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.
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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.
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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
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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:)
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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
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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.
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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.
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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,
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1043
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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
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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.
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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.
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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.
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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"
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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?
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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?
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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"
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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
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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
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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.
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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.
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(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.
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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.
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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).
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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.
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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.
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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.
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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
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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)
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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
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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.
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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.
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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.
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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
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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
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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.
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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.
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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.)
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