation procedures as a model. In closing, let us emphasize that when an lIMO is developed as a functioning part of an already established group practice many advantages are gained: start-up costs are minimized; success is more probable; minimum size required for a free-standing HMO does not apply. A group practice partial conversion can bring successful HMO activities to its community with a relatively small portion of the group practice serving the HMO function. (The attachment refered to follows:) AN EDITORIAL: A CREDO FOR OUR TIMES We Believe Traditional private enterprise should be preserved in our country's health care delivery system. We support the appropriate incentives which are a part of private enterprise, realizing that some controls are necessary in a profit system to prevent abuses and protect consumers. We Believe Appropriate roles should be assigned to a significant number of appropriate professionals-those with experience in the delivery of health care-when changes are being planned in the current health care delivery system. Member- ship in health care delivery planning groups of those whose only qualifications are the listing of destructive criticisms in the present system should be limited. We Believe Changes in the present system of health care delivery should be based on an evolution out of the present system rather than abandonment and destruction of the present system. We Believe We should always seek multiple solutions to changes in the health care delivery system to accommodate the varying conditions in different parts of the country and the different attitudes that characterize people geographically distant from each other. Single solutions should be avoided as being dangerous oversimplifica- tion, and-above all- single sentence definitions of the problems of the health care delivery system should be rejected as inadequate for so complicated a problem. We Believe Government participation in the solution to problems of the health care delivery system should, as needed, originate at the most local political unit possible for effectiveness, and Federal control should be avoided as much as possible to achieve succesful local participation We urge our readers to study the proposed comprehensive strategy for re- directing Medicare and Medicaid as outlined by HEW Secretary Robert H. Finch, March 25, 1970, in a major policy statement.* We have read Secretary Finch's statement carefully; we have studied the goals he announces, and it is our opinion that the goals will be embraced by virtually everyone. Conceding universal agreement that improvements are needed in the nation's health care delivery system, who will argue against "developing an increasingly efficient and competitive health care industry that can serve all Americans better?" However, there are questions to be asked regarding the most desirable methods of achieving those goals, of improving health care programs for the poor and the elderly. We present, therefore, a Credo, our standards with which methods of achieving goals can be measured. This Credo was created through long discussions at AAMC's headquarters in Alexandria, Va. This Credo's thinking has been tested for acceptability among respected, experienced health professionals with several other national organiza- tions in the health care delivery field. We believe it to be a concensus of the best thinking; we offer it for evaluation to our readers with the request that you give us back helpful comment, affirm or help us shape It better. *Copies of Secretary Finch's statement of March 25, 1970, may be requested from the HEW Press Office, Department of Health, Education and Welfare, Washington, D.C. 20201. PAGENO="0327" 1069 Believing as we do that this Credo establishes standards to measure methods proposed to achieve national health care delivery system goals, we declare again our agreement with Secretary Finch's goals. However, when we apply the Credo to measure all of the methods proposed to achieve the goals, the earlier questions as to the wisdom of some of the methods are brought to the fore. We offer this Journal as a forum for airing the views of our readers. Through such a forum, we create opportunities for expressions of every stripe, even when they are contrary to our opinion, as a balance for ultimate definition and decision. Will our readers respond to this offer? Will you tell us what you think? Will you, too, study Secretary Finch's proposed policy and supply the guidance this leader needs to arrive at the best proposal the mind of man can devise? Freedoms exist in this country because we have always acted to preserve them. Freedoms vanish when the majority abdicate responsibility. Will you accept the challenge to participate in the decisions being made for your future? ACCREDITATION PRoGa&M OF THE AMERICAN AsSoCIATION OF MEDICAL CLINICS (Commission on Accreditation of the American Association of Medical Clinics) INTRODUCTION The history of the American Association of Medical Clinics demonstrates an early and continuing interest in assuring that high quality professional care is provided by its moipber clinics to their communities. Article I, Section 2, Sub- paragraph 8 of the By-Laws of the Association states as one of its purposes: "periodically to evaluate the conduct, performance, and quality of medical practice of member clinics in order to certify and accredit them as qualified, comprehensive medical and diagnostic centers." To implement this purpose, a subcommittee of the Professional Standards Committee was assigned the task of studying all phases of the problems in- volved in the accreditation of members and suggesting a method of instituting an accreditation program. In the study, not only the design was considered, but also the body under whose direction it should be conducted. After due delibera- tion, a decision was reached to organize the AAMC Accreditation Program under the auspices of the Association. Two concepts that affected this decision were the fact that self-evaluation was a time-honored obligation of the Medical Profession and the conviction that the unique reservoir of expertise in group practice represented by the Association should be utilized. The current protocol represents the combined effort of many individuals. It can be tested, modified, and improved as its applicability is determined by usage and verified by experience. In accordance with these principles, the Commission on Accreditation was established by the Board of Trustees of the American Association of Medical Clinics. It will hereafter be referred to as the Commission, and its chairman as the Commissioner. Chapter I BACKGROUND The implementation of an accreditation program by the AAMC is undertaken with fortitude and humility. The segments of the medical community represented by our members are characterized by great individuality and freedom from uni- formity in all but the goal of high-quality medical care. To institute an accredita- tion program for such a diverse membership requires fundamental accredlting standards, precise but flexible. These standards are set forth in this manual, as broadly qualifying fundamental concepts, which are further exemplified by p05- ing specific questions designed to facilitate measuring the degree to which the standards are being fulfilled. Thus, each section of the protocol for accreditation evaluation begins with general principles and proceeds through specific questions to a final evaluation. The inspection is divided into areas of interest under the headings of: (a) Size of Clinic. (b) Clinical Aspects of Medical Practice. (c) Educational Activities. PAGENO="0328" 1070 (d) Research Undertaking by the Staff. (e) Technological Activities in Support of Medical Practice. (f) Staff Physicians and Specialty Distribution. (g) Organization of Group. (Ii) Facilities used by Group. This gives rise to the acronym SCERTSOF. It is used by assigning a value for each letter in the acronym, thus providing a descriptive profile called the SCERTSOF Profile. In using this profile, the numbers under the first S for size of the clinic would be the number of full-time medical doctors, the number of part-time medical doctors and the number of consultants on the clinic medical staff. Under the remaining elements of the acronym, the five letters E, A, N, B or F will be used to indicate expectional, above expection, normal expectation, below expectation or far below expectation Thus a clinic having a SC1~RTSOF Piofile of: would indicate a group that has 15 full-time medical doctors, one part-time medical doctor and no consultants on its medical staff, meets with the normal expectations in the clinical aspects of medical practice, educational endeavors, technological activities, and has the expected distribution of specialties. It would also indicate that the research capabilities of this group were not found to meet the expectations of this size group. On the other hand, the organizational aspects and the facilities used by this group were greater or far greater than one would reasonably expect to find in a group of this size. The SCERTSOF Profile bears no firm relationship to accreditation, but does provide information and an index of strengths and weaknesses. The details for determining the numerical and alphabetical assignment of each element in the profile will be found under the appropriate heading in Chapter III, Section 4. When the task force assigned to inspect a clinic for accreditation makes its report, it will present the report in three parts. (Sec Chapter IV for sample report.) 1. The Medical Hetting of the Clinic. In this portion there will be a general explanation of the setting in which the clinic exists and the area for which it provides medical services. 2. Descriptive Profile of the Clinic. This is provided by the elements of the SCERTSOF Profile, as describing many factors of the clinic's practice, facilities, personnel and operation. 3. Evaluation of Medical Practice. In this correlative analysis the surveyors will try to assess the over-all performance of the clinic in providing high quality medical care at reasonable cost to the patient. When the survey is completed, the chairman of the task force will provide a vocal summary to selected representatives of the inspected clinic. A written re- port will subsequently be sent to the clinic for review and comment before a final report is sent to the Commission and Board of Trustees. The specific recom- mendations of the task force and Commission regarding accreditation will be made known only to the Board of Trustees. The Board shall make final judgment about approval, deferral, or disapproval of accredition. Only after this will the inspected clinic receive official notice about its status of accreditation. PAGENO="0329" 1071 Chapter II OENRRAL OUTLINE On the date when this program is inaugurated,* it will be considered that all members of the Association have been accredited by virtue of inspection tech- niques in use prior to the adoption of this Accdeditation Program. This "grand- father" accreditation will be continued effective until 15 July 1972. For new members whose application for AAMC membership are processed subsequent to 15 November 1968, the initial on-site inspectton may Include the Accreditation Program, if requested. Member clinics desiring accreditation may request an accreditation inspection stating the date on which they would like the inspection to be conducted. Upon passing and Accreditation inspection between 15 November 1968 and 15 July 1972, a clinic will be granted an AAMC accreditation certificate which will be valid until 15 July 1975. Accreditation granted subsequent to 15 July 1972 will be valid for a 48-month period. The Accreditation Inspection Team will be composed of volunteer members of clinics in the Association and selected from a list available to the Accreditation Commission. At least one doctor member of the Accreditation Commission should be included on all survey teams. Selections for individual teams will avoid reciprocal inspection amongst members. A Clinic will not be inspected by a mem- ber of a clinic which was previously inspected by a physician from the clinic- to-be-inspected. For purposes of accreditation, the country will be divided into appropriate geographical areas and only under exceptional circumstances will inspectors be selected to inspect clinics in their immediate area. The expenses of the inspectors will be paid by the Association. Staff work for the Inspection teams will be supplied by the headquarters office. The fee for the accreditation survey is currently established at $1,000 per clinic, and should be submitted with the official request for an Accreditation Survey. Chapter III PROCEDURES REQUEST FOR INSPECTION section One A formal request for an accreditation inspection in letter form should be for- warded to the headquarters office by the member clinic at least four months In advance of the inspection date desired. This written request should contain the following information: 1. Date accreditation inspection desired. 2. Alternate dates in event first date is unavailable. 3. Name of individual with whom Accreditation Team may correspond. PRELIMINART QUESTIONNAIRE EJection Two A Preliminary Questionnaire will be completed by the clinic desiring accredita- tion. This questionnaire is designed to help the member clinic as well as the Accreditation Team members to expedite the accreditation Inspection. This questionnaire should be completed and returned to the headquarters office eight weeks prior to the scheduled accreditation inspection date. It will be studied and if necessary, will be returned to the clinic for clarification or additions. Two weeks prior to the scheduled accreditation Inspection, the copies of the question- naire will be sent to Accreditation rream members for their study in preparation for an on-site survey of the clinic. SUPPLEMENTAL DOCUMENTATION The following materials should be sent to the Association with the completed questionnaire: *This program is considered to become effective on November 15, 1968. PAGENO="0330" 1072 1. Brief history of the clinic. / 2. Environmental description of the community_including location, popula- tion, industries, hospitals, and medical community. 3. Number and specialty distribution of physicians in the community with the populations they serve. 4. Clinic organization chart. 5. Departmental staff list with department chiefs indicated. 6. Brief biographic sketch of professional staff members. Available to inspection team during visit shall be: (a) The Charter (b) The Partnership Agreement and various corporate, association and/or Foundation documents. (c) Other documents, including methods of distribution of finances, whether written or verbal. ARRIVAL CONFERENCE Igection Three A mutually satisfactory time and date for the Arrival Conference will be arranged by the Clinic requesting accreditation. Selected staff members of the clinic should meet with the Accreditation Inspection Team. The purpose of the Arrival Conference is to introduce the members of the team to the Executive Body of the Clinic and to discuss the procedures and philosophy of the inspec- tion. The material, which has already been supplied by the Clinic to the inspec- tion staff will be identified. The needs of the inspection team for the conduct of the inspection will be set forth. An agenda and time table Indicating the sequence of events and the time at which they will occur will be worked out. Arrange- ments will be made to provide the members of the inspecting team with their requirements for introductions to the personnel who will provide them with the deailed information they seek. Arrangements will also be made to meet the key members of the staff and any other members that special conditions indicate should be interviewed as part of the inspection. Question and answer periods will be provided if necessary. The duration of the Arrival Conference should vary be- tween thirty minutes and one hour, depending upon the size of the clinic, the gen- eral familiarity of the inspecting team with the clinic being inspected and other individual factors. At the conclusion of the Arrival Conference, the team will pro- ceed to conduct the inspection. ON-sITE INSPECTION 1. Initial introductions. This may be accomplished at the Arrival Conference. 2. Diseussion of philosophy of inspection. At the Arrival Conference it is usually desirable for the chairman of the inspection team to review briefly the back- ground of the Accreditation Program. Also it is usually wise to describe what is to be requested after the Arrival Conference. This may be: (a) A general discussion about the history and function of the clinic, with one or more knowledgeable members. (b) A brief tour of the clinic-to get an overall view of the facilities. (c) Arrangements for luncheon with one or more of the clinic physicians. (d) Decision about dinner, or other eating arrangements. 3. Brief general tour of clinic. 4. Assignment of areas of inspection to task force members. 5. Proceed with appointments and data gathering. 6. Plan several interval conferences by the task force members, so that the chairman can be made aware of findings and possible problem areas. This allows a flexible approach to the inspection and a meaningful accrual of information and opinions for the final conference and written report. 7. An effort will be made, while inspecting the facilities, the staff, the records, and the activities in evidence, to evaluate the quality of clinical medicine being practiced by the group and to determine to what extent the potential values and objectives of group practice are being realized. As the other elements of the SCERTSOF Profile are being evaluated, the following protocol will be used as a guide. $ection Four SIEE AND TYPE OF CLINIC The Size indicates a numerical count of staff. It may be verified and discussed with the member clinic at the Arrival Conference. A letter will be assigned to designate whether the clinic is doing primarily family practice (F), referral practice (R),orboth (FR). PAGENO="0331" 1073 CLINICAL Evaluation of the quality of medical care is inextricably Intermingled with all elements of the group's activities. The final evaluation as well as the final descrip- tion involves consideration of all other elements of the SCERTSOF Profile as well as group and cost effectiveness. However, the more direct evaluation of quality starts with the premise that high qualit,~ of medical practice requires good physicians. (a) An attempt is therefore made to evaluate the staff. For this purpose, a brief biography of each staff physician is required setting forth his educational background through medical school, internship, residency, additional post-gradu- ate training, continuing educational activities, research, publications, teaching, etc. (b) The recruiting methods, goals and guidelines of the group are evaluated. (c) Methods of continuing audit of the physicians' work, peer evaluation. etc., are investigated. (d) The medical records. Review of the clinical record is felt to be one of the most important considerations in the evaluation of the quality of medical care being provided by a clinic. ft should contain the medical, family, scoclal, and occupational history of the patient and a summary of the diagnoses which have been established during the patient's association with the clinic. It may be argued that good medical records are neither necessary nor suf- ficient for good medical care, and that a physician who keeps poor records may be practicing excellent medicine while one who keeps excellent records may be practicing poor medicine. This is not germane in group practice, however, where consultations and full-time physicians' availability to the patient requires a record adequate for any good physician to assume patient care based on the record. There are many patterns of clinic practice and many patterns of clinic record keeping. It is essential in all, however, that the information contained in the record be adequate to support the diagnosis, establish the extent of the disease, justify the treatment prescribed, reflect the physician's impressions and thoughts, his plan of management, and identify the physician caring for the patient. Clinical records should be centrally filed and easily accessible. In order to facilitate review of the record, certain guidelines are submitted concerning the medical record as It relates to: (1) Examination of patients without any specific complaints. (Routine check- up, executive physical examinations, etc.) (2) Examination of patients with specific complaints. These are meant to serve solely as guidelines and examples in evaluating medical records and are no substitute for an examiners overall evaluation of the adequacy of the record. 1. Patients without complaints. No preferential distinction in method of data recording is intended as long as the information is chronologically available. These examples should serve as guidelines for the following circumstances. A. Complete physical examination of patient without admitting complaint (annual check-up, executive physical, etc.) should include in addition to the conventional complete medical history and physical examination, the following: 1. (a) Pelvic examination (b) Rectal examination. (c) Ophthalmoscopic examination. (ci) P.A. & LAP x-ray of chest. (e) Tonometry. (f) Single expirational vital capacity. (g) Audiometry. (h) Visual Acuity 2. Minimal Diagnostic Procedures recommended- (a) Sigmoidoscopic all patients over 40 years old. (b) Vaginal Pap Smear. (1) All females over 21 years old and all those younger than 21 when there is any significant gynecological history. (2) All females who had Hysterectomy for uterine cancer. (3) All females with post-operative cervical stump. 3. Laboratory. (a) Complete blood count. (b) Complete urinalysis. (c) Blood sugar-fasting or timed. PAGENO="0332" 1074 (d) BUN or creatjnjne. (e) EGG. 2. Patients with ~1peciflc Diseases. A. In order to find some type of record where individual variations in the record-keeping aspect of the practice of medicine do not eliminate all possibilities of evaluation procedures, a number of significant disease and/or sylnptom-com- plexes are suggested for observation. Actual decision on which records will be inspected is a matter for each inspection team to make for itself. However, the decision and rational behind its adoption will be recorded. Suggested diseases and Conditions include: (1) Functional Bowel Disease (2) Arteriosclerotic Heart Disease. (3) Diabetes Mellitis. (4) Gastric Ulcer. (5) Thyroid Diseases. (6) Chronic Ulcerative Colitis. (7) Anemias. (8) Hepatitis. (9) Rheumatoid Arthritis. (10) Bacteremia. (11) Collagen Diseases. (12) Selected surgical procedures. B. To evaluate the effectiveness of transfer of information from clinic to hospital, and vice versa, it is useful to cheek records in which patient was hospitalized and operated upon after work up in clinic In studying the hospital records of clinic patients, aSsistance can be given by the clinic. During record inspection, other e'ements of the questionnaire can be checked. The Preliminary Questionnaire, amplified through appropriate questions and documents, will be evaluated in respect to existence, frequency and adequacy of Staff Evaluation, to include: (a) New Staff. (b) Permanent Staff. (c) Consultants. (d) Others. MEDICAL RECORDS To aid in evaluation of the records, the following questions are supplied as a guide for the members of the survey team: 1. Does the examiner believe the medical records are adequate? Yes- No-, 2. Are the medical records readily available to staff? Yes- No-. 3. Are diagnoses and surgical procedures listed in chart? Yes- No-. 4. Are diagnoses and surgical procedures coded? Yes- No-. 4a. What system is used? 5. Do medical records contain adequate information and follow-up data? Yes- No-. 6. Are there satisfactory data on physical examination? Yes- No-. 7. Is there identification of physicians in the medical records? Yes-- No-. 8. Are there adequate laboratory studies, including x-rays? Yes- No-. 9. Is there evidence of intra-group consultations? Yes- No-. 10. Are copies of reports from the hospital provided for the clinical record? Yes- No.-. 11. Is there some type of medical audit committee that reviews random, or questioned records? Yes- No-. (a) Clinic records only: How often?-. (b) Clinic-hospital records,: How often?-. 12.. Does a clinic committee audit records systematically? Yes- No-. 13. Is there a unit clinic record for patients? Yes- No. 14. Are written consulation reports required? Yes- No-. (a) Is this report put into chart in chronological order? Yes-- No-. (b) Are special consulation sheets used by consultants? Yes- No---. 15. Is sensitivity to drugs, etc. clearly recorded in a conspicuous place? Yes- No--. PAGENO="0333" 1075 16. Is the Blood Type recorded in a conspicuous place? Yes- No-. 17. Are other indicators for special problems indicated, e.g., Diabetic, Allergies, etc.? Yes- No-. Before final evaluation of the quality of clinical care or the descriptive numeral for C is assigned, the manner in which the other SCERTSOF factors affect the quality of health care is carefully considered. Thus, the contribUtion of Educa- tion, Research, Staff & Specialties. Technology, Organization and Facilities to quality is judged in making a complete evaluation of the quality of medical priic- tice in the clinic. EDUCATION Clinics with 5-9 full-time medical doctors on the clinic medical staff In a clinic this size, the features to be loOked for are attendance at hospital clinical, pathological and staff meetings-provision and utilization of opportuni- ties for members to attend medical conferences and courses-informal but sig- nificant educational communication between physicians in the group-attendance and participation in local, regional and national professional meetings as ap- I)llcable to the individual physician and his specialty. If these are all found to be satisfactory, the educational aspect of the clinic will be considered adequate and the designation "N" will be assigned under the letter "ID." Clinics with 10-19 full-time medical doctors on the clinic medical staff A clinic this size should meet the above requirements with more frequent par- ticipation in these same educational processes. Participation in community edu- cation, the publishing of professional papers, adequate journal subscriptions, library facilities and whether the members subscribe to Audio Digest, various specialty letters, etc. should be ascertained. Look for involvement in state or national specialty organizations, both in attendance and parteularly in partici- pation on committees, etc. Clinics with 20-29 full-time medical doctors on the clinic medical staff A clinic this size should provide the above plus some kind of organized educa- tional program within the clinic itself. This could be a journal club or periodic staff meeting among other things. Clinics with 30-39 full-time medical doctors on the clinic medical staff One would expect in addition to the above, some teaching activities on the part of the staff, either in connection with a medical school, a hospital, or another appropriate institution. Also, at this size we should begin to look for activities such as editorial involvement on a journal or the publication of papers. Clinics with 40-75 full-time medical doctors on the clinic medical staff A clinic this size should afford all of the above educational activities and in a more advanced degree. If the clinic has a hospital attached, intern, residency, or fellowship programs and the participation of the staff in these programs should be evident. Clinics with 75 or more full-time medical doctors on the clinic medical staff Such a group will usually have in addition to the above, involvement in an intern and residency program plus staff positions on recognized schools of medi- cine, activities on the State Board of Examiners, etc. In general, latitude will be allowed in the interpretation of the educational potentials and requirements in the assignment of a grade for the "ID" section. Frequently, the determination of the grade will be dependent not so much on the nature of the activity, as to the extent to which it is effective. Some clinics are treatment-oriented and can be accredited as high quality treatment facilities with minimal educational activities. However, there is a close relationship between good clinical practice, education, and research. The inspection team, guided by the above and considering the questionnaire, amplified by information gained during the inspection will assign a grade for the group in the field of education, and indicating the extent to which the po- tentials and objectives of Group Practice are being realized in this field. An outline for eduction evaluation follows: I. Undergraduate (a) Externsbips. (b) Clinical clerkships. PAGENO="0334" 1076 (c) Staff teaching at undergradu~t~ level at nearby university or university hospital. II. Graduate (a) Clinic residency or Fellowships. (b) Involvement in graduate programs in hospitals. (c) Staff teaching assignments at university hospitals. III. Continuing Education (a) Staff-out of clinic. Attendance at medical meetings and postgraduate courses related to speciality interests. Participation. (b) Staff-in clinic. Staff and departmental meetings for educational pur- poses; conferences, rounds, seminars. (c) Clinic-to community. Continuing education designed for physicians in the community or state in which the clinic participates by offering facilities and/or personnel. IV. Paramedical Education Programs V. Library VI. Equipment in support of Education VII. Educational Environment (a) Policy regarding attendance at meetings, courses, etc. Is there financial assistance and incentive for staff members participation? (1) Is time allocated, if requested? (2) Is there financial benefit or penalty for participation? (b) Policy regarding participation in teaching programs in the clinic, hospital, or university. (c) Is there an Education Committee? (d) Is medical illustration or medical photography available? (e) Allocation of space for education? (f) Medical records: arethey available? (g) Diagnoses and procedures: are they listed or coded? RESEARCH Clinics withY 5-9 full-time medical doctors on the clinic medical staff No formal research program is expected in a group of this size. Clinics with 10-49 full-time medical doctors on the clinic medical staff As above, nor formal research program expected. Clinical research or review of records, should be starting at this level. Clinics with 20-29 full-time medical doctors on the clinic medical staff Would expect some type of clinical investigative work on the part of some members of the staff with periodic publication of papers or activities on journals. Clinics with 30-39 full-time medical doctors on the clinic medical staff Can begin to look for research foundations, research committees, facilities and definite programs of research with publication. Clinics with 40 or more full-time medical doctors on the clinic medical staff Expect to find additional activities with larger numbers and more time being spent in these areas. An outline for Research follows: I. Is there a separate organization for research? II. What is the source of funding? (a) Contributionswbat does the clinic contribute? (b) Government Grants or Awards. III. Is separate space devoted to research activities? IV. Are specific personnel assigned to research activities? V. How are projects originated? VI. Who reviews the research project protocol? VII. Is there a research committee? VIII. Special consultants? IX. Type of research? (a) Clinical research. (b) Socio-Economics. (c) Basic research. PAGENO="0335" 1077 X. Procedures for data collection? XI. Is clinical chart coded for data? XII. Experimental animals used? XIII. How are results disseminated? (a) How are reports made and how frequently? (b) How many papers are published by the clinic or foundation, or on work done through them? XIV. What incentive is offered by the clinic or the foundation to physicians doing research? TuCHNOLOGICAL ACTIvITIEs CLINICAL PATHOLOGY A. Personnel Clinics with 5-9 full-time medical doctors on clinic medical staff: One or more Medical Technologist (ASCP). Possibly one laboratory assistant. The important thing here is the actual quality of laboratory work offered; and the speed with which it is available to the physician whether or not laboratory facilities are present on the site. What laboratory facilities are available and how ex- tensively are they used? Clinics with 10-19 full-time medical doctors on the clinic medical staff: Medical Technologists (ASCP). Possibly one or more laboratory assistants. Again, the important thing is the actual quality of laboratory work offered, and the speed with which it is available to the physician, whether or not laboratory facilities are present on the site. What laboratory facilities are available and how extensively are they used? Clinics with 20-29 full-time medical doctors on, the clinic medical staff: As above, plus part-time Clinical Pathologist or one of the doctors in the group actively supervising the laboratory. Medical Technologists (ASCP) if laboratory is supervised by doctor other than a Clinical Pathologist. Laboratory assistants or technologists depending on work load Some automatiOn. Clinics with 30-39 full-time medical doctors on the clinic medical staff: All of the above plus, full-time or part-time Clinic Pathologist. Clinics with 40-75 full-time medical doctors on the clinic medical staff: All of the above plus, possible Clinical Pathologist, bacteriologist, biochemist, or cyto- technologist depending on work load, teaching program, and research. Clinics with 76 of more medical doctors on the clinic medical staff: At least one full-time Clinic Pathologist or Ph.D. and personnel as above depending on size of the clinic-perhaps also depending on attached hospital. Explanatory Note In laboratories not supervised by a Clinical Pathologist it is necessary to have at least one registered technologist. By this is meant a Medical Technologist (ASCP). A Medical Technologist (ASCP) must have a minimum of three years of college plus a year in a recognized laboratory. There is another technologist registry which is not recognized by pathologists. Members of the unrecognized registry are graduates of commercial laboratory schools which they may enter after completion of high school. They use simply M.T. after their names. Many of the Medical Technologists are capable and may be valuable in the laboratory, but their qualifications should not be confused with those of a Medical Technologist (ASCP). B. scope of Laboratory Determination Clinics with 5-9 full-time medical doctors on the clinic medical staff: Complete blood counts, sedimentation rates, urines, peripheral blood smears. Simple chemistries. Clinics with 10-19 full-time medical doctors on the clinic medical staff: Com- plete blood counts, sedimentation rates, urines, peripheral blood smears, simple chemistries. Flocculation test for syphilis. Slide agglutinations for pregnancy, mononucleosis, latex fixation, etc. Clinics with 20-2.9 full-time medical doctors on the clinic medical staff: All the above plus more difficult chemistries, blood groupings. Tests which are done may depend upon whether there is a connection with a hospital or not. If only an occasional enzyme or electrolyte is ordered, it should be sent to another laboratory. Possibly Pap smear screening. PAGENO="0336" 1078 Clinics w~ith 30-39 mU-time medical doctors on the clinic medical staff: All the above plus tissue sections if hospital laboratory is not used. More bacteriology, larger variety of chemistries. Clinics with ~0 or more lull-time medical doctors on the clinic medical staff: Unlimited. C. Equipment Adequate space to perform tesl~s. Modern equipment, and automation. Binocular microscopes with good lighting. Accurate and reliable water baths and incubators. Photometer at least in even the smallest laboratory. Coleman ~Ir. Spectrophotometer, equivalent or better. (Used for chemistries and hemoglobins.) Hemoglobins not to be done on anything less than a photometer. D. Controls Any conscientious person in charge of the laboratory will work out controls of some kind to be such that the reports are as accurate as possible. However, a central control laboratory which periodically sends out unknowns to laboratories is a very good means of accomplishing this. The Inspection Team, being guided by the general outline of requirements for the Technological Activities of this inspection and taking into consideration the completed questionnaire, augmented by information gained during inspection, will assign a designation for the group in the Technology section of the profile. RADIOLOGY DEPARTMENT It is difficult to offer precise "needs" in the x-ray department in a medical clinic, because the requirements will vary considerably with the specialty distribution of the medical staff. In .all situations, there are some basic require- ments which should be looked for. 1. Radiographic room. Each should be large enough for equipment, cabinet, patient flow, and technician function. The walls and doors should be be ap- proximately lead-lined. The control booth shielded. 2. Darkroom. Should be adequate for prompt processing of films. 3. Equipment. It should be of modern construction and design. Generators of at least 200 MA are desirable. Cones should be used. If fluorescope is done, image amplification is desirable. Safety equipment for reactions is necessary and should be readily available. 4. Technicians. Registered technologists should be used, even :f~ small de- partments~ Qualifiactions should be checked. 5. Protection. Film badges should be worn by all personnel. Records of ex- posure of personnel should be maintained. Lead aprons at fluoroscopy. Shielded control booths Protective shields for patients Cones or colimators on x ray tube'~ 6. Radiographs. Promptly processed. Adequate quality. Prompt (same day) reporting. Adequate file space. Method of prompt transmission of film envelopes to doctor's offices throughout clinic. 7. Record& Typed reports. Prompt reporting (same day). Signed reports. Copy with films. 8. Radiologist. Qualified radiologist to perform fluoroscopy and provide re- ports on all examinations. If no radiologist, careful scrutiny of qualifications of various specialists undertaking reports. 9. Patient flow. AccessibIlity of x-ray department. Satisfactory flow of patients to dressing rooms, to x-ray rooms, to toilet facilities, and to waiting areas. 10. Quality of service. Ask staff doctors in various other departments. The x-ray department should be able to keep up with demands of the clinic doctors. If it does not, check into reasons. ii. A simple check mechanism. An inspector may ask an internist to order a "STAT KUB film" - - - for "suspected kidney stone." Then let this patient (the unidentified inspector) be handled exactly as would be a rehl patient. RADIOLOGY DEPARTMENT E~vpectations in Clinics of Various Sizes Clinics with 5-9 full-time physicians: 1-Radiographic room, possibly with fluoroscopy. 1-Technologist PAGENO="0337" 1079 Visiting radiologist Office al~d file room may be unified. Clinics with 10-19 full-time physicians: 1 or 2 radiographic rooms, one with fluoroscopy. Separate darkroom. Office and file room. 1 or 2 technologists. Radiologist-half or full time. Clinics with 20-29 full-time physicians: 2 to 3 radiographic rooms, one or two with fluoroscopy. Planigraphic facility Separate darkroom Separate file room 2-4 technologists 1-2 radiologists Clinic with 40-75 full-time physicians: (Associated hospital will vary requirements greatly) 4-6 radiographic rooms. Two with fluoroscopy. Special planigraphic room. 6-8 technologists 2-4 radiologists Clinic with over 75 full-time physicians: Complete facilities Staff and technologists adequate to serve staff requirements. STAFF PHYsIcIANs AND SPRCIALTY DISTRIBUTION In investigating this aspect of a clinic's staff, the inspection team will, of course, be guided by the requirements of the By-Laws of the Association whiçth require certain minimum specialty representation on the staff. But over and above that, an attempt will be made to ascertain the degree to which the distri- bution of specialties suit the needs of the clinic and the needs of the comtriunity. As an example, in a community where no orthopedist is available, a clinic might well be expected to be providing orthopedic services for their patients, whereas in another area, where a well-qualified orthopedist is supplying this service, there might be no need for an additional orthopedist. The Association ultimately de- sires to study distribution of physicians among the specialties and what condi- tions alter it. The Association desires ultimately to have a better concept of what the appropriate distribution of physicians among the specialties should be and what local and geographic conditions alter the usual distributions. The use of General Practitioners for triage or family physicians, and the Use of Internists as primary physicians will be noted in this section. Where and bow triage oc- curs for the specialists will also be investigated In this section of the Accredita- tion Program. ORGANIZATION There is no physical organization so good that it alone can assure thn smooth and efficient operation of a clinic, nor is there any physical organization so bad that good physicians cannot make it work effectively. However, "organization" can facilitate the ease with which good physicians appropriately supported by management, and allied medical personnel can provide outstanding medical care, efficiently at maximum capacity and with a satisfactory cost effectiveness to the community. This section is designed to investigate how well the "organization" of a clinic fulfills the expectation that it will contribute significantly to the qual- ity, quantity and economy of bealh care which the clinic provides. Some questions in this section are confidential in nature and will be treated as such. If frequent resistance is found to providing answers to these questions because of their confidential nature, it may be necessary to modify the investi- gation. However, we do feel that it is important that this accreditation program serve to assure interested individuals and organizations that the approved clinic is providing high quality medical care at a reasonable cost. This requirement provides a persuasive reason for requesting and understanding attitude on the part of the members in allowing this sensitive material to be gathered on the assurance that it will be treated as confidential, not to be divulged without the express consent of the clinic concerned. ORGANIZATION To aid in the evaluation of the organization, the following questions are sup- plied as a guide for the members of the Survey Team: 81-185 0 - 72 - pt.3 - 22 PAGENO="0338" 1080 1. Organl~ation Structure-Table of organization: (a) Overall relationship of Partnership, Corporation, Association, Founda- tion, etc. (b) For holding the real estate-Partner~hjp or Corporation (e) Practice of Medicine-Partnership or Corporation 2. Method of Buy-In- (a) Into the holding company (b) Into the partnership 3. Management- (a) In a holding company (b) For the organization practicing medicine 4. Retirement-when and how? 5. Is there a pension plan? Describe briefly. 6. Meeting time and vacation- (a) describe briefly (b) is there provision for Sabbatical leave, and if so, what? (c) provision for sick leave? 7. Effectiveness of management- (a) What is the operating overhead percentage based on collections? (Accord- ing to MGMA criteria) (b) What is the collection percentage? (c) How are accounts receivable aged, processed and written off? (d) Are patients handled courteously and with dispatch? (e) Is the insurance department effective and up to date? (f) Are accounts receivable handled in an efficient and effective manner, using modern, up-to-date methods? (g) Effectiveness of record room, type of system, and will it stand the ultimate test of getting the record to the doctor when he needs it? 8. Indicate system for apportioning net income. Salary or formula? Point based on: (a) Gross income generated by physician (b) Seniority (c) Category of physicians (d) Specialty (e) Other 9. Does clinic pay annual bonuses? Yes- No-. 10. If answer Is yes, is bonus based on following: (a) Physician's gross income (b) Seniority (c) Category of physician (d) Specialty 11. Are there any practices that could be questioned as "fee splitting"? Y~~No. 12. If answer to the above question is yes, please explain: 13. Communication in clinic: Indicate how clinic policies and guidance for professional staff are disseminated: (a) Through meetings- Daily Weekly - Monthly As required 1. Who conducts those meetings? Medical Director Business Manager Other (Specify) (b) Through written circulars, directives and memorandums Daily Weekly Monthly As required 1. Who issue~ these written circulars? Medical Director Business Manager Other (Specify) PAGENO="0339" 1081 14. Indicate how clinic policies and guidance for ancillary personnel are disseminated: (a) Through meetings Daily Weekly Monthly As required 1. Who conducts these meetings? Medical Director Business Manager Other (Specify) (b) Through written circulars, directives and memorandums Daily Weekly Monthly As required 1. Who issues these circulars? Medical Director Business Manager Other (Specify) 15. Philosophy, Achievements and Goals of the Clinic: (a) Goals: (b) Achievements: (c) Aspirations: (d) Practice: 16. Does the organizational sophistication equal the professional performance? FACILITIES The Accreditation Team will, in making its inspection of the physical plant, base its evaluation for the "F" portion of the profile, on the functional qualities of the clinic. The AAMC has not established standards for the type of construc- tion for clinics nor does it approve architectural plans or endorse building ma- terials. State and local building codes must, of course, be complied with. The Accreditation Team should look for the following: 1. Construction (a) Buildings should be constructed and arranged so as to insure safety to the patients and employees. (b) Adequate space should be provided for the examination and treatment of patients, as well as for other functions. (c) Adequate space should be provided for parking facilities. (d) Adequate waiting areas should be provided for patients. 2. Safety: (a) Buildings should be of fire-proof construction. (b) Regular fire inspections by local fire control agency. (c) Fire extinguishers checked annually. (4) Stairwells kept closed by fire doors. (e) Proper storage of infiammables. (f) Proper disposal of trash. (g) Fire regulations prominently displayed. (h) Elimination of hazards that might lead to slipping, falling, or other trauma. 3. Functional aspect of the building: (a) Patient flow (b) Records flow 4. Maintenance: (a) Degree necessary (b) How well accomplished 5. Expansion potential: (a) Building (b) Grounds 6. Long Range Plans for Development: (a) on going committee 7. Presence of community service areas: (a) Eating arrangements (b) Motels or hotels available PAGENO="0340" 1082 (c) Transportation facilities (d) Drug store or shopping potential 8. Esthetic aspect of clinic buildings 9. Accessibility to hospital~ The Inspection Team, being guided by the above and taking into consideration the Preliminary Questionnaire, plus any additional information gathered, will assign a designation for the clinic under the Facilities section, and will Indicate the effect to which the potentials, values and objectives of group practice are being realized in the functional qualities of the clinic. POST-INsPECTION CONTERENCE ~1ectien Five At the conclusion of the inspection, the survey team will meet again with the executive body of the clinic and any other members who the clinic or the survey team feel should be part of this debriefing procedure. The general findings will be discusSed, any questions that have arisen during the course, of the Inspection which require clarification by the Executive Board can be cleared up at this time. An overall discussion of the general findings will be presented by the Senior Inspector. The general outline of the kind of preliminary report that can be expected will be indicated and preliminary accord attempted to be reached on all subjects prior to the departure of the survey team. In case de- ficiencies have been noted, there will be a chance for explanations or rebuttal at this time and a clarification of any misunderstandings. E~pecia~ Notes: 1. Philosophy of this group in practice, their goals and achievements, are factors that the inspection team should evaluate. 2. The inspection team will not indicate any final action at debriefLng discussion, explaining that their report goes to the entire Commission and then to the Board of Trustees. Chapter IV REPORTS 1. Preliminary Inspection Team Report This Is a report by each member of the Accreditation Survey Team to the Ch~tirman of the Team (whenever possible, the Chairman will be a member of the AAMC Accreditation Commission). The report contains the findi.ngs, sug- gestions and recommendations of the individual inspector in each of the major areas. The preliminary report is discussed by the Chairman and members of the Accreditation Survey Team with the clinic personnel at the post-inspection conference. 2. Accreditation Team Chairman's Report A composite survey team report is prepared by the Chairman of the Accredita- tion team and is submitted to each member of the Accreditation Commission for review and recommendation relative to accreditation. If possible, this report will be signed by each inspector. The final approved report, together with any recommendations is forwarded to the Accreditation Commission for action and subsequent referral by the Commissioner to the Board of Trustees AAMC, for its consideration and final action. PAGENO="0341" 1083 ACCREDITATION SURVEY REPORT FACT SHEET NAME OF GROUF~ ADDRESS_ ~. SIZE OF GROUP _________________Full time physicians (partners or associates) ________________ Employed physicians. _________________ Part time consultants. 2. Principal hospitals used by the group. Indicate by the initials 3CM! after the nose of those hospitals that are approved by the Joint Commission on Accreditation of Hospitals. 3. Orientation and mission of the Group in the light of which subsequent questions are to be considered (circle appropriate descriptive words and category). A. Multi Specialty l)Geneyal Service a) Metropolitan b) Suburban c) Regional d) Rural B. Single Specialty l)General Service a) Metropolitan b) Surburban c) Regional d) Rural 2) Family Oriented a) Metropolitan b) Suburban c) Regional d) Itural 2) Family Oriented a) Metropolitan b) Suburban c) Regional d) Rural 3) Referral a) Metropolitan b) Regional c) University based 3) Referral a) Metropolitan b) Regional c) University based 4)l,imited Community tGhetto) a)Metropolitan b)Surhurban c)Regional d)Rural 4) limited Community ~bhetto) a) Metropolitan b) Suburban c) Regional d) Rural 4. Indicate approximate percent of industrial, contract or prepaid load and general contract sourco,C.g. `steel mills", "port", etc., if any of these are significant. PAGENO="0342" 1084 SCERTSOF QIJESTIONA1RE ~. Supplementary and Preliminary Documentation. c~ ~ - r~i The application for accreditation was reviewed by each member of the Survey Team. 2. After completion of the survey the Tea~n find the application~corractjy state the facts. . 3, - The preliminary questionaire was revieved by each member of the Survey -~-~ 4, 5, 6, 7, 8. After completion of the survey the Team accepts the preliminary ~ The history, philosophical orientation and the goals of the group by each member of the Survey Teem. - In the course of the survey there was evidence Chat the factors enumer- ated in (5) are thfac~gQpideyed~~ued, The environmental description (geographic and demographic service was ndqg~lel~n~esented ~n C~pliminarvdocumen~ati~, TF~ BY-LAWS AND/OR CHARTER OF THE GROUP ARE FAIR AND ACCEPTABLE iNSTRUMENTS, - -_ 9. 0. Interviews with individual physicians were arranged and satis- ~ac~orily completed, All of the subsequent questions were weighed and evaluated in the j~ght of the above material, `l' PAGENO="0343" f~J Clinical Survey 1085 ~. ~- ~- nm- ~J_~1 . * ~e Medical Record ~ ap~propr t~stg~j4~~. **~ SAC *55 The Medical Record conspicuously notes the patients' drug allergies, * idioavncrasiee ~nd pertinent medical `alerts'. 3. The Medical Record conspicuously carries a summary of diagnoses enjoined upon the ~Ctient. 4. ~diagnosec are coded. 5, The Medical Record contains an adequate family, social, and occupa- - -~ - - -- 6. The entries in the Medical Record satisfactorily establish and justify the digggoses indicated. 7. The theropies noted in the Medical Record indicate a satisfactory current therceautic awareness. 8. The Treating Jhysician is readily identified on the medical record entices. 1~ filing processes are satkefg~gprv. 10. The retrieval-transmittal procesSes for medical records are satis- factory. 11. There is satisfactory evidence of continuity between office and ~ There is a coeeittee charged with the responsibility of auditing 12. the medical records on en on-going basis. 13. The Medical Records Audit is actually utilized in some form of peer performance review and evaluation. There is evidence from the Medical Record that intra-group consul- ~ hg ~q_ç~g ~ THE MEDICAL RECORDS OF THIS GROUP WhEN SPECIFICALLY VIEWED WITHIN THE FRAMEWOR}( OF TWE MISSION AND ORIENTATION OF ThE GROUP ARE: 14. 15, a. SATISFACTCCIY TO TEE SURVEY TEAM b. INDICATE THAT A SATISFACTORY LEVEL OF MEDICAL CARE IS BEING RENDERED TO THE PATIENT. SURVEY TEAM COWEENTS AND RECOMMENDATIONS (Reference Number) PAGENO="0344" 1086 Ili. Medical Education ., I A Satisfactory level of participation in on-going local incdic~al educational &ctivi Li (st~ff rneetj 1oc~~oq~gyee~t ~, A SATISFACTORY PARTIC IPATION BY ITS STAFF iN CONTINUIi~G MEDICAL EDUCA- TION ON A NATiONAL LEVEL (AMA, SPECIAL SOCIETY, NATIONAL SEMINAR MEETINGS), 3, ~, 5. 6, ~ Sat!isfactory facilitation of continuing medical e~lucation within ~ gEPjBg.~fl~tarvo~leavetjme inccntjve~, ~ rnqilicaj t chinLnE thc~&raduate1evoJ~, ~tif~Ctorartieiprt-ion ~ . Suf~ficient significant and worthwhile contributions to the Medical Literature. ACCEPTAfflj~ ACCESS TO 130TH CURRENT A~CI~DICA! LITERATURE. , . .3. PAGENO="0345" 1V. Research Activ1tie~ 1087 ~,- 3. A- 5. 6. rITE GROUP * S RESEARCh ACTIVITIES ARE APPROPRIATE FOR ITS CATEGORY AND ~1) Tt~-1ATTCO1 there a a aerotiota orc'0ni~e tt 4)0 far There ctclcquate fa 1 4 4-- ~ 4--) there is en -~-~ ravie body to monitor nroteet r-'---4------' Considered within this group's unique philosophy, orientation, goals, 1t: ~ ~iz~ ~ IC(lLCotCa .-.~ ~. (ICt.SV1.t]C5. ~:;- - -~ -~ the group dies by certain definite incentives encourage physician ~. certain part of the groups income is specifically designated towards 51h1l~Tl~W IrAM Awn''-~" `~inws Ntimhars) ~.. (ulJfliO.LC . 1)c)Ui1L.11'1)L4L)i 1IUICCTCOCC .4- PAGENO="0346" v. [,~J Technology 1088 [~ ~j 1, ~ ~IOJJJfl ~ rei~nrds' J~TOfSLPflQl_pAiF1Qflnpj___ N/A ~ ~ -~ ramedicalPer~onne1_________________________ -- - .L 3, Th~PJi~sIcpLp)antoftholmhorntory is satisfaco.gy~ The equipment in the laboratory is sufficiently curtent and appropriate to the needs and mission of the laboratory. 4, The scope of laboratory determinations when, viewed in the context of `s orientation and ftc_hosp~talasociationjs~~~gpriate, The,procedures used in the laboratory are current and generally ntknowle~c1,gs promer. 5, 6. - Appropriate control and check practices are actively applied in the 1aboratnrv. 7, Laboratory reports are satisfactorily transcribed into the clinic ~ecord, 8. LABORATORY UTiLIZATiON IS APPROPRIATE WITFIOUT EVIDENCE OP EXPLOITA- - TIONOFPATIIINTS, ~ TIlE QUALITY OF CLINICAL PATUOLOGY SERvIcE IS SATISFACTORY. F SLJRVIIY TEAM COMMENTS AND RECOMMENDATIONS (Reference Number) ~ L .5. PAGENO="0347" --~!~- - - 1089 stifiJ~;int ~ a. )`roieseeal. ____________________ - -_~____.__-~ Xj rho I(clo'~v Pratt t:i:~c~n t: coniorint; to nil local I awe y-t'a;:din'~: j. ~-- *k_A shleiciin~ 1)~ Personae I. Neal torso' 4, . All radiation sources a-re periodically checked by cc;rtiflecl personnel fQ~ £T1_12Ui~..~________ ~ X~a~ ~j ~pi~PP~__________ The equipitent used in rndiolo~y is aclequs.te to the purpose and *~. 6~ 7. . arientatlon of the ero;n._________ 8. The physical plant of the x-ray Department ~s sati~fectory and - ~si~~e_ ~ -~ - -- ~ ` NE ~UA oFR~G)CAL_SERVIçj~I~tTiSFACTOi_ - SURVEY TRAIT COMTTDNTS ANT) RECONEENDATIONS - (Reference Numbers) - ..____ - ._-_._ --.:: - -.~ ~ - ::.-- ~ - ~ -6- PAGENO="0348" v* Tochnolopy (continued) m~ 3. 4. 1090 . ~--_.~U'W~1LONS Numbers) SURVEY TEA N COMMENIE ANfl ii -~ - ~ ~ List alt other ancillary technical departments and services that ware evaluated in the course of the survey: ))~* **~t j L~ ~.- t~1TW?!~~? Ei~~h o 411~~ ~ ~"~t or rerviem noted nbwo $r.eooeel, ,4~o i~ach ancillary service or ~1epartmcnt provides a satisiactory level riia AHç CIJAFY SERVICES NOTED ABOVE ARE UTILIZED Wi.~ii~u'i PATIENT `° OF .7. PAGENO="0349" 1091 4. There is evidence that adcquate consultative services crc available cd -i 1 (A S ml ~ arc ccl rcnrrrc(nt:c(d w nh a the eroun. 5. 6. .z~- 8. 9. 10. 1i~ 1,2. 11~ 15. 16. 11. ~c, DllF.i NOt (`Co IC SAil SF~ II) T:C REQIJ I oii*toor:; I~OII CTAFL1 :L1~TArioo x~ ~!O , * `IN ITO NCSIIJ.l' CATNOOSY AS 5101 COLiC TN TILO JLY-1AWS OF TON ASS(lC1tI'Il0C 2. TiLE QUAL1L'JCATIC)NO OF THE lhL)1VIDICL STAll' IFiSIC1/ES AS )JtSEHTED IN TilE )SLELT.OIJNARY QUEST100ALILE Ii:D1CATIL A STAFF WiTh SATISFACTORY ADD ACCEIICILTE NOILTC\L TOOT Cl NC . Tic rca h' ~ ci(4(i ,`ar ri Hr.ct~inn Sf mamhai' rLIVSLC1CIIS. TIlE CROUJl (AS PILILOSOIDI1C'.L CONCEPtS A]001RTAI NINC TO iTS IOiISTAOCE THAT I!LCL100LO A 71551CC AND A CDL TO CUT DC ITS TOTAL LISO1CAL ACTUVJ.TY. TIllS IS A FUNCTIONALLY INT;CRtliti) COOL? AND NOT 01(11 LOOSELY IIOUND roChi'i'ifl(iz rOD ~norossio::'i OIL FID\DCTAI ADVANTAGE OF TIlL ETILLILERS_____________ TILlS (`1(0111? D1I100L:STDXLCS Oi'G,00(lI'AT] OLAT. STAiISLITY. The various clinical services have a satisfactory peer evaluation The group has a mechanism for transmitting and enforcing pertinent ~ There is OVi(ICflCe that this ~mchaniasi (10) is in fact iined. Uractices no I ~tiaO t~,ç,~pj~yri i.t.n rcctuiLr~ent arc,QthicGy~con(Iuctc'd~_ The emenc~encv" needs cii t ents gr,g,,,g(p?~jotel The physicians in this group show en acceptable level of colisunity servicTArticiflat,~g~. Interviews with member physicians were conducted as part of this survey. The interviews produced significant information summarized in the I I I SURVEY TEAM COM~NTS ANT) RECONT4ENDATIONS (Reference Numbers) L .8. PAGENO="0350" .v1I.1_2_j Organization ri~r IA Li.t~ ~i_ Staff Manacement ~nd Persnnn~l Factors__________________________________________________ ~i~i ~ ft is po~~iblc for all member physicians to fully participate in the ~ Tj pcome distribution focmu~a is fair to a1Jj~h~s La nyi»=I~j~~ THE SURVEY TEAM LAS ASCEILTA1EJi1) THAT THERE iS NO EViDENCE TO INDICATE `~XP~ITATIOH OF MLMFER OR EMPLOYED PHYSICiANS BY THE CROUP. The executive body is faitH' constituted. There is adequate opportunity for participation in the group's business endmanaeepntaffairsby~i1lmcmhg~_g~sicians. The business aspect of the group's activities are directed by a satis- facto team. 9i* 1~ ~:** *~~: 1 2, ~ 4. ~ 6. 7, . 8. The business sr~nagemcnt of the group is sound, fair and acceptable by fgsgj~oodbusinessstsndards.________________________ Crcdft~nLic1os practiced by the j~roup are clear end sound. Professional and lay personnel policies are clearly outlined in readily available handbook form. y~ 10. 11. There is evidence of employee loyalty and identification with the organ- isation. - SURVEY TEAM COMMENTS AND RECOMML~NDATIONS (Reference Numbers) -_______ 1092 .9. PAGENO="0351" 1093 VII. Organisation (continued) Nih l~e iderations ______ - j~. The Str\CV Tet'n has ascertained that: __________ a~ No la people, including physicians' families, own or control through a separate legal entity any real estate or facilities need by the crete. __________ Y ti). b. TttNNE IS NO J:vJDNNCE ON A FRFACII OF HEDICAL ETHICS lIRE ~. The Survcv Team has ascertai:ced that: a. Ito lay people have a direct financial interest in the group's ~ *** -u - b. T}IECN IS IN) EVTDIN:CE OF A BRENCII OF -DDICAL_ETHICS IIftRE *Tci 3. The Survey Teeuh'snseertninrc.l that: a. The group is not involved in drug repackaging, wholesaling, or *~: ~-C~ retail in:,___________________________ b. Till-ICE IS 1)0 IONiC)) ON NIH) CAL REt)) CS tIRE. 4. The Survey Team has ascertained that: a. The group is not involved in any business that has to do with *** iii i.': the dispensing, lending, or selling of medical equipment or h,_Tt)ERE 15 110 IIRFACII OF -IODICAL ETHICS HERE, ~, The Survey Tetm has ascertained that: *** *ii iii a. The group does not participate in a~ business venture in addition to thcrenderin~ofmedi~isIDy~~RQJULRientS. - b. TittER IS NO 1I1IEAC)1 OF -DDICAL ETHICS lUCRE. * 6. The fees charged by the group are fair (consider geography and ~gpg~gn~y2___ TIlE G)IOUP CONDUCTS ITS IIUSINESS ETHICALLY WITHOUT EVIDENCE OF PATIENT - ~- 7. EXPLOITATION IN ANY WAY.___________ B * TIlE GROUP DEHONSTRATES SATISFACTORY COST EFFECTIVENESS IN RENDERiNG MEDICAL CARE CT ITS CONNUHITY OR SIRVICE POPULATION. ~. SUBJECT GROUP IS WITHOUT FAULT AS REGARDS PRACTiCES THAT COULD BE INTERPRETEI) AS `TF~ SPLITTINC'. 10. THIS GROUP PROVIDES SATISFACTORY MEDICAL CARE TO ITS COUIIUNITY OR SERVICE IDPULATION. SURVEY TEAM COIS~NTS AND RECOMEENDATIONS (Reference Numbers) - - ---~ to. PAGENO="0352" 1094 VIII. LU F~cilitie~ j~_~ ---*~~ ~ j~p~ ~ 1. The physical plant has current ~tatc and/or local approval to I 2~ The b~ildin~~rp cw tJvapJ~pvedb~choio~a; , - There is a satisfactory and constantly implemented intramural fire cp~oar~~mipeffcc~.____________________________ - ~ ~ - 5. The individual staff physicians have satisfactory facilities for the - - St~. The ~ - 2~ ~ 8. T}JJi P1fS lC~\L PJA~T IS SATISFACTORY TO TUE SUIVJ::Y YUAN. 9. U1?ON CONSIDERiNG TUE TOTAL l'JITSICIIL PLANT, EQUIPUENT AND TUE STAFF T}IEREIN, TIlE SURVEY TEAII FINDS ThAT THE GROUP PRACTICES SATISFACTORY COST EFFECTIVENESS. SURVE'~ TEAM COII~ENTS AND REGOIIMENDATIONS (Reference Numbers) PAGENO="0353" ~1O95 ACCREDITATION SURVEY REPORT SU1SIATION Profilc General Scurinp HajC>r Scoring Aceredi tat on Coned ssiu~1 Area Factors Ne~ntive S /j~_ -~ - -. - C /34~ /2. ~_ ~E 15 ft - /5 ., . - T /21 /4 S /12 /5 o /16 /10 F /7 /2 TOTAL /89 /27 NQ, YES NON!, 1. The supplementary documents and preliminary questiomaire accurately ~ lrgpgpsentthesghject ~gr~g. The.documents mentioned above are approved and accepted by the Survey ~ &~~~llV submitted,, - .,4kLuf the ~s,ppj sea to the s~y,g~~g,e~tions were affirmative, 2. -- 3~ - 4. The ncgati~~ responses recorded on this questionaire, considered in the - JjZiLt_Qj_tjig,pntire ~ig~,,__ a, Are considered minor and are justified or adequately explained in b. Reflect unfavorably on the quality of clinical medicine being ggcticed b~ thie~rog~, - - - - -~__________ c, Frustrate the values and objectives of group practice which the g~oup shpuld hope to realize, The Survey Team Recommends that this group, in the light of all the factors considered in this questionaire, be considered an accredited medical service vendor satisfying universally accepted good medical pr~ctice standards and criteria. Is this a conditional accreditation? State conditions: - - ,, 5, 6. - * * -- -. -- This questionaire was prepared by a Survey Team of the American Association of Medical Clinics. The signatures of the members appear below. Chairman .e dates of this survey were 81-185 0 - 72 - pt.3 - 23 PAGENO="0354" 1096 Dr BtTOHERT. At this time, I would like to ask Dr. Hoffman to tell you in a few minutes something about our accreditation program. Mr. ROGERS. May I interrupt, Do~tor? Would it be too much of an imposition for us to recess until 2? Would this be difficult for anyone? Dr. CUSTER. I have a 2 o'clock plan~. Mr. ROGERS. Could we get a staten~nt now, Doctor, which will permit you to make your 2 o'clock plane? Mr. CAR R. I would like to especially w~lcome Dr. Loman C. Trover, second vice president of AAMC, medical director of the Trover Clinic in my own State in Madisonville, a very s\iccessful and well-known physician in the State. Thank you, Mr. Chairman. Mr. ROGERS. Dr. Trover, we welcome you hei~e. I am sure you know of the good work of your member from Kentucky in the health field. Dr TROVER. I certainly do. Dr. BUCHERT. Mr. Chairman, Dr. Custer from the Marshfield Clinic. If there were any questions about that activity, you might wish to ask them while he is available. Mr. ROGERS. This is an HMO project, is it not? Dr. CUSTER. Yes, sir Mr. ROGERS. Could we get you to describe it briefly for us, how you got it started, the amount of money it took, how many are involved, and what experience you have had to date? STATEMENT OP DR. G. STANLEY CUSTER Dr. CUSTER. I might begin by saying that we have been aware of the advantages of prepayment since the association has had a com- mittee on prepaid medicine for many years. There were a couple of us in our group who were intrested in the activities that had been going along in the association in this regard. The clinic first became interested in insurance primarily through that mechanism but I would say that the real impetus originated with a local industrial firm which had a vice president that saw the possi- bility of the clinic and the industry working together to produce a comprehensive health package for them, which we did, starting out with a $17 premium-this was about 8 or 10 years ago-and, as of last year, the premium was $42.74. The package did have a couple of limitations. One was the first dollar the patient had to pay $3 for every visit at the clinic and $25 for every hospital admission. The patient had some limitations on the kind of room he had and so forth. But it was actually Melvin Laird, when he was Congress- man from our district, who was aware of the problems that existed in medical care. The Congress was kind of focusing some attention on it and Mr. Laird suggested to us that we might be wise in thinking about developing a prepaid program. We took his advice very seriously and attempted then to establish a prepaid medical program in what we call a ninth counselor district in our State which is a division of the State medical society. We found two commercial insurance companies that were interested in looking into this problem. PAGENO="0355" 1097 We were quite excited about this. There was one part of the problem that we were particularly interested in and that was how can one supply health care to the not quite so indigent, the guy who would not be able to buy the package? We thought we might get some help in Washington. We came here and met with many helpful people. Of course, there was no money available for this project. The insurance companies, because they did not want to get involved too much with the risk in this experiment, opted out ~f this program, and so we were kind of left on our own until the State medical society became interested and, with some sup- port from the AMA through Charles Hudson, who was then chairman of the department of socioeconomics, came and tried to encourage the physicians in a three-county area to become interested in this kind of program. We thought the State medical society was going to take over the leadership. They did not. The program languished until about two and a half years ago when Blue Cross walked into the office and asked us if we would like to estab1h~h a prepaid medical program. It took us about a year to convince Blue Cross what we meant by comprehensive prepaid. We finally established a program which would then embrace a defined area of about initially 35,000 people, later 44,000, because some townships around our local area wanted to opt into th~ program. The program was to be truly comprehensive, exc ~pt that it did not include medicare and medicaid patients, but any otl.er patient within this an a, was eligible to buy the insurance package which sold for $17 at a single rate and $49.80 for a family rate. You an get into this program during the open enrollment periods, of which there were two; the benefits are any of the services benefits that we can offer in the Marshfield Clinic. The Marshfield Clinic is a clinic of 103, 194 doctors at the present time whose practice is in its own facility, utilizing a private nonprofit hospital. All the physicians in the clinic are involved in the program. Mr. ROGERS. Is it full-time for them? Do they have other patients? Dr. CUSTER. We don't know which patient is prepaid. We don't know which patient is fee-for-service. The reason we don't want to know is because we don't want to give any kind of care except the best care that we can give to every individual. I don't. want to let you believe that I didn't know there were two people, you know, who came to me and said, "We are in the program. What can we get?" This happens. But it has been a very rare circumstance. We have a nonprofit religious hospital which is in the program. We have an extended care facility built into the program which is sub- contracted to the hospital and a home nursing health program, as well. We have a community committee of 12 people who help us in our deliberations. They are charged with many responsibilities. They have been useful in their initial work. So far as its success is concerned, we had set as a. goal the enroll- ment of 10,000 people by the end of the first year. We enrolled 14,000 people. This is offered to individuals without examination, without our knowledge of pre-existing illness, as well as tO industries, to dairy groups and farm~, and so on and so forth. PAGENO="0356" 1098 Marshfield is a community of about 15,000 people, which is agricul- tural in its orientation. It also is in close contact with communities such as Wausau, Stevens Point, and Wisconsin Rapids. We have had some problems with the program but they were not totally unanticipated. We lost money on the operation this year. We understand why we did retrospectively. It was our own fault. Nevertheless, the group as a whole is excited enough about the program to continue this activity. We are going to have another go at it next year. The data are all computerized. We are in the process of analyzing them. I will be frank to admit that the big problem we had is with our own group; I mean the doctors' care, the employees care, because of overutilization. We believe that the reason for this is that the em- polyees are in such close proximity to medicine, and I am very frank to admit that if my mother becomes ill we will probably not spare any horses to find out what is wrong with her. In other words, we discovered we spent a lot more money taking care of the doctors, our own and others, than we probably did other people, and I think that is a natural kind of thing. At least it happened and we understand it. We are not going to discontinue the clinic group because of this overutilization because we believe that if we can't educate our own group to proper utilization in this experiment, then we probably can't educate anybody. So, we believe they should be continued as part of the program. It is a rather interesting thing that there is a small clinic about 24 miles from Marshfield, some of whose patients fall within the perimeter of our program-defined area. They wanted to get into our program. So, we took them into our program. There was another physician in a small community 15 miles from Marshfield who wanted to become part of this program. So we took him into the program. Then there was another one in a small community 18 miles south who is an osteopath. We had integrated him with our hospital staff some years ago. He wanted to get into the program, so we took him into the program. It has worked out satisfactorily. Mr. Rocu~Rs. Any chiropractors? Dr. CUSTER. What is that? Mr. ROGERS. Go ahead. I was kidding. Dr. CUSTER. We have no restrictions on what we offer the patients. We take care of open heart surgery. We do all of the sophisticated procedures that I think are well-known to you all. We have discovered if we are going to continue to cut costs we have to utilize our extended care facility even more intensively than we do. Our hospital utilization rate has dropped consistently. I think it is important to realize that hospital utilization rates throughout the country have been dropping for reasons that I don't think anybody can actually finger. I think it is also important to recognize that in our State the State average of hospital utilization was 1.1 hospital days per patient per year. In the Marshfield area that we are working with, the utilization rate in the beginning was 0.85 days per patient per year, but in the prime Marshfield area where the clinic exisits it was 0.79. PAGENO="0357" 1099 We have reduced our rate along with the prepayment program to 0.707; somewhere in that neighborhood. Whether or not that is just a natural phenomenon or whether it has anything to do with the fact that we have a prepayment program is difficult to say but we would like to believe that it is because the group as a whole has been a little more perceptive about hospital utilization or, indeed, not satisfied with our utilization at the present time. We think we can reduce it and we are aiming toward something like 0.61 days per patient per year. I don't know whether we can achieve it but we are going to try. I think it is rather commendable that group practice has a group of physicians who will commit themselves to trying this experiment and we consider it an experiment and hope that it will achieve an example for the people to follow. Mr. Roy. How do you pay the physicians that are 14, 18, 24 miles away for their services? Dr. CUSTER. We pay them on their own fee schedule. Mr. Roy. Are there doctors within the defined area who are not part of the prepayment program? Dr. CUSTER. No, sir. Mr. Roy. These are the only physicians with the defined geographic area except for your clinic? Dr. CUSTER. Yes, sir. Mr. Roy. Who lost the money that you lost? Did the doctors lose it, the hospitals, or Blue Cross or Blue Shield? Dr. CUSTER. We lost the lion's share. The physicians are willing to assume th3 rather substantial risk. The hospital lost a little. Blue Cross has paid. It is not a loss; they hope to recoup their administra- tive expenses. Mr. Roy. Do you feel that the cooperation of someone like Blue Cross is absolutely necessary to your starting some kind of prepaid plan? Dr. CUSTER. I have a personal feeling about it. We don't have any options because of the law. Mr. Roy. What is your personel feeling? Dr. CUSTER. I think that, wherever possible, administratively in groups which have the equipment and the talent that they should be able to administer their own programs. The reason I feel that they should this way is because when you are talking about that dollar you are talking about a medical dollar. On the other hand, I don't believe necessarily that there is that much knowledge within most group practices to carry that out. Mr. Roy. If you begin to enroll even a greater percentage of the people within this defined geographic area, do you foresee the day you might make some medical care facility available in different geographic areas than where they are presently available; in other words, satellite clinics? Dr. CUSTER. Some of our groups have satellites. Mr. Roy. Do you feel you have the potential to do this? Dr. CUSTER. Yes. (Testimony resumes on p. 1105.) (The following material was subsequently received for the record:) PAGENO="0358" 1100 THE GREATER MARSHFIELD COMMUNiTY HEALTH PIAN-A MODEL FOR HEALTH MAINTENANCE ORGANIzATIoNS (G. S. Custer,* M.D., Department of Gastroenterolgy) ** For six years now, pre-paymen't through group practice has been described as the optimum method of the delivery and payment of health care. Although the Kaiser Permanente Foundation is oft looked upon as the most exemplary model, its oldest form is found in the programs and development of the Ross Loos Clinic in Los Angelen The aggregate of all pre-paid group practices in America cares for seven million individuals at costs reputedly one-fourth lower than those of other methods. This sounds impressive. However, it is a small percentage of the American public, most of whom are at low health risk and most of whom are less concerned with cost than the accessibility of services and quality of care. Some programs have more patients than they can adequately service. In others, premiums for insurance appear to be excessive and coverage inadequate. The needs of young and middle-age poor (I don't mean the indigent) who have a high incidence of illneSs are, for practical purposes, left uncared for except through the charity of fee-for-service physicians. Nevertheless, interest in pre- payment is increasing, particularly since President Nixon's February 18, 1971, message to Congress. He emphasized the need to develop Health Maintenanee Organizations to reduce hospitalization, reduce costs, emphasize preventive medi- cine and public education, and reward efficient management with profit through self-regulation. Generically, an HMO consists of an enrolled group, an insurance company, a professional group, and a treatment facility. This group must design a package of medical services and delivery it pre-paid. My visits to many group-practice clinics of the American Association of Medical Olinics have impressed on me the amount of inquisitiveness, interest, and activity in prepayment of medical services. Clinics are thinking of getting involved; `some- are actually in the process; and othprs will inevitably follow. They sincerely believe that this can benefit the patient and can benefit their clinic. On the other hand, there are those who, with much gnashing of teeth, invective against the government, and fear of federal "takeover", feel that there is no other way out. I am inclined to agree that they are right. There are pockets of interest and activity about the country. A large mid- western private for-profit insurance company is seriously Studying, with group- practice physicians, the feasibility of covering the greater part of a state with an HMO for which they desire to be the carrier. Oonsiderable interest is apparent among the group-practice doctors who have been contacted. A private entre- preneur in southern Oblifornia is making a strong play to be the architect of an HMO in that part of the state. This would be in direct competition to a county medical society's foundation arrangement which is already basically serving as an HMO. Some hospitals with aggressive leadership have already committed themselves to, and are working toward, establishing HMO's in their area of service `by using their employed medical staff and anyone else responsive to their call. Blue Cross and Blue Shield are vigorously engaged in efforts to seed HMO's around the country. In Milwaukee, Struggling Comp Care is an example. Our own Greater Marshfield Community Health plan is another. A large conglomerate is studying the possibility of a pre-paid group practice in Montgomery County, Maryland, and apparently have the blessing of the profession. Another program is being initiated in Charlotte County, Florida. The pattern of HMO's most acceptable to physicians and developing in many states is the "foundation" built upon the county medical society. The society delivers health services and supplies peer review, criteria for the insurance package, and administrative personnel. They strive to keep themselves and the insurance companies honest and the patients happy. How successful they will be in anybody's guess. I believe that they will suit the commercial carriers best. At the moment, it is difficult for me to know `whether the key issue i's pre-payment, whether the medical world is beginning to turn toward prepaid group practice, or whether we shall settle- for a more generic definition of a health maintenance organization. It is apparent that prepayment (the HMO, if you wish) is catching on and, for the present,- *1971 President, American Association of Medical Clinics. * *Marshfield Clinic and Marshfield Clinic Foundation for Medical Research and Educa- tion, Marshfield. Wlsc. PAGENO="0359" 1101 appears to be more than just a passing fancy. It is being taken seriously. The Marshfield Clinic has taken the HMO seriously and I would like to tell you something about our history of trying to develop a comprehensive health plan. About eight years ago, a local industry became disenchanted with its em- ployees' limited health coverage, which was provided for an unrealistic premium in the shadow of a large group-practice clinic. The company's vice-president found an insurance company willing to experiment, and the two came to the Marshfield Clinic and suggested that we provide comprehensive care at our usual customary fee. The company and the employee would pay a premium to the insurer, and the insurer would reimburse the Clinic on the basis of a simple monthly list documenting the patients treated, their diagnosis, and the corre- sponding fee. That was all. The patient received complete Clinic outpatient service and scheduled hospital services. The Initial premium per family was $17.75. In eight years it inched up to $42.70 per family per month. The insurance company was willing to accept the loss ratio on this modest premium which today is worth only $108,000. The loss ratio varied from 72.5% to 115.9% over the years, the average being 98%. The patient pays a $3.00 registration fee for each illness and the first $25.00 of each hospital admission. This program continues successfully to this time. About five years ago we decided that it would be desirable to develop a pre-paid insurance program for the whole of Wisconsin's Ninth Councillor Medical Dis- trict. We courteously sought the blessing of the State Medical Society of Wis- consin, but their attitude was negative. Pursuing our objective anyway, we encouraged two prominent, local, for-profit insurers to become interested in providing coverage for all of Wood County. Seriously interested in covering the `not-quite-so-indigent," we went to the fed- eral government for money to defray that part of the premium that this low- income group would be unable to pay. We were told that no money was available to help the not-quite-so-indigent, even as an experiment. However, from the few remaining dollars in OEO and some other bureau they would be pleased to grant $160,000 for a demographic study of the problem. This study produced much data telling us nothing that we wanted to know, namely, how many patients are not- quite-so-indigent and where do they live. Meanwhile, having heard mutterings of uncertainty from the other doctors in the county, we again went to the State Medical Society, whose agents agreed to attend a meeting conducted by Dr. Charles Hudson, past president of the Ameri- can Medical Association and, at the time, Chairman of AMA's Department of Socioeconomics. At the meeting, the State Society's representatives evinced enthusiasm and informed those in attendance that the Society was interested and wanted to lead and direct the project. This amazing turn of events left us speechless, but thoughtful. Unhappily nothing happened. For some time thereafter, very little occurred and the enthusiasm of the pri- vate insurers waned. However, the word, pre-payment, was becoming common parlance, and one day the "non-profit" Associated Hospital Service (Blue Cross) appeared and said, "We would like to establish a pre-payment insurance program with the Marshfield Clinic." A large clinic providing total coverage and practic- ing in a good modern hospital, the Marshfield Clinic looked like an ideal setting. Although we do not own St. Joseph's Hospital, we enjoy a good working rela- tionship with it. With good processed data and some demographic information, the Clinic considered this a good opportunity to provide total and comprehensive care in a genuine health maintenance organization and to learn the require- ments of providing full coverage for a defined group of patients using our fee structure and experience. We could learn the administrative costs and the cost to the Clinic and to the Hospital. It would be a great socio-economic experiment. We agreed to work with the Hospital and the Blue plans. It took one and one-half years to negotiate the necessary contracts between the cosponsors. The result was the Greater Marshfield Community Health Plan (GMCHP). Here are the basic elements of the program. From the start, it was available to anyone within a fifteen-mile radius of Marshfield. Recently five townships were added-a small three-man group practice and two other physicians wanted to be a part of the program because some of their patients lived in the area defined. The insurance is available to any individual and to any family, Medicare and Medicaid patients excluded. It may be purchased by the employed, either singly or in groups. Deductibles and co-insurance features are lacking and this has created much interest. The subscription fee is $49.80 monthly per family, $17.00 monthly per individual, for complete Clinic outpatient care, Hospital in- PAGENO="0360" 1102 patient and outpatient care, coverage in an extended-care facility, and home nursing service. For these services the Clinic is pre-paid $4.86 monthly per par- ticipant, and the hospital is paid $71.00 daily per inpatient day and 97% of its actual charges for out-patient services. Doctors treating patients in the Clinic do not know which are pre-paid and which are fee-for-service. An iniportant part of our community HMO is consumer participation. An advisory committee represents a spectrum of community leaders from educa- tion, government, labor, local business, the professions, and the clergy. This twelve-member committe meets regularly and has been delegated a number of tasks including review and evaluation of the Plan's performance, financial status, rate structure, and benefits. The committee can recommend policy about these matters and about the dates and qualifications for enrollment. The committee is charged with stimulating community support and providing means of public education to reduce both over-use and under-use of medical and hospital services. The committee is a sounding board for ideas from the Plan's sponsors and for problems and complaints from participants. The committee supplies liaison with similar plans throughout Wisconsin. One might think that the consumers would snap up the opportunity to exercise judgements in all these matters. However, so far, they have been very careful and thoughtful about accepting too much responsibility. They are seriously appreciative of their important advisory role in this community venture. Now, let me describe the general arithmetic basis of the capitation figures. There were many efforts to determine the actuarial capitation for the GMCHP as there were attempts to initiate the program Itself. On the first try, the Clinic's budget total for 1971 was divided by th~e anticipated number of doctors working at that time. This. gave the pro rata amount that each doctor must earn during that year to make the budget. This sum was again divided by 1200, the theoreti- cal average number of pre-paid patients per year that each doctor could be ex- pected to service. This total was divided by twelve months, yielding a capitation of $6.00. On the second attempt, the optimum number and kinds of doctors necessary to take care of our pre-paid group was determined. This was divided into our 1969 net production. Using the same arithmetic and modifying it to reflect projected increases in budgeted expenses, the capitation ranged between $4.21 and $4.31. On the third attempt it was decided to deal with reasonable facts. Multiplying the 35000 residents in the defined area by 12 months and dividing this resident months" figure into the actual clinic income derived from this area prOduced capitation of $4.22. It was reassuring to note that, although the second and third methods were different, the results were about the same. After appropriate trend figures were applied, the final capitation was $4.86. The hospital capitation was based on the 1971 budget divided by anticipated patient-days, producing a proposed 1971 reimbursement of $70.14 for each in- patient day This daily reimbursement multiplied by a calculated utilization rate of 1.1 days per person pe.r year and divided by twelve months yields a monthly capitation of $6.65. Let me review the total monthly capitatlon. On the fifteenth of every month, the Clinic receives $4.86 per participant covered in the current month. This amount is designed to yield expenses including a factor for increased utilization and Increased expenses. St. Joseph's Hospital receives $71.00 per inpatient day or per five home nursing calls, equivalent to a capitation of $6.65 monthly per participant. The capitation deemed sufficient to pay the usual and customary hospital and physician fees for our referral of participants out of our medical area is $.26. The capitation deemed adequate to pay for usual and customary hospital and physician charges for out-of-area emergency services is $.69. Finally Blue Cross and Blue Shield receive $1.00 per participant per month for administrative expenses. These add up to a total capitation of $13.46. Multiplying this by 3.7 (the average family size in the Marshfleld area) yields a premium of $49.80 per family per month. The individual premium was arbitrarily estab- lished at $17.00. What becomes of the surplus, if any? Surplus is the sum of excess premium, net interest earned on invested funds, and net recovered from "other coverage" and subrogations. From the surplus it is first agreed that the Marshfield Clinic will be entitled to the amount that its cost of services rendered, plus 4%, exceeds the total eapitations received, providing this distribution does not exceed the Clinic's billed charges for such serv4ees, St. Joseph's Hospital will be entitled to the amount that its cost of inpatient services, plus 3%, exceeds total per diem PAGENO="0361" 1103 collections, providing this distribution does not exceed the hospital's billed charges. Another distribution from surplus is the incentive feature, the area where health maintenance comes into play. The savings in days of hospital inpatient care between 0.85 day per participant per year and some lesser number will figure in this formula: (0.85 day per participant per year less actual days used per participant) times (the number of participants) times ($71.00 per diem). From these savings, 50% shall go to the Marshfield Clinic, 25% to St. Joseph's Hospital, and 25% to Blue Cross/Blue Shield. The latter will continue until developmental costs are recovered. Thereafter, this 25% will go to the community for use in the purchase of an ambulance, wheelchairs, crutches, etc. Any money remaining from the plan will be used to stabilize the rate of the GMCHP. What are the benefits of the plan? Dependents are covered until age nineteen, student dependents until age twenty-five. Subscribers and their Community health plan-Custer dependents receive all necessary services supplied by the Clinic including ten Clinic visits for psychiatric care. The patient can receive 365 days of care in the hospital in a semiprvate or ward bed unless the physician deems a single room necessary. A patient can receive home nursing services or skilled nursing-home care (extended care facility) in a semi-private or ward room, if such are indicated, if the patient is under the care of a Clinic physician for the same condition for which he was hospitalized, and only if such services will contribute to the patient's recovery. A patient may be referred to another hospital properly qualified and accept- able to the Associated Hospital Service. In case of emergency, however, the patient may receive hospitalization in any general hospital in America. As soon as such a patient can be transferred, he shall be brought to our hospital and, upon prior approval, ambulance service will be provided. Charges by out-of-area physicians are accepted only for emergency treatment. Except for termination of pregnancy without childbirth, obstetrical patients may receive hospital coverage only after participating 270 days prior to hospital admission. This restriction is waived if the patient previously had a group policy for which she fulfilled the waiting period. Participants may receive medical care by the group practice In any of the facili- ties named without paying supplemental fees. A patient requiring skills outside the Clinic may be referred to outside special- ists, and the fees will be paid by the plan. The same is true of emergency medical and obstetrical services outside the Clinic or the Hospital. Such services, how- ever, are limited to those essential before the patient can be moved to the group- practice hospital without medical harm or injury. The program has the usual exclusions such as dental services, glasses, or hear- ing aids, workman's compensation or employers' liability, custodial or domiciliary care, care of tuberculosis after diagnosis, blood and blood-donor fees, medical re- ports of any type, plastic surgery for cosmetic reasons (unless for reason of accident after effective date of the policy or for congenital anomaly in a patient whose mother is a participant.). The policy has a non-duplication provision. This prepaid insurance program was initiated in March 1971 and is being marketed aggressively to 35,000 persons. Groups were enrolled first. Other groups desiring to join are waiting until their existing contracts expire. Individuals are being enrolled and public reaction Is favorable. About 12,500 were enrolled by March 1, 1972, exceeding our goal of 10,000 participants in the first twelve months. Pre-existing conditions are waived during the initial enrollment period. Semi-annual enrollments are anticipated. Seven months of experience is too short for recovery of valid data, but the trends observed to date are as expected. Blue Cross advised us that the Clinic is over-utilized as revealed by the number of patients and cost of delivery. Administration is not concerned because the plan allows for recovery of losses. This early over-utilization is attributed to novelty, as observed in all other plans. What are the difficulties that one might envision in a pre-payment program? The problems of pre-payment insure to all parties concerned-the patient, the physician, the hospital, and the insurance company. The insurance company markets the plan, administers the funds, and does the clerical work. If the carrier markets the plan poorly, costs rise, the plan fails, and the insurer loses. If the carrier cannot meet administrative costs, it must dip into the reserve, raise the premium, or demand a nuisance fee. The onus upon the medical group is the greatest. In order to profit, the group must meticulously avoid over-utilization both in the Hospital and in the Clinic. PAGENO="0362" 1104 Here is the incentive for public education and preventive medicine. The physician is at the mercy of the participant so far as outpatient utilization is concerned. It Is in this area that the clinic income and the patient's health are at risk. Here lies the danger of poor medical practice. At the same time and for the same reason, under-utilization of facilities for genuinely ill patients may occur. The first concern of most physiciai~s when considering pre-payment Is their personal income. In groups having a strong incentive system encouraging a high earning capacity, this is a rOal problem. That is, the doctor who now books fewer patients in order to increase his clinic's income by reducing utilization gets no financial credit for his performance. In groups having less stringent incentives or none at all, this presents less of a problem. Assuming that the arithmetic of premium structures is correct, assuming 100% utilization by the subscribers, and assuming no outside medical care, any losses accruing to the group will be mainly those of increased operating expenses, a factor that can be controlled. When unable to supply all available medical serv- ices to its subscribers, the group must contract for such services by referring the patient outside of the group and/or hospitalizing the patient elsewhere. Supply- ing such services can prove difficult and/or expensive to the program, but it need not Conceivably, consultation can be harmfully deferred. The hospital also has problems. If it has been over-utilized, the hospital may now be confronted with reduced occupancy and, therefore, reduced income. If the group increasingly provides its own services and uses the hospital laboratory, X-ray, and ancillary services less, hospital income may diminish. I have already touched on the patient's problems. Unfortunately, they are al- ready manifest in existing pre-payment programs. These are under-utilization by both inpatients and outpatients, delayed or low-quality medical care, impersonal physician-patient relationships, and increasing premiums. The patient may be required to purchase a health-care package that still may not meet his total health needs. In my mind, the greatest problem is that the plan is out of reach of low-income groups that can't afford to buy it. The problem of payment and easier and more dignified access to medical care has not been resolved for the "near poor," the "not quite so indigent." About 6% of patients in the greater Marshfield area are so classed. As in former years, we continue to supply a significant amount of charity services to this needy group who have a high incidence of illness and a great need for preventive care. A government grant to help them is being explored, but this may lead to unreasonable control. It appears that patients will benefit most from a plan in which (1) a total group-practice supplies all services and uses a hospital that it owns or effectively controls, (2) fee-for-service and pre-payment are combined, (3) physIcian income Is based on salary equalization, and (4) doctors do not know whether patients are pre-paid or fee-for-service. One problem looming over the whole HMO concept is exposure to governmental control through government grants for the needy or through Medicare. If HMOs should consider contracting with social security on the basis of 95% of Medicare costs, it has been authoritatively stated that the contract will prohibit an exhor- bitant profit. One version of a senate bill states that profits beyond a reasonable margin should be shared with subscribers or returned to subscribers as increased benefits. Moreover, quality evaluation, and monitoring provisions will be built Into the regulations to prevent under-utilization as well as over-utilization. Whatever the contractual arrangement with the government, regulation inevit- ably follows. It is generally agreed that we must improve and reorganize the health delivery system and develop better techniques of management control. Unquestionably, multi-specialty medical groups are admirably suited for reslolvlng these problems through pre-payment. The opportunity exists. Self-regulation lies behind the HMO philosophy and may provide some way to preserve our own enterprise. Yet, I continually worry whether the sounds of present activity merely represent the death rattle of disorganized free-enterprise medicine Although the road ahead is obvious the horizon is still obscure We may not always have good government, but we will always have the needy poor. It Is their needs, not the government's, that we are dedicated to serve. As long as-we know the science of medicine, as long as we have the art, we may yet find better methods of serving. What Is really needed from the profession is more sincere individual concern about, and involvement in, the problems of medical care and less concern with the development and preservation of our personal life styles. PAGENO="0363" 1105 Mr. Roy. Mr. Chairman, I want to take the personal privilege of welcoming Dr. James M. Baehr from Wichita, Kans. I met Dr. Baehr for the first time today but I have known his brother for a long time. Dr. Ralph Baehr, who practices in Topeka. I know a number of his colleagues in the Wichita Clinic. They are a fine group. I com- mend them for their activity and I am pleased to have him here. Dr. BAEHR. Thank you. Mr. ROGERS. Dr. Carter. Mr. CARTER. I don't have any questions particularly to ask this gentleman here. I want to compliment him on his statement. It was very good. Mr. ROGERS. If it is acceptable, then we will adjourn until 2. We had an executive session scheduled this afternoon, to start writing the heart and lung bill, but we will put that off until 3, at least. We may have to put it off more, depending on the questioning. If it is convenient for all of you, we would like to question you more at 2 o'clock. The committee stands adjourned until 2 o'clock. (Whereupon, at 12:40 p.m., the subcommittee recessed, to reconvene at 2 p.m. of the same day.) AFTER RECESS (The subcommittee reconvened at 2 p.m., Hon. Paul U. Rogers (chairman) presiding.) Mr. ROGERS. The subcommittee will come to order, please. We appreciate your indulgence. Some of the other members will be along shortly. I think it might be well for us to spread on the record how you see the HMO concept fitting into the clinics. You have given us one example,. of course, where you have already moved to the HMO concept. Do you see a foundation approach more feasible, or what is your basic feeling and your experience? Dr. BUCHERT. I think one of the basic essentials of an HMO is group practice. The lIMO is a new concept. It goes beyond what we ordinarily think of and what we have seen practiced for many years on a prepaid medical care basis. The lIMO concept is the concept of trying to keep people well, with emphasis on health education, preventive medicine, early diagnosis. Perhaps it would be helpful if I just related briefly what we are do- ing in central Pennsylvania. The Geisinger Medical Center is a hospital-based group practice, multispecialty group practice organization, operating in a 387-bed hospital which will soon go to 500 beds when present construction is finished, with a large eight-floor outpatient facility staffed by 90 full- time salaried staff physicians, with a house staff of 70. So, we have a total of 160 physicians. We are creating at the medical center an lIMO involving a five- county area in which there are approximately 228,000 people. Now, in order to get this started initially, we are confining the HMO to the people who reside or work in the county in which the medical center is located, one small residential area just across the river which is in the trade area, and a small community 14 miles away in which we set up our first satellite clinic 3 or 4 months ago to answer a need in that area. PAGENO="0364" 1106 Now, the purpose of starting out small is to be able to get some information, particularly on utilization, and on cost, basic data on which to contract with other physicians and other health facilities when we moved to the five-county area. In this five-county area are five other community hospitals ranging in size from 90 to 125 beds, with the usual open type of staff, 20, or 25 per hospital, 50 percent general practitioners, the others specialists. The program, after the initial period, after we get sufficient in- formation to feel that we can expand, is to expand the HMO to these other areas and involve those hospitals and those physicians in the pri- mary care and the medical center as a secondary or mostly tertiary med- ical center. We feel that our role, besides being the consultation and the specialty medicine center for these people, is also the education role for training allied personnel of all types, physicians, because we have 10 residency programs with one about to be approved in family practice, and finally to be able to provide those facilities with sophisti- cated technical and computer programs. In other words, developing toward what we would like to think of, and which was described at our meeting last September in Cleveland, as a trusteeship for health for a geographical area in which through the coordination of all the facilities and the personnel with provision for facilities that are needed but not present, we provide a health care community capable of providing available, accessible, affordable health care for all the citizens. Now, this is the long-range program for our institution. Mr. ROGERS. I think you were getting ready to call on some of the members of the panel to give us some of their thinking. Dr. BUOHERT. I was about to call on Dr. Hoffman to tell us a little about the accreditation program, but perhaps we ought first to finish up with the service phase. Mr ROGERS. Fine either way. Dr. BUOTTERT. Is there anyone who wishes to speak on his version of group practice and HMO? STATEMENT OP DR. JOHN MEYERS Dr. MEYERS. I am Dr. Meyers, from the Fallon Clinic in Worcester, Mass. Our group is a small group, au 18-man group, in central Massa- chusetts, in New England. New England has not been receptive to group practice. We have survived, and we enjoy a reasonable reputa- tion locally. We have been interested in the possibilities of prepayment. To begin with, we are a conventional fee-for-service orgaiuzation. We, for some time have had an interest in prepayment and its possibilities and, in particular, our interest in it has been based on our lack of access to the relatively well person or the not critically sick person, and most of our confrontations, if I might call it that, have been crises confrontations. The HMO idea of utilizing group practice prepayment allows that type of direct access. It puts a demand on the public for cooperation with the physician, with exposure of its problem which is the most im- portant part of the preventive aspect of this endeavor. PAGENO="0365" 1107 The HMO interest that your committee has exhibited has done a very curious thing in New England in that, of itself, just by virtue of this interest, there are many small clusterings of physicians in Worcester County, both in and out of the city, that have developed an interest in the HMO idea and as a distinct development from the foundatioii idea in our area there is a very real possibility that with a little encouragement we may see the development of several little groups locally, thanks to your committee, and I think that is true. Although we have had this interest for 2 or 3 or more years, we have not been able to produce a result. Only with the advent of the AAMC into this field in setting up a few pilot programs of which we have been fortunate to be one do we now see implementation reaching frui- tion and a plan almost on the horizon for our group. I would direct my suggestion to the fact that AAMC should be encouraged by what now are a few pilot programs, could very easily be many more, that it ought to be supported in an educational en- deavor so that some of these groups of physicians, not knowledgeable in what group practice means and what it can do, might almost have some sort of a program, a group of seminars, or some form of training program, via AAMC and in such an endeavor I think its support financially would be well worthwhile. Mr. ROGERS. Thank you very much. Dr. BTJCHERT. You have also seen in the five-county area in which we are operating since we set up this HMO to involve the five-county area, an interest in developing small group practices around two of the hospitals. One of these areas is in the midst of setting up such an organization at the present time. I think that group practice can be moved into an HMO mode quite easily, relatively cheaply and rapidly, more so than trying to set up a group practice and an HMO at the same time, because there are dif- ficulties and problems associated with the development of a group practice. When you compound this with the problems associated with an HMO concept, it makes it quite a difficult solution. Mr. ROGERS. Suppose we were to say in the legislation that group practice or clinics that would want to move in this should have some funding, some help. Could your group give us perhaps for the record what you might estimate would be a reasonable approach to give some help and encouragement for this to be tried? You may not have those figures available now. Dr. BITCHERT. I will defer to Dr. Wurzel. He is the project director of our HEW contract. I believe he has these figures in mind. STATEMENT OF DR. EDWARD M. WURZEL Dr. WURZEL. Yes, sir; we can give you some figures that I think are relatively firm. We will start by saying that it would probably cost to take an estab- lished group practice of average size-it is going to depend on size- and turn a significant portion of their effort into an HMO activity that then can float with the free-service activity within that group and reach its own level. If the patients prefer and the physicians prefer and it is right for the HMO to grow at the expense of the fee-for-service, it will. PAGENO="0366" 1108 On the other hand, if both the HMO and fee-for-service grow, they will seek their own level. We must emphasize there is no question about the compatibility of fee-for-service and prepaid. We can show you many examples where they are working successfully side by side. It would cost someplace between $100,000 and $200,000 to convert a significant portion of the activities of an average group into an oper- ating HMO which would be capable of growing without any further investment of capital. It is self-supporting once it gets started. The physician is not idle while waiting for the HMO patients to come in. They treat the lIMO patients who do come in whether they are lIMO or fee-for-service patients. We don't see a big change there. I think the figure of between $100,000 and $200,000 is reasonable. Mr. ROGERS. Would that be planning and development cost? Dr. WURZEL. Yes, sir; that is all there is, planning and development. Mr. ROGERS. You see no need for help on an operating basis for 1, 2, or 3 years? Dr. WURZEL. I have to answer that on a personal basis, Mr. Rogers. Everybody here will have a different opinion. My own opinion is that the need for operating costs would be minimal. I would say zero. But, everybody will have his own idea on that. Mr. ROGERS. What about if you have an open enrollment and you don't select who will be in the lIMO: Then what happens? Must those people whom you are willing to have join be subsidized if they cannot pay, or what techniques are there to take care of those situations? Dr. WURZEL. I see two problems. One that comes to mind when you say open enrollment and one that comes to mind when you say subsidize whose who can't pay. I think they might be handled wisely in different answers. First, as far as open enrollment and its effect on the possibility of adverse selection increasing the cost of running the lIMO, this is something that everybody has a different opinion about. It is one of the things we want to test for you. If we had been able to get started 6 months earlier, we would have been able to come in with hard figures. I think Marshfield has some hard figures. We don't have enough information for you now but we hope to develop that information. We think if you were to allow us to control that open enrollment period we might be able to keep it down to where we could digest it and find out whether or not it is going to result in adverse selection, which will increase the costs. It may very well be that in some areas it will and in some areas it won't. We don't know. This is one of the reasons we ask you to be gentle with the legisla- tive restrictions on open enrollment. Trust us a little bit to want to test it and to develop a way of testing it without choking on it. So, I can't answer your question about open enrollment as far as adverse selection goes. As far as taking care of those who can't pay, if you want the lIMO to do this, I think it can be done more effectively and more economically than any other delivery system can take care of those who can't pay, but it is not specifically an lIMO problem. It is a funding problem that is going to take care of them, no matter who takes care. PAGENO="0367" 1100 We would like to participate in solving that serious problem of the gray area of patients. We have some ideas that we may be able to test on own own. If I may, while I have the floor for a minute, talk about what it costs to establish an liMO in a preexisting group. I throught I had the sense that you also wanted some idea of what it would cost to set up a group that may or may not become an liMO. I think it would be well at this point, since we represent group prac- tice, to remind all of us that we are only talking about group prac- tice. We are not talking about the foundations or any other mode of forming liMO's. We are talking about practice HMO'~. For myself, I feel very strongly that we must distinguish between a prepaid group and an lIMO. I don't think they are identical. Now, we have varied feelings about this thing. But I am talking about an lIMO, not a prepaid group practice. Every lIMO must be prepaid, but not every prepaid group prac- tice is an lIMO. Prepayment is necessary but not sufficient to the lIMO concept as we are trying to develop in our organization. With that as a background, saying that we will try to set up group practices which then will be fertile areas in which to plant the lIMO concept and see it nourished as an lIMO, not as a prepaid group prac- tice, we can give you some figures on what we think it would cost. These figures are based on some consultation experience we have in actually helping people set up group practices and, of course, our own people know what it cost them. We think that it would be reasonable to say that the planning function w'hich would start with the curios- ity of a group, a number of physicians in an area, their curiosity about group practice, they are not really interested in it yet, they are just curious enough to talk about it to the point of generating enough in- centive in the group to carry them over obstacles and get them set up as a legal organization to where they can function as a group, can be done with $20,000 in finding out what their objectives are, what their incentives are, where compromises are possible, setting up a legal organization to help them meet their objectives and getting them all ready to go. Now, they don't have any building yet but they have standard op- erating procedures, bypass, a legal organization; everything it takes to start practice. When you go from that step to the acquisition of property and a building, the question becomes whether you want to support them as a Government function or whether you want to pat them on the back and say, "Go; buy." Mr. ROGERS. That is always preferable. Dr. WURZEL. Doctors can do it. They have that kind of credit if they want. But there you are going to get a difference of opinion, too. Around this table, some of my colleagues will say you have to help them. Others will say it would be better to have them do it themselves. But let us see what it can cost. 14t uS take an 9rdinary group of 20 or 30 physicians. Say you want t~o give them a building of 30,000 square feet. It will cost something between $30 and $40 a square foot. Let us round it off at a million dollars for construction. How much property they buy, what that costs, will depend on where it us. Let us say a quarter o1~ a million dollars is a reaspn~ible fee for PAGENO="0368" 1110 a piece of average property. And then the costs that are necessary to get them rolling and started and so on may be another quarter million. We are looking at something like $1.5 million to bring into being a group practice that will be capable of going the HMO route or at least providing the benefits of group practice. The only money that is not easily available to those doctors is that first consultation money to get them started, because they have not identified themselves yet. They have no organization to do it. This is a small amount of money, $20,000. Mr. ROGERS. Thank you. Dr. BUOHERT. You mentioned adverse selection. I think there is adverse selection with the dual choice which we support. Even in taking in groups, going into an industry and giving the people in industry, the employees, a dual choice of keeping what they have or going into the HMO and paying the difference between what the company is paying for their medical care or health care and what the HMO will provide, certainly you are going to get those people who have had unfavorable experience with medical bills or who have large families or who have children who may be allergic or who may have this or that medical problem. Also, you asked about the interest of group practice in converting part of their activities into an HMO. As I travel about the country visiting groups. I see a great deal of cautious interest. They are waiting on the sidelines to see what data will come out of the seven groups that are now being organized under the HEW project with the AAMC to test the HMO. I think if the results are favorable, as we have reason to believe, you will see a very increased interest in group practice organizations in devoting part of their facilities and part of their services to the HMO concept. Mr. ROGERS. Is there anyone else you would like to have make a statement? Dr. BUCHERT. Not on this, but I would like to have Dr. Hoffman make a statement on our accreditation program. Mr. ROGERS. Certainly. STATEMENT OP DR. WILLIAM W. H0~TMAN Dr. HOFFMAN. Do I have 4 or 5 minutes? Mr. Rooi~es. Certainly. Dr. HOFFMAN. What I would like to do, is to introduce the com- mittee to the American Association of Medical Clinics' concept of qual- ity review and quality assessment in medical care. As Dr. Buchert indicated, the history of the Association of Amer- ican Clinics early demonstrated an interest in assuring that high qual- ity professional care is provided by its member clinics to their com- munities. Early after the founding of this organization in 1949, the constitu- tion was amended to indicate that periodically the organization is to evaluate the conduct, the performance and quality of medical prac- tice of member clinics in order to certify and accredit them as quali- fied, comprehensive medical care and diagnostic centers. To implement this purpose, a subcommittee of the Professional Standards Committee was assigned the task of studying all of the PAGENO="0369" 1111 phases of the problem involved in the accreditation process and sug- gesting a method of instituting such a program in the organization. In this particular study, not only was the design considered but also a body under whose direction it should be conducted. After due deliberation early in 1966 and 1967, a decision was reached to organize an accreditation program under the auspices of the as- sociation. Two concepts that affected this decision were the fact that self -evaluaion is indeed a time-honored obligation of the medical pro- fession and the conviction that the unique reservoir of expertise in a group practice that is represented by the association should certainly be utilized. A protocol was developed which represents the combined efforts of many individuals and institutions, some of whom are at this very table. It was tested, modified, and improved and its applicability has been determined now by almost 2 years of usage and it is being veri- fied by experience. According to these principles, a commission on accreditation, of which I am the chairman, was established by the board of trustees and hereafter we will refer to it as the commission. The segments of the medical community that are represented by our members are characterized by great individuality and freedom from uniformity in all but the goal of high-quality medical care. To institute an accreditation program for such a diverse member- ship required certain fundamental accreditation standards which are precise but flexible. The standards are set forth in a manual which I believe is included in the material which you have. These standards are broadly qualifying, fundamental concepts which are further amplified by posing specific questions to the exam- ining teams, designed to facilitate the measuring of the degree to which the standards as they are described are being fulfilled in the individual group. Thus, each section of the protocol for accreditation begins with a general principle and then proceeds through specific questions to a final evaluation. A final checklist summary serves as a permanent objective record of each individual surveyed and makes a permanent record of the deliberations and judgments of the survey team. Our inspection or our accreditation evaluation procedure is divided into a number of area interest headings which carry a very interesting acronym called secrets of. It is used by assigning a performance value for each letter in the acronym and thus providing a descriptive profile which we call secrets of profile. When a task force is assigned to inspect a clinic for accreditation and make its report, its deliberations are always determined by, one, the medical setting of the individual group, its geography and the demo- graphic factors that enter into its practice of medicine and, second, by the goals, aspirations, and accomplishments that the particular group does feel pertain to its operation. These are the lenses through which each clinic is subject to peer scrutiny. This is, indeed, a peer evaluation. The evaluation of quality medical care in this protocol is inextricably intertwined with all the elements of the group's activity. The final evaluation, as well as the fiuial de- 81-185 0 - 72 - pt. 3 - 24 PAGENO="0370" 1112 scription considers all the elements of the profile so that both the group effectiveness and the cost effectiveness of each individual group can be determined and evaluated. More direct evaluation starts with the premise that high quality medical care requires good physicians and in the profile the staff is actually evaluated by reviewing biographies of the physicians, their educational backgrounds, their training and other activities. Also in the same context, because you can't evaluate only the men but must also consider the means by which the men are recruited, we do review recruiting methods. The methods of auditing the physi- cians' work, peer review evaluation programs that apply in the indi- vidual situation, are reviewed and considered. The medical record is important. The medical record is minutely evaluated and is, indeed, one of the most important considerations in evaluating the quality of medical care because in the medical record the physician actually does leave the impression of the quality of care he is rendering to people. I will omit many of the details which are in the protocol which has been provided to the committee. Mr. ROGERS. If you will put that in the record for us, that will be fine. (See "Accreditation Program of the American Association of Medi- cal Clinics," p. 1069, this hearing.) Dr. HOFFMAN. The details you have. Mr. ROGERS. Maybe they are here. Dr. HOFFMAN. They are. Before the commission or a survey team of peer physicians reaches a final evaluation of the quality of clinical care being rendered by a group, the manner in which other elements of the profile are applied does have to be examined. The question always arises about this need to evaluate the organization of a particular group. Some people find that this is difficult to comprehend. Mr. ROGERS. Excuse me. I hate to interrupt but they give us a time element. We have to be over there and answer within 5 minutes now, or 6 minutes. I am sorry. May we interrupt you again? Dr. HOFFMAN. Yes. Mr. ROGERS. This is a difficult day, so try to bear with us. (A brief recess was taken.) Mr. ROGERS. The subcommittee will come to order again, please. Dr. Hoffman, I believe you were in the midst of your statement. Dr. HOFFMAN. Yes. We are running well past your time so I will condense this still more. We do want to emphasize that this is indeed a broad-based, peer re- view and it judges the quality of the organization under whose aegis medicine is being practiced. There is no physical organization so good that it can make bad physicians work well. Therefore, part of our review program does include an evaluation of the physical and legal structure under which the particular organiza- tion subjecting itself to our review and accreditation survey does practice. This is, peer review. It is viable; it has proven itself over the last 21/2 years now. It is a peer review and accreditation procedure that PAGENO="0371" 1113 certifies, when the clinic has met the qualifications and expectations to a high quality of comprehensive medical care with cost effectiveness, because this is also evaluated. It is high quality medical care practiced with cost effectiveness in a group practice environment providing ready availability of medi- cal care through the group at a fair cost to the patient and a fair compensation to the physicians without any evidence of exploitation, fear of overutilization, or making unnecessary or excessive charges. In our program, each of the clinics undergoing accreditation survey is visited by a team consisting of four to five men. One of these is a business manager who concerns himself with the business aspect of the organization. Here I think, indeed, the economics of organization are closely scrutinized. Also, there are surgically-oriented and medically-oriented physi- cians. These review the quality of medical care and the facilities and also the procedures that are currently being used. They make them- selves acquainted with the medical record which indicates the kind of medical practice being rendered by the organization. A staff man from the association goes along with the team in order to provide a certain continuity between all of these and the associa- tion. Peer review is essentially an educational process and the asso- ciation is the repository of our facts and experiences. The institution undergoing review learns, we learn, and our accre- ditation commission learns. It keeps us current. The task force has a dual function, first to look at the clinic and, finally, to certify or to deny certification as to the competence and the fiscal management of their medical practice. Finally, it does make a quality judgment on the basis of a high level of expectation. The high level of expectation is what our norm actually is. The final report is turned in as a check list. Considered are the sup- plementary and preliminary documentation of a particular group. These have to be found adequate and fair. The clinical aspects of the group's practice are examined; the medical records are reviewed. The physicians, the recruitment procedures, the background of the phy- sicians, the hospitals in which they practice, are minutely examined. The efforts in furthering medical examination both within the group and their efforts to further medical examination within their com- munity and outside the group are examined and commented upon. The research activities, when appropriate in any particular group are examined and the dedication to research is evaluated. The technologic support given to the physicians in the group, ~s examined by qualified peers and commented on. It includes all the ancillary services that are offered. Finally, theY total organization is considered by the physicians and by the business managers of the survey team and, ultimately, a value judgment is made regarding the quality of medicine that the group is practicing. Mr. ROGERS. Thank you. Is there anyone else now that you would like to comment? Dr. BUCHERT. No, sir, Mr. Chairman. We will try to answer any questions you have. Mr. RoGERS. Dr. Baehr, is your group doing any HMO work? PAGENO="0372" 1114 Dr. BAEIIR. We have been starting on one of these pilot projects. We have run into some legal problems at the State level because of con- flicts with the insurance commissioner and a certain amount of reluc- tance of our man to antagonize the medical community. But we have been expending considerable hours the last 2 years, actually. Mr. ROGERS. Thank you. Dr. Vorlicky, how about your group? You have 17 doctors. STATEMENT OP DR. LORER N. VORLICKY Dr. VORLICKY. Yes, sir. We have also been working about 2 years. Our progress has taken us to the point where we feel we will 1e able to get a small project under way by late summer. Mr. ROGERS. An HMO? Dr. VORLICKY. Yes, sir. Mr. ROGERS. Because you already have your group practice in being, I presume. Dr. VORLICKY. Yes, sir. Our group has been together about 20 years and has grown to its present size. Mr. ROGERS. How long have you been with it? Dr. VORLICKY. Five years. Mr. ROGERS. Are you pleased with the group practice? Dr. VORLICKY. Yes. I might comment on a question that you asked, Mr. Chairman, re- garding the kind of medical base that provides the raw material to get whatever an HMO is and I think Dr. Wurzel indicated that those prac- ticing groups practicing naturally would have a biased feeling that that gives us the kind of flexibility and organizational strength to do this. I think that it is fair to say that the spectrum of health care needs is best satisfied to the extent that medical care is organized, organized immediately. So, we feel, I think, that the group practice lends itself to this kind of organization because, for reasons you have already heard, the auto- matic input that goes on with group practice in terms of peer review and evaluation of service utilization, et cetera, is built into the concept of group practice. I think that the foundation thing-I didn't want to speak to that except to say it has been my experience in going around our region and talking about HMO's or helping people understand what that might be, that there are areas where physicians can only organize at certain levels. The area I have in mind that we visited a year or so ago is in Colo- rado, ,Junction City, where there are something like 40 or 50 doctors. I think here in that particular instance group practice wasn't a feasible approach because of the transition that medicine had taken. I guess what I am saying in a roundabout fashion is that, to the extent that medicine can be organized at a level that provides improved health care, and we think group practice provides the ideal base, then the transition from that into an improved health maintenance concept is feasible. PAGENO="0373" 1115 Mr. ROGERS. Then what you are telling us is that group practice does bring about better quality of care? Dr. VORLICRY. I think so. I have to admit a bias, but I think that is true. Mr. ROGERS. Dr. Smith, you have been at this some time. STATEMENT OP DR. FREDERICK G. SMITH Dr. SMITH. Mr. Rogers, we have been working on it about 9 months with the AAMC. We are 26 men. We have a small hospital affiliation; 124 beds. So, we think we are rather nicely situated to do a pilot study. We look on it in that way. This is only an experiment, an experiment by which we can compare two methods of health care delivery, the regular fee-for-service and the new method. We feel we can do this economically. We are getting pretty close to having an operational plan just with the help that AAMC has given us. We have put quite a bit of money and quite a bit of time on it. I can't say it has not cost us anything; it has cost quite a few dollars, but not a large amount. We look on this whole program at this stage as being an experiment in a new method of health care delivery. That is how our whole group looks on it. I am not speaking for AAMC. I am just talking about how we, ourselves, feel. This is something we want to look at, we want to study. The coolness in the group in the beginning is beginning to warm up more all the time. Men are beginning to orient themselves a little more toward preventive health care and trying to think of just what they would do to educate their patient clientele. So, they are beginning to look at that aspect of it. They are not all fully oriented that way yet but I can see, as I go into discussions with them, more and more of this attribute appearing. I think that is good. I don't think all of these HMO's are going to be alike. I hope they are not, because `if they were all alike, they might all be wrong. If there is a pluralistic type of approach to it, some of them are going to be a lot nearer right than others and we are going to be able to follow those leaders very quickly. Mr. ROGERS. In other words, it is better for us in the legislation not to be too specific in the definition? Dr. SMITH. It should not be restricted to the point, defined to the point, where we can't really improvise and innovate. Dr. HOFFMAN. In speaking of restrictive clauses or elements in the legislation, there is a great deal of discussion now regarding the PSRO in the HMO and I understand currently some of them at least are going to limit or make this a local medical society function. Certainly I think that a peer review, the functioning and viable peer review system or body, organism, such as we have, might well be permitted to function within a national body such as the AAMC. Mr. ROGERS. The accrediting body? Dr. HOFFMAN. Yes; that is right. Mr. ROGERS. I think that is a good idea. Dr. Trover, how about your experience? PAGENO="0374" 1116 STATEMENT OP DR. LOMAN C. TROV~R Dr. TROVER. If I can give a little background about the type repre- sentation that I have. I am in a relatively small town in rural western Kentucky, pre- dominantly coal mining and agriculture, and now some industry is beginning to come into the area. As late as 20 years ago, it would have been listed as truly an underserved area, certainly medically speaking. Through the years, we have managed to bring professional people of all types into the area so that we now have a professional group of some 53 physicians with all of the other personnel that are needed along with it, and are able at the present time to give reasonable care to these people. Now, I think one of the greatest difficulties that is facing this coun- try today, certainly rural America, is in the distribution of physicians and getting physicians into the areas that are underserved. I think this could be an unqualified statement. Towns in our area of 2,000, 3,000 people, that used to have a physi- sian, no longer have new physicians coming in and taking up the slack. So, there is a definite need for some type of formal organizational structure. Now, as I see the HMO, to a certain extent you are talking organiza- tion. Now, the organization of physicians can bring some relief to the maldistribution of which I am speaking. Now, with the HMO not only are we looking for health care delivery but we must have along with it the educational facilities that allow all of these entities to be formed, preferably within the geographic area in which they serve. I am talking about allied health professionals, even to the point of the rotation of medical schools maybe dental schools into the area, of your interns, residents, and so forth. If we are to create areas in which we have adequate personnel, I think this type of plan must come about. I think that the HMO is a part of the picture. For 3 years, we have taken a segment of people of some 8,000. We have run a prepaid experiment with these people in which we have tried to give as comprehensive a medical care as we are able to do, including certainly the physician, the hospital; we have extended-care facilities; we have a health agency, this type of thing. So the care is fairly comprehensive for these people. Now, these are a segment of laborers that we were able to experi- ment with. We have been putting together some facts and figures along this line. Now we feel that we are about ready to move to the broader seg- ment of the population. Mr. ROGERS. Excellent. It might be helpful if each of you could, if it is not too difficult, let us have an estimate of what your cost may be for moving in an HMO. You are going to give us some general figures, I think. If any of you have figures for the record, please give them to us. We don't care for the exact figures, but a range of figures. Are there any questions? Mr. Roy. How many HMO's may we expect to be formed by the 270 group practices that make up the American Association of Medical Clinics? PAGENO="0375" 1117 Dr. WURZEL. In what timeframe? Mr. Roy. This year and the balance of the decade, 1980. Dr. WTJRZEL. This year, I think we will deliver seven. I think, depending on the nature of the legislation and the experi- ence of this seven, we may be able to deliver 25 or 30 next year. You are almost asking me to play a hand before it has been dealt. Dr. BUCHERT. I have found a great deal of interest in group practice organizations in the HMO concept but they are waiting to see how this pilot study turns out. Mr. Roy. Why is there this interest 2 Dr. BUCHERT. I think the doctors in group practice are interested in improving the health delivery system. Mr. Roy. Dr. Wurzel, you said there are differences between pre- paid group practice and HMO. Would you define an HMO as you think perhaps we should define it in the legislation? Dr. WURZEL. Yes, sir. We submitted a definition in our testimony. The critical thing is, you know, that business about finding the incentive and the reward for adding these other elements. It sounds small but, to me, it is critical. Mr. Roy. Dr. Hoffman, what are the remedies as far as accreditation is concerned? If you find somebody does not measure up, what do you do about it? Dr. HOFFMAN. Right now, as I indicated, our accreditation program is not punitive. It is a voluntary program within the organization. We don't "kick" them out, as it were. They don't get a certificate. If accreditation is deferred, they are given a period of time in which to make up whatever deficiencies we found. I think if they are true physicians and gentlemen, and we find some- thing is wrong with their operation or the quality of medicine prac- ticed they will want to correct it. Mr. Roy. With regard to hospital beds, are any of the fee-for-service groups who are going to prepaid groups now looking at ownership of the hospitals and beds? Dr. WURZEL. Two of them now have hospitals. Dr. BUCHERT. We have a hospital. Dr. SMITH. We do not own the hospital. The hospital is owned by the foundation; the foundation actually owns the clinic building. The hospital has an open staff so that other physicians can practice in the hospital. Dr. WURZEL. We think we have found in this accreditation program and other things a clinic that owns its own hospital is a step better than one who doesn't. It is a good thing to do. Mr. Roy. One last question. I have heard two suggestions today, one for the support of the group practice; the second suggestion I heard today was the sug- gestion that as fee-for-service groups go to prepayment, they might separate off an HMO department and actually measure that which they are doing. There are several reasons that this gentleman said this. One reason was that you very well may find that you are ordering more laboratory PAGENO="0376" 1118 and more x-ray services and so forth on your fee-for-service basis than you are on your HMO basis. Some will say that with 10 percent HMO patients and 90 percent fee-for-service patients that you are going to maximize your fee-for- service; this variable will work against the HMO patients. There is also the thought that 10 percent HMO patients might change the physicians' habits so that they do not overutilize if, indeed, they have been. This would be perhaps beyond expection. It would be sort of the HMO tail wagging the fee-for-service dog. Dr. Baehr was talking about primary care and the fact that many of these clinics are in a sense referral clinics and that the primary care departments are not well-developed and the HMO patient may be in need of a larger primary care department. All these items are considerations which would suggest a health maintenance organization department. Dr. BUCHERT. We are developing with our HMO which will be marketed this week and which will become operational July 1, a pri- mary care unit which will be staffed, part of it, by family physicians, and, because we don't have enough family physicians, another part of it by internists and pediatricians; so we will be able to have some statistical data as to the ability of the internists, general internists, and pediatricians, to deliver primary care compared to the family physician. One of the reasons why we are particularly interested in testing this lIMO concept is that we are getting the same statistical data from our fee-for-service patients as we are getting from our lIMO patients, so that we can compare fee-for-service data and lIMO data on patients from the same geographical area treated in the same group. I think this will give us statistics that will be comparable. Mr. Roy. We have about 6 minutes. Dr. Carter may have some questions. Mr. ROGERS. Dr. Carter. Mr. CARTER. Thank you, Mr. Chairman. What do you thing it would cost with the facilities you have, Dr. Trover, to establish an lIMO? Dr. TROVER. Actually, our cost at the present time would be rather minimal because we have already gone a long way toward it. If we were to count during the past 3 years all of the physicians' time and effort that has gone into it, then there would be some cost. Now, as to actual dollar cost, there would be some involved, with the legal expenses and this sort of thing, but it would be a relatively minimal cost. Mr. CARTER. Would you need Federal funding for that? Dr. T1~ovER. I think it could be done without Federal funding, be- yond a doubt. Mr. CARTER. Do you think it should be done without Federal funding? Dr. `VROVER. I think it could be done without Federal funding. Possibly for the actual developmeiit, the immediate development cost of the HMO in a minimal manner, it might be all right. I would much prefer that any substantial Federal dollars that went into any of this would go to support in some manner the person that obsolutely could not pay for his care. PAGENO="0377" 1119 Mr. CARTER. Now, on your board, the facility which you have, how many consumers do you have? Dr. BUCHERT. For the medical center we have a board of directors who are all nonmedical people but we have established with the HMO an advisory board which will have a majority of consumers. Mr. CARTER. Do they have power of direction of your clinic? Dr. BUCHERT. Of the liMO? Mr. CARTER. Yes. Dr. BUCHERT. No; they are advisers. Mr. CARTER. You don't think you want them in positions of directing your HMO? Dr. BUCHERT. No; I don't think so. Mr. CARTER. Thank you. Mr. ROGERS. Gentlemen, you have been most kind with the commit- tee being here and letting us impose on you and your valuable time. We are very grateful to you. It has been most helpful. We will probably be asking you some more questions before we write legislation. Dr. BUCHERT. Thank you, Mr. Rogers, and your committee for the privilege of appearing before you. Mr. ROGERS. The committee stands adjourned subject to the call of the Chair. (Whereupon, at 3:30 p.m., the subcommittee adjourned, subject to the call of the Chair.) PAGENO="0378" PAGENO="0379" HEALTH MAINTENANCE ORGANIZATIONS TUESDAY, MAY 16, 1972 HOuSE 01? IREPRESENTATIVES, SUBCOMMITTEE ON PuBLIC HEALTH AND ENVIRONMENT, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice in room 2322, Rayburn House Office Building, Hon. Paul G. Rogers (chairman) presiding. Mr. ROGERS. The subcommittee will come. to order. We are continuing our hearings on health maintenance organiza- tions. We have as our first witness a distinguished citizen who is a good friend of one of our colleagues, who has been greatly interested in the health field and has certainly been active in his support of health measures. It is a pleasure for me as chairman of the committee now to welcome and recognize the Honorable Charles Whalen, a Member of Congress from Ohio. We are delighted to have you here, and we will be pleased to have you introduce our first witness. STATEMENT OP HON. CHARLES W. WHALEN, JR., A REPRESENTA- TIVE IN CONGRESS PROM THE STATE OP OHIO Mr. WHALEN. Mr. Chairman and members of the subcommittee, it is my pleasure to introduce Dr. Richard L. Hopping, a practicing optometrist from Dayton, Ohio, which is located in my congressional district. I have been privileged to know Dr. Hopping for many years and had the pleasure of serving with him on many community proj- ects in the Dayton area. Dr. Hopping is the president of the American Optometric Associa- tion, an office he has held for almost a year. During his administration the profession of optometry has been able to deliver its services to even more persons who are in need of vision care. Some of this increase in services is the result of the wisdom of this committee and other com- mittees of the Congress which have addressed optometric care in a number of governmental programs. Soon the services of optometrists will be rendered more fully under the Vocational Rehabilitation Act and medicaid and eventually medi- care as a result of amendments now in process. Dr. Hopping is before us today to deliver his association's statement on health maintenance organizations. Dr. Hopping has already spoken eloquently to this health care issue most recently before the Southern Council of Optometrists, Educational Public Affairs Forum. This (1121) PAGENO="0380" 1122 thorough explanation of HMO's can be found in the May issue of his association's professional journal. Dr. Hopping is an articulate representative of his profession. I am certain that his statement today will be very informative, and you will give his remarks careful consideration during subsequent delibera- tions on the important issues of HMO's and others. Gentlemen, it gives me a great de~tl of pleasure to present the leader of the third largest independent health care organization, Dr. Richard L. Hopping, president of the American Optometric Association. Mr. ROGERS. Thank you very much. Mr. WHALEN. Thank you for giving me this privilege of intro- ducing Dr. Hopping, Mr. Chairman. Mr. ROGERS. Dr. Hopping, we welcome you to the committee, and we will be pleased to receive your statement. If you desire, it shall be made a part of the record without objection, and we will be pleased to have your comments. STATEMENT OP DR. RICHARD L. HOPPING, PRESIDENT, AMERICAN OPTOMETRIC ASSOCIATION; ACCOMPANIED BY RICHARD W. AVERILL, WASHINGTON OFFICE DIRECTOR; AND DONALD P. LAVANTY, DIRECTOR, NATIONAL AFFAIRS DIVISION Dr. HOPPING. I thank Congressman Whalen. I am truly honored by his comments in the introduction and by you, Mr. Chairman and dis- tinguished members of the subcommittee. With me today on my left is Richard Averill, director of the Ameri- can Optometric Association, Washington office. On my right is Donald Lavanty, director, National Affairs Division, AOA. In order to conserve the committee's time, we are submitting our proposed testimony for the record, and I would like to highlight the major portions thereof. The American Optometric Association is a 75-year-old federation of 51 nonprofit optometric societies chartered in all 50 States and the District of Columbia. Total membership is at an alitime high of over 17,000. Optometrists render 70 percent of this Nation's vision care in over 6,000 U.S. municipalities of all sizes~ They only provide for vision care in 2,500 communities. Today, I have the privilege of speaking in behalf of our members on a concept which is gaining ever wider acceptance among both provid- ers and consumers of health care: Health Maintenance Organizations, or more briefly, HMO's. HEALTH MAINTENANOE ORGANIZATIONS It is our understanding that an HMO is an organization which oper- ates or manages an organized health services delivery system on a pre- paid, capitation basis for enrolled population groups, designed to pro- vide comprehensive health care economically and efficiently. The emphasis in this arrangement is the provision of preventive or health maintenance care, which hopefully will preclude more physically and financially costly castrophic or long-term care. In short, HMO mem- bers pay to be kept well in addition to being treated when they are ill. PAGENO="0381" 1123 AMERICAN OPTOMETRIC ASSOCIATION POSITION ON liMO'S 1. The lIMO is one of several existing modes of health service de- livery systems. Others include solo practitioners, single-specialty and multispecialty group practices, all of which may be paid on a fee-for- service basis. Free or low-cost health care is provided through neigh- borhood health centers supported by the Government. Experience has shown that local health problems need local solutions. So, the Ameri- can Optometric Association feels that, insofar as possible, all desirable elements in the existing health care system which have served patients' needs well should be retained in any attempt to reorganize the system. 2. Recognizing, however, the advantages and the attractiveness of centralized, coordinated health care delivery (e.g., pooling of resources, one patient record, et cetera) which is conducive to comprehensive health services, the American Optometric Association believes that the optometrist must remain a primary entry point into the health system, thereby guaranteeing comprehensive vision care. 3. The availability of optometric vision care to lIMO members can only be guaranteed if this needed services is clearly specified in the language of the law. The American Optometric Association considers it imperative that, in the best interest of the American public, opto- metric vision care be included in the list of basic, comprehensive services. 4. lIMO's should be financially sound and fiscally responsible, so that they are equitably and adequately supported and able to render continuous health care. 5. lIMO's should mandate true peer review boards, so that the serv- ices provided by practitioners in lIMO's are judged by professionals from the same discipline. 6. lIMO's should provide for the highest standards of care; and the services provided by IJIMO's should be at least equal in scope and qual- ity to those now being provided by other Government-financed pro- grams. 7. lIMO's should require providers to participate in programs of continuing education, to insure that quality, updated care is being provided at all times by skilled professionals. For consumers, a broad- based health education program should be operative to explain the advantages of preventive care. 8. lIMO membership insofar as possible should reflect a socioeco- nomic balance to produce equitable subscription costs and to make third-party underwriting feasible. 9. lIMO's should be administered by professionals with education and experience in health care administration, thereby freeing the health care provider to render his services directly to the lIMO sub- scriber. OPTOMETRIC VISION CARE IN HMO'S Need Visual problems are endemic in American society. Nearly all per- sons aged 65 and over suffer from some form of faulty vision. In the employable age group, 17-64 years old, approximately 60 percent have a vision problem in need of correction. Of those individuals under 20 PAGENO="0382" 1124 years of age, almost 25 percent have a visual disorder. In fact, over half of all noninstitutionalized persons over age 3 have some problem with their vision. Services With regard to these age groups we are proud to report that the preventive nature of optometric services have considerably improved the leisure time of elderly persons, the productivity and safety of our workers, and the learning of our children, through visual analysis and therapy and by prescribing and providing ophthalmic devices, including contact lenses or other special optical aids, for which the optometrist is especially educated. Qualifications Optometrists are duly qualified to render vision care as a result of their 6-year education, their participation in continuing education programs, their sense of cooperation while working with other health professionals, and their ability to conduct peer review of their services. OPTOMETRY'S INVOLVEMENT IN HMO'S We are proud to report that optometry is an active participant in over 100 HMO-like health care groups, with many more such orga- nizations intending to include optometric vision care in their programs in the near future, as a result of a recent survey which we just made. Optometric vision care is being rendered to members of many of the more well-known and better established HMO's in the country, such as the Kaiser-Permanente Plan, the Group Health Cooperative of Puget Sound, the Health Insurance Plan of New York, and the Group Health Association of Washington, D.C. With regard to services, of- ficials from GIIA report that of the half million patients seen in 1970, 45,000 (9 percent) were attended by optometrists. OPTOMETRIC PARTICIPATION IN FEDERAL PROGRAMS The Congress has recognized optometry's record of performance and contribution to the American public visual welfare by specific inclusion in a number of Government health care programs. These include titles II, V, X, XVI, and XIX of the Social Security Act; the Health Professions Educational Assistance Act; the Allied Health Professions Personnel Training Act; the group practice facilities section of the Federal Housing Act; and the 1968 amendments to the Vocational Rehabilitation Act. The profession of optometry-recog- nized as the third largest, independently prescribing health profes- sion-is and has been ready, willing, and able to minister to the vision care needs of this country. Based upon the performance and involvement of optometry and its practitioners in these Federal programs, optometric services must be. made a part of any HMO legislation which evolves. The Department of Health, Education, and Welfare, which has made broad guidelines for HMO's, again demonstrated awareness of the need for services of optometrists in its recent definition of the PAGENO="0383" 1125 term "medical group," which appeared in the Federal Register con- cerning the health group aspects, implertienting it as follows: (2) The term "medical group" iheans a pal,tithrship or other association or group of persons who are licensed to practice medicine in a state (or such persons and persons licensed to practice dentistry or optometry) who (1) as their principal professional activity and as a group responsibility engage in the coordinated practice of their profession primarily in one or more group practice facilities. PENDISG LEGIST~ATION-H.R. 11728 The concepts of the preamble ~if }LR. 11728 introduced suggest that HMO legislation will: 1. Relieve the shortage and maldistribution of health care resources; 2. Overcome the unorganized delivery of services in the present health care system; and 3. Encourage an emphasis on preventive health care services, while retaining the orientation of providing care for those manifesting disease. Yet the bill does not include in its basic "comprehensive health services" any provisions for one of the most-needed preventive serv- ices, vision care; nor does it attempt to correct the maldistribution problem or improve the efficiency of health care delivery by utilizing all members of the health care team. The HMO concept envisioned in H.R. 11728 certainly has consid- erable merit and will aid in the delivery of health care; nonetheless, ~it perpetuates and compounds the shortages and maldistribution by unintentionally locking in the medical practitioners and locking out other health care providers, like optometrists, who presently have as one of their main strengths its manpower distribution system. We agree that an HMO should be competitive, allowing each local group of practitioners to strive for inclusion. However, it is also a clearly established fact in the vision care field that, if not specifically provided, only those members of the medical profession rendering vision care will be able to participate in an HMO. An example from this country's Northwest services to illustrate the point. It was related to us by Dr. P. B. Hanford, an optometrist from Tacoma, Wash., who recalls that 2 years ago he asked an official of a well-known HMO in Oregon if optometrists would be permitted to provide vision care when the HMO expanded its services to cover this care. Assured that they would, nonetheless Dr. Hanford recently was in the audience for a presentation by the same HMO official en- titled ironically "Closing the Ring." In this speech, it was reported that vision care was offered when provided by a participating phy- sician only. So regardless of what was said in theory, optometrists were, in fact, unable to participate in this expanded HMO program. This experience has prompted a recommendation that: ~ * * the Federal Government must control the participation in (HMO) con- tracts so that every health care practitioner licensed to do the service and willing to accept the capitation payment agreed to in advance must be given an equal opportunity to participate in an HMO." The American Optometric Association strongly urges sponsors of Federal health care legislation such as H.R. 11728 to consider the fact that their well-meaning goals may result in a denial to the PAGENO="0384" 1126 American public of their freedom of thoices of health care prac- titioners when physicians' services are defined to mean only those provided by medical practitioners. RECOMMENDATIbNS In order to aid the Congress in obtaining total comprehensive health care for the American public, to protect the public's right to choose its qualified and licensed practitioners, and to utilize all primary health care practitioners at their highest levels of skills, the American Optometric Association recommends the following amendments to H.R. 11728: 1. That under the term "comprehensive health care services" and in the term "preventive health services," we suggest that the term "including vision care services" be added. We recommend this amend- ment because in the section-by-section analysis of the legislation, the term "preventive health services" means services which "maintain the person's mental and physical well-being." However, unless speci- fied, vision care will not be considered as a primary health need. Therefore~ we suggest the addition of the phrase "including vision care services." 2. That the section dealing with "physicians' services" be amended to read: "(including consultant, referral, and optometric services where such comprehensive health services include under physician services those functions which an optometrist is licensed by the State to provide) ." 3. That the term "medical group" be amended to read: "The term `medical group' means a partnership or other association or group of persons who are licensed to practice medicine,\osteopathy, dentistry, or optometry in a State * * The purpose of this amendment is to insure the practitioner's right to be included in the group. I must reiterate, unless provided for, optometrists will not be able to participate, and this has been borne out in those health care programs where no specific provision is made for optometric participation. CONCLUSION In conclusion, I refer to the assessment of John W. Cashman~ former director of HEW's community health services, who recommended that the optometrist's office be a primary entry point into any health care system, and who also stated: For the simple reason that they (optometrists) examine more people's eyes every day than any other group of trained observers in the country, the optome- trists are ideally suited to serve as the nation's early warning system in the continental defense of good vision. Both in his own office, in the normal course of his work, and as a member of .a health team working in a hospital or other institutional setting, the optometrist can place the people of this country ever- lastingly in his debt by maximizing his contribution to the prevention of eye- sight problems. Gentlemen, I thank you for the opportunity to speak on behalf of the American Optometric Association. At this time if you have any questions, Mr. Averill, Mr. Lavanty and I will be glad to try to answer them. (Testimony resumes on p. 1131.) (Dr. Hopping's prepared statement follows:) PAGENO="0385" 1127 STATEMENT OF RICHARD L. HOPPING, O.D., PRESIDENT, AMERICAN OPTOMETRIC ASSOCIATION Chairman Rogers and distinguished members of the committee; I am Dr. Richard L. Hopping, a practicing optometrist from' Dayton, Ohio, and presidept of the American Optometric Association. With me today are Richard W. Averill, director of the American Optometric Association, Washington office; and Donald F. Lavanty, director of Federal relations. The American Optometric Association is a 75-year-old federation o'f 51 non- profit optometric societies chartered in all 50 States and the District of Columbia. Total membership is at an all-time high of over 17,000. Optometrists render 70% of this Nation's vision care in over 6,000 U.S. municipalities of all sizes. Today I have the privilege of speaking in behalf of our members on a concept which is gaining ever wider acceptance among both providers and consumers of health care: Health Maintenance Organizations, or more briefly, HMO's. HEALTH MAINTENANCE ORGANIZATIONS It is our understanding that an HMO is an organization which operates or manages an organized health-services delivery system on a prepaid, capitation basis for enrolled population groups, designed to provide comprehensive health care economically and efficiently. The accent in this arrangement is the provi- sion of preventive or health maintenance care, which hopefully will preclude more physically and financially costly catastrophic or long term cam. In short, HMO members are to be kept well, as well as treated when they are ill. The emergence of HMOs is a product of at least three factors: 1) the need for a vehicle than can respond to all the various dimensions of health-care delivery including organization, financing, manpower, and prevention; 2) the need for an integrated organization system with strong linkages between general practi- tioners, specialists, hospitals, clinics, laboratory and extended care facilities; and, 3) the need for built-in incentives for controlling costs, with emphasis' on the efficient use of resources and the desire to have the industry regulate itself. Perhaps Doctor James Cavanaugh, former HEW Deputy Assistant Secretary for Health and Scientific Affairs, underscored the basic advabtages of HMOs: "HMOs reward efficiency whereas the current system all too frequently rewards excessiveness. While fee for services providers rely on illness for their livelihood, HMO providers gain most from health." AMERICAN OPTOMETRIC ASSOCIATION POSITION ON lIMO'S 1. The HMO is one of several existing modes of health service delivery systems. Others include solo practitioners, single-specialty, and multi-specialty group practices, all of which may be paid for on a fee for-service `basis. Free or low cost health care is provided through neighborhood health centers supported by the Government. Experience has shown that local health problems need local solu- tions. So, the American Optometric Association feels that, insofar as possible, all desirable elements in the existing health-care system which have served patients' needs well should be retained in any attempts to reorganize the system. 2. Recognizing, however, the advantages and the attractiveness of centralized, coordinated health ~care delivery (e.g., pooling of resources, one patient record, etc.) which is conducive to comprehensive health services, the American Opto- metric Association believes that the optometrist must be a primary entry point into the health system, thereby guaranteeing comprehensive vision care. 3. The availability of optometric vision care to HMO members can only be guaranteed `if this needed service is clearly specified in the language of the law. The American Optometric Association considers it imperative that optometric vision care be included in the list of basic, comprehensive services. 4. HMOs should be financially sound and fiscally responsible, so that they are equitably and adequately supported and able to render continuous health care'. 5. HMOs should provide for the highest standards of care; and, the services provided by HMOs should be at least equal in scope and quality to those now `being provided by other government financed programs. 6. HMOs should mandate true peer review boards, so that the services provided by practitioners in HMOs are judged by professionals from the same discipline. 7. HMOs should require providers to participate in programs of continuing education, to ensure that quality, up-dated care is being provided at all times by skilled professionals. For consumers, a broad-based health education program should be operative to explain the advantages of preventive care. 81-185 0 - 12 - pt. 3 - 25 PAGENO="0386" 1128 8. HMO membership insofar as possible should reflect a socio-economic balance to produce equitable subscription costs and to make third party underwriting feasible. 9. HMO5 should be administered by professionals with education and experi- ence in health-care administration, thereby freeing the health-care provider to render his services directly to the lIMO subscriber. THE NEED FOR OPTOMETRIC VISION CARE IN HMO'S Visual problems are endemic in American society: Nearly all persons aged 65 and over suffer from some form of faulty vision. In the employable age group, 17- 64 years old, approximately 60% have a vision problem in need of correction. Of those individuals under 20 years of age, almost 25% have a visual disorder. In fact, over half of all non-institutionalized persons over age three have some prob- lem with their vision. With regard to the above age groups, we are proud to report that the services of optometrists have considerably improved the leisure time of elderly persons, the productivity of safety of our workers, and the learning of our children, through visual analysis and therapy and by prescribing and providing ophthalmic devices, including contact lenses or other special optical aids, for which the optometrist is especially educated. OPTOMETRIC SERVICES: PREVENTIVE CARE The cornerstone of an HMO is preventive care. Optometrists, by the very nature of their services, continually practice preventive health care: They are the first line of defense against blindness; for example, the tonometric detection of glaucoma in the over 35 age group. Some of the visual problems of children- myopia (near sightedness), amblyopia (lazy eye), and strabismus (cross eyes)- are corrected, retarded, or reduced by corrective lenses, orthoptics, and visual therapy. For the elderly and for the partially sighted, optometric vision care is vital to their well-being. Rehabilitation of the partially sighted (20/70) or those classified as legally (but not totally) blind (20/200) is achieved by optometrists by pre- scribing special optical aids such as telescopic, microscopic and macroscopi lenses similar to those which benefit older persons. In both instances, optometrists are preventing further deterioration of the visual system. Almost 57% of the Nation's labor force is comprised of hidividuals 45-64 years old, an age group in which 86% typically require correction for near point tasks. Each worker should receive an optometric visual analysis and (if needed) a prescription for occupational eyeware. Optometrists further contribflte to the safety of our environment, by their participation in driver licensing examinations which determine the adequacy of the applicant's vision to perform the various driving tasks, over 90% of which re- quire good functional vision. Therefore, the lIMO and the optometrist share the common objective of pro- viding preventive or health maintenance care. QUALITY CARE FROM SKILLED PROFESSIONALS Education Optometrists are duly qualified to render vision care as a result of their educa- tion, an average of seven years, two of which were spent studying the "hard" sciences-biology, chemistry, physics, math-followed by four or more years at one of the twelve optometric educational institutions. Upon being graduated from optometry school, the optometrist is licensed to practice within the limits established by each jurisdiction in all 50 States and the District of Oolumbia. Gontinuing Education To ensure that patients are continually receiving top-quality, up-dated care, optometrists in 25 States also are required by law to participate in a specified number of hours of continuing education, or selected post-graduate courses in optometry, in which the O.D. is exposed to the latest advances in techniques, technology, and instrumentation. Manpower Distribution Optometrists, who outnumber other eye-care specialists by three to one, are able to meet this vision-care need because they are distributed in over 6200 towns PAGENO="0387" 1129 and cities throughout the country. Moreover, in 2500 of these mumicipalities most of which are in rural areas, they are the on~iy source of vision care. This distri- bution makes optometrists appropriate providers in rural as well as urban pre- paid group practices. Peer Review Quality vision care is further guaranteed by voluntary optometric groups who review the work of their peers who are participating in the Medicaid program or of optometrists in a given locality on a spot-check basis. It is this awareness of ensuring quality care that supports our stand on true peer review, whereby the performance of a health practitioner is judged by a health professional from the same discipline. Teamwork That optometrists cooperate with other health care professionals is supported by a 1960 survey by Dr. Felix A. Koetting, who found that: 18,500 optometrists received 37,368,000 patient visits annually, 818,360 (2.19%) of whom were re- ferred to other health care practitioners. Over half (53.7%), or 439,460, of these were directed to ophthalmologists. Another 32.8% (271,622 patients) were in- structed to visit general medical practitioners. Five percent each were referred to other optometrists (41,918) and miscellaneous practitioners (40,918). About three percent (26,990) of referrals were made to dentists. Dr. Koetting concluded his report on an astute but understated note: "Optom- etry represents a considerable health resource. Its role in the maintenance of health could be developed more effectively." The American Optometric Associ- ation feels that optometry's inclusion as a full participation in any HMO would help to achieve this health-care objective. OPTOMETRY'5 INVOLVEMENT IN HMO'S We are proud to report that optometry is an active participant in over 100 HMO-like health-care groups, with many more such organizations intending to include optometric vision care in their programs in the near future. Optometric vision care is being rendered to members of many of the more well-known and better established HMOs in the country, such as the Kaiser- Permanente Plan, the Group Health Co-Operative Of Puget Sound, the Health Insurance Plan of New York, and the Group Health Association of Washington, D.C. With regard to services, officials from GHA report that, of the half mil- lion patients seen in 1970, 45,000 (9%) were attended by optometrists. Doctor Kenneth G. Talbot, referring to his experience as Chief Optometrist at the Cane Clinic, an HMO in Urbana, Illinois, describes the essence of an UMO: "Ophthalmologists and optometrists, with the assistance of optical technicians working together in the comprehensive eye care field, can help eliminate the manpower gap in the total health-care needs of the community. "The relief of burdensome and non-professional chores are handled by ~ur complex of 900 employees. The opportunity for instant or `curbstone consulta- tion' . . . unavailable for weeks in solo practice, is available in the adjoining offices of my colleagues, certainly an added plus for both patient and practitioner. The sharing of knowledge presents a logical and intelligent solution to the prob- lems involved in providing high quality, comprehensive health care. "A multi-specialty group can provide the hub of the medical community of the future: conceived, planned, and executed in a free enterprise system." OPTOMETRIC PARTICIPATION IN FEDERAL PROGRAMS The Congress has recognized optometry's record of performance by specific ir~clusion in a number of government health-care programs. These include Titles II, V, X, XVI, and XIX of the Social Security Act; the Health Professions Edu- cational Assistance Act; the Allied Health Professions Personnel Training Act; the Group Practice Facilities section of the Federal Housing Act; and the 1968 Amendments to the Vocational Rehabilitation Act. The profession of optometry- recognized as the third largest, independently prescribing health profession-is and has been ready, willing, and able to minister to the vision-care needs of this country. HEW Secretary Richardson concurs with our view, for in a letter sent to the Western States Optometric Congress, he praised "the strong and innovative lead- ership" of the optometric profession in the field of health care. Secretary Richard- son also said: PAGENO="0388" 1130 ". .. the crisis In health care is one for which the President and I are deeply concerned. The American health care system has traditionally relied primarily upon the private sector to provide care. The government's role has been largely limited to financing care for the helpless and the needy and providing support for research and training. We firmly believe in maintaining and building upon this fundamental division of responsibilities, for it is this system which stimu- lates diversity, promotes innovation, and enhances opportunities for improve- ment.. . in carrying out this role, we depend heavily upon the full support of those who directly provide health care. The Nation's 18,000 doctors of optometry represent a vital segment of this community. . . Such leadership will not only have a great impact on vision care during the next decade, but will influence the development of the full range of health care services for our citizens." Based upon the performance and involvement of optometry and its practition- ers in these Federal programs, optometric services must be made a part of any HMO legislation which evolves. The Department of Health, Education, and Welfare, again demonstrated aware- ness of the need for services of optometrists in its recent definition of the term "medical group," for purposes of rules and regulations to implement provisions of Title IV of P.L. 91-515 (84 Stat. 1309), as published in the Federal Register of March 30, 1972 (Vol. 37, No. 62), as follows: "(2) The term `medical group' means a partnership or other association or group of persons who are licensed to practice medicine in a State (or such persons and persons licensed to practice dentistry or optometry) who (i) as their princi- pal professional activity and as a group responsibility engage in the coordinated practice of their professional primarily in one or more group practice facil- ities. . ." PENDING LEGISLATION: H.R. 11728 The concepts of the preamble of H.R. 11728 suggest that HMO legislation will: 1. Relieve the shortage and maldistribution of health care resources; 2. Overcome the unorganized delivery of services in the present health care system; and 3. Encourage an emphasis on preventive health care services, while retaining the orientation of providing care for those manifesting disease. Yet, the bill does not include in its basic "comprehensive health services" any provisions for one of the most needed preventive services-j-vision care-nor does it attempt to correct the maldistribution problem or improve the efficiency of health-care delivery by utilizing all members of the health-care team. The HMO concept envisioned in H.R. 11728 certainly has considerable merit and will aid in the delivery of health care; nonetheless, it perpetuates and com- pounds the shortages and maldistribution by locking in the medical practitioners and locking out other health care providers. We agree that an HMO should be competitive, allowing each local group of practitioners to strive for inclusion. However, it is also a clearly established fact in the vision care field that, if not specifically provided, only those members on the medical profession rendering vision care will be able to participate in an HMO. An example from this country's Northwest serves to illustrate the point. It was related by Doctor D. B. Hanford, an optometrist from Tacoma, Washington who recalls that two years ago he asked an official of a well-known HMO in Oregon if optometrists would be permitted to provide vision care when the HMO expanded its services to cover this care. Assured that they would, nonetheless, Doctor Hanford recently was in the audience for a presentation by the same HMO official entitled, ironically, "Closing the Ring." In this speech, it was reported that vision care was offered when provided by a participating physician only. So regardless of what was said in theory, optometrists were, in fact, unable to participate in this expanded HMO program. This experience has prompted Doctor Hanford to state a recommendation that: ". . . the Federal government must control the participation of (HMO) contracts so that every health care practitioner licensed to do the service and willing to accept the capitation payment agreed to in advance must be given an equal opporunity to participate in an HMO. The American Optometric Association strongly urges sponsors of Federal health care legislation such as H.R. 11728 to consider the fact that their well meaning goals may result in denial of the freedom of choice of health care practitioners when physicians' services are defined to mean only those provided by medical practitioners. PAGENO="0389" 1131 EECOMMSNDATIONS In order to aid the Congress in obtaining total comprehensive health care for the American public; to protect the public's right to choose its qualified and licensed practitioners; and to utilize all primary health care practitioners at their highest levels of skills, the American Optometric Association recommends the following amendments to H.R. 11728: 1. That under "comprehensive health care services" in Section 1101 (2), Sub- section (g) be amended to read: "preventive health services, including vision care services." We recommend this amendment because in the section-by-section analysis of the legislation, the term "preventive health services" means services which "maintain the person's mental and physical well-being." However, unless spec!- fled, vision care will not be considered as a primary health need; therefore, we suggest the addition of the phrase "including vision care services." 2. That Section 1101(2), Subsection (A) be amended to read: After the words "physicians' services" add the following In parentheses: "(including consultant, referral and optometric services where such compre- hensive health services include under physician services those functions which an optometrist is licensed by the State to provide)" 3. That the term "medical group" in Section 1101(3) be amended to read: "The term `medical group' means a partnership or other association or group of persons who are licensed to practice medicine, osteopathy, dentistry, or optometry in a State. . . The purpose of this amendment is to ensure the practitioner's right to be included in the group. Unless specifically provided for, optometrists will not be able to participate, and this is borne out in every Federal health care program where no specific pro- vision is made for optometric participation. In addition to the above amendments, a true anti-discrimination clause should be added to ensure the right of all qualified practitioners to be eligible to participate in the HMO, if the group decided to provide any additional serv- ices over and above the required services. This clause should be called a new letter "(N)" under Section 1101(1) and be added to read as follows" "(N) Ensures that all licensed health care practitioners recognized by the National Commission on Acrediting have an equal opportunity to participate." CONCLUSION In conclusion, I refer to the assessment of John W. Cashman, Former Direc- tor of HEW's Community Health Services, who recommended that the optom- etrist's office be a primary entry point Into any health care system, and, who also stated: "For the simple reason that they (optometrists) examine more people's eyes every day than any other group of trained observers in the coun- try, the optometrists are ideally suited to serve as the Nation's early warning system in the Continental defense of good vision. Both in his own office, in the normal course of his work, and as a member of a health team working In a hospital or other institutional setting, the optometrist can place the people of this country everlastingly in his debt by maximizing his contribution to the prevention of eyesight problems." Gentlemen, I thank you for the opportunity to speak on behalf of the Amer- ican Optometric Association. At this time, if you have any questions, Mr. Averill, Mr. Lavanty, and I will be glad to try to answer them. Mr ROGERS. Thank you very much, Dr. Hopping. We appreciate the statement you have given on behalf of the optometrists. Dr. Roy? Mr. Roy. Thank you, Mr. Chairman, and thank you, Dr. Hopping, very much for your statement. I believe you realize that our concept is that the appropriate professionals and paraprofessionals should be used in the health maintenance organizations to do those things for which they are trained. You point out that optometry has been left out and less specified~ 1 want to assure you that the committee understands this. I have no questions, Mr. Chairman. PAGENO="0390" 1132 Mr. ROGERS. Dr. Carter? Mr. CARTER. Thank you, Doctor, for your statement. We are cer- tainly sympathetic for what you said. Mr. ROGERS. Mr. Hastings? Mr. HASTINGS. Thank you, Mr. Chairman. As I understand it, what you are saying is that you would like the language clear that optometry can be included, but not be mandated, as a service provided by an HMO? Dr. HOPPING. That is correct. Mr. HASTINGS. As long as it doesn't mandate what it can economi- cally provide, we don't know the answer to that, but I certainly would like to say that if that is what you are asking, I have no objection to that., Dr. HOPPING. That is one of our concerns, that optometry be per- mitted when possible and feasible by whatever the package may be able to be a part of that. Previously Federal health care programs would indicate by experience for the American public as well ~s the American Optometric Association, if not specifically so included, that we are in fact frozen out when many of our men do desire, as we at the American Optometric Association, do specifically desire to be a part of this health care movement in consideration of the Nation's resources. Mr. Roy. Mr. Chairman. Mr. ROGERS. Yes. Mr. Roy. I would like to add that in the State of Kansas we have had a very good ongoing relationship between optometrists and oph- thalmologists, and I think both professional groups are to be com- mended in that respect. I would like to express my hope this were true in all 50 States. I think it is true iii an increasing number of States, however. Mr. CARTER. I wish to say the same cooperation exists in my State and has for many years, and I am thankful for it. I have always tried to be of assistance to your profession, as you know. Mr. ROGERS. Mr. Preyer. Mr. PREYER. No questions, Mr. Chairman. Mr. ROGERS. Then as I understand it, if an HMO policy would cover vision care, you would like to say that optometrists should be included within the health team? Dr. HOPPING. Yes, sir. Mr. ROGERS. Just as I presume that many policies of health insur- ance dpn't cover vision and dental care. I am not sure what basic package the committee would want to insist on. I am not sure that we should not leave some flexibility. But I think the point you made that should vision care be included in any HMO that optometrists should be entitled to be a part of the health delivery team. Mr. LAVANTY. You can't provide vision care and lock out the opto- metrists. That is why it is crucial for him to be in there to have an opportunity to vie if the HMO should provide the care. The physician as defined in the medical group could provide vision care and the optometrist would be locked out. Mr. ROGERS. Suppose they have an ophthalmologist. Dr. HOPPING. That has been our experience under medicaid. In PAGENO="0391" 1133 the first place being five services, No. 5 being physician services, the ophthalmologist locks out the optometrist. But there are several States that optometrists, such as I have mentioned in 25 communities, are the only providers that are able to provide that. I believe in the State of Kansas there are ophthalmologists in only 11 communities as compared to only 200 communities of optometrists. Mr. AVERILL. I think this. In this medical group we could put it in another term. We want to be there at the takeoff rather than at the splashdown. On this I think the profession has a great deal to offer to the American people. Mr. ROGERS. Now, you state you have participated in HMO's. Has there been any reduction in cost in the delivery of vision care within the HMO context vis-a-vis outside? Dr. HOPPING. Those organizations and the one I have just read some material on was the Group Health Association or Group Health Co- operative of Puget Sound where they have 12 optometrists working with three ophthalmologists in one hospital setting and five of six satellite clinics where the optometrist is the primary point of entry. In their figures they have related that the cost in the area has been reduced by providing this type of care. In the Group Health Associa- tion of Washington, D.C., out of half a million people they are serving, 40,000 people were serviced by optometrists, which amounted to 90 percent. In asking them about their cost figures, they relate us to essentially their answer was that it was pennies in dealing with vision care within that particular component. They have not felt it has been a substantial dollar figure for them. Mr. ROGERS. I think any figures you might have either way would be helpful to the committee. Dr. HOPPING. We would be happy to supply some in that direction. (The following information was received for the record:) COST OF OPTOMETRIC VISION OARS According to the best estimates and sources available, the following three concepts are offered in support of the cost of optometric vision care per enrollee under a Health Maintenance Organization. A. The Group Health Association of Washington, D.C., which has as one of Its covered services vision care, indicates that in the total premium range that the cost of vision care per enrollee amounts to pennies-with no specific breakdown. B. The American Optometric Association's study, presented in testimony before the House Ways and Means Committee, concerning the cost of vision exams for the Elderly under Medicaid, indicated that the cost would be: $00.14 per enrollee. (See attached excerpt from testimony) 0. The experience of the Medicaid program has shown that where vision care is added as a benefit under such a program, it represents a maximum of 5% of the total cost for the health care benefits. In his testimony to the Senate Labor and Public Welfare Committee, Subcom- mittee on Health, HEW Secretary Richardson stated that under the Administra- tion's Health Maintenance Organization proposal, it would cost $250.00 for a family of four to obtain the basic five health services offered therein. The basic services offered under the Administration's proposal are the same as those offered in Medicaid, thus taking the 5% factor added to Medicaid for vision care, it would cost: $12.50 per year for a family of 4 for vision care, or $1.04 per month for a family of 4 for vision care, or $00.26 per month per enrollee for vision care as provided under Meclicaict PAGENO="0392" 1134 TITLE XVIIL-EYE EXAMINATION PROGRAM AND Cosk ESTIMATE PREPARED AND RECOMMENDED BY THE AMERICAN OPTOMETRIC A5S0CIArI0N THE MINIMUM PROGRAM All persons enrolled in Part B of Medicare would be entitled to a full Visual Analysis (see components in #101) by an optometrist or physician skilled in diseases of the eye once each 24 months. All persons who have received #101 Visual Analysis and who require a prescription for lenses, shall receive a Case Work-up (#102) and be provided with a prescription for eye wear by the optometrist or physician skilled in (diseases of the eye making the Visual Analysis. No materials to be provided by Medicare (the patient procures the materials at his expense). No repairs or breakage to be paid by Medicare. No dispensing or other services pertaitiing to materials paid by Medicare. Medicare enrollee's bill for covered optometric services may be added to bills for other covered Part B services, and be paid for to the extent of 80% alter the first $50 deductible for all Part B services has been satisfied. Estimate of costs and rationale for the program: 18,000,000 Part B enrollees will provide 2,880,000 persons (16 percent of 18,000,000) with a #101 Visual Analysis (100 units) at a cost of $288, 000, 000 88 percent of #101 recipients will require #102 services. Thus 2,541,440 enrollees will require #102 services (50 units each) 127, 072, 000 Total 415, 072, 000 AOA eye care cost estimates: 415,072,000 units ~ 20t per unit would cost 83, 014,000 Allocation of costs of 20ç1 per unit ($83,014,000): 54 percent of Part B enrollees using covered services do not meet the deductible amount to recover 80 percent of the cost. They would pay 44, 827, 000 46 percent of part B enrollees using covered services would meet the deductible amount and recover 50 percent of their claim. They would pay 7, 637, 000 The cost to medicare would amount to only 30, 550, 000 Cost per patient served at 20~l per unit would be- (per case) 28. 82 Actual cost to medicare-(per case) 10.61 Actual cost per enrollee to medicare, $1.69 per year or $0.14 per month per enrollee. RELATIVE SERVICE VALUES IN UNITS No. 101 Visual analysis and diagnosis : 100 Units. (This service is variously designated as "Visual Analysis," "Eye Examination," and "Refraction." It is a comprehensive basic service covering these procedures when fully rendered and are compensated for within the units assigned). PROCEDURES Case history with occupational vision evaluation. - Visual acuity testing (central-distance and near). Ophtbalmoscopy and exteriial eye health evaluation. Ocular motility testing (versions, rotations, cover tests). Neurological integrity tests. Subjective and objective refraction at far point. Subjective and objective refraction at near point. Phorometric tests of accommodation, convergence, and binocular coordination. Ophthalmornetry or Keraton~etry. Mr. ROGERS. Are any less numbers of glasses prescribed in the HMO setting than outside? PAGENO="0393" 1135 Dr. HOPPING. Initially I am not aware that there is, except I can say by way of the very concept of peer review, and I would report something in the literature by optometrists. There was some overprescribing as other professions have found and the monitoring of that very quality, regardless of the profession, I am certain has to have some effect on this. I think some of our fig- ures of various groups indicate that about 25 percent or 20 percent do not need any care of those that specifically seek it out. The fact we have not been involved in an arena such as an HMO that would he more on a maintenance and preventive basis, rather than peoph~ seeking assistance to a cause that brought them in, does not give us valid figures to project to this. I think another concept-and I am appreciative of the committee's awareness of our point on the one hand, but the other I think I would really like to emphasize the unmet need in vision care. For example, under those over 65 years of age, by any source of figures that ranges from 90 to 100 percent have faulty vision or visual problems. Yet with that, Government figures show us that 19.8 percent of those persons receive no care in the course of 1 year. Although we rec- ommend at least every 2 years that one seek professional visual care, we can see that that group which has almost 100-percent incidence is likely receiving it. Now on the preventive portion, we think there is a very great un- met need in, we think, the importance of vision, which has been sub- stantiated in considerable testimony before other committees and which has brought about to have the involvement which we attempted to cite in here. Mr. ROGERS. We appreciate your testimony today. Our next witness is the president of the American Health Founda- tion, who has devoted a great deal of his time and a great deal of his leadership in the preventive ~fie1d. He is doing outstanding work in New York City. We are honored to have with us today Dr. Ernest Wynder, along with Mr. Evans North. We welcome you to the committee and we will be pleased to receive your statement. STATEMENT OP DR. ERNEST WYNDER, PRESIDENT, AMERIC~&N HEALTH FOUNDATION; ACCOMPANIED BY EVANS W. NORTH, EXECUTIVE DIRECTOR, WASHINGTON OFFICE Dr. WYNDER. I apologize for not having a formal statement. I only found out about this hearing last Friday. Mr. ROGERS. I understand you were in Geneva and returned to make this statement. The committee is appreciative of your statement. Dr. WYNDER. I had the opportunity to write the statement 37,000 feet up over the Atlantic Ocean where I had an unobstructed view of health problems facing the Nation. I would like to give the statement to you. and then I am available to you for questions. Man's ability to overcome many of today's fatal diseases, the greater number of manmade disabilities and the ever-increasing costs of pre- ventive health care demand the reassessment of current medical prac- tices. The proposed HMO concept carries *ithin it the possibilities PAGENO="0394" 1136 for meaningful and productive cl1anges, provided it is properly con- ceived and executed. One of the obligatory-and let me stress "obligatory"-components of any HMO that should be considered in any legislation is the pro- vision and the appropriate incentive for measures that can contribute to the prevention of disease and disability. / Disease prevention falls into two categories: Primary and secondary prevention. Secondary prevention relates to the early detection of disease. The early detection of cancer is a case in point. Such programs have been successful against certain types of cancer, notably cervix, breast, and large bowel, but have proved relatively unsuccessful for cancers, such as lung, pancreas, and stomach. In proposing special tests, therefore, we must consider the cost effectiveness of each examination. The German insurance system, one of the oldest in the world, has recently given an incentive to early detection of cancer by reimbursing the physician for examinations to detect cancer of the cervix and breast and for cancer of the prostate and large bowel. Whatever HMO system is proposed in this country, it should advocate no less. An American health insurance system should provide appropriate incentives which we may call "Brownie points," to motivate physician and patient alike toward preventive health practices. Similarly, hypertension is a disease which, if treated early, has been shown to reduce the risk for stroke and congestive heart failure. If detected and treated still earlier in life, it is likely to reduce the risk for heart attacks as well. Yet, in the United States some 50 percent of us have never had our ~blood pressures measured, and when checked and found elevated, only about 20 percent of the cases were properly treated. In view of our inability to treat effectively many stroke victims; be- cause of catastrophic health insurance rates; and because of the estab- lished role of hypertension, myocardial infarction and other cardiovas- cular diseases, it is imperative we improve our techniques for the early identification of high blood pressure and its therapy. The HMO must take responsibility in both areas, the identification and the appropriate remedial measures. Primary prevention relates to the reduction of risk factors at a time when disease is not detectable either clinically or at times even on a cellular basis. Excessive smoking, elevated blood pressure, and obesity are such factors, as is also driving under the influence of alcohol. These should be of concern to any lIMO. Each HMO should emphasize its dealing with these high-risk factors both in terms of identification and treatment. lIMO's should start off by establishing a health profile on each of their members. This country possesses the technical ability to under- take such a profile on all-I emphasize "all"-Americans and repeat them at regular intervals. lIMO programs or associated Federal tax reforms should offer incentives for the correction of high-risk factors, and besides the treatment of symtomatic illness, should include clinics to help people who have problems in excessive smoking, malnutrition, hypertension, alcoholism, drug abuse, and physical fitness to reduce these high risk problems~. All of this would put the emphasis on pri- mary disease prevention. PAGENO="0395" 1137 These efforts are, of course, relat~d to society's concern in modifying certain risk factors. Indeed, preventive medicine is a task for all of society. We need measures to establish less harmful smoking products, which my research group has been working on for the past 20 years. Since all of us have difficulty in relating today's bad habits with our health status 20 or 30 years in the future, it is incumbent on us to modify hazardous products now. Products can be modified to be healthier for all society, for the affluent as well as impoverished. We also need to strive for safer highways and stricter law enforcement against the drunken driver. In conclusion, we have learned~ much in recent years about the na- tural history of diseases, as well as about therapeutic measures. Our health insurance organizations at present place almost exclusive em- phasis on therapy. The natural history of most common illnesses and disability suggest that emphasis on therapy alone is both economically and medically the poorest way of utilizing our resources. While fu- ture HMO's obviously need to be well staffed and experienced in therapy, we urge that they give proper emphasis to prevention of disease and disability, both through their expertise and by offering appropriate incentives. Our current knowledge of disease and disability indicates that we can be successful in this endeavor. HMO's so conceived will contribute to reduce avoidable disease and disability and will simultaneously free medical professionals for the treatment of diseases which are not avoidable atpresent. HMO's ofier us a real chance of saving resources that can be put to better advantage for the pursuit of happiness and health of our society. As my friends know, I enjoy reading about the history of medicine. What we talk about here has been talked about by physicians for cen- tunes. For instance, in 1653, Thomas Adams wrote: He is a better physician that keeps diseases off us than he who cures them being on us. Prevetition is so much better than healing, because it saves the labor of being sick. The. concept of disease prevention is also well expressed in a Greek adage which has become the motto of the American Health Founda- tion: "It should be the function of medicine to help people to die young as late as possible." In the 1970's we should have the ability in this country to make these ancient sayings a reality. With the help of the medical profes- sion, allied health professionals, the health insurance industry, sOciety as a whole, and above all with the help of the Congress~ we should succeed to make disease prevention the first step in our health care delivery system and thus make us a healthier Nation. A well-designed and well-conducted HMO in which meaningful preventive services must play an integral part will contribute much to accomplishing this goal. Thank you. Mr. RoGERs. Thank you very much, Dr. Wynder, for a very excellent statement. I think it would be well to note for the committee that the American Health Foundation now is responsible for publishing the first journal on preventive medicine. I think I see a copy of it with you, do I not? Dr. WYNDER. When I was approached by Academic Press more than a year ago as to whether the foundation would agree to publish a new PAGENO="0396" 1138 journal in the area of disease prevention, I inquired immediately whether the name of "Preventive Medicine" was still available in the United States. To my great amazement, with everything that is being published in medicine, the name "Preventive Medicine" was still available. The main objective of ttuis new journal is to try to educate the physician at large in the very broad area of the practical application of disease prevention. The journal hopes to help make a contribution toward this. We would like to tell our medical colleagues that to pre- vent disease is really far more satisfactory thanto try to treat it. All of us know the problems. We know that it is economically and academically much more satisfying to treat an illness. If you practice disease prevention, the reward never comes from a single patient; it can only come when we see disease reduction in the entire population. This is a difficult thing for a physician to get excited about, particularly because such reduction only happens over a period of years. Be that as it may, after all, physicians should have entered the field of medicine because they wanted to fight disease at its incipiency. At the foundation, and before that, at the Memorial Sloan-Kettering Cancer Center, I have spent a lifetime in the study of the natural his- tory of disease. We know today a great deal about the factors that lead to disease and how these diseases can be reduced. In the last century and the beginning of this century, infectious diseases were significantly reduced; we wiped them out by eliminating the source of the infection. Today, we are dealing with risk factors that relate to chronic diseases. Many times today we are asked by a patient, "How come that at the age of 47,1 have developed a heart attack?" A great deal is known about this. It should be the function of the physician to identify the risk factors early in life and to reduce them as early in life as possible. This Natioii cannot afford to treat all of these unnecessary illnesses, not only because of economic costs but because many ,illnesses are not curable once they have developed. Mr. ROGERS. Before we start questioning, I would like to recognize a very distinguished group from Kentucky and call on our very promi- nent member to introduce them. Dr. Carter, as I am sure you know, has served on this committee and has made a great contribution to the work of this committee and the Congress with his expertise in the medical field. This committee has benefited greatly and the American people have, from his service here in the Congress. Mr. CARTER. Thank you, Mr. Chairman. I am most pleased at this time to introduce a group of physicians and surgeons from the State of Kentucky who are very prominent in their particular fields. We are happy to have them h~re today. I would ask that they stand at this time, if they would. Mr. ROGERS. The committee welcomes you and we are very pleased to have you here. Mr. CARTER. Thank you, Mr. Chairman. Mr. ROGERS. Dr. Roy. Mr. Rot. Thank you, Mr. Chairman. PAGENO="0397" 1139 Dr. Wynder, I wonder if you would address the economics of pre- ventive medical practices with regard to annual examinations and multiphasic screening and so forth, especially as it might relate to the first year or fifth year or 20th year of a health maintenance organiza- tion or group practice. Dr. WYNDER. As you may know, we are establishing in New York City a health maintenance center which is fully automated and com- puterized and which, together largely with allied health professionals, can do a meaningful health screening in 1 hour and have all results available for the physician's examination at the end of the hour. In other words, we have taken the technological ability of our coun- try that has served us so well by sending man to the moon and by monitoring man's heartbeat from the moon, to monitor man's heart- beat on earth. By utilizing all of this technology together with available allied health professionals, we can conduct health screening on a massive basis in a relatively inexpensive fashion. I cannot tell you what the system will cost once it is fully in opera- tion. Even in this early demonstration period, it will cost not more than $85 per person. I would suggest that the cost on a mass basis, once it is duplicated from city to city and from center to cer~ter, it can be done for very much less, even as little as $50. If this is done and if high-risk factors are then identified, and if these high-risk factors are then reduced, then we will be able to reduce catastrophic illnesses, which are costing this Nation a great deal in money and in human suffering. Let me emphasize that a health maintenance organization that does health screening without the appropriate intervention would be waste- ful. The intervention must be an integral part of the identificatiom~i of these risk factors. Let me stress another point. It is important that we do this health screening as early in life as possible. PafFenburger has shown in studies on college students that several risk factors for heart attacks were identifiable during their college career. We now learn that hyper- lipodemia can be identified in children of high school and even prehigh school age. So I am urging that HMO's include children. Arteriosclerosis does not begin when we are 50 or 60 years of age. Arteriosclerosis begins in childhood. If we do health screening in childhood, carry on a health profile throughout life, and devise a sys- tem to keep this health profile in a centralized computer for an entire lifetime so that each of us has a medical "passport" we will be able to identify the risk factors, observe changes early and thus be able to correct them. I am convinced that in the long run, this type of practice will be much cheaper than what we are now doing in paying for long-term chronic illnesses. Mr. Roy. I especially appreciate your stress that we need not only identify risk factors but to intervene when those are identified. I think it appeals to all of us to "die young as late as possible." I thank you for your statement. Mr. RoGERs. Mr. Hastings. Mr. HAsTINGs. Thank you. PAGENO="0398" 1140 I think you have made me feel a little bit ill at ease. You talked about identifiable risk factors relating to heart disease. You seemed to look at me when I lit up my cigarette,. Mr. ROGERS. I would like for Dr. Wynder to comment on that spe- cifically to you, Mr. Hastings, because Dr. Wynder is an expert in this field. Mr. HASTINGS. Thank you. I needed that. Dr. WYNDER. I would be glad to comment on that, Mr. Hastings. Mr. HASTINGS. This is on his time, not mine. Mr. ROGERS. The whole committee will give him time for this comment. Dr. WYNDER. In doing something for the health of the Nation, we are particularly concerned about the leaders of our Nation. As leaders we need to be examples not only to our families but to our constituents. We should know about risk factors, at least as much as we know about stock market quotations or what happens in the rest of the world. Even though a stock may go down and ~ie lose funds; we may regain the money in time but we have only one life. The interesting thing about disease prevention is that so many of these risk factors are factors that we can readily understand and in- form our patients about. For instance, the Framingham study identified three risk factors: blood cholesterol, cigarette smoking, and blood pressure. These three risk factors can be readily identified. On the basis of probability, I can give you your risk as to your chance of getting a heart attack, the major cause of death in our country. Then, as your physician, if your smoking is interrelated with high pressure or high cholesterol, you now have two risk factors and I would urge you to reduce one or both of these factors. I would like to do this as early in life as possible. These risk factors affect the premature death rate primarily. Look- ing at your young age, I consider that if you die within the next 10 years, it would still be a premature death. We are not lengthening the life span of our genetic time clock, but simply preventing early death. I would like you as an individual to know that if you smoke and have an elevated cholesterol level and have high blood pressure, what your risk is. Mr. HASTINGS. Thank you-I think. I accept that, of course, being very serious. No. 1, my major interest in any HMO is that the hope that we can at some point in time take preventive medicine into serious national consideration. So I am most interested in the contribution you are giving us in our deliberation on HMO's. Let me go a step further and ask another question. As outlined by legislation before us, is the concept of HMO's a viable form of a corn- prehensive delivery *system of health care? Are you completely in favor of the Congress progress in the direction that we have gone in creating HMO's? Dr. WYNDER. I am now speaking as an individual, because I have not reviewed this with our scientific board. As an individual, I favor the concept of the HMO. In fact, in most hospitals we do already some kind of group practice simply because medical knowledge has PAGENO="0399" 1141 become so complicated that there are very few physicians who are so wise that they can fully comprehend all existing medical knowledge. I do not want to negate the role of the family physician in this system. My father was such a family physician. We lived in a small community in Europe, and my father would tell me he knew most of his patients, and by knowing his patients he knew a great deal about their health and disease problems even before he ever examined them. I would like to emphasize the "human-ness" we need in medical practice. I would hope that the HMO will not do away with this completely, because so many of the disease symptoms of which we suffer today may relate to the possibility that often a physician will not listen to us. Already our wives and husbands and friends don't always listen, so we hope somebody will listen to our problems, and it should be the physician. It is, of course, one of the by-products of our age that nobody has time to listen. I sincerely hope that the HMO's do not become so technological that there is no human relationship between the patient and the physician. Beyond that, I favor the HMO concept because only in that way can we cover the whole range from prevention to therapy. The HMO orga- nization should say, "Your health is my obligation"-I said your health, not your disease problem. An HMO should incorporate the incentive to keep you well, `to keep you out of the hospital, and to save you money, because money saved `by you is money saved by the country. The HMO concept, provided it is humanized, and is well integrated in our total medical care delivery system, is a viable way in which medicine and preventive medicine can be practiced in this country. Mr. HASTINGS. I am sure you understand that we feel HMO's are only a part of the pluralistic delivery system of health care. You feel, then, that the HMO is the best delivery system for health care in this system? Dr. WYNDER. I believe it is. Ideally, of course, the best way would be if we had enough physicians attuned and educated in all aspects of medical care so that each physician could take care of the health of a certain group of patients. But the fact is that we do not have enough physicans to do this. In life you need to be practical as well as idealistic. Realistically we must recognize we do not have enough physicians. As we have done in the past, the HMO will thus move to utilize the allied health professions more effectively. There are many things allied health professionals can do at lea~st as well as the physicians. So we need a team of experts composed of physicians with different specialties, various allied professionals, and technological expertise which no individual doctor can possess, which we can pool together into one health maintenance organization. I have no qualms about stating that your bill about health mainte- nance organization will work if you put enough teeth in it, if you give it the appropriate incentives, and if you specifically spell out what you mean by preventive health services. It is not sufficient to say that we will provide health services in the preventive area.. You must say what they are. If an HMO does not include a minimum of preventive health services, it should not be approved. PAGENO="0400" 1142' In this regard, let me stress another point which I mentioned before, the health insurance system must be brought in. At the moment, the health insurance system in the United States is in fact not a health insurance system-it is a disease insurance system. It gives no "brownie points" for those who have good health practices, but it does create overutilization of hospitals. I had occasion a few weeks ago to speak to the president of the German Medical Society on this issue. I pointed out to you before that the German medical insurance system is one of the oldest in the world, and they, in recent months, have come to the conclusion that for the early detection of certain cancers the health insurance industry in Germany should now provide the proper incentive by paying the physician. I would urge this committee to look into this whole area of health insurance, irrespective of whether it is part of the HMO or in the gen- eral `medical practice, and make our health insurance industry take a part in determining how we can keep this Nation healthy rather than paying only when we are ill. Mr. HASTINGS. Thank you very much, Doctor. I think that your ob- servations, and particularly the latter one, are especially meritorious. One further question on HMO's. Do you see it being successful in the rural and ghetto areas? Dr. WYNDER. Obviously, if we are for HMO's, and for advancing the health of the country, we must include all socioeconomic com- ponents of the country. Obviously, when we speak of health, is prob- ably means one thing to the educated individual, and another thing to someone who is impoverished. If you go into a poor community and you speak about health care, that is the least of the problems they have; they are first concerned about malnutrition, and they are con- cerned about overcrowding and its effects. In each community we have different problems, not only in the way these communities react to health care but even in terms of the kinds of diseases prevalent in these communities. In our ghetto population we have more malnutrition; we have more tuberculosis; we have a far greater infant mortality rate than among the more well-to-do. So, one of the things we need to do is realize that preventive medi- cine is not just a job for the physician but, as I pointed out, it is a job for all of society. For certain communities, we first have to do some- thing about better housing; we have to do something about better nutrition. In fact, we must insist on better nutrition because in terms of prevention, science shows more and more than much mental retarda- tion in this country has not only to do with the kind of education we give them-because that is often too late-but also with the quality of nutrition women get during pregnancy and the quality of nutrition youngchildren get during the first 2 years of life. We have to realize that whatever HMO'we have, for certain popula- tion it is not sufficient. We have to look at disease prevention from the viewpoint of the whole society and recognize that there are certain diseases related to malnutrition or to poor housing, and these issues have to be our concern if we want to eliminate unnecessary illnesses in this country. Mr. ROGERS. Mr. Preyer. PAGENO="0401" 1143 Mr. PREYER. Thank you, Dr. Wynder, for your very forceful presen- tation, As one who has also just returned from Geneva, I must say your metabolic clock must keep better time than mine. That is a very fine presentation, I particularly commend you for being able to sell the idea of pre- ventive medicine as well as you have, because one of our problems is that it doesn't have much glamour to sell. An example that they gave us over in Geneva is in the smallpox Immunization program which has been tremendously successful; they expect to have all smallpox, the world's worst scourge, eliminated by 1974, They brought the USIA man over to try to dramatize this a little bit, by witnessing the one-millionth shot which they had given in West Africa. So he came over and saw them stand there and shoot this person with a jet gun, and he said, "Is that all? Show me a case of smallpox that has beeen cured." That is the only thing that had any glamour to it, So he went off and gave no publicity to the one-millionth shot for preventing smallpox. It is a hard thing to put across, and you are a good salesman for it. I wish you more power on it. Dr. WYNDER. We need the help, gentlemen, of the Congress. I used to tell the story that when my colleagues and I reported that cigarette smoking related to certain types of cancers, I lost some of my friends who liked to smoke; when we reported that very heavy drinking re- lated to cancer of the mouth, I lost some of my friends who liked to drink; and when we found that nuns had no cancer of the cervix, I had no friends at all. So I am well aware of how difficult the road of preventive medicine is. It has no glamor to the physician. In society as a whole you have problems with people who like to indulge in certain habits; you have problems with vested commercial interests. By tradition as physicians we should have one primary job: to prevent illness of our patients. This country is a country of vast opportunities. We know that in the long run we must and will succeed. It may take decades or it may only take a few years. The reason I was happy to appear before you-if the lIMO concept becomes a reality, if you introduce preventive medicine into this concept and if we get the health insurance industry to back preventive mdicine, we shall make a definite road toward making effective disease prevention a reality. If you look at the cost of disease care in the country, it is obvious that we must do something different from what we have been doing in the past. You gentlemen as legislators can probably help more than any other single group in this country to make this dream of preventiveS medicine become a reality. Mr. ROGERS. Dr. Carter. Mr. CARTER. I have been very much interested by your prç~sentation. I am particularly pleased by the humanistic approach that you men- tioned. I am pleased by your reference to your father and how he knew the different families ai~id that ideally, if we had enough physicians, perhaps something similar or some plan similar to that would be wise even today. Preventive medicine is extremely important, and whatever is nec- essary to get physicians to do a pap smear regularly and to check 81-185 0 - 72 - pt.3 - 26 PAGENO="0402" 1144 breasts regularly and any part of a person that might have an early cancer, of course, will be `extremely helpful. We have diminished the number of creaths horn uterine and cervical cancer in the past few years by early detection, and cancers of other parts of the body. This is an important part and consideration that could certainly be included in an lIMO I was interested in what my good friend, Mr. Preyer, said of Geneva. Contagious diseases may not be interesting to the public, perhaps, but you get, into a field which I feel is quite fascinating, even though it might not result in attractive, appealing television dramas and so on. But in tracing the epi4erniology of the different diseases, of small- pox or other diseases, we have done a great deal in preventive medicine in the past few years and we need to do a great deal more. I was interested in what you said about the ghetto areas that in- cludes housing. You think that would help greatly in the prevention of diseases, is that true? Dr. WYNDER. The difficult thing in the epidemiology of diseases in the ghetto areas is that so mary factors are interrelated. You have overcrowding in homes and malnutrition at the same time. It would be very difficult to unravel this interrelationship. As I said, there are many diseases that have been virtually elim- inated in the general population which are still quite common among ghetto populations. If we do have lIMO's, which I do believe belong in the ghetto population as much as any other groups, we have to structure them" differently and gear them to the problems that are common in a given population. Mr. CARTER. Actually, we might do a lot toward preventive medi- cnie if we have proper housing for these people in ghetto areas, is that `not true? ~r. WYNDER. That is correct. Mr. CARTER. And if we attack the problem of nutrition from a dif- ferent level and in a different manner. Somehow we are not reaching these people. We may be getting enough housing-I doubt that, but certainly we are not teaching them `to take care of it. And then, again in some way or another they are not getting proper food and they are poorly nourished. In those areas disease thrives. Is that not true? Dr. WI~NDER. That is true. We have different pr blems in the ghetto population; one of these relates to prenatal care. I have read that some 40 percent of pregnant women in ghetto areas never come under a physician's care until delivery. This, in the 1970's in this country, is an unbelievable statistic. There are two problems to this: First, these women may not know where to go; and secondly, they may not want to go even if they knew. We have to address ourselves to both of these issues. The reas9n I am stressing so much the malnutrition of our impov- erished population groups is because poor nutrition has an adverse effect on the children `born into these families. From the very moment they are conceived, they are at a disadvantage. When as a stciety we worry about busing and education later in life, we are starting this worry years too late. It should be our responsibility to see that all chil- dren in this country, and all pregnant mothers, are properly nourished. If they were, many of the diseases in the ghetto population, and much of the intellectual deprivation in these communities, would be eliminated. PAGENO="0403" 1145 Mr. CARTER. And then we must see that the youngsters are nourished, particularly through the first few years of life. Dr. WYNDER. Yes. Mr. CARTER. So that the brain develops properly. Dr. WYNDER. Yes. This whole area should be a function of the Con- gress. As I pointed out, you have to realize that the health problems differ for different populations, and you must tailor the answers to the particular needs of a population. Mr. CARTER. Mr. Chairman, I waiit to say that Dr. Wynder has the feeling of a true physician-a feeling for people. I have enjoyed his statement. Mr. ROGERS. Dr. Wynder, we are very grateful to you for coming here and giving the committee the benefit of your thoughts based upon your experience. I might say, this committee does intend to go into the health insur- ance problem to see what we can do to begin to move the insurance iiidustry into the preventive area. Thank you for your presence today. Dr. WYNDER. Thank you, Mr. Chairman. Mr. ROGERS. Our next witness is E. D. Davis, M.D., of Daytona Beach, Fla. STATEMENT OP DR. E. D. DAVIS, DAYTONA BEACH, PLA. Dr. DAvIS. I would like to say I think it a bit unfair for me to follow such a distinguished speaker. I am recovering from an attack of laryngitis and my voice has been uncertain. Mr. ROGERS. We are grateful to you for being here and taking the time and effort it requires to present your testimony to. the committee. Dr. DAVIS. Mr. Chairman and committee members, I would like to spend a few minutes to just give a broad outline of HMO's as I see them through the eyes of an individual who has had some personal experience in trying to organize one. I am a practicing orthopedic surgeon in Daytona Beach, and I have been so engaged for the past 14 years. I was educated and embued with the so-called capitalistic concept as a child and my medical school experience was that of fee-for-service; as a matter of fact, that has continued throughout my practice to this date. From a very personal standpoint, if I had my choice, I would rather we continue this same general scheme, on a fee-for-service basis; it has been very kind to me. But looking at the overall problem of health care, especially ftom the consumer's point of view, there must be a change in the delivery system of total health care so tha1~ it is available, and not only avail- able but also accessible to everyone. At this time I am a member in good standing of the American Medical Association, the Florida Medical Association, and the Volusia County Medical Society, as well as being on the active and consulting staffs of all the medical hospitals of Volusia County. However, let me hasten to say that my appearance here today is not on behalf of any of these organizations, and my thoughts as expressed here are only those of an interested citizen who, together with a board of di- rectors and a project director, has been trying to get an HMO into operation in Volusia County for almost 1 year. This effort has been PAGENO="0404" 1146 aided by a $75,000 grant awarded by the Health, Education, and Welfare Department through HSMA in response to a grant applica- tion. In this frame of reference, I think I might be in a position to give some constructive observations about HMO's, both from a con- sumer and a pi~ovider standpoint, DEFINITION First, let us try to define HMO in its simplest terms. An HMO is an organization which would provide comprehensive medical care including preventive, diagnostic, outpatient, and in-patient service to a voluntarily enrolled~ population in return for a prepaid fixed amount. This means that a group of people would voluntarily pay so many dollars a year for health care given to them by this organization. WHY HMO'S? Looking from a positive position all of us must, in all candor, ad- mit that the fee-for-service basis has not fulfilled the needs and de- sires of a progressively enlightened population. The well-edueated, well-to-do, feel a definite responsibility to those not so well off, and the not-so-well-off are very concerned that they are not getting as much benefit from the medical community as they should and they are clamoring for more services. A great segment of the population say that if there were only more physicians, the cost of medical care would be reduced. This has not held to be true, based on past exper- ience. At the present time, the U.S. physician-to-population ratio is one of the highest in the world-130 physicians to 100,000 persons. In 1945, there were 75 medical schools in the United States, and now there are 105, whicl~ is an increase of 30 percent. All medical schools have increased their enrollment by approximate 20 percent to 25 per- cent. The United States already spends a greater proportion of the gross national product on health services than any other country in the world-6.7 percent in fiscal year 1969. If the present rate of spiraling medical costs continue, by 1985 medical costs will exceed the gross national product. At the' present time, we have only two choices: one is a nationalized health industry which, as you know, has been proposed by some in Government; the others is the lIMO, which would basically preserve the freedom of choice which is most important. In addition, there are some faults with the present system. The profession is criticized for the lack of organization and lack of abil- ity to `control the rising costs. Whether this opinion is justified or not, terms such as crises, chaos, nonsystem~ and spiraling cost are applied to decribe medical economies today. A significant segment of the Na- ti~n is convinced that changes are required and perhaps it is time to make some effort to explore alternate mechanisms in response to these demands. Let's not be so pious as to believe `that the same conservation and appropriate use of the medical dollar is not possible under the fee-for- service program. The point is that the motivating incentive is not there for either the patient or the physician under the insurance-to- PAGENO="0405" 1147 fee for service mechanism. Neither the motivation for the integration of outpatient and inpatient services nor the incentive for their appro- priate uses are apparent. Under the HMO program, built-in incen- tives are present which will allow the income for physicians in a pre- paid plan to be roughly equivalent to the fee-for-service. The savings will be in proper motivation of the physician to use outpatient facili- ties when possible and inpatient facilities when absolutely necessary. FEDERAL GOVERNMENT INVOLVEMENT As the largest single purchaser of health care, the Government has an obligation to develop a more responsive health care system at a re- duced cost. The Federal Government feels obliged to attempt to im~ plement the HMO concept, because first, the consumer should have pluralistic forms of general medical care from which to choose, as opposed to the monolithic state as it exists with no choice. Secondly, when medicare or title 18 first came into being, there were three rela- tively large prepaid plans in existence. There were Kaiser Permanente, HIP plan in New York, and the GHA plan for Government em- ployees in Washington, D.C. These plans embraced a total of almost 4 million enrollees, and each plan functioned with complete autonomy with respect to the others. In all three instances, the same experience was gained, that the plan was so popular with people who had an opportunity to have a choice that a limitation of new enrollments had to be devised simply because these organizations could not construct physical facilities and hire physicians in sufficient quantity to satisfy the total demand. Another very significant thing noted was that each plan had a goodly number of people who were enrolled who were either over 65 or would be over 65 years of age very soon. These plans exercised their prerogative under title 18 to negotiate directly with the Government-through their office in Baltimore-rather than deal through a fiscal intermediary such as Blue Cross/Blue Shield, Prudential, Hartford, et cetera. After a 2- year experience, studies were compiled and there was found to be a net savings of between 25 percent and 30 percent for a given number of medicare patients. An analysis of origins of costs reveals that due to the nature of the HMO, hospital costs were much less due to the fact that there was far less utilization and less overutilization of hospital facilities. TYPES OF HMO'S Too much emphasis cannot be laid upon the fact that a great deal of freedom and latitude should be allowed in the ability of an orga- nization to select the type of HMO best suited in any given circum- stance. These should include generally nonprofit groups, but not to exclude for-profit groups as well. These groups could conceivably take the form of: (1) corporation with consumer-oriented board; (2) foundation; (3) association; (4) partnership; and others which would be able to deliver health care under the general lIMO concept. Let me interject at this point: I do not believe that the HMO is the great panacea for all medical ills, but it does once more allow a pluralistic choice for the consumer and provider alike. PAGENO="0406" 1148 BACKGROUND OF liMO Briefly, the first prepaid medical plan was organized in 1928 to satisfy the needs of employees of the Kaiser firm. In 1945, it was expanded to people outside the Kaiser industry and now embraces al- most 3 million people. The HIP in NewYork City has been operating for about 20 years and has a membership of 800,000 people. GHA in Washington, D.C., for Government employees, has an enrollment of about 500,000 members. Others are: Group Health Cooperative of Puget Sound San Joaquin Group Kalakamas County Association The Rosa-Loos Clinic, Los Angeles Columbia medical plan (joint venture, of medical group with an insurance company in Columbia, Md. Harvard Medical School plan (with multiple insurance com- panies involved) The total enrollment of all these groups approaches something over 5 million people. Through study of the background, there is hard evidence to show that HMO's really work. It is now beyond the experimental stage. In contrast with other methods of health care delivery systems, HMO's Show lower utilization rates for the most expensive type of care (hos- pital), they reduce total health outlay in dollars, and, most important, deliver service of high quality. It provides that most elusive and nebu- lous' characteristic' of quality health care. One of the major criticisms df organized medicine in regard to HMO's is that Kaiser Permanent w~hich has been cited as an HMO model is not an adequate illustra- tion of the concept because its enrollment consists largely of healthy individuals and a minority of high-risk groups. Ths s true-however,. with legislation, this one factor can be readily overcome. I will refer to this later in legislative observations. GOAL OF lIMO A. It is a fact that in the United States as a whole we have the best hospitals in the world. As a whole, we have the best medical schools in the world. And last, but not least, we have the best average doctors in the world. One basic goal of HMO is to combine these ~fforts into a better medical care organization through an efficient delivery system of medical care. B.. To resolve conflicts. In our present system there are a number of conflicts. The complexities of the controls, the detail of the reporting and multiple recordkeeping necessitate putting the hospital against the doctor, town aganst town, and social service worker against the physician. Medicare controls alone have put doctor against doctor in certain review committee systems which can only be an aid to the destruction of all the effective medical delivery services, T am referring to the inequities of peei~ review of medicare as one instance. However, recog- nizing that every one of the people involved is interested in exactly the same thing; that is, seeing that tile patient gets quality care, the obvious answer to the situation *hich has been "Let's you and him fight" is a fine alternative, "Let's work together." This is precisely. PAGENO="0407" 1149 the goal: work together with all facilities combined in a medically initiated group to improve the medical care delivery system through HMO strategy and concept. C. A further goal is to furnish a dual and pluralistic choice to the consumer. D. And likewise, to give a dual and pluralistic choice to the pro- viders. 1. One of the great drawbacks that the physician has in joining the HMO thrust is that of no longer being "in private practice." What are the real basics of private practice ~ At what point do we, as physicians, cross the Rubicon? As long as a physician works within and with a physician-controlled group, the physician is definitely in private practice, albeit in clinic or group setting. I think each and every physician at the Mayo Clinic, Watson Clinic, Cleveland Clinic, et cetera, considers himself in private practice. When a physician is employed by the Federal Government such as VA or Public Health, or is employed in industry such as United States Steel or General Motors, then he obviously would not consider himself to be in private practice. 2. Another deterrent to a physician entering this type of practice is the subtle opposition of organized medicine on a National, State, and local level. In formal discussions, the power structure of the AMA will tacitly admit that it is a good alternative plan of health delivery. However, in informal discussions among physicians, it is intimated that this is a second-class way to practice medicine. E. Another goal we cannot lose sight of is the freedom of ~the patient to choose his own doctor within the group or to fire him if necessary. F. Physicians and physician control groups must be responsible for quality medical care. G. Freedom of the doctor or doctors to choose their own plans of practice, their own particular endeavor, and to be deservedly remun- erated for the service they give. These objective goals are the essen- tials of private practice and all are embodied in the HMO concept. Further advantages to the physician include: 1. The logic of paying a doctor to keep a patient well. 2. Caring for patients without worry about collecting a fee. 3. Willingness or the ability of the patient to pay is not considered; entire emphasis is placed on medical judgment. 4. No paperwork involved except the patient's record. FTJTURE MEDICINE Let's take a broad overview of the general concept of the medica~ delivery system from the so-called right wing or conservative point of view to the left wing or liberal position. On the far right wing we have those who will compromise for nothing except a fee-for-service. Most all of us will agree this cannot continue in its present form. On the nationalization of medicine or the liberal side, we find finan- cial projections which appear to be untenable. Therefore, we have in the middle of the road the HMO spectrum w-hich can be: (1) hospital based; (2) medical school based; (3) corn- PAGENO="0408" 1150 munity-oriented board based; (4) it can be formed by an assoeiatioii of members of medical societies. It can be organized as fee-for-service under a predetermined fee schedule, or it can operate with salaried physicians. Lastly, I would like to talk just a bit about legislation. LEGISLATION At the present time, this Congress, in my View, has a monumental job to enact proper legislation allowing HMO's to begin and to grow and at the same time exert prbper restrictions to guarantee to the pub- lic that they will have responsible organizations to prQvide quality health care. These are Some of my thoughts after having struggled with this problem over a period of time. 1. Allow a broad scone of organizing }JMO~s to permit them to de- velop in multiple settings both nonprofit and for profit. 2. Support development of HMO's, financially if necessary, to guar- antee initial fiscal responsibility. 3. Do not restrict HMO to any definite predetermined geographical area. This will tend to suggest a franchise situation. In addition it is a fact that better cost-reduction effectiveness develops with larger and larger enrollment. 4. Allow the HMO to have certain latitude in the selection of patient groups in the beginning. This would neutralize the one big stated objection from organized medicine concerning the HMO's. Obviously, the people that have the most to gain in joining an lIMO are those who have the most illness, the so-called high-risk groups. If every HMO in its infancy is forced to take everyone, then none can become viable. It would seem apropos for an lIMO to have a realistic period for organization and consolidation of, say, a minimum of 1 year and a maximum of 3 years and/or the accumulation of 20,000 to 25,000 en- rollees, whichever occurred first, before being forced to accept all members without restrictions. 5. In some manner permit the lIMO to be nurtured in an atmosphere of `dignity and respectability in order that physicians will not feel they ~re second-class practitio~iers in the eyes of their peers. 6. Exert controls: A. Insure that the lIMO can give services that it claims it can de- liver. B. Set up a review committee at the State level to make sure these services are delivered. Early, the local review committee'will be bogged down in individual feelings, many times on a personal or personality basis. C. Proper legal mechanisms for revoking the license of an lIMO if the desired performance is not achieved. (This should embrace proba- - tionary periods to correct deficiencies and restore normal status.) In conclusion, the basic goal of the lIMO is to reverse the process of growing medical expenses, with doctors being rewarded for preven- tive measures and efficiency. The consumer gets quality medical care and may opt for the plan he wishes. There are those today who are eagerly awaiting the failure of lIMO's, so that they can encourage a monolithic system of nationalized PAGENO="0409" 1L51 medicine with no choice for consumer or provider. I urge a broad- based bill with a minimum of restrictive legislation and control so these legitimately conceived plans will have a chance to survive. I also urge congressional control of adequate funding to insure de- velopment of these pilot programs. Thank you very much, sir. Mr. ROGERS. Thank you, Dr. Davis, for a very thoughtful and very helpful statement. We are grateful to you for taking the time to give us your thinking based upon your experience. Mr. Preyer. Mr. PREYER. I have no questions. I regret I missed your statement, Dr. Davis, I will study it with interest. Mr. ROGERS. Dr. Carter. Mr. CARTER. Thank you, Mr. Chairman. You mentioned the pilot HMO's. How many would you consider that you would like for us to make available? Dr. DAVIS. There are 110, if my memory serves me correctly, which are in operation in the country today, based on the Governuient fund- ing program. I think, to get an adequate pilot study on a statistical basis, you will probably have to double this number of pilot programs throughout the country. Mr. CARTER. How far should the financing go? Dr. DAVIS. This is, again, a moot question. Looking at it from my standpoint, I think you need funding for feasibility studies. I think you need funding for so-called startup funds. I see no reason why Federal funding should include construction of equipment of the health care facilities. Mr. CARTER. You don't think this is necessary? Dr. DAVIS. No, I don't think this is necessary. I think this can be done on a local basis and can be integrated into the system. Besides, this would be an extremely expensive undertaking for the Government. Mr. CARTER. How much do you think an lIMO enrolling 20,000 people should cost to construct? Dr. DAVIS. Are you talking about the health care facility? Mr. CARTER. The whole lIMO. Dr. DAVIS. The health care facility in itself will cost just about a million dollars, from our figures. This is allowing about $800,000 for construction of the physical plant and approximately $200,000 to $250,000 worth of medical equipment, to equip a health care facility which will care for a 20,000 to 25,000 enrollment. This is the biggest single outlay of money necessary, in our view, to organize the HMO concept. Of course, there are moneys which must be expended in marketing, moneys which must be expended in hiring the initial core group of physicians on a full-time basis to make mar- keting possible. I think that probably the total cost, excluding the health care facil- ity, to organize a situation until it is in an operational basis on a profitable scheme, would probably be in the neighborhood of three- quarters of a million dollars. Mr. CARTER. I believe the present figures of the Federal Government are $2.5 million. PAGENO="0410" 1152 Dr. DAVIs. I have read those figures. I have often wondered-I have not been able to really analyze these figures and determine whether or not this includes the ~health care facility or ambulatory center. If you are going to include the ambulatory center, this is certainly ~ ithin the ball park. Mr. OARTER. I notice in your mention of enrollment you had a certain period in which people could enroll, and then your enrollment would be closed. I thought from what you said that you were a little bit selec- tive in your choice of enrollees. Dr. DAVIS. Yes; only in the sense of keeping the HMO viable. If an HMO were to spring up across the street tomorrow morning, every health and accident insurance company in the country would stop writing health insurance on the high-risk groups and the HMO would be the wastebasket collection of the high-risk people who are enrolled in the health insurance programs on an indemnification basis. If you want to wreck the concept of the HMO, this is the way to go. This would be a dumping ground for every H. & A. company in the United States. These are the people that cost them money. I am only making a plea for that because if we can get a proper mix of people and get to a level of 20,000 to 25,000, you could take anybody statistically and make this thing work. But in its early em- bryonic phase, if all of the high-risk patients are in the HMO and the low-risk patients in H. & A.'s, the HMO cannot survive. There is no way. Mr. CARTER. That would be a reasonable statement. However, we would hope that each HMO would not be too selective aild would include a cross section of society in a certain area. If you are in a certain area, we would expect you, as far as possible, I think, to take everything in that area, including the high risk and low risk, too. Dr. DAVIS. We feel that, too, except that we cannot take all high risk. If you open up an unlimited enrollment, you would do that. Mr. CARTER. No one would want that to be done. Dr. DAVIS. That was my point. Mr. ROGERS. Dr. Roy. Mr. Roy. I would like to reiterate at the conclusion that the HMO concept will basically preserve the freedom of choice. It is not a great panacea. However, it is beyond the experimental stage. I agree with you that we have the best hospitals, best medical schools, and best doctors, and we are talking about a dual and pluralistic choice for consumer and provider. Your definition of private practice, I think, was good, and I just, in sum, think it was an excellent statement. I also agree with you that we cannot re9uire the HMO to take 150 enrollees from the "end-of-the-road" nursing home and expect them to be able to survive economically. I would like to ask you, however, if each HMO shouldn't be open for a given percentage of titles XVII and XIX patients paid for com- parably to what the titles XVIII and XIX might be paying in the area. Dr. D4VIS. Yes. We feel definitely that these groups should be in- cluded, and under the H.R. 1 proposal we think this is a very, very fair financial arrangement with the HMO group. PAGENO="0411" 1153 Medicaid gives us a little problem, at least in our State. I don't know whether this is universal or not. In our State there is no one group-- this is by legislation-that can receive any more medical care in a given period of time than any other group. So therefore, if you have a group, let us say, in Miami, it might be paid for the medical care on a fee-for-service basis and it can give an x amount of care for x amount of dollars, and we can give x-plus-2 care for x amount of dollars. We can't give this x-plus-2 care; it is not in the legislation. Therefore, we worked out a plan with the people of the State of Florida that we might be able to accept these people on an experi- mental basis, which would put us out of the category of just admin- istering straight medical care, unless we can give them x-plus-2. Mr. Roy. It sounds like a matter of equity based on the lowest corn- nion denominator. Dr. DAVIS. Correct. That is all it is. Mr. Roy. Again, I thank you for your statement. I would like very much to have a copy of it. Mr. RoGEns. Thank you very much. This has been most helpful. This concludes the hearing for this morning, and the committee will stand adjourned until 10 &clock tomorrow morning. (Whereupon, at 11:55 a.m. the subcommittee adjourned, to recon- vene at 10 a.m., Wednesday, May 17, 197g.) 0 PAGENO="0412" PAGENO="0413" PAGENO="0414" PAGENO="0415" / PAGENO="0416"