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NATIONAL HEALTH INSURANCE
PANEL. DISCUSSIONS
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON WAYS AND MEANS
llOTJS1~ OF REPRESENTATIVES.
NINETY-FOURTH CONGRESS
PIRST SESSION
JULY 10, 11, 17, 24; SEPTEMBER 12, 1975
PrlnIed for the use of the Committee on Ways and Means
tY.S. GOVERNMENT PRINTING OFFICE
57-677 WASHINGTON: 1975
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COMMITTEE ON WAYS AND MEANS
WILBUR D. MILtS, Arkati~as
JAMES A BURKE, MassaChusetts
DAN ROSTENICOW~KI, Illinois
PHIL M. LANDRUM, GeorEla
CHARLES A, VANIK, Otito
RICHARD H. FULTON, Tennessee
OMAR BURLESON, Texas
JAMES C. COflMAN, California
WILLIAM J. GREEN, Pennsylvania
SAM M. GIBBONS, Florida
JOE D. WAG~ONNER, JR., Louisiana
JOSEPH E. KARTH, Minnesota
OTISG. PIKE, New York
RICHARD F. VANDER VEEN, Michigan
J. J. PICKLE, Texas
HENRY HELSTOSKI, New Jersey
CHARLES 13. RANGEL, New York
WILLIAM R. COTTER, Connecticut
FORTNEY H. (PETE) STARK, California
JAMES R. JONES, OklahOjjia
ANDY JACOBS, Ja., Indiana
ABNER J. MIKVA, Illinois
MARTHA KEYS, Kansas
JOSEPH L. FISHER, Virginia
HAROLD FORD, Tennessee
Jona M. MARTIN, Jr., Chief Counsel
J. P. BAKER, Assistant Chief Counsel
JoHN K. MEAGHEII Minority Counsel
SUBOO~MITTEE ON HEALTH
DAN ROSTENKOWSKI, Illinois, Chairman
JAMES C. CORMAN, California JOHN 3. DUNCAN; Tennessee
OTIS G. PIKE, New York PHILIP M. CRANE, Illinois
CHARLES A. VANIK, Ohio JAMES 0. MARTIN, North Carolina
RICHARD H. FULTON, Tennessee ~ DONALD D. CLANCY, Ohio
OMAR BURLESON, Texas
JOE D. WAGGONNER, Ja.. Louisiana
WILLIAM R. COTTER, Connecticut
MARTHA KEYS, Kansas
1 Resigned August 11, 1975.
AL ULI4\L&N, Oregon, Chairman
HERMAN T. SCI~NI~E~ELI, Pennsylvania
BARBER B. CONAI3LE, JR., New York
JOHN J. DUNCAN, Tennessee
DONALD D. CLANCY, Ohio
BILL ARCHER, Texas
GUY VANDER JAGT, Michigan
WILLIAM A. STEIGER, Wisconsin
PHILIP M. CRANE, Illinois
BtLL FRENZEL, Minnesota
JAMES 0. MARTIN, North Carolina
L. A. (SKIP) BAFALIS Florida
WILLIAM M~ KETCHUM, California
(ir)
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CONTENTS
Topics of discussion:
Broad assessment of American health status and the, American health
care delivery and financing systems, Thursday, July 10, 1.975 1
`The role of Government in American health, Friday, July 11, 1975..~._ 91
Private sector role in American health, Thursday, July 17, 1975 ~t81
Problems and issues in health care organization, delivery, and financ-
ing, Thursday, July 24, 1975
Panelists selected by the minority Members (including discussion of L
foreign health systems), Friday, $eptember 12, 1975 ~55
Press releases Nos. 7, 8, 9, and 12 of the Subcommittee on Health announc-
ing details of panel discussions on national health insurance 1,. ~ 3
ALPHABETICAL LISTING OF PANELISTS
Bellin, Lowell, M.D., New York City Health Department
l3urlthart, John H., M.D., Knoxville, Penn ~07
Butler, Lewis H., University of California - 92
Cathies, Lawrence M., Jr., Aetna Life & Casualty ~97
Cohen, Wilbur J., University of Michigan
dc Vise, Pierre R., University of Illinois
Donabedian, Avedis, M.D., University of Michigan ~89
England, Robert G., M.D., Carlinville, Ill 190
Fein, Rashi, Harvard University 14
Feldstein, Martin S., Harvard IThiversity -- 257
Freymann, John G., M.D., National Fund for Medical Education 10
Gammon, Max, MI)., London, England 356
Hamilton, John, M.D., Rochester, N.Y 412
Helm, Richard, Health and Social Services Department, State of New
Mexico
Klarman, Herbert E., New York University 263
Lejeune, Anthony, Middlesex, England 360
Lofstead, Sigmund J., M.D., Chicago, Ill 365
Lyrnberis, Marvin N., M.D., Charlotte, NC 4~4
Masiand, David S., M.D., Carlisle, Pa 4~1
Masters, Brooker L., M.D., Freemont, Mich 4~3
McGill, Clinton S., M.D., Portland, Oreg 4~8
Murley, Reginald S., M.D., London, England 368
Quinlan, Donald, M.I),, Northfield, Ill 4~
Reinhardt, TJwe, Princeton University
Siegfried, Charles A., Madison, NJ 284
Somers, 1-lerman M., Woodrow Wilson School of Public and International
Affairs I~2
Stark, Nathan J., University Health Center of Pittsburgh~
Stephenson, Bette, M.D., Toronto, Ontario, Canada 3$Q
Thompson, John Larkii], Blue Shield of Massachusetts 2~3
Wyuder, E. L., M.D., American Health Foundation 5
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NATIONAL HEALTH INSURANCE
(Broad Assessm~nt of American Health Status and the
American Health Care Delivery and Financing Systems)
THURSDAY, JULY 10, 1975
U.S. HousE OF REPRESENTATIVES,
SUBCOMMITTEE ON HEALTH,
COMMIThIE ON WAYS AND MEANS,
Waelthtgton, D.C.
Tho subcommittee met at 10 a.m., pursuant to notice, in the cor~i..
mittee hearing room, Longworth Etouse Office Building, Hon. Dan
Rostenkowski (chairman of the subcommittee) presiding.
[The press releases announcing th~ hearings follow:]
[Press release No. 7 of Tuesday, June 24, 1975]
SUBCOMMITTEE CHAIRMAN DAN R0STENKOWSKI (P., ILL.) SUBCOMMITTEE 4~N
HEALTH, COMMITTEE ON WAYS AND MEANS, ANNOUNCES PANEL Discussior~s'
ON NATIONAL HEAL~I1 INSURANCE BEGINNING JULY 10, 1975
Subcommittee Chairman Dan Rostenkowski (D. Ill.) of the Subcommittee ~n
Health of the Committee on Ways and Means announced today the second staØ~e
in the Subcommittee's consideration of national health insurance. This stage w~l1
involve small panel discussions on the broad lssue~ in national health lnsuranc~?.
The Subcommittee will form these small paneis from members of the Advisoi~y
Panel on National Health Insurance, which it established earlier this year (Se
Press Release Nos. 2, 3, and 5).
`The panel discussions will begin on July 19, 1975 at 10:00 a.m. and are al~o
scheduled for July 11, 17, and 24. The sessions will be conducted in the Ma~n
Hearing Room of the Ways and Means Committee in the Longworth House Qffi~e
Building.
It is expected that public hearings and additional panel discussions will l~e
scheduled later in the year on the subject of national health insurance.
In addition, on July 31, the Subcommittee will meet to consider which aspec~s
of medicare it will want to address In public hearings to be held after `tl~e
`Mg~ust recess. Included in the discussion will be poséible action on recent D~
p~rtment of Health, Education, and Welfare medicare regulations which' wes~e
the subject of a public oversight hearing on June 12, 1975 (see: Press Relea~e
No. 6).
[Press release No. 8 of Tuesday, July 1, 1975]
SUBCOMMITTEE CHAIRMAN DAN R0STENK0w5EI (P., ILL.) SUBCOMMITTEE o4i
HEALTH, COMMITTEE ON WAYS AND MEANS RELEASES ADDITIONAL INFORMATIO
ON NATIONAL HEALTH INSURANCE PANEL DISCUSSIONS ron JULY
Subcommittee Chairman Dan Rostenkowskl (P., Ill.) pf the Subcommittee o
Health of the Committee on Ways and Means today released additional infoi~..'
matton' about; the `panel discussIons on national beaJth. Insurance scheduled fo~'
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July, first announced on June 24, 1975 (see: Press Release #7). It is expected
that the Subcommittee will schedule public hearings on this subject in the late
summer or early fall. The membership and structure of each panel discussion is
attached.
JuLY 10, 1975
SUBJECT: BROAD ASSE~SMnNT OF AMERICAN HEALTH STATUS AND THE AMERICAN
HIIAM'H CARE DRL'IVERY AND FENANCING SYSTEMS
Pqinelisttj
1. E. L, Wynder, M.D., President, American Health Foundation.
2. John 1. Preymann, M.D., President, National Fund for Medical Education.
3. Rashi Fein, Professor of the Economics of Medicine, Harvard University.
4. Uwe Rei.nhardt. Professor of Economics, Princeton University.
~. Kerr White, M.D., Professor of Health Care Organization, The Johns Hopkins
University.
The panel will begin its presentation to the Subcommittee at 10:00 n.m. on
July 10, 1975, in the Main Hearing Room of the Committee on Ways and Means
in the Longwprth Building at New Jersey and independence Avenue, S.E.
JULY 11, 1975
SUBJECT: THE ROLE OF GOVERNMENT IN AMERICAN I~iALTH
Panelists
1. Lewis H. Butler, Professor of Health Policy, University of California,
2. Pierre R. de Vise, Professor of Urban Science, University of Illinois at Chicago
Circle.
3. Richard Heirn, Executive Director, Health and Social Services Department,
New Mexico.
4, Lowell Bellin, M.D., Commissioner of Health, New York Clty.
The panel will begin its presentation to the Subcommittee at 9:00 n.m. on
~uly U, 1975, in the Main Hearing Room of the Committee on Ways and Means
in the Longworth House Office Building at New Jersey and Independence Avenue,
S.1~.
JULY 17, ~975
SUBJECT FRIVATE SECTOR ROLE IN AMERICAN HEALTH
Panelists
1. Herman M~ Somers, Professor of Politics and Public Affairs, Woodrow Wi'l-
son School of Public and International Af~a'irs.
2. Nathan J. Stark, President, University Health Center of Pittsburgh.
3. Robert G. England, M.D., Carlinville, Illiuois.
4. Lawrence M. Cathies, Jr., Retired Senior Vice President, Aetna IAfe á~d
`Casualty.
~. ~J~ohii Larkin Thompson, President, Blue Shield of Massachusetts,
`~he panel will begin its presentation to the Subcommittee at 10:00 am. oa
July 17, 1$75, in the Main Hearing Room of the Committee on W~ys and Means
in the Longworth House Ofilce Building at New Jersey and Independence Avenue,
S.E.
JULY 24, 1975
SUBJECT: PROBLEMS AND ISSUES IN HEALTH CARE ORGANIZATION, DELIVERY AND
FIJ~ANC~G ,
Panelists
1. Martin S. Feldstein, Professor of~Econom1cs, `Harvar~i University.
2. Herbert E. Kiarman, Professor' of Eëoaomics, New York University.:
3. WIlbur 3. Cohen, I~ean, School of Education, U'Mverslty of `Mithlgan.
4. Charles A. Siegfried, Madison, New Jersey.
5. Avedis Donabedian, M.D., M.P.H'., Professor of Medical Care Organization,
University of Michigan.
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The panel will begi~I its presentation td the Subcommittee at 10:00 ~ oit
July 24, 1975 in the Main Rearing Room of the Committee on Ways and l!~Ieans
!n the Longwortb House Office 1~ui1ding at New Jersey and Independence A~enue,
s,~
[Pmes release No. 9 of Wednesday~ July 2B, 1975]
SUBCOMMITTEE CHAIRMAN DAN R0STENRÔwaNI (tb., ILL.) ANNOUNCES PANE4 Dis
CUSSION ON NATIONAL HEALTH INSURANCE (WITH PANELISTS SELECTED i4 THR
1\4INoRIT~) SnpTE~ER 12, 1975
SubcOmmittee Chairman Dan Rosienkowski (D., ill.) of the Subconamit1~ee on
Health of the Committee on Ways and Means, today annoupced aa addi~ional
panel on national health insurance, with panelists se1~cted by the miuorit~. The
panel discussion will begin at 9 :Q0 am. in the Main Rearing Room of the ~Ways
and Means Committee in the Longworth House Office Building.
It is expected that public hearings on natlocnal health insurance will begin
later in September or early October.
The list of panelists for September 12 will be released in a later announcerent.
[Press release No. 12 of Wednesday, Aug 20, 1975]
SURc3OMMITTEIm CHAIRMAN DAN ROsTuNxowsHx (D,, ILI~.), SUBCOSRUI~TT~E ON
HEALTH, COMMITTEE ON WAYS AND MEAI~S RELEASES MEMBERSHIr OF }~ANImL
DISCUsSION FOR SEPTEMBER 12, 1975 SELECTED nv THE MINORITY MEMBE*S or
THE SUBCOMMITTEE
Subcommittee Chairman Dan Rostenkowski. (D., Ill., )of the Sabcom4ittee
on Health of the Committee on Ways and Means today released additio$l in-
formation about the panel discussion on national health insurance scheduled for
September 12, 1975, first announced on July 23., 1975. (See: Press Release #9)
A list of the members of the Panel selected to represent the winority follows:
TENTATIVE LIST OF WITNESSES'
Panel Of Witnesses for 9:00 LIT'.:
Dr. Max Garn~on, London, England
Mr. AntimonyLejeune, Middlesex, England
Dr. Sigmund J. Lofstead, Chicago, Illinois
Dr. Reginald Murley, London, England
Dr. Bette Stephenson, Toronto, Canada
Panel of Witnesses for Afternoon Session:
Dr,. John II. Burkhardt, Knoxville, Tennessee
Dr. John Hamilton,',Rochester, New York
Dr. Marvin N. Lynberis, Charlotte, North Carolina
Dr. Clinton S. McGill, Portland, Oregon
Dr. David S. Masland, . Carlisle, Pennsylvania
Dr. Donald Quinlan, Nortbfleld, Illinois .
Mr. RosrIlNKowsKI. The Subcommittee on Health will, corn to
~rder.
Today the Subcommittee on Health begins active oonsideratio of
national health insurance. I~stead of first receiving testimony o~i pe~
cific proposals from interested organizations and individuals, we
thought it would be useful to begin by exploring, with a series of ex-
pert panels, the broad outlines of health care in the Uinted States nd
some of the major issues we will need to address as we frame a natiqnal
health insurance bill. Later, probably in early fall, we will li1~ely
hold public hearings at. which all interested parties can express their
lTiews. . . S
At the beginning of this year the subeo~nm~ttee invited individi~als
and organizations to submit written statementh on the subject of na-
1 AdditIons or changes may be announced at a later date.
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tAônal `health in.sur~ance. This permitted the updating. of testimony
presented during the extensive hearings on national health insurance
the Committee on Ways and Means completed a year ago, and also
bifered a fresh opportunity for the expression of views by those who
had not previously' testi'fied~ Thes~ `st~tements will soon be available
in the form of a printed record thus furnishing the subcommittee the
full benefit of the information and views presented before we begin
consideration of specific national "health insurance proposals.'
The panels of experte who will be sharing their knowledge of tiçie
American health' care system with us during this' monthwere selectecl~,
like the larger advisory panel o'f which they are a part, not to rep~
resent the viewpoint of any organized group but rather to let us bene-
fit' from the fruits' of their own individual studies `and experiences
In health `care and health `care financing. There will be ample oppor~
tunity later for the' expression of official positions by organizations
and individuals. Our objective br the momçnt is simply to learn and
try to understand, so that the decisions we make later will be soundly
based.
We begin our broad review of this subject with an exploration of
American health status, our health care delivery system or systems,
and how we finance the $100 billion or so' being spent for personal
health care. Tomorrow we will take a broad look at the role of Gov-
ernment at all levels in American health. On July 17, we will examine
the private sector role. And on July24,' we will take up problems and
issues in health care organization,'d'elivery, and financing.
`I believe t'hat the subcommittee will agree with me that we should
plan for additional sessions like `the ones already scheduled with se-
lected members of the subcommittee's advisory panel as we narrow
our attention to more specific issues. I say this because one thing that
has become clear to me in the months since I assumed chairmanship
of this subcommittee is that the American health care system is ex-
traordinarily complex. You cannot change any part of it without
affecting other parts-perhaps in ways not able to be anticipated.
We need to learn a great deal about the American system of health
care, and we. must approach the task of framing national health in-
surance legislation with ~a great `deal of sensitivity and `even humility.
I have been looking forward to beginning these panel' sessions.' We
* have a fine group of expert witnesses who have agreed to meet with
us and I want to have every' member `participate in these sessions to
the fullest.
We hope to proceed somewhat informally today, using a format
that will promote' understanding and the exchange of views. The
panel members have been asked to make a brief opening s1~tement,
so as to leave adequate time for questioning and disc~ission' among
both panel and subcommittee members.
I would like at this time to open for any commen't that any member
of the subcommittee would like to make before I introduce the panel.
Mr. DUNCAN. Mr. Chairman, I apologize if you nientioned it in your
ètatement; I didn't have `it. I noticed today that we have ~.`panei of
people apparently who do not practice medicine and wouldn't have
first-hand knowledge of such practice. Are we planning on a panel of
actual physicians or people in the medical field who' are `actually out
in the boondocks practicing~ mçdicine ? I would say that the panel
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today is composed of pe~ple who have never practiced, I think ~ould
have been a little better baian~ed.
Mr Ros~NKowsKI As I said earlier, Mr Duncan, it's prim~iriJy
for an educational process and for the exploration of the eiper~ence
that these gentlemexi have. We expect certainly to have public. wit~
nesses and general ~practitioners at some time in the future.
Mr. DUNCAN. Thank you, Mr. Chairman.
Mr. PII~E. Thank you, Mr. Chairman. I am delighted that w~ are
embarking on these hearings on a subject in which I have been $ry,
very rnter~ted for a great ~tt~ny ~years I think that I should s~y at
the outSet df these bearing~, just so you may understand some ~otes
that I cast in the future, that for 25 or 30 years now I have been either
a director of a general hospital or a director of a proprietary hos~ita1
and an officer thereof. So I do have some frame of reference in re~ard
to this matter.
We are going into this in a very broad sense. When we get to a tual
voting on an actual bill, which looks a long way down the road, I may
feel compelled to vote present sometimes but it will not be for lack
of in'térc~t on the subject matter.
Mr. RosTENKows1~I. I hope, Mr. Pike, that the opportunity foi~ you
to cast your vote will not be in the too long distant future.
Mr. Cotter?
Mr. COTTER.. Thank you.
A PANEL CONSISTING OF B. L. WYNDER, M.D., PRESIDENT, A1óRI.
CAN HEALTH FOUNDATION; JOHN G. FREYMANN, M.D., P~ESI-
DENT, NATIONAL FUND FOR MEDICAL EDUCATION; RASHI F~IN,
PROFESSOR 0F' THE ECONOMICS OF MEDICINE, HARVARD ~.TNI~
VERSITY; AND UWE REINHARDT, ASSOCIATE PROPBSSO1~ OF
ECONOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSI~Y
Mr. ROSTENKOWSKI. Gentlemen, we certainly welcome you. I am
ing this will be a refreshing beginning. I know that we on the panel
here and you on the panel there are all certainly hopeful that w~ can
develop some worthwhile legislation. I think we are in total agrcex~ient
that the country is in need of some health insurance program.
It is at this time that I would like to welcome Dr. Wynder, presi~ent
of the American Health Foundation; Dr. Freymann, president oi~ the
National Fund for Medical Education; Professor Fein, professo~ of
the economics of medicine at Harvard TJniversity; and Professor I~ein-
hardt, professor of economics, Princeton University. I am sorry tç~ say
that Dr. Kerr White, who was originally scheduled, is ill and wi~ be
unable to appear today, but we hope to have him sometime in th~ fu~
ture.
Dr. Wynder, if you would like to begin the discussion, please d? SO.
STATEMENT OF ~. L. WYNDER, M.D.
Dr. WYNDER. I would like to comment On the opening statemer~t. I
have and I do practice preventive medicine and if w~ in the mec~ica1
profession would have succeeded in the practice of preventive n'~edi.
cine, it is unlikely that we would ha~ve to hold the hearings today.
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It would seem from the history of rn~'dicine, as ind~& from history
in general, that while man has obviou~l~ enhanc~d his kno*ledg~, he
has not enla~'ged his wisdom. Fort~five hulidred' ~ar~ have~ passed
since Huang Ti declared in China:
Hence the sages did not treat those who were already iii; they instructed those
who were not yet ill. . . . To administer rnediç~1nes to diseases which have al-
ready developed and to suppress revolts which have aiready developed is corn-
parable to the behavior of those personS who begih to dig a well after they have
`become thirsty, and of those who begin to cast weapons after they have a1re~tdY
engaged; in battle. `
Several decades ago~ William James Mayo was quoted as sating;
The aim of medicine is to prevent disease and prolong life. i~he ideal of medicine
is th eliminate theneed: of a physician.
We would concur that this is still the basic goal of medicine, as in-
deed is well reflected in an old Greek motto that has become the basic
saying of our foundation-that it should be the function of `medicinç
to help people die young as late in life as possible.
THE ISSUE -
This being the case, we should ask how our current medical care de-
livery system is addressing itself to this issue, where the primary
problems in achieving these goals lie, and how a program of national
health insurance could contribute toward its attainment, With a de-
creasing birthrate, we are faced over the next few decades with the
predictability of fewer wage earners as healthy as possible and reduce
the need for unnecessary and increasingly expensive hospitalization
among our older individuals. `
If we fail in this, our Nation will be required to undertake. a major
shift of priorities in the national economy; one that would ~ee an
ever-increasing percentage of the gross national product tied up in.
health care delivery services. This would be a task of unprecedented
dimensions, and one that might well b~ impossible, within the present
productive framework of our Nation, particularly in view of Otl~ër
formidable competing priorities. `
The consideration of a national health insurance system is politi-
cally ,natural in the increasingly mutualistic atmosphere of our deL
mocracy. A health insurance system immediately brings to mind hos-
pitalization needs and the coverage of disease costs, but if we are not
to n~ake of this system an economic monster, I urge you to, consider
how'disease, life, and moneysaving measures ca~i be built into such a
systern~.
That is why I shall stress in my remarks areas involving pr~venth~e
medicine. I would like to `caution, however, that as hds been experienced
by national. health insurance systems in other countries~ and indeed
from our own experience with medicaid and medioare~~-~a cost-effective
health insurance system requires, in order not to be economically over-
burdened, a disciplined population and a disciplined health care pro-
fession in order that its obvious advantages are not destroyed by an
overzealous use of its opportunities.
It seems appropriate that, in discussing the health needs of the
the United Sta~t~s, one begins by enumerating the major causes of death
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and disability in our country, the oppQrtun~ties~oI~ preventing or ur-
ing these conditions and the problems we face ~i~on~bating these rn
foes of premature death and disability. It so happer~s tba~ four ~on-
ditions: Heart disease, cancer, stroke, and `accid~ts, make up 70 per-
cent of all deaths among Americai~s, while heart disease, arthritis ~nci
rhetimatism, impairment of back, hips and lower extremities, rneiiital
and nervous disorders and hypertension represent 40 percent of the
reasons for disability `among our population. Therefore, it is in tl~es~
areas that we need to concentrate if we are to make a significant im-
pact on disease rates in the country.
The major factors contributing to death from heart disease, canper,
and stroke in the United States have been well established by ep~de-
miological and laboratory studies. Factors for which the incidencp is
most consistent include, for cardiovascular disease-overnutrition (es-
pecially with regard to fat and cholesterol intake), hypertension, ex-
cessive cigarette smoking and physical inactivity; for caneer-ex~es-
sive tobacco usage, nutritional deficiencies and excesses, and ceri~ain
occupational exposures; and for highway accidents, alcoholism ~nd
drug abuse, poor highway, and automobile designs.
Thus, in a society where infectious diseases have been largely over-
come through sanitary mea;silres, immunization, and antibiotics, the
major causes for today's death toll are chronic diseases. This death
toll Is largely due to unhealthy lifestyles, unhealthy working envn~ou-
ments, and disease-inducing products. If we are to prevent these çtis-
eases, we need to concentrate on their causes.
PROBLEMS OF DISEASE PREVENTION
It may be asked why, if e~iological factors of certain dis'óases h ye
been established, there hasn't been more progress in the preventior of
these diseases. Among the reasons for this failure are man's appar nt
apathy toward anything preventive-whether with regard to ene gy
cotiservation, highway safety programs, or health. We tend to live or
the present, believing that the future will take care of itself. We a1~o
seem to suffer from an illusion of' immorthdity, apparently related to~
our inability to face death. The problem is further'compounded e-
cause doctors `are trained mainly in therapeutic medicine; and beca~ise
reimbursement for medical care is nearly totally geared toward thpr-
apy. Given these facts, ad'd'ing that preventive advice given to patie~its
is not as dramatic in public or private terms as combating sympto-
nmtic diseases, it is little wonder that many of today's physicians do
nOt stand in the vanguard for the cause of prevention.
Phe hospital system is another part of the problem. Our hospit~ds
deaJ primarily with cure, not prevention. Since reimbursement is ain~ed
mainly at inpatient, rather than ambulatory care, and since hospit~tls
are reimbursed for therapeutic rather than preventive care, it is r~ot
surprising that the latter is being neglected,
These attitudes are reflected in current practices of the health insiiir~
ance industry which, again, concentrates largely On reimbursement ~or
therapy for specific disease symptoms and not on prevention. It is
unrealistic to expect that the medical and' allied professions, in an e
nomic climate such as Otirs, will behave any differently than any ot
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~e~m~xit of society. As Ióñg as our society provides economié incentives
primarily for therapeutic care, it will be therapeutic care which re-
ceives the most attention.
Yet, we know from medical history that the world's major diseases
did not succumb to therapy alone; instead the only time they were ever
eradicated was when effective preventivemeasureS were* applied. This
lesson from~ *~hist~ry also applies to chronic "noncommunicable diseases
such ~s &~rdiovasciilar dise~; canrer, and chronic pulmonary disease~-
diseases which have a long latent period, irhich by and lar~ge ar& not
likely to be cured in their later stages, but which are often preventable.
RECOMMENDED MEASURES
The following attempts to crystalize the major steps which can
lower costs and contribute to a better health care program than the
one we presently have.
1. First of all, we, as a nation, must resolve that health care ranks as
one of our country's major goals. To accomplish this goal requires the
cooperative efforts of varjóus segments of society. It is obvious that
the medical profession cannot, by itsei~, `determ~ne which type of a
health' system would' be `best for the country. Industry, labor, econo-
mists, health insurance experts, Congress, and the public at large need
to coordinate their expertise with that of the health professionals in
order to arrive at a health care delivery system which is best suited to
the needs ~f the United States.
2. In order to improve the he~Jth care delivery system, both medically
and economically, several measures should be included in whatever type
of national health insurance system is contemplated.
The sy~stem must accentuate financial' incentives for ambulatory care.
Existing hospitals should be reorganized so that they can provide, in
addition to therapeutic care, efficient ambulatory care for their corn-
munities. Appropriate incentives should also be given to physicians to
provide preventive care. Included in this care should also be: immu-
nizations, maternal and child care, pre- and postnatal care, general
health education and motivation, as well as therapeutic care. The am-
bulatory care unit thus includes `both preventive-primary and second-
ary-and therapeutic programs. The preventive care programs should
be of, the sho~tm and long-range type and should modify their services
in Iine"witii the specificneecisof various.'populatipn groups. T'he am-
bulatory preventive care program should be extejnçled into the schools
where meaningfñl health programs are currently almost nofiexistent
Effective p'reventive medicine-as is the case with education in gen-
eral-has its greatest impact on theyoung.
3. Ambulatory care delivery programs can, to a large extent be
carried out by allied health professionals, nurses, medical corps ,men,
health educators, behaviorial psychologists and sociologists who, under
the overall supervision of physicians, in many instances can undertake
effective therapeutic programs and significantly help in modifying the
lifestyles of our people and in detecting early disease.
4. A national health insurance program should not only ,provide
effective ambulatory and preventive care programs but shonid also prom
vide incentives for the `public and the health care delivery system to
see to it that su'~h heaithservices are effectively utilized.
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S 9
5. ~Recognizing that individuals wjll always represent the: weal est
link in preventive procedur'es, in addition to providing meaning ill
incentives to utilize cost-effective preventive services, ~mphasis sho id
be placed on "managerial," preventive measures. These include, furtJ~ier
development of less harmful smoking products-a nieasure especi~lly'
recommended for a society which~ is likely to continue to cond~ne
smoking as s~ci~lly acceptable-~and the modifiqâtion tfAtheriea~c~oci
prodncts towaid clevelopinga "prudent" diet, ~ne low in fat and ehol~s~
terol and thus more commensurate with today's reduced caloric exp~n-
ditnres, as well as. a diet that leads; to proper growth o.f our poor d
underprivileged. Managerial preventive medicine also includes red c-
ing workers' exposure to harmful elements through legislation a d
making certain that no new harmful components are introduced i to
the environment. It also includes the enforcement of speed limits whi h,
in addition to saving lives, would also help in the conservation of
energy. Existing laws with respect to drunken clriving.,and automobie
and highway safety should be vigorously enforced.
6. It is suggested that all preventive programs as cui~rently c ri-
ducted by various branches of HEW and other governmental agencies,.
be coordinated and supervised by an OfRce of Disease Prevention to
be heated. by a Deputy Assistant Secretary reporting 4~reetly to `t e
Asststant Secretary. S
Finally, I would like to bring the following recommendations to~
your immediate consideration, that:
7. In any authorization for national health insurance-even in t e
initial development stage-Specific allocation equal to one-tenth o 1
percent of the dollar authorization be directed toward preventi e
medicine, research, and evaluation of existing systems.
8. That the chairman with the advfre of the committee direct t e,
Secretary of HEW to appoint a task force on preventive medici e
for the purpOses of examining, on an across-the-board basis, th~ exte. t
that preventive medicine is presently being practiced for the purpo~se'
of determining specific feasibility as to what is accomplishable throii~h
preventive medicine. S
9. That the chairman with the: consent of `the committee direct t~e'
Secretary of HEW to report within 90 days' On the extent of tl~ie
taxpayer-supported research in the area of evaluating the cost `bene~it:
of preventive medicine.
10. That the chairman direct every witness to address themseIv~s
to the specific question of how the financial cost of disease care c~n
be reduced through preventive medicine. `
In summary, we have emphasized the roles which ambulatory. car~
preventive care, allied health professionals can, and should play jn
a national health insurance program. It should be emphasized th~t.
all such programs should be continuously scrutinized for their co~t
effectiveness and cost benefits.
Preventive medicine, if properly advanced, can make a major ii4
pact-both medically and economically-on the high rate of disease i.~
this country. It requiresa full-time coordinated effort fOr its goals and
a~piratiQn~ to be fulfilled. We have also set forth the obstacles-scier~-
tific, eoondmiq, and human-which face the proponents of preventiv~e.
medicine To overcome these obstacles requires the understanding ana
the support of the people and, consequently, the Cóiigr~ss. Congresi~
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10
through its iegi~lative powers and particularly through its iniltience
~on a national health'insuranc~ program, has the opportunity to má'k~
hours a healthier society, one with the lO*est infant mortality and
highest longevity, and one where Our motto of "dying. young in life,
as late as possible" will be fulfilled. `With the scientific evidence avtti1~
able today, with the cooperation of the medical and a1l~ed health pro-
fessionals, and with the determination of the American p~op1e, along
with le~isIative stimulus from the Congress, we can make the realiza-
tion of this motto come true in our lifetime.
$TAT~MENT OP JOHN G. `PREThAN~, M.D.
Dr. FREY~ANN'. `I am John Gordon Freym'ann, a physician~ member'
of the family practice faculty at the University of Connecticut, ~tnd.
the president of the' National Fund for Medical Education. I would
uti'ke to assure Mr. Duncan I have taken care of patients for 25 year~ and
I am still taking care of them now. I have never b~en in ful1~time
private practice' but I think it is the care of patients, not one's ways
of collecting fees that is important. Sc I understand the problems..'
Henry Ford said that histofy~ is bunk. I will not argue the point,
bnt histor~r is `the only way I know to understand the complex and
seemingly irrational organization of the American health care system~
My assignment is to take the subcommittee through a brief history to
show how our system got to be the way it is. To do this', I will trace
three chains of causation which, woven together, have pro~luced what
we'have today. `These three chains are: (1) The organization of health
facilities, `with particular reference to short-term hospitals; (2) the
education of the health `professions, with particular reference to
~hysicians; and (3) the fln~ncing of health serviceS.
ORGANIZATIO~~' OF HEALTH FACILITIES
Pennsylvania Hospital in `Philadelphia was the first voluntary-
that is, private, nonprofit-hospital in the Nation. Opened in `1ThO,
`it was a faithful copy of the hospitals of London. These institutions
had evolved a peculiar, tripartite organiza'tion over the centuries. I
am interested to `find that Mr. Pike is a `member of this tripartite
organization.
The' board of trustees, which owned the corporation, was a mech-
anism for, governance that replaced the chUrch after Henry VIII
abolished the monasteries in 1536. The `hospital administration was
employed by the trustees, but the medical staff was an independent
cadre of private practitioners. "They were not employees because the
original hospitals were hospices for the poor. Centuries passed before
they `became places exclusively for the sick where an attending staff
of doctors was needed. Hospitals eventually employed some doctors,
but they were apprentice physicians or surgeons.
`This medieval model, brought to the Colonies frem the mother
~ountry,' is still followed throughout the United States. All of our
voluntary hospitals, secular and `religious, have this same basic orga-
nization. So do most city `and' country hospitals, although here the
trustees' may'b~ elected or appointed officials. The administrative staffs
are employed `by `the trustees, as are the apprentice doctors whom we
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11
~w call re~ide~its. In the la~t 25 years, rnai~y hospitals Mv~
f~i1l-ti~e~ s~l~ried clçetors to lie~d majcr cT~partme~t.s su~h~s sm~gery
~nci interruil medjcine, l3ut th~ vast majority of d9ctors wQrl~a~Lg in
tsehospital~ ~re practitiQi~ers WI~0: ~ece~ve tb~ privih~ge c$ usw~tITe
f~a~cj1ities from the ti'ustee~ and a~'e p~u~ directly, for their s~x~vi~es
by their patients or by third-party payers.
In spite qf their long history, hqspitt~Js pb~yccl~a miiior role u~i the
4~meriqan health caere system until ~th~ 20th qentury. Jn 1873,. t~here
were only 178 ~ro~igovernmcntal ho~pita~s ~y J~9O9 there were 4~9.
Even then, however, hospitals were átill primarily places: for the ~oor,
Anyone who could afford it was cared for-even operated on-at home.
By the 1920's surgery had moved into hospitals, bii~ in 1940,44 pei~cent
of American babies were still delivered at home. Internists ~vere
even slower than the obstetricians. Not until the discovery ~f a
panoply of "wonder drugs".and invention of a variety of highly 1~ech~
nical diagnostic ant treatment techniques clfrT departments Of internal
medicine eco un the l~ey components of every hospital they are to~lay~
.The~magnitnde of the change in ~hespib~ -fto*hnvens for the poor
to social necessity for all-is reflected inthe following figures. Bet*een
1.36 and 1973, thenumber. of hospital admissions per thousand p pm
lation rose from 61. to 145. One American in 10 is now admitted 0 a
short-stay. hospital at least once every. year.
The place. of in-patient hospital facilities in the American health
care system~ is important to this committee because half of all nati~rnal
health. expenditures occur in this milieu. However, I have ano1~ber,
perhaps more important reason for emphasizing hospitals.. `1~'hey
have become the nuclei, for medical practice in many, if not $ost,
communities. .
Use of hospital ambulatory facilities for diagnosis and treatr~ent
has risen far more rapidly than in-patient admissions. Ainbula~ory
visits now exceed admissions by 5 to 1. But since nearly 90 percei~t. of
`all doctor-patient encounters still occur in doctors' offices, isn't this
where the action really is? Yes, if one looks at volume instead of~ ex-
penditures, the action is `in doctors' offices. However, the gravitati4nal
pull of hospitals is having a pronounced effect on where these of~Ices
`are located. Across the Nation, doctors' offices are clustering more ~and
more around hospitals. Thus, although direct fiscal links between ~uos-
pitala and doctors are infrequent, in a functional sense each hosj~iital
has become, or is rapidly becoming, a community health center, or,
if you wills a center for community health delivery.
This clOse association among doctors and hospitals is peculiai~ to
the United States, and Ca~ada. In every other major nation, doctors
~re rigidly divided into an elite cadre of hospital-based specialists, ~ho
~`re usually salaried,, and a larger group of less specialized or prim~ry
nhysicians who care for ambulatory patients and are denied acces~ to
hospitals, In contrast, the American doctor without hospital privileges
is an exception. In fact,. the discovery that `several thousand doctor~ in
New York City had no hospital assOciation was viewed as scandaiCus.
I come t~q, the `end of this first chain of causation in the evolut~ion
of our hea1~th cai~e system with this point The machinery for deliver~ng
personal health services to `the `American people may' be divi~Ted
ronghly, into 6~Q0Q~plus ~hist~rs,. Each of. these consists of a reiativ~ly
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12
autOnomous h~spit~l and a constellation of doctcrs, most of whom arc
nt private practice It is a symbiotic relationship The dootors ~tre
dependent on the hospital's diagnostic, treatment, domiciliary and,
to a growing ~tent,' educational facilities. The hospitals depend on
the doctors to iefer the patients who are the source of 95 percent of
hosDital revenues.
}~ow did this symbiosis develop? Why `don't we have the neat
pyramid of `health services that other nations such as ~ritain `have:-
a broad base, of primary physicians, a network of secondary hospitals,'
and a' few th~tiary hospitals at the apex? For the answer we must look
at the other chains of causation. , ,
EDUCATION' `OF `?iIYSiOIANS
After a promising stai~t in the 18th century at Pennsylvania and
Columbia, medical educa~tion in the United States went into a long
century of decline. `Over 400 schools-most of them diploma mil1s-~
bloomed and withered during the 19th `century. Doctoring fell to such
a low estate that it was said medicine was the career for those who were
too lazy, to farm, too stupid ~or the law, and too immoral for the pulpit.
Opening of Johns Hopkins Hospital (1889) and Johns Hopkins
Medical School (1893) marked the birth of a ~.ew era J~Lopki4~s took
all that was best in English and"Fre.n'ch medical, education; `which was
based on clinical experience in hospitals, and combined it with all that
was best in German medical education,' which was based on research-
oriented universities. The result was unique-a medical school in which
students were taught by clinician-scientists in a hospital. John Shaw
Billings, the unsung genius who conceived Hopkins, rnwer intended
it to replace other medical schools, which he saw. contintilug to'prothi~o~
practitioners. To him, H~pkins was a unique school for future teachers'
and researchers.
A lcentttcky schoolmaster `named Abraham Flexner changed all
that. His report on the state of medical education in the United States
was published in 1910 with the powerful backing of the AMA and the,
Carnegie Foundation. Hopkins was the only school' which completely
met Flexner's standards because he wrote the report under the `ihfiu-
ence of members of the Hopkins faculty who believed medicine was
emerging as an' exact science on ,a par with physics and chemistry.:,
Like Moses descending from Sinai, Flexner presented the Hopkins
curriculum to the other schools. Those that did' not accept it eventually
closed their doors, and for the next' 60 years American medical students
marched in lockstep through a ourri~ulum~which had been exemplary
in 1910. `
The other part of Fl~xner'~ credo `was that this curricuiithi' should
be taught by full-time professors who were not distracted by practice.:"
This took longer to achieve. `There was not enough money to pay' full-
time faculty in most schools until the Congress poured Federal funds
into research from' 1945 to 1965. This permitted' tli~ many schools that
had been unable to achieve Flexner's dream of a full time faculty to
finally consumate it. ` ` `*".`,,
If I may interject there, Mr. Chairman, this is a "b'~autifui ~xarnple
of'how `as you said" earlier changing' on~ factor in the health' ~are'sys-
tern has completely unexpected: results, `because this was `not, Congresa
intent. ,
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13
Unfortunately, by thetime the last school fell into line the Fl
nenan era ~ as ovei-a vietliti of its owfl success Almost all the inf
tious~diseases that blighted the Nation in 1900' hadbeen cQnquerecl 11~3r
1954 In that year the de'ith rate suddenly stopped falling and we cii-
tered a new era. Now the chief banes of the Nation's health are em -
tional, environmental, and genetic in origin. Some may be contain `d
but once they are started they cannot be cured but only contained.
But the patteru first ~ut atJIe~kins had been set Scientific ritedici e
was too complex for a single nund to encompass, so doctors divid ~d.
into 2 dozen specialists. Scientific medicine, taught on hospital war a
full of patients with florid diseases, beguiled students into specialty
practice, and general practice whithered and almost died. Scientii~
medical practice required modern hospital facilities, and two gener4-
tions of superbly trained specialists brought this message `to cor4-
munities t~cross `the land which were eager to provide them with ever~-
thing they needed. ` `
Thus, we can see how the' first two chains of causation intertwine~i
to produce the system we have today. Hospitals fiourishe4 and. becaix$e
centers of medical care `because scientific practitioners needed then~,'
but post-Flexnerian doctors became what they were largely becaus~
they were tau~h~ in I~spitwls where the main thrust was care of an~
ré~earch on~actite' disedses. The third chain,' financing of health seri~-
ices, simply bound the first two more tightly together.
FINANCING HEALTH SERVIQES
I will spend the least time on this topic because most of it is we~i
known to the committee. ` `
Health insurance had flitted across the national stage since the early
1900's, but' the Great Depression gave it a major role. The earlies~
plans `cOvered hospital `expenses for surgery, and, some years latei~,
surgeons' fees. Over the years, benefits have been extended to `cov*
most: hospital expesnes-aithough many still `skimp on psychiatri~
coverage-and most doctors' fees for services rendered in the hospital~
`Only recently have benefits been available `for ambtilatory carer-an~
these~ are still far from comprehen~ive. Medicare and medicaid per~
petuatecithis undue emphasis on hospitalization. The reason is simple.
Discreet services for acute conditions rendered in 6,000 hospital~ ar
far easier to monitor than comprehensive care rendered in 100,00
offices and clinics. But in their eagerness to control costs the accountan
put the finishing touches on the system that had been' developing fo
200 years. Third-party payers dangled incentives to hospitsalizatlo
before patients. doctors, and hospital administrators that were in~pos
sible to resist. To do. otherwise `ñieant `the p~tient paid out bf kocket
the doctor had less certain fees, and the administrator staffed empt
beds. , `
CONCLUSION
The vast enterprise which some find s~ confusing that they call it a~
health care "nonsys~em'! evolved through a chance coming together Q~
18th century organ1?~tions, 19th century science and educ~tion, anc~
20th century finaitc~. Butevolut~on has not stopped. It is stME' going oi~
as `the `Nation experiments with new, methods of delivering care, withL
new educational techniques, and new financing schemes. We have no~
come to a dead end. Far from it.
57-677-75----2
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14 *
The problems we face today resulted from the sucqesses of qur health
care s~stem, not its failures, and if it can continue its evolñtion I, am
~onfident that we can lick the problems of the present and prepare
for those this Nation will face in the 21st century. The three chaiiIs of
causation have not come to ~tn end, Knowing the.direqtions they have
taken in the past and the effects these changes have had, w~ should be
able to e~thrapo1ate each chain into the future. With a hnowledge of
history, we can substitute a degree of rationahty for mere happen-
stance as we move ahead.
Fle~ibiiity, innovation, eyokition-~4hea~ are the bys to success.
But `let me close with. this caveat. Every other nation that ha~ adopted
national health insurance has fro~en its health care system, at that
particular moment in its development. No other, nation has been. able
to' use national hea~th insurance has made change slower and more
difficult. I respectfully suggest that this committee should, res4st the
temptation to think that one piece of legislation can revolutionize
health care. . . . . .
Americans are ahyays tempted to tear down, the old. and .~ebmid
from scratch, but the history. of previous 1egi~latipp to effect social
changes shows that it is impossible tq tear down s~eial systems whiph
have taken centuries to evolve.. This is even more trup when the~ hos-
pitals of our health care system represent a $40 billion capital invest~
ment~ a $50 billion'annua.I budget and employ i~early 3 million ppople.
Like it or not, we must build on what we have, not on airy flights of
fancy.
The challenge to this committee, as I see it, is to coiistruct an insur-
ance system that will remove all financial barrier~, to health care: but,
will not raise barriers to the continuing evolution of our health care
system.
Mr. Chairman, thank you `for this opportunity to present my views,
I wish the com~nittee good fortune in the~task ahead, `
Mr. RosTENKowsi~I. Thank you, Dr. Ereymann.
Professor Fein.
STATEMENT. QP ,~ASUI PEIN
Mr. FE~N. Mr. Chairman and members of the subcommitte.C, I wish
I, too, ~could assure Mr. Duncan that I treat patients but the best I
can do is say some of my best friends are physicians.
Mr. Chairman and members of the ~bcommittee~ I very much ap-
preciate the mv~tatwn to participate in this panel discussioi~ and a~m
pleased to be able to do so. ` `
National health insurance remains one of the most important, un-
resolved domestic issues that this Congress faces. In part, the post-'
ponement of debate on a universal :and comprehensive national health
insurance program reflects the fact that other high priority matter~
have commanded the attention of the legislative and executive
branches and of the American public. In part, it reflects the complex-
i t~y of the issues that surround `the medical care sector and its financing.
it is. therefore, most encouraging that you have decided' to move for-
ward with these sessions. All of us who are' concerned with' the inequi-
ties, `inadequacies and costs of existing programs and who are. `eox~-
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15
vinced that action is required if nJi the American public is to ree
its full money's worth for the over $100 billio~i spent -in the he~1th
sector look forward to your deliberations. -`
In the interests of allowing a maximum opportunity for quest.~ons
and answers, my prepared remarks are very brief. I h-ave outlindd a
few major points that may help provide a f~mework for discus ion
of the goals and mechanisms of a national h~t1th ifisurance progr in.
1. The economics of the medical care sector is unlike that of `ot or
~ectOrs. We are led astray `if we apply the tools of convention~'l co-
nomid analysis: assumptions concerning the goal of profit `maxim za-
tion', assumptions concerning competitioi~ consumer- sovereignty," nd
so forth. The medical care system has developed patterns, of beha~. i'or-
and of decisioiimfiking," patterns of resource allocation and fund~ng
that set health care services apart from other economic activities.' 411
economic sectors have their' own special characteristics, but the he~lth
sector is more "special" `than others. `Perhaps the most critical elethpnt
of difference is `that the key decisi'onmaker in the medical caredra~na
is the producer (physician).; not the ~onsnmer (patient). To focus~ on
patient decisions is to misdirect our attention. Patients do not entert or
leave a hospital, do not buy drugs, order tests, `or elect surgery exc~pt
as physicians decide for them `that they shall consume these goods~ or
services.
While Only 21 percen't of the $90 billion spent for personal hea th
dare is accounted for by physicians' service's, the physician "controls"
the level of expenditure for other major parts of the health care .s:ec-
tor; for example, the $41 billion for hospital care. It is the physician
who, in large measure, decides what `and how much care shall be c~n-
sumed. Financing programs `that are designed ` to affect consuther
behavior-say, via cost-sharing mechani~ms-miss the essential poi' t:
it is producer behavior that is at issue. It is the physician, not he'
patient, who is making the critical and costly consumption `decisio s.
`2. It is a fallacy to `imagine that physicians make decisions `sol ly
on the `basis of "scientific" considerations. Many variables, includi g
economic relationships, affect choices. Medical care services dan' be
produced in different ways, utilizing various combinations of: e-
sources. The choices-which services, where offered, for whom- re
not determined by medical science alone. They are `affected by paym nt
mechanisms, economic incentives and penalties, reimbursement f r-
mulas-~by `the nuts and bolts of insurance contracts,' Government
regulations, et cetera. If public or insurance dollars are `available to
pay for certain services-for example hospital care-rather than ~or
other-for example, preventive care-the system will emphasize t~ie
former. Physicians and institutions respond `to the availability of
various resources and to the existing patterns of financial covera~e.
There is no "neutral" financing program. The issue of the range a~id
scope of benefits, thus, becomes more than an issue of financial `pi~o-
teotion. It lies at the heart of the resource allocation problem. It affe~ts
the direction and costs of the system.
3.' Historical developnien'ts have emphasized insurance protecti~n
for hospital expenses. This is fully understandable since these are the
1~igh pricetag itemS,' and both patients and hospitals needed the fin'a~-
tiul protection. Nevertheless, it is a fun4amental error to `believe th~t~
PAGENO="0020"
16
all that hospital insurance did was (1) To offer financial protection,
and (2) to permit some persons who required hospitalization to enter
the marketplace and obtain these services. We also "force-fed" the hos-
pitalseetor. We have paid, are paying, and will continue to pay a high
price as a result of our emphasis on hospital care. We must avoid the
error of believing that the care we finaiice in the future and the way
we~~nce it will not help shape sy~tem respouse.. What y~~~i~ll g~
`priorft~r to ih defithiig' ional'he~il'6h in~ura~ieepr~g~am wiilideter-
mine the priorities of the system itself. That, f or example, is the reason
that many observers, aiid I include myself' here, `bnlieve"that that which
is sometimes termed cat'astrophi,c health insurance would be just that-
catastrophic.
4. Just as covering some services but not others has not been neutral
to' the "uncovered" elements of medical care, so the presence of third-,
paxty payment for some persons has not been neutral to those without.
it.' Many Americans have no private insurance or coverage through
public programs. Those without coverage tend to be the economically
vulnerable; for example, persons with marginal or irregular employ-
ment, or with low incomes. These individuals face a medical care .sys-.
tern whose behavior.is influenced by the fact that others have insurance.
It'i~ r~çt q~ly that~producers prefer to serve those fo~ whom payment
is guaranteed. It is `also the case that those without protection enter a
system whose price levels, standards, aild orientation have responded
to the presence of insurance. Those without protection become doubly
disadvantaged.
5. Insurance coverage meets many needs. For.the producer of serv-
ices it means a guarantee of payment. To patients `and potential pa-
tients it means the sharing of financial risk and the opportunity to
bi~get The former point (risk sharing) is self evident The latter
potht~ however, has a special, dynamic consequence. Because o~f'.tlie
desire for budgeting, consumers will attempt to insure themselves
against extremely high deductibles. Thus, the attempt to erect signifi-
cant cost~ barriers hr order to bring economic "discipline" to decision-
making will fail as those who have the economic resources to purchase
insurance to cover the deductible will do so. In turn, we would reenter
the world of inequity-the world in which some `have and others lack
protection, the world in' which some utilize preventive care services
since "they are already paid for" while Others postpone care, hoping
to avoid the dollar expenditure.'
6. The historical, development of third~party payment mechanisms
has not stressed the achievement of equity or the translation .of the
concept of "access to medical care into operational reali'~y. While, tod~,
there seems to be significant agreement that the uilization of medical.
care services should not depend' on an individual's income, there is still
disagreement on specifics and on mechanisms to assure this right: shall'
a program be universal, shall it cover `all services, shall it provide first-
dollar coverage? In considering alternative operational answers to
these questions., we must remember to assess the a rnin~strative costs
associated with "refihemen'ts." The less comprehensive the range of
covered" tees, the less complete the' i~t~otection~ the' less uni-
versal. the program, the greater the burden of administrative costs.
Nor do such mechanisms reduce total costs. We. are already spending
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17
~vër $IOO. billion in ~the health field. The issue i~ how to share t~iese
costs-not whether we "èan afford" national health insurance. If pay-
ment for care comes out of many sources-~-out of pocket as well ;a$ in-
surance-we do not lower the total costs of health care, but w~ d~
increase the total costs of administration. The goal of equity an~1 of
low administrative costs is best achieved by departing from the f~ag-
mented and categorteal approaches of earlier days, approaches which
have contributed to our present difficulties. `
7' The financing and provision of medical c~re is "organi~e4"\ ~n a
highly fragmented manner; that i'~, out-of~pocket direct "paym~x~t~
private insurance, social insurance (medicare), public payment~for
costs of services (medicaid), public provision of services (VA). pd-
ferent patterns apply to various individuals who must be sorted ~nto
the "appropriate" program by a host of variables such as age, emp~oy-
ment status, income, medical condition. This fragmented approa~h is
superimposed on fragmentation `in regard to which services are ~ov-
ered and to what degree. The system's energies and priorities cannot
be redirected, given the existing complex patterns of finance. ~n `a
sense, the system is both inequitable `and out of control, `and pre ent
economic arrangements `umMrwrite~and validate the e~piosi~e' si ha-
tion. One key difficulty is that the medical care system does not fac an
effective budget constraint `that would lead to `a considered `alioca ion
of scarce resources on the basis~ of potential benefits and cosnu~ner
preferences. The medical care system does not face the discipline im-
posed by competitive market forces or the discipline of planning. A
program that provides for equitable access can be structured to J~ro-
vide for effective control of expenditures. Without such structure,' we
will continue to watch medical care costs escalate.
Each of these points and others could be elaborated upon. `These
limited remarks, therefore, do not represent a complete discus~ion
of the issues involved in national health insurance. Nevertheless~ `in
order for my `colleagues on this panel `to present their views, I njust
conclude my remarks. Let me bri~fly summarize the issues that I have
mentioned:
* 1. The key to system performance `and system orientation is the
physician.
2. The physician `is heavily influenced `by existing fiancing `arraI~ge-
nients `and `their `characteristics.
3. These arrangements have stressed payment for `hospital serv ccc
and `have w'orked to the detriment of `other modalities of care.
4. `They have also worked? to t'he `detriment of `those who do not h ye'
`third-party protection.
5. The fragmented nature'of't'hird-party payment systèn's~has r. in-
forced inequity, inhibited system reform, `and prevented effective' oat
control.
The complex nature of the health care economy has made `ac'tion on
national health insurance difficult. It has `also made it necessary. N ne
of us underestimates the problems that you face. We are equally `cert in
that you do not underestimate the problem's that the public faces.'
Let me ad~ one point that ~rises out of the remarks that have alre dy
`been made `and is not in my prepared test., I will `do so very brie' y,
because I assume it is something we will be discussing.
PAGENO="0022"
18
The word "8qtdty" has not at this point--because w~ `have ~bee~
describing the system-~-entered into~ the discussion `&n `a `heavy ma~iner.
But'it would be: fair'to note that the perspective I. bring to the' diseus~
sion~ and~from whIch I speak, is a. perspective that heavily stress~ tb~e
need for national health i~suranoe, not ~only because it seems to me that
this prbvides a ir~echanism f~r redirecting some of ~he energies of the
medical care system, but because above all~ it `provides ~o'mcthing.wh.ich
I `think, is the hail mark of a civilized society, namely, `a sharing of the
medical care ~cost so that people `are not rationed into the system on.
the basis of their income on a matter as important as health.
Thank you, Mr. ~hairm'an.
Mr. RosTENK0w5KI. Thank you, Professor.
Professor Reinhardt?
STA~TEMENT OP UWE BEINHA1l~T
Mr. REINHARDT. Mr. Chairman, it is a privilege `and a pleasure to
join `with you, the Members of your committee, and this panel in a
discussion of issues surrounding `the introduction of national health
insurance in the United States. By its very nature, `such a system will
alter the financial flows accompanying the delivery `of `health services
and thereby the economic incentives and constraints confronting the
consumers and the providers of health services. One need not be a card-
carrying economist `to appreciate the fact that these financial factors
tend to influence the performance of the health care~system signifi-
cantly. `The designers of the Nation's future health insuran~e system
therefore have the opportunity to do much good-or to do much harm.
You `and your committee are to be commended `for your decision to
precede legislative action on this issue with `a series of relatively un-
structured roundtable discussion. I trust that my colleagues on the
panel join me in the hope that `we, as perennial students of the health
system, may. be able to provide you with useful perspective on the
American health care system. I am certain that, as `a~ faculty member
in a school of public affairs, I sh'all `benefit `personally from participat-
ing in your deliberations.
My objective today is not to propose a particular health insurance
program, and I do not h'ave a particular point of view I would like to
push. Rather, I understood my mandate to be to think about a general.
.framework in terms of' which the design of the m~tionai health insui~-
once could `be developed, and, in the process, to comment on the cur-
rent health care system which as we have already heard, that system
is sometimes referred to as a non-system, as a mess, as a source of peren-
`nial crisis,,or the w'orst system in the `world. Whether or not these
alleo~ations are valid is one conclusion you will have `to reach after our
deli~era'tions. I shall offer my `thoughts on this question in a `moment.,
In thinking about designing a national health insurance system one
,conld h'av~ three distinct objectives in mind.
The first objective wonl'd bc ,to design. a system simply, tb h~ a bona
fide health insurance system, the purpose of which would be to ~rote'ct
individuals from catastrophic financial loss associated with illness.
A `second objective could be to design the system as a redistributive
mechanism that channels purchasing power `for health service from
middle- and upper-income families `to lower-income families and, in
PAGENO="0023"
1
so doing, redIstributes available medical servi~eBin like manner. Th~s
is the point Professor Fèin r~ised hi his roiic1udin~ r~marks, name1~,
that you could stress equity as the main objeetiveof the system.
A third objective for a national 1~alth insurance system might
to d~sigti `the system as a set of financial and administrative leve s
through which the public sector, or th'~~e who run the `public secto
can reshap~ the `organizatiOn of health ëare production and delive y
in this country. There* are quite a few commentators who would ii e
to see health insurance so developed and so nsed.
To run ahead of my arguments, I would recommend that, in thin -
ing about this issue, Congress' focus on objectives 1 and 2 which do go
hand in hand-and leave aside objective 3 for a number of reasons.
A. We don't really know exactly what it is we would like to achie~e
by moving these policy levers, evenif they worked; and
B. We have absolutely no* assurance that these levers would i~i
f act work in the desired manner. We do, however, have a fair amoui~t
of evidence, when we look nbroad to other countries, that these polic
levers often work in a perverse manner.
I mentioned that the three objectives may be posed singly or jointl~r
as a package. The point to note is that even if all three objectives ar~
put together into one package, different commentators would give then~i
different relative weights individually. Implicit in each particular
weighting scheme would be a particular set of views of what is right
ad what is wrong with the current health care delivery system and th
current health insurance system in `the United St'ates~
I cannot stress sufficiently that such views `are very often heavily
subjective and depend on particular interpretations of a body o
evidence at which all of u~ look; but, as we all know, on which no tw
social scientists ever can agree. Because these views are so subjective,
the collection of experts that will join you in your deliberations `ar~
inevitably going to leave you ~vith `a sense `of unresolved controversyL
I would just like to warn you `that such an outcome would not neces1
sarily be an indication of failure of these proceedings.
Now, let me briefly talk about these three objectives, because implici
in them, as I mentioned, are assumptions `and perspectives on th
American `health care system.
ThOse who would stress Objective 1-including a number `of person4
who will come before you, some of `w]~oni are well-known economists-~
feel that there is basically nothing seriously wroitg `with the deli~ei~y~
system, or, if it is, `that health insurance is not `the vehicle througl~
which to alter the system.
They do, however, feel that there is something wrong with th~
American health insurance system as distinct from the health delivery
system. The mosaic of public and private insurance schemes we have
in thi's cQuntry, they feel, has failed at least some se~rmen'ts of society.
Why else, may I `ask, would the Nation feel a nee~ for introducing
a publicly sponsored health insurance sys'tem? Implicit in that pro-
posed legislation is the allegation that private health insurance has
failed society somehow. There are two reasons for which it could be
said to have failed.
First, given t'h~ income distribution, in this Nation, some families
simply cannot `afford to buy health insurance even if it were made avail-
PAGENO="0024"
20
~bleto them at actuarially fali' premip4. (Actuarially fair prernia means
that one pays roughly `what the av~r1tge e~penditure on a f~imily would
be.) Clearly, thefàot that the incoi~ie distribution is such that families
cannot afford health insurance does not indicate a failure on the part
of the health insurance industry, and the problem could certainly be
solved through incoine.rethstr~b~ution.
There is another problem that can be. more properly traced to the
health insurance industry in this country. I propose on page 3 of my
forma1~ statement that .a uscfnl exerciSe for this committee might be
to go through a typical be~ith rnstirith~ ~p~Ohc~ c~f the~s~rt now b~mg~
marketed in this country, to imagine a variM~ of different i~tiñë~s
scenarios and then to determine, without expert advice, precisely what
the coverage is under the policy. I would suggest that you will find this
exercise to be excruciating, as do many American citizens today. The
health insurance industry will undobutedly defend itself on the argu-
ment that the embroideringof i~ts policies with exclusions and provisos
is designed to accommodate a desire for efficiency, and I accept that
argument. 1 do, however, also argue that whatever efficiencies you
purchase in this manner are likely to be purchased at a.very7hi~b~'p~'ice~'
First, there is the real possibility that many Americans purchase
totally inappropriate health insurance coverage on highly mistaken
beliefs about the maximum risks tç which they are exposed. You will,.
without any doubt, be exposed to a famous experiment at the T.Jni-
versity of Pennsylvania where a good health insurance package had
been designed that provided for coinsurance and deductibles, and yet
presumably highly educated fac~ilty members bought first dollar coy-
erage. This is often c:ited as evidence of irrationality. I believe that it
was not evidence of that. It was evidence of ignorance, I suspect, and
ignorance is quite an excusable trait even among professors. I suggest
that `these faculty members did not know the maximum risks to which
`they were actually exposed and were motivated to insure themselves
for much higher imagined risks than those to which they were truly
exposed.
Therefore, I have, in the fattest letters I could find on the type-
writer, recommended in my statement that:
Whatever Congress does after its deliberations in the area of health insurance,
it is to be hoped that it will present to the American people health insurance
options or policies .that are readily understood by the average person, that'
explains to. the average person the maximum liability to which he or she is
exposed, even If such an approach involves some inefficiencies.
Many experts to appear before this committee will argue for coinsur-
ance and deductibles, or what is generically referred to as "cost shar-
on the part of patients. The hypothesis here is that it iS the
patient~ who is central to the health caie consumption decision ançl
that, if the patient shares in the ~osts'oft}rese decithofts, thesèisions
will be made rationally and efficiently.
I cannot, at this stage, launch into this controversial subject matter.
I would not agree with some of my colleagues-and clearly an econo-
mist should not agree with the proposition-that the. decisions in
health care consumption are made only by physicians. I do believe
that coinsurance would reduce the consumption of health care in this
Nation. However, ~n deciding whether or not to introduce coinsurance
PAGENO="0025"
features' in this Nation's health insurance legislation, one must e
aware of a number of points that really don't pop out' of o~ir micr~-.
economic textbooks. `*
The first point is this. The oblectives being pursued with cost sha -
ing are not.likely to be reached in. this country, if only anarrc~w stratu
of the population-presumably lower, income families-are expose
to cost shari~g,'while upper income and middle income families an~1
particul~rJy the. members of tr~de unions, manage to avail themselv~s
of first dollar coverage. In `this c~se, perbaps only 10 percent of the
American people face coinsurance, and the effort to economize `ov~r
the whole system is focused on that narrow, stratum of the pop'ulatior~.
Such a system would not only be unfair, but it would not work. Coi~-
gres~ might toy with the idea of prohibiting first dollar coverage ait~-
gether. I can't `imagine how you could do that in the face of the stron
objections' from the interested parties you are likely to encounter, s
I won't dwell on this point..
Second, a system of coinsurance and deductible is likely to be wort~i
`its cost only if it can be relatively easily administered. One coul
certainly design a system of coinsurance and deductibles that woul
`eliminate unemployment in this country altogether simply by creatin
a large bureaucracy to administer the system. In fact, such syste
may not b~e worth its cost.
Third, as already mentioned, a system of coinsurance and deducti
bles is likely to be self-defeating if it is so complex as to generat
enormous psychic costs of uncertainty on the part of the insured. I
is generally' assumed by economists and everyone else that. people suffe
from uncertainty, and those psychic costs are very real even if the
are not expressed in monetary terms. So, I would like to suggest som~
caution on a system of coinsurance and deductibles, although as aili
economist I certainly `believe they could be used to redi~ce health car
consumption and hence health care costs.
I would finally like to offer some observations on the assertion tha
there is nothing amiss in the American health care system.
Later on in my formal remarks, on pages 11 through 13, I list
veritable catalog of complaints that have been lodged against th
American health system at one point or another. The- list of thes
complaints is long and varied. On closer examinatiOn, many of thes
complaints are.based on value judgments and peculiar interpretatio
of available data. This being so, some observers of the American healt
system have sought to reject the current criticism of that syste.
altogether by insisting that ours is the finest health care system in th
world..
Oue.~pointto note~here~of~c~$urse, is that, even"if one has the fines
health' care system in the world, one cannot necessarily argue that ~n
ought not to make such improvements which are feasible. It is als~
within the domain of public policy to speed those improvements.
But the people who defend the American system may indeed hay
a point, and I wish to speak to that, because there will again be man~
people who will come before you who consider ours to be the wors
.~~Iie~e~system ii~ the wp~ld... We have hu~ibied'~ourse1yes cou~d~
erably before the rest of the world by pointing to infa~it `rnortalit~
rates and maternal death rates, on which statistics we rank roughl~
PAGENO="0026"
22
11th or 14th. It used to be 18th. It is often thought that the health
care system we have in the absence of health insurance is to blame for
this. An interesting case in point is the health system of West Ger-
many. I have left with the committee staff a paper describing that
system in detail. The residents of West Germany have had universal
comprehensive health insurance without coinsurance or cost sharing
of any sort for many, many decades; in fact it was introduced in its
early phases in 1887. The health care delivery system in West Ger-
many is roughly similar to ours, although physicians in hospitals
receive salaries, a method of payment some would like to have in this
country. Remarkably~ West Germany ~ derabkv wo~S~
such widely used health status indicators as iñiánt mortality rates
and infant death rates.
As a matter of fact, there are some tables before you~ I believe,
where you will see that the maternal death rates and infant mortality
rates in West Germany, which is a fairly homogeneous country, are
as shockingly high as those rates now found among nonwhites in this
country. I raise this point not to assert that the West German health
care system has failed society or to imply that no improvements are
available in our system because we are already very much at the top.
I wish simply to raise the caveat that health services are not the only
input into the production~ of a nation's health status, and that the
introduction of health insurance in this country, a redistribution of
access to health services, or even a drastic reorganization of the Ameri-
can health care system may not trigger the impro~emflents we expect
from those reforms or may induce changes which we had, never antic-
ipated and which we may not like in the end.
In my formal statement I go at length into the second objective, but
Professor Fein has already commented on it, and I won't dwell on it.
I wouldjust like to offer briefly some remarks on the possibility of
using the National Health Insurance System as a lever to alter the
health delivery system, that is, on the possible objective.
Two changes are often proposed for the American system. First,
one source of evils is said to be the fee for services system. A second
source of probkms is said to be the fragmentation of the system. For
that reason it is often supposed that we ought to move from. fee for
service to prepayment, and on the delivery side from small solo
practices to large group practices.
I would assert that no social scientist ~with integrity could now
come before you and tell you un~mpbiguously-
Mr. BosTENKowsKI. Professor Reinhardt, we are going to have to
suspend. The committe.e will recess for 10 minutes. We will returTi to
hear your conclusion, and then the interchange among panel members,
and then participation by the members as well.
It is the intention of the Chair to worl~ from the next recess until
12 :45 and to recess then from 12 :45 until 12 o'clock for lirnch and to
return at 2 o'clock for further discussions.
[Short recess.]
Mr. RosT~NKowsKI, The committee will resume its sitting.
Professor Reinhardt, if you will make your conclusion, we will open
the panel for comments by. other panel members.
Mr. EEDHABDT. Thank you, Mr. Chairman. I would just like to
summarize briefly the remarks I made.
PAGENO="0027"
23
The first point is, as I mentioned, that the health insurance sys em
in the United States should be designed to be primarily just that, nd
one of its goals should be to free the American `citizen, from the
psychic costs of uncertainty.
I could not stress that enough because J see that point so ra ely
made and yet I could not think of anything more important than his
~feature. In fact, the Canadians have simply and quite boldly eli i-
nated this type of uncertainty. rI~hey have introduced a comprehen ive
health insurance system that leaves the delivery system wore or ess
alone, but gives the Canadian citizen complete freedom from wo ry
about the financial impact of illness, The Canadian innovations er-
tainly deserve consideration by reformets in this country.
In creating such a system in the United States, however, ne
might-I admit-foster a mushrooming medical sector that eats up
ever-increasing proportions of thc gross national product.
ii would endorse Dr. Fein's comment that there has to be in sue a
system a bottom line, there has to be an overall bu~iget within wh~ch
one must make tradeoffs. It is my opinion, and I would adverti$ it
as such, that in this country we will not get away from fee-for-ser~~ice
reimbursement of physicians.
This being so, I would deem extremely necessary in the design o~f a
national health insurance system renewed control by the public sector
over the fee schedules that will be used. I think nothing could be m~re
disastrous to the evolution of the American health care system than
to perpetuate the system of customary local fees that we now, by
necessity, have to adopt in medicare, part B.
I say by necessity because medicare is only a small part of he
overall health delivery system. Once the entire system comes un er
the control of a more unified insurance mechanism, however, the p b-
lie sector can gain control over the fee schedule negotiations with he
American profession as a whole,
A publicly controlled fee schedule could be used to attack one of
the major problems the American health system does have, and t at
i~ the maldistribution of medical manpower over specialties and o er,
regions of this country. We now pay physicians who prefer-~-for wh~t-
ever reasons-Cambridge, Mass., to other parts of this country, t~vo
to three times as much to practice in Cambridge, Mass., as we pay th4m
to practice in other parts of the country. It does not ~.urprise me, p~r-
baps because I am an economist, that this generates an unequal dOs-
tribution of manpower or at least that it ratifies it.
I would suggest that fee schedules could be used to redress th se
incentives, to make them, at the very least, uniform across the co n-
try, as the Canadians have done.
You might be bolder still. You might attempt to establish a s s-
tern like that in West Germany wherein exchange for gaining a n~o-
nopoly over the delivery of primary care, the medical profession~ m4st
assume responsibility for making health care~ available where a~icI
`when needed.
We have not done that in this country. I don't believe Qrganiz~'d
medicine in this country views it as its mandate to make sure that
health services are available to all Americans when and where need-
~d. Other countries require their legally monopolistic medical pro-
fessions to foster an adequate distribution of medical sevvices~ In W~st
PAGENO="0028"
24
Germany fee schedules are used `to entice physicians into the so-called
cultura' hinterlands, into the rural areas. Doctors are paid more for
a given service in a rural area than in a city. I think this is an in-
teresting idea. I think we ought to study the effects of that system.
The `third point I wanted to make, is that we shy away at this time
from attempts to regulate and to reshape through forceful direct reg-
ulation the Americai~ health care system, for the following reasons
First, I know of few instances where direct regulation of economic
activity really has worked directly and ultimately to the advantage of
the American consumer. I need to mention here only transportation
which should trigger in your mind an entire catalog of side effects ~we
never intended.
Second, I don't believe that we know precisely where we wish to go
in connection with the health care sector. One interesting exercise that
you might want to undertake is the following: When somebody as~
serts that there is a maldistribution of medical services iTi this coun-
try-as' we all agree-ask that person to tell you what he or she
would deem an optimal distribution to be? In other words, "Can you
tell me how many physicians I should have in each specialty in each
country in the United States?" Suck detailed instructions would be
required if the Government were indeed to attempt to regulate directly,
as it tried to' do in some legislation 2 years ago.
I could go on and analyze changes in the delivery system that are
felt to be panaceas; however, when you question social scientists who
have evaluated such proposed changes they cannot in all honesty tell
you that these proposed changes are unambiguously advantageous.
Finally, I make a plea that in designing National Health Insur-
ance for the United States we look abroad to other nations who have
led' in that respect: Canada, France, Sweden, England, and West Ger-
many, who have tried many of the changes that are being proposed as
panaceas for this country who have sometimes succeeded but who have
often failed.,
One of the remarkable features which one observes in international
comparisons of health systems is that, regardless of what proportion
of the GNP is absorbed, the medical profession invariably controls. the
health care system, and shapes it according to its preferences. We have
a faith in this country that if only we tinker a. little bit more with the
system, if only, frr example, we pay salaries to our physicians in this
country, we will solve the major problems facing us. I would urge you
to look abroad,, to invite perhaps foreign experts to come and de-
hberate with you, an. to, learn scwe of the bitter lessons which for-
ei~i~i1a~1OiiS have learned in this respect.
Thank you very much.
[The prepared statement follows:]
STATRMR~T OF U. B, REtNHARDT, ASSOCIATE PROFESSOR OF ECONOMICS AND PUBLIC
AFFAIRS, Woomiow WILsON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS
AND DEPARTMENT OF ECONOMICS, PRINCETON UNIVERSITY, PRINCETON, NJ.
Mr. Chairman, it is a privilege and a pleasure to join with you, the members
of your Committee, and this panel In a discussion of issues surrounding the intro-
cb*ct~ioI1. pf u~itlonal healtil in~wiil1ce u~ the United States By its very nature such
a system will alter' .the financial fio'w~ a Om n~Tti~g' `t1~Yde~i~ery~ of ii~alth
services `and thereby the economic incentives and constraints confronting the
constimerS and the providers of health services. One need not be a card-carryifl~
PAGENO="0029"
25
economist to appreciate the fact~ that these financial factors tend to infi enee
the performance of the health-care system significantly. The designets o the
nation's future health insurance system `therefore have the opportunity o do
much good-or to do much harm.
You and your Committee are to be commended for your decision to pr~cede
legislative action on this issue with a series of relatively uiistrtictured round~able
discussions. I trust that my colleagues on the panel join me in the hope tha~ we,
as perennial students of the health system, may be able to provide you with use-
ful perspectives o~i the American health-care system. ~ am, certain that, as a
faculty member in a school of public affairs, I shall benefit personally from par-
ticipating in your deliberations..
A number of distinct objectives could be posed for a national health insu ance
system, namely:
Objective 1: The system is to be designed as a bonn fide insurance sc eme
introduced to protect individuals from catastrophic financial losses assoc ated
with illness.
Objective 2: The system is to be designed as a rediutributive mechanism~ that
channels purchasing power for health services from middle and upper in~ome
families to lower income families and, in so doing, redistributes available or pro-
jected health services in like manner.
Objective 3: The system is to be' designed as a set of financial and admin~stra-
tive levers through which the public sector can reshape the organizath~n of
health-care production and delivery.
These objectives may be posed singly or jointly. The point to note is ~hat,
even if all three objectives were proposed side by side, different comtnent*tors
would give them different relative weights individual'y. Implicit in each par-
`ticular weighting of the objectives would be a particular set of views of ~what
is right anjil what is wrong with the current health-care delivery and ii alth
insurance systems. Such views are, unforunately, rather subjective. The col-
lection of experts invited to discourse with you on this topic is ther fore
likely to leave ~ou with a sense of unresolved controversy.
OBJECTIVB 1 AND ITS UNDERLYING ASSUMPTIONS ABOUT
THE U.S. HEALTH SYSTEM
Those who stress objective 1, perhaps to the exclusion of' the other two, a pear
to assume either that the current health delivery system is. not in need of ~i
Failure of the existing health insurance system to serve society well c~n be
effected through a health insurance system. By posing the objective, how~vey,
one does assert that the current héaZtli, inatø~a,nce ,#aste~n in this country-~---the
mosaic of private and public insurance schemes-~-hes . fa4led~ ~arge ~ ~"
society~ Why else, one may ask, would the natlo~ need to introduce a pu1~Zic~y
sponsored, bona fide health insurance system in the first place?
Failure of the existing health insurance system to serve society well ca~ be
traced to at least two prime causes. First, one would expect that thany low-ln~o1ne
families would find it impossible to finance the premiums for adequate h~alth
insurance coverage, even if theSe premiums were actuarially f~dr (that Is, *ere
on average as high as the average outlay insurance companies would ha~e to
make for such families). This aspect of the problem cannot fairly be lai~I to
the doorstep of the nation's insurance Industry. It is a problem that has Its root
cause in the nation's overall income distribution. The proper remedy clearI~ lies
in altering that income distribution, either through a negative-Income tax sch~me,
or at least through public subsidies toward the health insurance prem1un~s of
low-income families.
A second source of inadequate health . insurance coverage, however, ca be
more properly traced' to the insurance Industry itself. A useful exercise for this
Committ~e'xuiglit be to go through' a typical' health' lnsu~ance~po12lcy of~'tbe'sort
now being marketed, to Imagine a `variety Of different `Iflnes~ scenarIo~,' a d ~1~O
infer from the policy, `leithout ecopert advice, preeis'ely'what the extent of cov-
erage is for the various hypothesized illness episodes. One suspects that the
Committee would find this an excruciating task, as does the typical Âme lean
citizen. The health-insurance industry wjll undoubtedly argue that ~the any
riders, exclusions and provisos embroidering its policies are des!g~ied to ac m-
modate a desire for efficiency. It can be argued, however, that whatever effici ney
`Is so purchased is likely to ~e purchased at an lnordinat~ price.
PAGENO="0030"
26
1l'1r~t, there is the real possibility that many Americans ultimately purchase
inappropriate insurance coverage on the basis of mistaken impressiobs. The fact
that many `Americans purchase first-dollar coverage at premiums quite out of
proportion with the maximum loss exposure they actaafly face' is consistent
with that hypothesis. One suspects that persons making tb~se insurance acquisi-~
tions seek to protect themselves against much higher imagined risks, an impres-
sion that is likely to have been fostered by the complexity of their health-
insurance policies.
An added price is paid for this complexity, namely, the tincertainty it creates
In the mind of consumers. Standard economic theory and empirical research
suggests that uncertainty usually creates disutility (unhappiness) among mdi-
viduals. Indeed, to eliminate the uncertainty surrounding health-insuralice
coverage some observers have advocated an insurance system without any co-
payment whatsoever on the part of the consumer, fully recognizing that so
generous a policy may induce so'me unwarranted increases in health-care
consumption.
Whatever Congrem, after its deliberations, `decid~s to legislate in the area of
health insurance, it is to be hoped that it will present Americans with health
insurance opthrns (policies) that are readily understood by the average person,
even if such an approach involves some inefficiency at the margin.
Those who view objective 1 as the prime goal of a national health insurance
system generally favor a system of deductibles and coinsurance borne by the
consumer of health services at the time of consumption. Advocacy `of cost sharing
rests on the supposition that the demand for many types of health services is
"price elastic" that is, sensitive to the out-of-pocket etipenses consumers pay at
the point of consumption. By forcing consumers to participate directly in the
cost of health services, one hopes to reduce what the insurance ind~istry refers
to as "moral hazard" `and Is interpreted to be "unwarranted consumption of
insured services," with the accent on unwc&rrGnted.
This is not an occasion to launch at length into that controversial subject.
matter. (See, however, a paper entitled "On the Benefit Structure of National
Health Insurance," left with the Committee's staff.) Several pertinent observa-
tions may nevertheless be offered.
First, the objectives being pursued with cost-sharing are not likely to be
reached if only a narrow stratum Of the population (presumably lower-income
families) are effectively exposed to cost sharing; while upper- and middle-income
families, and particularly members of trade unions, have first-dollar coverage.
To eliminate this pos~i'bility, Congress might toy with the idea of prohibiting'
first-dollar coverage altogether, although one doubts `that such a stricture could
be legislated ovei~ the `objection of interested parties. An alternative would be to
alter the tax laws, so that all insurance premiums `paid by a household (or paid
by employers on behalf of the household) must come out of after-tax income.
Interested parties (the insurance Industry and labor unions) would be likely
to object to sn~h a change as well, `but the measure might stand a chance of'
passage.
second, a tystein of coinsurance and deductibles is likely to be worth its coSt'
only if it can `be relatively easily administered.
Third, ts alr&ndy mentioned, a system of coinsurance' and deductibles is likely
to generate considerable psychic costs of uncertainty unle~s that system is easily
understood by consumers and the latter can easily Infer the maximum risk to
which they are exposed.
A few ob~ervati'ons may be In order on the putative assertion that there Is
nothing serious amiss in the American health-care delivery system. As will be
seen further on, "the catalogue of frequently voiced complaints against the present
system is long and varied. On closer examination, many of these complaints'
involve value judgments or differences hi the interpretation of available evidence.
This being so, some observers of the American heMth system have sought to
reject the recurrent criticism of that system out Of hand by inMsting that ours
is "the finest health-care system In the world." (One must, of cotirse, observe.
immediately that even' the "fineSt health-care system in the world" may still bO
`I am referring here to the much cited itieta'noc in u~hieh faculty members at the Fniver-
sity of Pennsylvania bought first-dollar coverage for very low ma'-imum risk exposure-
an instance often cited to demonstrate a strain of irrationality even among the educated.
Mv nrrnment is, pure and simple, that ignorance rather than irrationality explains the
incident.
PAGENO="0031"
27
able to accommodate improvements, and that it is cetta1n~ withiti the doma~n
of public policy to speed whatever improvements seem feasible.)
Many of the system's ardent defenders lire the parties, who have a vested 5tai~e
in alleging a supèrior'track `record. Their ~tatelne~its oWght t~lièrefdi'e tb be take~a
with the appropriate grains of salt, as everyone in this rOo~ti stirely kiiow~
There may, however, be something to the point that Americans have been f~t
too swift in bumbling themselves bCf ore the rest of the world-that other natioi4s.
that have gone down many of the allegedly remedial avenueS now being propose~1
in this country have failed to compile a `health-status racord even as good a~
ours. An interesting case in point is the health system of `West Germany. (A papOr
describing that system has been left with the Committee's staff.) Residents of
that nation have for many decades enjoyed virtually universal, comprehensii~
health-insurance coverage without any cost-sharing on the part `Of the insure~L
By and large,, that nation's health-care delivery system is similar to our~,
although hospital-based physicians are salaried and private physicians have np
hospitalized patients. Rema~~kably, West Germany fares considerably worse o~
such widgiy used health status indicators as Infant mortality rates and ma.terp~l
death rates. (See the tables appended hereto.) Indeed, on the latter statistic tIi~
West German average is roughly equal to the shockingly high ratio reserved fo
the non-white community in this country.
The point of the preceding paragraph is not to assert that the West Germa
health system has failed society or to imply that no improvements are feasibl
in our system. The point has simply been to raise the caveat that health service
are not the only input into the production of a nation's health status, and thu
the introduction of health-insurance coverage in this country, a redistributio
of access to health services, and even a drastic reorganization of the America
health-care delivery system may or may not trigger marked improvements i
those indicators of health status on which Americans have so long condemne
themselves, or generate many ofthe benefits expected from these changes.
OBJECTIVE 2 AND ITS UNDERLYING ASSUMPTIONS
An alternative, single motive for the introduction of national health insuranc
might *be simply to place into the bands of low~income families the financia
wherewithal to purchase adequate health services and to redistribute the overal
costs of illness in the nation from those afflicted with illness to those blesse
by good health. A compulsory, universal and comprehensive health4nsuranc
system with premiums that are unrelated to the risk represented by insure
individuals would accomplish that objective. (A. sufficiently generous incom
redistribution system, such as a negative income tax, might be designed t
achieve that objective as well. The fear here might be that the poor would no
necessarily spend these transfer payments on health services in the manne
intended by policymakers.)
Strictly speaking, one could view this objective as the most important mandat4
for national health insurance and still adhere to the supposition that there I
nothing inherently wrong with the organization of the nation's health-car
delivery system as such. One could even believe that the nation's existing bealt
insurance industry has a spotless record. (A private health insurance industr
would, of course, naturally tend to categorize individuals `by actuarial risk clas
and set premla accordingly.) With some necessary oversimplification, the Cana
dian and West German health-Insurance systems can be said to have been
erected on primarily these notions. These systems are not boyia fide insurancd
systems, nor do they seek to intervene purposefully into the organization o
health-care deiivery.
Imnlicit in the proposition of objective 2 is the assumption that lack of abilit,
to pay for health services serves as an important barrier `to adequate health care
That assumption in turn implies that one holds the demand for many types o'
health services to be price-elastic (sensitive to' the out~of-pocke't expenses con,
sumers payat point of consumption). Adherents to objective 2 part ways witl~
the pure-insurance `school (those favoring objective 1) on the policy implica'tion~
they derive from the putative high price-elasticity. Adherents to the pure~
insurance ~choo1 `see in high price-elasticity the rationale for co-insurance and~
deductibles. Adherents to objective 2 typically reject cost-sharing on the part o~
patierts, presumably because they deem the consumntion of truly unnecessary
health services to be a trivial problem and do not wish to see coinsurance detei~
PAGENO="0032"
28
consumerS from using needed health services. Precisely what heSlth services
are "necessary" or "unnecessary" js, unfortunately, a questiOn on which the
experts Invited to this Oommittee are unlikely to agree.
In connection with the issue of coinsurance It may be observed that some
opponents to cost-sharing appear to rest their case on mutually inconsistent
assumptions. Thus, on the one hand they reject cost sharing on the, ground that
financial barriers (however small) may deter some consumers from seeking
needed health care. On the other hand, they suggest that the demand for health
services is typically quite insensitive to out-of-pocket expenses in the first place,
and that cost-sharing can at best yield only marginal savings in health-care
utilization. It is difficult to reconcile these assumptions, unless one is willing to
accept the argument that those very few services the demand for which is price-
sensitive also tend to be much "needed" services. Since the question ~f coinsurance
is likely to come up time and again before this Committee, menibers may wish
to inquire from opponents of cost-sharing on what set of assumptions they
rest their case.
OBJECTIVE 3 AND ITS UNDERLYING A5SUMPTION
Those who would like to see the nation's health-insurance system evolve Into
an insurance-plus-redistributive scheme rather than a pure insurance scheme
typically feel that merely granting the lower-income `strata financial access to
health services may not be sufficient if health-care provider facilities fail to locate
in the areas where such families concentrate (e.g., urban centers or the rural
hinterland). ThuS one finds demands for a redistribution of purchasing power
commonly accompanied by demands for a reorganization of the health~care
delivery system. These demand sare based on the popular conception that our
existing system is in a perennial state of crisis and certainly incapable of ac-
commod~ting the additiOnal demands likely to be placed upon it~ through the
introduction of health Insurance. While a mere expanSion of the existing s~te'~n
along traditional lines might be an expedient solution, the. shortcomings of the
existing system are held to be sufficiently serious to rule out so simple a policy
response. National health insurance is thus seen both as a source of potential
problems on the delivery side and as a vehicle through which these problems can
be solved.
As noted earlier, the catalogue of commonly stated grievances about the exist-
ing American health system is long and varied. However, with some simplifica-
tion the misgivings `that have at one time or another been voiced in this respect
can be distflledinto the following summary:
i It iS held jhat the existing p~ov.icier. syst~m~ co~ppseda~s ~t,is & seyer4l.
b~n~ged' tboñstthdmoi~e or le~iid ~ is really
a "nonsystem" that lacks effective planning and coordination. This lack of c~Ordi-
nation is said to have resulted in: Widespread duplication of costly facilities,
equipment, and patient record systems, and hence unnecessarily high costs of
health care; a maldistribution of medical resources, with a relative abundance of
facilities in affluent urban `areas and a corresponding lack of facilities In the
poorer urban or rural areas; and lack of comprehensiveness and contlut4ty of
care.
2. It is held that current legal restrictions on medical practice, and In pal~-
ticular current license laws covering both medical and paramedical manpower,
tend to: Discourage experimentation with the use of paramedical personnel
~(physician assistants, nurses, medical technicians) for tasks now requiring scarce
aild expensive physician time; and discourage entry of labor into tbe~ health-care
sector since current licensure laws effectively rule out the prospect of upward
mobllltt in the health-manpower hierarchy.
While it is conceded that licensure laws do. protect the consuttler from unquali-
fied personnel, it Is felt that this benefit is not sufficient to offset `their stjfiing
effeët ~n cqs~~~eØ~ncjngipnovations in the organization' of medical-care delivery.
~. It is su~ested"that' the financial arrangemth*s éurrentl~ aoanp~the
delivery of health services, i.e., the emphasis on payment (fee or chargé) per-
service, combined with `the fa'ct that the consumers *are typically morO fully
insured for Inpatient than for outpatient care tends to: Deter consumers not
covered by third-party payment from seeking relatively inexpensive preventive
care in the early stages of a medical condition, thus necessitating more expensive
therapeutic care later on; encourage consumers (and their physicians) to sub-
stittite costly~ (but insured) hospital services for less costly (but uninsured);am-
bulatory care; bar some consumers (the `lower-middle class) from access to needed
PAGENO="0033"
29
care altogether; and encourage providers to overprescribe or oversupply health
nevices to those consumers who can afford to purchase medical care.
4. With respect to the hospital sector in particular, it is held that the prevalent
full-cost reimbursement formula, combined with the fact that a hospital's i$res-
tige increases to some extent with the complexity of cases it can handle tenc~s to
encourage the acquisition of costly facilities and equipment that are not ~ully
used.
In addition, it is sometimes argued that the pervasive control by the mec~ical
profession over almost all facets of the health-care delivery process-e.g. the
physician's voice in the management of hospitals-has tended to make the he~lth
system more responsi~re to the intellectui~l interests of the profession thai~ to
the medical needs of consumers. This allegation is sometimes aëcompanied by~ the
argument that, by virtue of their training, physicians are ill-equipped to mapage
properly so complex a system as the United States health-care sector and hat
a restructured delivery system should provide for expanded lay control over the
allocation of medical resources.
It will have been noticed that the criticisms enumerated above tend to fall nto
two major categories: those concerned primarily with the quality of the be lth
care received by the American people as a whole, and those concerned with the
Efficiency (or costs) with which that care is being produced. In other words, al-
most all proposals for a restructuring of the American health-care deli ery
system seek to accomplish improvements along either or both of these dimensi~ns.
As an economist I feel poorly equipped to address myself to the problem of q~ial-
ity. The following remarks will therefore be confined to questions related to the
economic efficiency of the health-care delivery system.
In thinking about ways to reorganize the health-care delivery system i~ is
convenient to divide that system somewhat arbitrarily into two distinct (tho~igh
much related) components, namely:
A. The technology of health-care production and delivery (by which is meant
the organization of medical resources within health-care provider facilities, the
distribution of available resources among facilities, and the geographic dis ri-
bution of provider facilities) ; and
B. The financial flows accompanying the delivery of health services fi~om
providers to consbmers.
Proposals for a reorganization of the technology of health-care production den-
erally seek to bring about one or a combination of the following four changes
1. The consolidation of small, independent provider facilities into larger
units, with the aim of reaping potential economies of scale in health-care proc~uc-
lion.
2. The substitution of relatively more abundant and/or less costly prod~ctive
factors for relatively scarcer and/or more costly inputs.
3. Increased division of labor and specialization of functions among some types
of facilities (especially in the hospital sector) and the integration of speciali~ed
units into a coordinated, comprehensive, and efficient delivery system through
either full-fiedaed regional planning or at least the more centralized control in-
herent in the HMO concept.
4. A significant redistribution of physician manpower among medical spe-
cialties (away from specialist services to primary care) and among geograp~iic
regions (away from the suburbs of metropolitan areas and toward low-inco~ne
centers and rural areas).
In some societies, such changes could be attempted simply through regulat~ry
edicts. At one time or another, proposals to resort to direct regulation of health-
care providers have come forth in this country as well. Once again, in a utatern~nt
of this sort there is not room for an extended discussion of the merits and 41é-
merits of direct regulation of the health-care sector. (See, however, the instit4ite
of Medicine's Controls on Health Care, 1075.) One is, however, not encoura~ed
by the long-run performance of direct regulation in other areas of the natio~'s
economic activities. The impact of public regulation on the nation'~ transppr-
tation industry certainly should give policymakers pause. It seems more in ke~p-
ing with the American temperament to influence the provider system through
manipulation of the financial flows accompanying the delivery of health services.
The financial flows accompanying the delivery of health services furnish an
important nexus between a national health-insurance system and the natio~i's
health-care delivery system. Since the insurance mechanism interposes a th~rd
party between the providers and the consumers of health services, that flnane~al
mechanism can clearly be so designed as to influence both parties-in particul~r,
57-677-75-------3
PAGENO="0034"
30
to influence the manner in which the production, of health services is organized,
A rather bold attempt to use the insurance mechanism In this way was incor~
porated in an early version of the Kennedy-Griffith bill which would have pro-
vided for a massive shift away from the traditional fee-for-service reimbursement
of physicians (and full-cost reimbursement of hospitals) toward prepayment to
providers (lIMO's) in return for a promise to deliver cOmprehensive care when
and where needed. The theory was that health-care providers who operate under
a prepayment formula have every incentive to prescribe the most efficient bundle
of health services capable of treating a given medical condition and to produce
whatever services are prescribed in as efficient (least-cost) manner as possible.
Whether a nationwide system of health-maintenance organizations would actu,all~
service these goals is as yet an opek question inviting sustained empirical analysis.
A priori it can be argued that if an lIMO is permitted to package one year's
costs into the ~next year's capitation premium, the incentive to minimize the cost
of health maintenance may be considerably blunted. Bow acceptable the prepay-
ment regime will ultimately be to the typical American physician and patient
also remains an open empirical question.
Whatever the merits and demerits of the lIMO concept will ultimately turn
out to be, as a practical matter the designers of the nation's health insurance
system ought probably to be prepared to work primarily with the traditional fee-
f or-service system. .Such a system was incorporated into the Canadian health in-
surance program and it has also now been widely adopted in West Germany,
after decades of experimentation with capitation payments.2 There is every reason
to believe that it will predominate in the United States for decades to come.
The question policymakers must resolve at the outset is whether the deter-
mination of the fee schedules to be used under national health insurance are to be
left to the good offices of physicians individually and collectively-as is the case
where physicians gre reimbursed on the basis of "customary local fees"-or
whether these fee schedules are to he subject to strong public control. If the
former approach is adopted, as might well *be the case in the United States
policymakers willingly forego a potentially powerful lever through which the
delivery system can be influenced. If the latter approach is used, policymakers
ought to explore ways In which that fee schedule can be developed to serve
society's interests.
Without dwelling at length on the potential role of fee schedules in a national
health insurance system, it may be worth mentioning at least two concrete ways
in which these schedules could be used to reshape the health-care delivery system.
First, under a national health insurance system it may be possible to introduce
interregional differences in the absolute level of fees with the objective of en-
couraging a redistribution of medical manpower toward currently wider-doctored
areas. Relative to the customary local fees now paid under part B of Medicare,
the new fee schedules should enhance hourly physician remuneration in low-
income urban centers and rural areas and depress it in areas traditionally
preferred by physicians. Lest it be argued that such a policy would not be admin-
istratively feasible, it may be noted that medical fees in West Germany, for
example, are calibrated toward precisely this objective. The degree of success
attained under the West German system. merits further investigation.
A second objective that might be pursued with officially administered fee
schedules relates to the issue of health-manpower substitution. Current policies
are to encourage the substitution of paramedical personnel (physician extenders
and gilled health manpower) for the time of physicians in the production of health
services. Toward that objective, the public sector has subsidized the training of
increased numbers of physician substitutes without, however, providing physi-
cians with strong incentives to engage in the desired health-manpower suhstttu~
tion. Bluntly put, upward flexibility of medical fees has enabled even phycicians
who make wasteful use of their time to earn attractive incomes. Why such physi-
cians would engage in more extensive task delegation is certainly not obvious.
Under a national health insurance system, attempts could be made to set the
relative fees for particula~r medical services so as to provide physicians with
strong financial incentives toward more extensive task delegation. More spe-
cifically, fe~s for services whose production could safely be delegated predomi-
nantly to lower skilled (and less expensive) manpower should be set in the fee
2 Actually, the reimbursement scheme adopted In West Germany resembles what would
be known in the limited States as a "medical foundation' with each foundation covering
one entire' state. In this connection, see the attached paper on the West German. health
system.
PAGENO="0035"
31
schedule on the assumption that they are so delegated In every instance. Clea ly,
under such a schedule a physician who performed a d~legatible service him e~f
would effectively price out his own time at the imputed wages of a physic an
assistant. One suspects that, over time, such a fee schedule would tend to enco r~
age physicians towards greater efficiency in the use of their own time. It wo Id
clearly also serve to reduce the overall transfer of income that society at la ge
has to make to the medical-care sector in ~return for the receipt of medical se v-
ices. (For a more extended discussion on the potential role of fee schedules I a
national health insurance system, see "Alternative Reimbursement Schemes or
Non-Institutional Providers of Health Care," a paper left with the Cominittee'a
staff.)
CONCLUDING PJ~MA~KS
Since tl~is is the first in a series of panel discussions on the issues surrou4cb
lug national health insurance in this country, the objective of this statement l~as
been to offer one potentially useful framework within which these issues can be
discussed in orderly fashion. The objective has decidedly not been to furnish the
Committee with a blueprint for an "optimal" national health insurance syste~n.
A plethora of such proposals already exists. At the very most, the author of tl~is
statement would be prepared to recommend a few quite general guidelines for t~ie
design of a health insurance system. These recommendations are:
1. Whatever the particular form of national health insurance may be, Cc~n-
gress should offer the American public at least one comprehensive health !n~ r-
ance policy whose p~ovisions are easily understood by the average American a d
whose language removes any uncertainty concerning the maximum financial ri k
to which the insured is exposed. Congress may either mandate that each priv te
insurance company offer such a policy, or facilitate the public provision of su h
policies, perhaps in competition with the private sector. Whatever the case m y
be, a minimum goal for national health insurance should surely be to free Ame I-
can citizens from unnecessary anxiety.
2. It is important that, at the outset, the public sector (or its intermediarie~)
gain effective control over the determination of the fee schedules on which no~i-
insitutional providers of health care are reimbursed under national health inst~r-
ance. Failure to gain control over these fee schedules would mean foregoing o*e
of the more important fiscal levers policymakers can have over the organIzati~n
of health-care delivery.
3. Congress should shy away from attempts to couple with national heal~h~
insurance bold attempts to introduce direct reynlatory control over the healthY
care delivery system. This recommendation is based not only on the lack of a
good performance record of public regulation elsewhere. More important is tI~e
fact that the ultimate impact of many of the organizational changes now bei~g
proposed is Ill understood at this time. No social scientist with integrity coul~1,.
for example, assert at this time that group medical practice is unambiguously
superior to `fee-for-service reimbursement, that salaried physicians practic~e
medicine superior to that of fee-for-service practitioners, or that bealth~ma*-'
power substitution will ultimately reduce the cost of health services in th~s
country. Until more is known about these issues, it is probably best to def~r'
drastic changes of this sort and to `design this Nation's future health insurance
system primarily towards objectives 1 and 2 listed earlier.
4. In designing a national health insurance program, policymakers shoul
search the experiences of other nations for potential lessons. It Is surprisin ,.
indeed, that in recent debates over national health insurance the highly releva t
experiences of Canada. France and West Germany are hardly ever reference
These countries now operate national health insurance systems not unlike thos
most compatible with the American setting. Furthermore these countries hay
implemented a good many of the changes now proposed as panaceas for th
shortcomings of the American system. In some instances these changes hay
yielded expected improvements; in others, there were unexpected. and often un
desirable side effects. In addition to the health services research now underway o
aspects of this country's health system, much can be learned from cross-nationa
comparisons.
Mr. ROSTENKOWSKI. I think the Chair owes the panel an explana
tion of what is happening here.
When the bells rhig, we have to answer a quorum,, when the bell
ring on three occasions. Something took place ~n the floor of th~
PAGENO="0036"
32
)~-Jouse of Representatives that I have never seen in 18 years. They-
vacated a quorum. I didn't know that they could do that. I don't know
that anybody in Congress knew that they could do that until today,
but it ha's been done. So when the bells ring, members of the panel
leave.
If we leave, it is only because we have to answer either a rolicall or
a quorum call.
Mr. Pike?
Mr. PIKE. If the gentleman will yield, I would like to say you talk
about the monstrosities of the medical system, and I might just men-
tion you are observing one of the monstrosities of the legislative sys-
tem whereby 435 Members walk over to the House of Representatives,
put a card in the slot, push a button marked present, and promptly
`leave.
I have long since made the determination that I had more impor-
tant things to do, and, at the moment, this is one of them.
Mr. ROSTENKOWSKI. At this point, for the purposes of writing the
record, I would like the panel to understand that any conversatiOn
that you have will be in the record, the interchange, plus the fact, that
I am sure that we will join in questions in the not-too-distant future.
So if there is any comment- that any of the doctors would like to
make with respect to the comments that another panelist has made,
please feel free to make your observations.
Doctor Wynder?
Dr. WYNDER, I listened to the economist with great pleasure. I
would like to ask myself what is the key thing I learned. Perhaps it
might be the Sutton law applied to medical care; namely, we have
that type of' medical care where the money is.
In whatever we do we need to consider that in our kind of society
the Sutton law is as likely to apply to medical care as to any other
care or any other endeavor.
Second, Dr. Reinhardt mentioned the German system. Some-
times certain languages are perhaps more perceptive to a given issue
than our own.
When Bismarck originated the system in Germany, they did not
call it health insurance, they called it Krankenkassen. That means it
is disease insurance. This is more or less what we have in this country.
It was `not until 1971 that, by parliamentary law, Germany created
for the first time a cancer detection program for which this health
insurance would pay.
Thus, historically we have to recall that one reason why the German
system, in terms of preventive medicine, had not operated very suc-
cessfully in the past~ is because it dealt with disease insurance.
Let me give you a specific example that may relate' to the maternal
and to the infant mortality that Dr. Reinhardt referred to.
At one time the German system paid for prenatal care oniy, the
gynecologists and obstetricians and at that time the GP, who did not
want to lose a patient, said: "Well, I am not going to send them to
an obstetrician-gynecologist, I will do the first examination and I
will deliver the baby."
The German system had to change the system to also pay the Ger-
man, practitioner for prenatal care. All of a sudden all mothers were
examined during pregnancy. `
PAGENO="0037"
33
The final point I would like to make relates to the fact that mbst
of the major diseases that we suffer from in our Nation today ~re
manmade.
Let's take heart attack. Some time ago I had the pleasure to se*ve
on a National Task Force for Arteriosclerosis. After meeting week-
end after weekend here in Washington, in the final weekend we s~id
to ourselves: "What's the most important finding we learned duripg
our deliberation?"
The most important thing we learned was that heart attack a~id
arteriosclerosis are not an inevitable consequence of being born or
becoming aged. In other words, the leading cause of death in o~r
country is manmade and is therefore man-preventable.
It seems to me that in a system where we are quite willing to pay
for all kinds of coronary care units, but are unwilling to pay for p~e-
ventive programs directed to the prevention of coronary disease, ~ve
put the cart in front of the horse.
Preventive services will never be better applied in this country as
they are today or in any other country until we give economic inceJn-
tives for such preventive services to be conducted properly.
Mr. ROSTENKOWSKI. Dr. Freymann?
Dr. FREYMANN. I would like to take issue with Professor Fe~n.
Maybe we can bring some controversy into this discussion. I put tl~is
out for his reaction. He stated that producer behavior is the issue ~n
health care costs. I agree superficially that it is. It is the doctor w~io
sends the patients to the hospitals, who writes orders and writes tl~e
prescriptions.
There is no question that, at the operation level, producer behavior is
a very important component of the cost of health care.
But I submit that there is a deeper level which is beyond the cOntr~l
of the physician. This is really a point of social decision.
Let me use a homely analogy to get across the point I am making~
Let's say the health care system is like a dutiful housewife. TI~e
dutiful housewife is being told by her husband, which is society-~--
and the Congress is representing society-"You have spent all you a~e
going to spend on groceries. You had an open-ended grocery budge
and you have been spending more every year. This year we are goi g
to crack down. We are going to have planning and be very ration 1
about how you are spending the grocery money. I am not going to c t
it back, but you are not going to get any more.."
And the health care system says dutifully, "Yes. We will do that."
But when it is agreed that we are going to be rational and we aie
not going to spend any more money, the husband says, "By the way,
Honey, don't stop serving steak." .
Now I submit, as an example of "steak," the provisions in Public
Law 92-603, which opened medicare benefits to anyone with end-stage
renal disease.
I am not against people with end-stage renal disease, please ~imdex-
stand. As a physician I can understand their need. But that wa
another billion dollars a year on our health care bill.
This was not a medical decision. There were respective physician
in the lobby which got that law through Congress,. but this wa
Congress' decision.
PAGENO="0038"
34
Congress was, I think, reflecting the public, which was saying, "We
know there are facilities for keeping people alive with renal disease,
and we want them tQ be available to everybody."
But we can't have everything~ We can have steak every night for
dinner or we can have economy, but we can't have both.
The ultimate decision, I submit, is not up to the producer or the
provider, the physician. The decision is ultimately a social one, and I
think it lies in the hands of Congress how it is to be interpreted.
Mr. ROSTENKOWSKT. Professor Fein?
Mr. FEIN. I don't know that we disagree. In the first instance I said
producer decisions, and in the second instance I said these are not in
fact scientific decisions. Th~iy do require allocation of resources and
those are heavily influenced by the way legislation is written. It is in
that sense that I would differ somewhat,' perhaps, with some of the
language used by Professor Reinhardt, although I suspect that even
here we will end up agreeing rather than disagreeing.
If I heard tTwe correctly, he indicated that there are many things
we don't know about the direction that we would like the health care
system to go in, and we ought to not only recognize that explicitly, but
perhaps recognize it in our legislation.
It would seem to me that in the past, and it is likely to be the case
in the future, we will find it virtually impossible to write what we
would think, what we would term neutral legislation. The legislation
that we write inevitably will direct resources and the more explicit we
are about preventive care or early treatment or other areas where we
want those resources to go, the better off we will be.
Your reference to the renal dialysis or renal care does prompt me
to make one admissional remark on the question of equity. Earlier I
said that I started with that perspective, and perhaps I can illus-
trate it with a story that appeared in the New York Times, Decem-
ber 28, 1970.
It was datelined, Richmond, California, a State that Mr. Corman
comes from. It told about a young boy who on December 25th, Christ-
mas Day, was very happy because, in fact, 800,000 coupons had been
collected which had been transmitted to one of the cereal manu-
facturers in the United States as payment for a kidney machine,
which would enable him to receive treatment at home instead of going
to San Francisco three times a week at $200 per treatment.
It was a very warm story. It was a very marvelous Christmas Day,
the child was happy, and the parents were pleased.
I suspect that many of us read that .story and said, "It's a great
country."
I would like to think that many `of us stopped~ afterward and said,
"What the hell kind of system is this that a little boy had to worry
Christmas eve whether or not there are going to be enough people
across the United States to provide the 800,000 coupons?"
What if they had not? So I think that my objective in National
I'Iealth Insurance is to take care of that kind of a situation, not at the
expense, however, of the situation which arises for many Americans
every day, and for all .Americans every year of primary care, the
kind of things that most of us go to the ~hysician about most of the
time, the worry and the concern that arises. I agree with Professor
Reinhardt on the importance of that psychic component.
PAGENO="0039"
35
Let me take that one step further. `The argument is often made ~hat
preventive care is useful and primary care is useful because, ampng
other benefits, it will save us money in the long run.
It is, I think, correct that a number of components of primary ~are
will, in fact, pay for themselves by avoiding long-term treatn~ent
which is costly.
Having said that, I would hate to rest my case on that observatjon,
because it seems to me that it is to use a false accounting system.
If there is a child who is sick with a high fever and you do noth~ng,
the child may get better in 10 days, and let me assure you the g~oss
national product will not be affected 16 years later when the child
enters the labor force.
But if you do something and it only takes 5 days, you have saved a
lot of pain and a lot of concern, and a lot of worry on the part of ~he
child and certainly on the part of the parents, and the normal ac-
counting system that puts everything in terms of GNP does not t~ke
account of pain and concern and worry.
I think that it is regrettable that on occasion those programs are
favored which can "pay for themselves."
That is a humanitarian component to health care, an awful lot of
it is about that, and it seems to me, again to use the phrase of
civilized society that in an accounting we ought to pa~ attention to
those components as well so that the thrust for equity is not only ~or
the little boy on the renal side and not only for the people on the pre-
ventive side who will, in fact, as a result of the preventive treatment,
save the economy's resources, but also for the people, all of us on
occasion, who need care and supportive mechanisms and it won't m~ke
a bit of difference to GNP, but it will make an awful lot of differei~ice
to the quality of life of the Nation.
Mr. ROSTENKOWSKI. Thank you, gentlemen.
Congressman Pike will inquire.
Mr. PIKE. Professor Fein, I am very impressed with your statem~nt
about the complexities of deciding who gets what unless we es$n-
tially give everybody everything and the cost of doing it, and tfh~
choice of making these decisions.
Obviously you feel that any system should provide a kidney n~.a-
chine at home for anyone who needs it. Would you put any limitations
whatsoever on the kind of care which should be provided under a r~a-
tional health system?
Mr. FEIN. Let me try and answer that with more than a senten~e.
Mr. PIKE. Heart surgery for everyone?
Mr. FEIN. I believe that in fact in this economy with a GNP of
over $1 trillion, we can do an awful lot more than we are doing.~ I
believe also that we can do an awful lot more than we are doi~ig
within existing budget resources if we had a system which was mdre
rational in its allocation.
I do believe tha't we would at various levels save money out ~f
the waste that we now have.
Some 2 years ago there was an influenza epidemic in Boston, amid
the question was asked, as patients were in beds in the halls of the
hospitals, "Does this not demonstrate that there is a shortage ~f
beds?" .
PAGENO="0040"
36
One of the keen observers, a hospital director faced with that
question, found it rather difficult to answer, but when pressed he
said, "No. There is no shortage of beds, because 25 percent of the
people who are not in the halls, who are in beds, don't need to be
there."
We have designed a financing system that encourages their being
there, and that is the costly part of medical care, which is to hay,
I think we could do an awful lot better for the $104 billion we are
now do]ng if we did not have a preference for high cost, technological,
institutional care.
A lot of people can be treated in other forms for the same $104
billion.
Two. Other societies, in fact, have demonstrated that you can
force and bring a more rational allocation by not having an open-
ended budget system. as is the case in the United States.
One of the interesting observations is that in the United States,
if you want to know what we spend on medical care, you ask the
people at the Social Security Administration, Office of Research
and Statistics, approximately 6 months after the end of a fiscal year,
"What did we spend in the year beginning a year and a half ago?"
but in Britain you know what you are spending, because you have
decided what to spend. This does force very hard decisions.
In Britain it forces the hard decisions because Britain is a poor
country. I don't think the decisions would be quite as difficult in the
United States.
Three. If we cOme to a point where, in fact, medical science is
able to do things for people that are beyond our budget abilities,
even with whatever reallocations we might make from other spend-
ing sources, I would like to se~ a societal decision. Shall there be
open heart surgery financed or shall there not? That is a tough
one. It is a tough one., because the next question has to be-if society
says that in terms of its priorities it can't do primary care and open
heart surgery and that it opts for primary care-will you deny open
heart surgery to those who can afford to pay for it of their own
pocket? That is a tough one.
I know where I stand on it, but I can respect the fact that others
would have a different point of view.
Mr. PIKE. You know where you stand on it, but I don't know
where you stand on it.
Mr. FEIN. I don't believe that I feel comfortable in a society in
which-remember, when we talk about open heart surgery and the
expensive things we are talking about life and death situations-
in which life becomes a matter of a marketplace where some can
purchase it, life, because they are rich and others can't because they
are poor.
Mr. PIKE. So as a doctor you will say to the rich man, "You will
not get it?" You are not a doctor. You are a professor.
You would say to the rich man. "You would not have it?"
Mr. FEIN. I would. Rationing life through a lottery is one thing~
`but rationing through income and wealth is quite another.
Mr. PIKE. It is a tough question and I thank you.
I want to let other people in here, but I would like to ask One
question of all of the members of the panel. Taking the totality of
PAGENO="0041"
37
our medical system, nonsystem, monstrosity, whatever you opt to
call it, and comparing it with any other nations in the world, t~ll
me which nation you would prefer to swap our system for, if ai~y.
Mr. FEIN. I will take a crack at that.
In many respects I think Canada.
Mr. PIKE. You would swap our system for Canada?
Mr. FEIN. I am including the whole. thing of the delivery and the
financing system and of culture and attitudes. If I could really have
anything, I would prefer the British system. I think, however tl~at
we are so far away from that as a society in terms of our social
values and our traditions-that to say the British is to say qu~te
a mouthful. I would note, however, that Canada, is mucl~ more like
our system on the delivery side as well as having traditions a~'id
culture of the people much more like ours. Canada has made a v~ry
key decision on the financing side, to say, "Thou shalt be insured
without deductibles and without coinsurance." That strikes me as
a step which this society coud make without great trauma.
Mr. PIKE. Protessor Reinhardt?
I would like to go down the panel.
Mr. REINIIARDT. I view the Canadian and the American health
care delivery systems as being so similar that I cannot make a d~s-
tinction, between them. .
Mr. PIKE. I want to take the totality of it, the delivery and the
financing. Whose system would you swap for ours?
Mr. REINHARDT. I think then I would take the Canadian syst~m
over ours because of its superior health insurance coverage. I do~i't
think the Canadian system is the. finest imaginable system ii~ the
world, but I do believe that it is superior to what we now ha~ie,..
and the reason is simply that the average Canadian citizen is fitee
from the enormous uncertainty of the financial impact of illne~s.
Mr. PIKE. What do you think is the finest in the world? You s~id
you did not think the Canadian is the finest in the world What ~Jo
you think is the finest in the world?
Mr. EEINIIARDT. I might even modify that. I could think of ways
in which to improve the Canadian system, but I would say probal~ly
the Canadian system is the finest now operating in the world.
As to the delivery system, I really cannot discern any substan4al
difference between the Canadian and American delivery systei*s.
In connection with the European systems, I might tell you that
in your alma mater. where I ply my trade, we have a project to stu~y
the European health systems. I hate to give any conclusions before
I embark upon a study. As a social scientist, I can respond to your
question only in a few years from now. As a nonsocial scientist
Mr. PIKE. Hopefully that won't be too late.
Mr. REINHARDT. Hopefully not. As a private person, I can t~ll
you subjectively that should I travel in Europe I would hop ~n
the first airplane to North America should I become sick in Europe.
So I would vote with my feet. I would certainly pick our Anienc~n
system over those in Europe; given my current income.
Dr. FREYMANN. I would say it is difficult to pick a system. Of o~ae
thing I am sure: The usual indicators mean very little. Inf ant m~r-
tality, for instance, because how you judge----
Mr. PIKE. Even lifespan?
PAGENO="0042"
38
Dr. FREYMANN. Lifespan is another one, but there are socioeco-
nomic factors affecting life expectancy which are quite independent
of the efficacy of the health care system.
So I think I would go along with Professor Fein in saying that
if there was a switch to be made, I would also-
Mr. PIKE. The question is should we make the switch, not if there
is a switch to be made. Should we make the switch?
Dr. FREYMANN. I will give you the good news and then the bad
news. I would say the switch should be made because I quite agree
the Canadian citizen has had all the concerns of financing his health
care, the direct financing of his health care, removed from his back.
That is the good news.
The bad' news I say expecting that my economist colleagues may
have more up-to-date information. When I last looked at the figures,
there was only one nation in the world spending a larger portion
of its GNP on health than the United States,, and that was Canada
Canada followed Sweden and France in the rate at which its health
care costs were escalating and all three nations were way ahead of
us. The Canadians are paying for what they are getting.
Mr. FEIN. Could I just comment on the percentage of GNP? This
year, though the figures have not been published, it is o'bvious that
as a percentage of the GNP our health care costs will be higher
than Canada's but that reflects, gentlemen,' the fact that the GNP
has not performed very well this year.
Dr. WYNDER. I have not specifically studied the various national
health care programs for the different countries excepting as I travel
through various parts of the world and hear what the people tell
you. I don't think there is a perfect national health care service
system anywhere in the world today day, in my view, because the
account is always put on the wrong horse, on therapy
In Germany, for instance, they have gone virtually overboard in
providing services for the sick. In Germany today you can go to health
spas paid for by the national health service which, I am told, costs
Germany 6 billion marks per year.
Now, you could imagine what would `happen in this country if every
coronary patient could `be sent 4 weeks to Palm Springs or to some
other nice community. Yet even in Germany they are still debating
whether or not the health service system should p'ay for preventive
services as it relates to coronary prevention.
At this moment the system only pays after you `already have a heart
attack. It does not pay if you have high risk factors. At present the
National Heart `and Lung Institute has a $12 million per year study
going on to determine whether the risk of middle-aged Americans, at
high risk for coronary disease could be reduced if we would reduce
the risk factors.
Obviously, reducing risk factors for a coronary is a great deal
cheaper than open heart surgery.
You may be surprised to learn that in this country, with the kind
of health service we have, 50 percent of `all Americans never h'ave had
their blood pressure taken `and of those where it was taken and it was
found high, only about a quarter `are adequately treated.
So before we talk about health service involving open heart surgery
or heart transplant, I would like to see us h'ave a system that treats
PAGENO="0043"
39
the sirn~le t~gs flrst~ They `nrc not very costly and. we do know ~hat
effectivø treatment of hypertension will reduce stroke rate~ by 30 per-
cent at low cost. Certainly such treatment is far more cost effec~ive
than to' try to treat stroke victims.
I always come back to prevention, because I want you to recog~ize
that mahy of the diseases from which we suffer today are man-m~de.
We require your wisdom to bring our co'untry into preventive medi~ine.
One reason that all of the health services in Europe that I have ~een
are not doing any better is because they are virtually as'bad as outs in
terms of meaningful preventive services.
Mr. R05TENK0wsKI. `Thank you, Mr. Pike.
I would like to pose this question, and I don't mean by it that m~m-
hers of the subcommittee should run out `and buy any airline `ticI~e'ts.
But wh'at countries would this panel suggest that our committee visit
in order to get a viewpoint on which direction we should move on
national health insurance?
I think that it would be most educational, but I was just wondering
whether the panel could make a suggestion or suggestions.
Dr. FREYMANN. I would say first `and foremost Can'ad'~. You can~ go
to other countries, for instance Sweden. Everyone talks a great deal
about the wonders of the Swedish system, bu't I hope that you i~crill
ask Dr. Vincente Navarro, who has just written a book on it, to tes1~ify
before you go to Sweden. I
Sweden and Britain `are places that everyone thinks of. The rea~on
I pick Canada, is that we have to work wi'th what we have. That i~vas
the whole thrust of my presentation. No matter what you see in Sive-
den and England, it is not `applicable to this country, simply because
the systems `are so different. The Canadian delivery system is so similar
to ours that I think it is quite applicable.
Mr. REINTIARDT. I would also suggest Canada. In fact, I know t~iat
some of your staff-till Fullerton, for example-have already begun
to `study that system. The reason is that Canadian society and ~he
Canadian delivery system are culturally rather close to ours, and we
can see what changes can be made in a short time with a system a~nd
the impact of those changes in the short run.
The countries in Europe that I would suggest `as interesting ~re
France and Germany, where in some instances one can see what l~as
been tried, what has succeeded, and wh'at h'as failed.
There are some important lessons `to be learned. In some respe~ts
the West German financing system is akin to what we once called the
medical foundation. The German `insurance system is literally 1,800
independent small insurance funds that `are financed through emplo~er
and employee contributions and pension funds. The funds pool th~ir
resources `at the state level and turn over a lump sum to a phy'sici'al~s'
association once, a year, `and the physicians' association in receipt of
this lump sum `obligates itself to deliver `all contracted services un4er
the insurance policies to the insured.
For example, the physicians' `association is responsible for the i~e-
gional distribution of physicians. The physicians distribute this ~ot
of money `among themselves, generally on a fee-for-services basis, a~id
it is they who control health service utilization. Dr. Fein mention~d
that it is ithportant to control the `behavior of physicians. In W~st
Germany the physicians' `associations, play wha't is known `among o~
PAGENO="0044"
40
~erations research people as a zero-sum-game. Other things being equal,
if one physician bills more, another physician loses. Therefore, the
physicians themselves control overbilling. And they use fee schedules
to redistribute physicians into areas where there is a shortage of
physicians.
I think it would be interesting to see how these utilization controls
work, and how the West Germans control drug prices. In West Ger-
many drugs are fully covered by health insurance. There are many
reforms we may want to introduce here which the French and Ger-
mans have already tiled. We can get relevant cost figures there. We
can obtain clues on how to administer certain programs or even on how
not to. It is for these reasons that I see the French and German sys-
tems as interesting case studies from our perspective.
Dr. WYNDER. I would also like to gain more knowledge from the
German experience. I read a few months ago that they estimate that
unless more controls are exercised over expenditures that by the end
of the century. the cost for health care will equal that to the entire Ger-
man budget today. In other words, we can learn from some of these
countries to what extent an undisciplined health care system, an un-
diseiplined population, will bring the health care costs to such. levels
that it cannot be afforded by any society.
I . think one thing. we can learn from the Germans, and perhaps the
Swedish and British experiences, is to what extent costs have spiraled
to a level that society can no longer tolerate them.
Mr. R0STENK0wSKI. Professor Fein.
Mr. FEI~. I. would want you to visit Canada in order to at the very
minimum listen to individuals who are very much like us who do not
have the emotional baggage that we seem to have about the importance
of cost sharing and who have had experience in some of their provinces
with deductibles and coinsurance and without deductibles and coinsur-
ance and have concluded that which sounds heretical in the United
States, that it does not make sense to have coinsurance and deductibles.
It think that is a very important lesson.
I would want you to visit Britain, not because I am so pessimistic
as to believe that the United States will be in the near future as poor
as Britain, but because I think that there one would see the, A, need for
central budget decisionmaking, particularly in a poor country but in
any country over long periods of time; B, the difficulty that is involved
in negotiating with the medical profession; but, C, the opportunities
that exist in a society in which there is a rational discourse for negotia-
tion with the medical profession.
.1 think that I would want you to visit West Germany for reasons
in many cases to see how not to do certain .things in terms of adminis-
trative components, mandating pots of money, and additionally, to see
what happens when there is a defined pot of money that society has
said represents its priority judgment about the field and how resources
can and cannot be allocated.
I think that those three countries would give one a measure of con-
fidence about various critical elements.
I would al~o urge that you visit, as all of you do, the United States,
because there are some lessons to be learned here about what can be
done when we try and do things even within the very difficult can-
straints that are now faced because of the multiple sources of funding
and because of the economic situation.
PAGENO="0045"
41
Dr. WThDER. In case you don't want to travel, I suggest a ~ook
written by the Health Minister of Canada. Perhaps your staff c~ou1d
get it for you. It is an impressive kind of account by a health min~ster
as to how he believes medicine should be practiced tomorrow.
It is a booklet that is available from the Canadian Health Ser~~ices.
Mr. ROSTENKOWSKI. My staff informs me we already have that.
Are there any Communist countries that you feel we should v~sit?
Mr. VANIK. Socialist.
Dr. WYNDER. One of my colleagues recently returned from Cl~uina.
Of course, in a society like China, if you would really like to wip~ out
a given disease, you can make the people do that.
He mentioned one particular example which I would like to call
to your attention.
There are certain areas in China~ where the incidence of cahce~r of
the esophagus is very high. The Chinese working cadre will b~ing
populations together and ask them to swallow a tube with an in~iat~
able bailon at its tip. Then as you draw it up, you pull up some ~eil~
from the esophagus on which you may make an early diagnosis of
cancer of the esophagus.
He tells me that hundreds of people will stand and be asked to s~ai-
low this tube, and they will do so. I don't know whether we coulc~ get
anyone in America to practice that kind of preventive medicine~ S9
in areas where you can make population do things, you certainly can
do that.
An interesting question that I asked my friend, was "What is Cl~ina
doing on smoking?"
"Well," he said, "nothing."
In all the time lie was in China not one person told him anytl~ing
about smoking. The prthabie answers to this may be that Chairi~ian
Mao is a heavy smoker and perhaps more importantly that China is a
sizable exporter of tobacco.
Dr. FREYMANN. I think China is of particular interest. 11 am not
suggesting that the committee should necessarily go there, but I th~ink
it is of particular interest because it is the only nation I kno~ of
which has really changed its health care system~
I said before that no nation that has instituted national health in~
surance has changed its system with health insurance. It has done qi~ite
the reverse, it has frozen the systeni it had.
The National Health Service did not create the British system. T iat
system existed and the National Health Service was superimposed' on
it, ditto for Sweden and Germany and for all of the Communist ~a-
tions of Eastern Europe and Russia.
China is an exception. The Chinese really did chang& their syst~m,
and they did it in a very simple way. A highly trained sp~cialist ~*ho
~ a graduate of Peking Union Medical College aiid did not see ~he
wisdom of becoming a family practitioner in a commune *~s sent off
to a camp to think things over. Amazingly enough, it w~s not v~ry
long before the whole systeni was changed. ``
I submit that China is the one ~iation which has changed its hea~h
care. system, but no oth~r nation has. There is a lesson `inthis for us~
Mr. Ros~n~NKOwsKI. Mr. Duncan will inquire. ` `
Mr. DUNCAN. Thank you, Mr. Chairman. " ` ` `
I want to thank the panel. You have been very helpful. The rca on
I mentioned at the beginning that we should have some practic~ng
PAGENO="0046"
42
physician on the panel is when I read the résume of each of you, that
for Dr. Freymann and Dr. Wynder, it shows that you are~ primarily
engaged in research, and in an article that I also read, Dr. Fre~ymann,
that you had written, that said there are two factions in the medical
profession, one directed toward research~ and teaching and the other
whose occupation is private practice. That is the reason I ii~p.pened
to mention that, that we should have someOne whose occupation was
private practice. But you have been very helpful.
Someone ~uggested that perhaps we should go to Canada. It might
not be necessary. I was looking at our fact book, and I noticed that
in the last few years we have 439 physicians who migrated from
Canada into the United States. So perhaps we could talk to some of
those without spending the money to go there.
Also we have 364 from England. I understand now that the number
is up to over 400, which is more than four medical schools could pro-
duce in this country.
It is also my understanding-~-you might correct me-that the Cana-
dian Government limits the benefits on their national health insurance
and also that they only pay 50 percent and the remainder is paid by
the Provinces, is that correct?
Mr. R~INHARDT. Yes.
Mr. DTJNOAN. And it is a complete cost share ai4angement that they
have with their Provinces.
Is it also true that in Canada they spend less than 1 percent of their
gross national product on national defense-they pretty much depend
upon the United States for defense-and consequently they are able
to put a little greater proportion of their GNP into medical care?
Mr. REINHARDT. I think the latter point is certainly well taken. Even
these percentage figures, as Dr. Fein says, do fluctuate considerably;
and one has to take them with a grain of salt.
The Canadian expenditure is not really that drastically much more
than ours. I don't think it is more than a percentage point more.
Again, one would have to keep this in mind that the Canadians
clearly do try to deliver more than we now do for the extra percentage
point, and Canada is a somewhat poorer country than the United
States.
If you take into account those facts and also the fact that in paying
physicians Canada does have to be somewhat competitive with the
United States, you should not be surprised that the percentage in
Canada going to GNP is somewhat higher than here.
Mr. DUNcAN. In 1973, you said that any national health insurance
would place an immediate added burden on the Nation's already
strained health care provider system. Is that still your opinion, Dr.
Reinhardt?
Mr. REINHARDT. That introduction of health insurance would in-
crease the demand for health services?
Mr. DUNCAN. Yes; you said it would place an added burden on the
Nation's already strained health care provider system.
Mr. RETNHARDT. Yes; that is still my opinion if the health care de-
livery system remains organized as it is now.
Mr. DUNCAN. Don't you think we ought to be careful that we don't
promise more than we can provide?
PAGENO="0047"
43
Mr. REINHA~pT. I think you have, to b~ somewhat gra.dual in pha~ing
things in. For example, benefit pac1~ages cali be expanded over ti~ne.
You might initially be very cautious in covering drugs and increas~ng
drug coverage over time. You might limit physician Serviee~. ~ ou
might indeed initially ask for copayrnents and deductibles in the ex-
pectation you will ultimately phase them out.
I would suspect if full comprehensive health insurance cover~ge
is introduced in the United States now, there would be a strain placed
on the delivery system.
Mr. DUNCAN. How long do you think it would take to implement an
adequate national health insurance program? Any one of you gen le-
men may respond.
Mr. FEIN. Let me begin the answer with the question that you as ed
Professor Reinhnrdt about the degree to which you would increase ~he
demand for medical care and strain existing resources. In 1969 Roger
Egeberg was `appointed as Assistant Secretary for Health. He mdi-
cated then he did not think we could have national health insura~ice
in the immediate future because it would strain the resources of ~he
medical delivery system.
In 1969 we waited and it is now 1975. In 1974 instead of $60 billi~n,
we were spending $104 billion. Much of that is explained by infiati~n,
but a good deal of that is explained by an increase in demand wh~ch
we were able to meet because it is a f'act that our medical schools h~ve
expanded markedly in the last few ye'ars, that is point 1. I don't thi~ik
it necessarily strained the system.
Point 2: None of us, I think, are here pleading for more and bigger
and better dollars for that health care system. I think some of us ~re
saying that the question is "How are we going to distribute the $1~04
billion that are now being spent and `how are we going to share in i~he
goods an'd services that are already being provided?" That a syst~m
will have to ration unless we want to have it cost as much as the pub'ic
and providers want it to is abundantly clear.
The question is "Do you want to ration on the basis of price a~id
income?" I think that one could implement a national' health insurar~ce
program quite clearly, that is, with leadtime to work up `admin s-
trative mechanisms.
I think the system could absorb it. I think the tax system cou~d
absorb it. The money, the $104 billion, is already being spent. If o~ie
wanted to take time to phase a system in, a full and comprehensive
system, I don't think it is necessary, `but if one wanted that, I wou'd
urge that the kind of phasing in we do have the following charact~r-
istics: Each step logically leads to some subsequent step rather than, ~ms
we have on occasion done in the past, implement a step which we mu~t
then take apart to move to the next level.
Mr. DUNCAN. My time is about up. I want to move on, but let me a~k
you, how much do you think a full comprehensive health insuran~e
program. would cost?
Mr. FEIN. I believe that a full comprehensive health insuran~e
program with a commitment and with a willingness on the part of tl~e
Congress to do battle with those who would like to preserve the exist-
ing organization would cost slightly less than w'hat we are no
spending.
PAGENO="0048"
44
Mr. DUNCAN. Let me ask you this. Do you think we should have a
share-cost basis with the States such as Canada has in her i~rovinces ~
Mr. FEIN. Intellectually 1 like that. I think it has great merits. My
difficulty with it is that we are ~O States. They have many fewer
Provinces. The disparities between some of Our States in ternis of re-
sources, in terms ot income and in terms of mix of population and their
income-in terms of poverty, if you will-~are such as to make it dif-
ficult for me to see how we could do this while preserving a funda-
mental principle, namely, that people in Mississippi and people in
Massachusetts are all Americans.
Mr. DUNCAN. Where would we get the money ? Where would the
Federal Government get the money other than borrowing it?
Mr. FEIN. Individuals and business are now spending a lot of money
on private health insurance. That is the money that I am talking
about.
Obviously it would be silly for me to come before you and say that
the Federal budget can pay fQr all this without increasing the revenues
to the Federal budget. I would point out that those revenue increases
would necessarily translate into decreases in private consumption for
private health insurance.
Mr. DUNCAN. I have several other questions I would like to ask,
but I would like to submit them to the panel to answer for the record.
I do thank you, Mr. Chairman.
Mr. ROSTE.NKOWSKI. We are going to work until quarter to 1 and
we are going back at 2 o'clock. I don't want to cut off anyone with
respect to getting some answers for the record. So if Mr. Duncan
could come back at 2 o'clock, fine.
Mr. DUNCAN. Thank you.
Mr. ROSTENKOWSKI. Professor Reinhardt, did you waiit to say
something?
Mr. REINHARDT. Just to clarify the record, it is true the introduction
of health insurance would place additional demands on the existing
health care delivery system and would burden it. I mentioned the
phrase "as it is now organized it would produce some strain," but I
don't believe it would break the system.
First of all, we can look to Canada. What happens when a system
has additional burdens placed on it? The health care delivery system
cou]d utili~e more delegation of tasks from physicians to paramedical
or physician substitute personnel.
Second, the length of the face-to-face contact with the doctor, the
patient visit, could be reduced. Those are the two responses of a health
care delivery system to additional demands.
it is in this way that the system accommodates. In a recent paper
I wrote-I am not sure which one-I remark upon the unbelievable
flexibility a health delivery care system has in accommodating even
rapid shifts in demand or composition of demand. I will send you,
sir, a table that shows physician-population ratio and physician pro-
ductivitv in three regions in the United States.
New Er~gland, which has the highest ratio-
Mr. DUNCAN. The ciuote I gave you was the health service reports
or ~nniethrng. I think it was in that. .
Mr. REINItARDT. I see.
PAGENO="0049"
45
Some of the States in the South have the lowest physician-pop~la-
tion ratios, and you might think that in those States the numbe~' 0±
visits per capita is low accordingly. But in the South physic~ans
delegate more tasks, employ more aides, work harder, and see n~oie
patients, so that when you look at the bottom line, the per capita
visits delivered are roughly the same as in New England. So Jthe'
system does accommodate considerably to demand pressures. 1Fhe
question is this: is the health care given in the South quality he~iJth
care? i am certainly not qualified to comment on it, but if you al~ege
that it is not quality health care, I invite you to go down there ~nd
say so by looking southern physicians in the eyes.
Mr. DUNCAN. I live in the South and I feel fine, thank you.
Mr. ROsTI~NKOWsxI. Mr. Vanik will inquire.
Mr. VANIK. I just have a couple of questions. Earlier, Dr. 1~ein
suggested that catastrophic coverage would be catastrophic. I was just
wondering whether he would tell us why, because there is considei~ble
basis of thought in the Congress that this is one of the things we nii~ght
do as a minimum.
Mr. FEIN. There is a dynamic quality that all of us have referre~l to
in the health care system. 1f one insures catastrophic expenditures, this
will, in fact, I believe-and IL think a number of my colleagues will
agree-this will direct resources toward catastrophes and away fi~om
prevention of those things, away from preventive care, the prin~ary
care which are not costly, but are very, very important to individ4ials
and to the total health care system in preventing those catastrophes.
The insuring of hospital care makes a difference not only in ab*ity
to go to the hospital, but also directing resources away from prithary
care.
Mr. VANTK. Let me tell you some of my own experiences. I am a~ an
individual most deeply concerned about catastrophic coverage in~ all
areas.
I am at a point where I don't insure my automobiles any n~ore
against damage that others may incur. I protect others.
I just want to provide public liability. I want to be sure that I have
enough because I want to insure protection of the others. I am wil1~ing
to take the risks that are inherent in that kind of planning and res1~or-
ing my own property. That reduces the cost to me.
It also takes me out of a lot of discussion and negotiation about
small claims and their settlement. I get very angered about the 4ost
of these things in automobiles. For example, I had an automobile
totally damaged. The estimate of repairs was $2,845 and I fixed it up
for $650-not perfectly, but adequately.
Now the same principle applies it seems to me, in health cover~ge.
I am dreadfully concerned about facing up to a problem where tikre
might he a catastrophic illness in my own family, reducing our st4d~
ard of living and driving us into hopeless and abject poverty. It can
happen to any family.
Now, from the standpoint of cost and manageability doesn't 4his
become something that is achievable in a health plan?
Mr. FEIN. Mr. Vanik-
Mr. VANIK. I am taking care of the normal day-to-day things, you
know. We can handle that. But what all of us fear is something mi~ht
happen that will just be beyond our scope of control.
57-677-75---4
PAGENO="0050"
46
Mr. FEIN. Let me be clear. I am not opposed to protection
against-
Mr. VANIK. Why is it catastrophic ~ Why would it be cat~strophic
for all of us to be putting something into a pooi to coirer those rela~
tively, few people among us who would ha~re to face up to a catastrophic
problem?
Mr. FEIN. Because if that is all we did-
Mr. VANIK. That is the best insurance there is.
Mr. FUN. But if that is all `we did, sir, then to use your. analogy,
there would be somebody to pay the $2,800 bill and, in fact, it would
be paid and the resources' would be directed in that direction. Addition-
ally, while you and I might very well feel much more secure with
catastrophic insurance and, indeed, continue to seek early care, pre-
ventive care, primary care, there are Americans -for whom that $5 or
$15 or $17.50 becomes burdensome.
It would seem to me that if we want to have that taken care of for
`those Americans, then we need a system which includes both
catastrophe and early care.
Mr. VANIK. I don't argue about all of those things. I don't know
why catastrophic coverage should detract from the other programs.
As a matter of fact, I would like to move to the next question.
That is, in the development of what we are doing here and in our
efforts in this committee to develop a program, I wonder whether we
shouldn't approach the whole thing with a building-block concept.
In other words, getting our keystones in place and then phasing into
a total program? Perhaps we would not even build it all at once.
I am so fearful that a comprehensive program, as desirable `as it
would be, would be an awfully difficult thing to establish-it might
well become unmanageable. When I talk about the building-block
concept, I think about catastrophic coverage being one of those key-
stones on which we build a total system, and a complete system.
I don't take away from the other possibility, hut I want to' put that
suggestion out to the panel and try to determine how the panel would
feel on this kind of gradual approach as against a comprehensive
approach.
Yes, Dr. Freymann.
Dr. FREYMANN. Mr. Vanik, I think the problem that arises in com-
paring the catastrophic approach in health and the catastrophic ap-
proach in casualty insurance is that you could drive for 50 years and
never have an automobile accident, but everyone is going to die.
Mr. VANIK. We don't all die catastrophically though. Some of us
sort of ooze out from date of birth.
{Laughter.]
Dr. FREYMANN. The fact of the matter is that it is very, very
difficult to die at home in this day and age.
Mr. VANIK. In my community you are gOing to die at home be-
cause you can't get a doctor. I live out here in Fairfax and the only
way to get a doctor is to call an ambulance and get to' the hospital.
There aie no roving doctors any more and the only way you get a doc-
tor is die on a golf course. You might find one there.
[Laughter.]
Mr. ROSTENKOWSKI. On a Wednesday.
Mr. VANIK. That's right, on a Wednesday.
PAGENO="0051"
47
Dr. FEEYMANN. This is precisely the reason why people are dy'ng
in hospitals. :
Mr. VANIE. That is not true now. I am shocked by the great nu~n-
ber of deaths that are occurring outside of hospitals and in the ho~ne
and on the streets and away from where the care is. Do you have
figures to back up that, the figures on where deaths occur
Dr. FREYMANN. No; I don't and it would be very interesting to
have-
Mr. VANIK. I would like to have those figures tested because I thi~nk
the ratio of deaths in hospitals to deaths elsewhere would be shockir~g.
I think we would be shocked to learn how many of our people die aio1ne
without anyone around, without any care nearby.
Dr. FREY~[ANN. You have caught me where I should have flgu~es
and I don't, Mr. Vanik, but I certainly agree. There are deaths on t~ie
highways, as Dr. Wynder has already pointed out. This is a maj~or
cause of deaths and many of these people never get to hospitals. Th~re
are also those who drop dead in the street, But what I refer to is t~e
person who lives his full three score and ten years. It is true that a
lot of people are still living out their lives and dying at home. But t~e
fact is that it is becoming socially less and less acceptable for this to
happen.
One practical reason for admitting dying patients is that it is very
difficult to get a doctor to come and attend a person who is dying ~t
home. Furthermore, the law requires that you can't be buried witho~it
a signed death certificate.
So what I aiim leading up to here, sir, is that once a person gets into
a hospital, it is very difficult for the staff not to make available ~o
him all the technological facilities that are necessary to sustain lii~e.
Within the last week I watched as a patient in a hospital in I-Ia~t-
ford was worked over for 3 hours in a coronary care unit. He had~ a
cardiac arrest. I have no idea of what the actual costs were, but
terms of man-hours I am sure a number of thousands of dollars we e
spent. The man was 85 years old.
i~ow the doctors and nurses on that ward are not there to deci e
whether if a person is of a certain age, he will not receive services th t
a person 10 years younger would receive. This is where I get ba k
to the point I tried to make earlier.
We are in a box. We have technical facilities where will keep peop e
alive almost indefinitely and those are enormously, expensive. Yet e
have a limited amount of money. If more and more money is goir~g
`to be going into perpetuating life, less and less will be available f~r
prevention and primary care.
Mr. ROSTENK0w5KI. Mrs. Keys will inquire.
Mr. VANIK. Mr. Chairman, I would like to say that after *e
resume, I would like to get a reply from the panel on this question ~f
approaching national health insui~ance on a piece-by-piece progra
vis-a-vis the comprehensive bill.
Thank you.
Mrs. KEYS. Thank you, Mr. Chairman, and I would.like to thank tl~e
panel for excellent testimony. It was very interesting, very inform~-
tive. So many of my questions have been well covered, but one area
`that has not been touched upon I would like to propound a theory o
and see if there is any disagreement among you on it, and how it coul
PAGENO="0052"
48
be influenced either through our medical education or through the
adoption of a national health insurance system.
It seems to me if we are going to meet the health care needs of our
citizens we need to place a greater emphasis on preventive medicine.
This is an important part of the health picture which has not been
carried out in terms of the public at large. We are going to have to see
the movement out into the community of a great many people other
than medical doctors-nurses, medical assistants, para-professionals
and the like.
So far, the field of nursing has been strictly confined to a hospital
care situation and responding as an assistant to a doctor. How can we
influence and change this? Would you agree that this would be help-
ful? Is it necessary, in terms of stressing the role of preventive medi-
cine, to emphasize things as health education, nutrition education, and
moving people out into the community?
Perhaps Dr. Freymann, who has talked about the role of medical
education, could comment in this area.
Dr. FREYMANN. Mrs. Keys, I couldn't agree with you more. I think
that nursing is probably, with the possible exception of pharmacy, the
most underutilized of the health professions.
Patient education is part of the education of every nurse, and I have
been on record for many years that the nurse practitioner may very
well be the answer to providing primary care.
This is already proving practical in many parts of the country. The
problem of getting the nurse practitioner out and delivering care is
hung up on the problem of who is going to pay her? This is something
else the committee must concern itself with.
So we end up with money again, but I agree with you absolutely that
this is a resource that should be tapped.
Mrs. KEYS. Would anyone else care to respond?
Dr. WYNDER. I would like to add to this in the language of building
blocks. The building blocks have to include prevention. As I empha-
sized in my former remarks, it must also include allied health profes-
sions. Several studies have shown that if the Public Health nurse does
home visits for victims of heart failure, it is done better and cheaper
than when these people go to the hospital.
A very important factor, therefore, is to strengthen allied health
professionals, not just the nurse and the nurse's aide but also the
health motivators, educator, and sociologists. People have to be shown
that these allied health professionals can handle several health aspects
better than the doctor. For one they are often better motivated and
they have more time.
This paramedic forms a very important element in primary care and
particularly preventive care.
On a final comment in terms of building blocks, Mr. Vanik, William
Osler once said, "Man's best friend is bronchial pneumonia." In other
words, you die of old age peacefully at home of bronchial pneumonia.
A typical example of what we should not do is what we did with
former President Truman. He was dying of bronchial pneumonia and
we should have let him die in peace. Instead, we are trying, as Dr.
Freymann said, to keep old people alive artificially, which is not in
their interest nor in the interests of society.
PAGENO="0053"
49
I would certainly agree with you, the best way to build up a new
health care delivery system is to do it block by block and learn fro~n
each country where such blocks have been most effectively used.
One of the things we can learn from China is the example of the
barefoot physician. rflie barefoot physician, as they call it-as we c~ll
the allied health professional-has significantly contributed to the pI~e-
ventive care in China.
Mrs. KEYS. Mr. Reinhardt.
Mr. REINHARDT. I believe the point you raise is a very importa~it
one, very often overlooked in the entire discusion of health care sy~-
teins. The ultimate purpose of that particular type of activity is pr~-
surnably to improve health, however we define that.
So there must be something an economist would call a health produ9-
tion process, as distinct from a health care production process. Inputs
into the health production process are medical services, but they ai~e
only one part, and in many instances not even the most important par~.
rilile patients' socioeconomic environment, hygiene, housing, and nutr~-
tion are equally important; and-this is the point to which I would li1~e
to come-the patients' own attitude and his own ability to manage
this health production process are very important.
Now, some people smoke-my learned colleague next to me, f~r
example-and they are clearly somewhat remiss in so doing. In snio1~-
ing his pipe, my learned colleague on the left will undoubtedly put a
burden on the medical system, perhaps some 10 years hence.
I mention that simply because it is only one manifestation of an' o -
portunity for preventive health care. Not speeding is another exampi
The number of deaths from motor vehicle accidents is shocking in th's
country. We could reduce the burden on the health care system impose
by such accidents.
Second, I believe our educational institutions are remiss in teaching
health management, as I would call it. Mr. Pike isn't here, so I ca~i
slip this in. At Princeton we are enthused about teaching our students
about the various toothaches the Pharaohs had. As you know, we ca~i
X-ray ancient molars and know that Ramses II had toothaches. W~
teach that because it is intellectually stimulating.
We do not have a course in human biology at Princeton University,
which is one of the greatest-I hope-universities in this country. W~
do not really teach health management to our students, and yet $
clearly should.
Finally, as to the use of paramedical personnel, they could be ~
source of such education. Once we begin to use paramedical personne~
as entry points into the health system, however, we are confronting alli
extremely complicated issue. And the question I would raise is this:
Under whose control will these paramedics practice? The economi
~ind medical control of the physician? Or will you allow these pam
medics to practice as independent practitioners? -
This is the question Congress would have to address. If you let the
practice as independent practitioners, will there be fee-for-service, o
how will you pay them? The method of payment has enormous con
sequences.
I think you would encounter much difficulty in getting away fion~
the first mode, that of putting paramedical personnel under the con~
PAGENO="0054"
50
trol of ~hysician~. If paramedics are employed in such a manner, it
isn't clear to me that health care costs won't rise, because each para-
medic will be attached to the location of hisor her employing physician
and maldistribution of services will be perpetuated.
Mr. FEI~. I would only disagree with your last phrase. I think we
ought to think about it hard, but not long.
[Laughter.]
Mr. FEIN. By that I mean we have been thinking about some of these
problems for a very 1o~g time.
I think that it is a problem which illustrates the complexity and
interrelationships that the chairman referred to in his opening remarks
in the health care system.
We, for example-when I use the word we I mean we the people-
financed medical education in the last 20 years in a manner such as to
get quite a bit for what we put in. We got research and we got speciali-
zation. But we had a side effect. We destroyed in large measure what-
ever possibilities did exist in our medical schools for emphasis on
preventive care and on primary care.
The orientation of the entire medical education care sector to hospi-
tal care makes it less likely that physicians would move to those areas
or that they would be interested in the training of allied health pro-
fessionals.
We have instituted payment mechanisms that make it very difficult
for allied health professionals. Again, not in order to make it difficult
for allied health professionals, but for what were presumed to be good
and sufficient reasons without due attention to the side effects that came
about.
Above all, we have never in any part of the United States placed
a responsibility on any organized body, governmental, private, edu-
cational, or any organized body to be responsible in some sense for
the medical service delivery system in that cornmunity~ In early Sep-
tember every year most of us have, all of us have an assurance that
the schools will open and that the school board will see to it that there
are buildings ançl classrooms and teachers.
While various communities at various times have had difficulty in
meeting that obligation and have had to erect temporary facilities,
the schools do open.
I have an exercise that I have for the medical students at Harvard
when I teach them, make a series of phone calls saying that you are
a new resident ~and that no pediatrician is prepared to take your
children, which is the case in the high-income suburb that I live in,
and then ask the dean of medical school: "What shall I do under
the~e circumstances ?"
When you receive the answer that: "I sympathize with your prob-
1cm but it is not the responsibility of the medical school to assure that
there ~re pediatricians in Newton," and you call the county medical
association, you will get the same answer. Call the State department
of health or the city department of health and you will get the same
answer.
I once delivered some remarks on this and a cartoonist encompassed
the sum total of my remarks in one cartoon. He had a picture of an
envelope that is addressed to "Complaint Department, U.S. Medical
Care System," and in the upper left hand corner it said, "John Citizen,
PAGENO="0055"
51
Home Town,. U.S.A." There was on the envelope the stamp with he
finger pointing to the upper left hand, corner saying "Return to
Sender, No Such Address." Well, as bug as there is no such addr ss
and it isn't anybody's responsibility, we can have the situation tl~at
we have. We will not change it quickly. But we cannot change it by
dabbling at the edges, as if the financing system was unrelated to t~.e
distribution of physicians by specialty and by location.
Mrs. KEYS. Thank you.
Mr. ROSTENJ~OWSKI. Thank you, gentlemen.
It is certainly nice to see the chairman of the full committee, Mr.
Uliman, with us.
The CHAIRMAN. Would the gentleman yield?
Let me congratulate you for going ahead with these hearings a4d
for putting on a panel of this caliber.
I wish I could have been here to hear it, but I will he studying tJ~e
record. The reports I have, are most excellent. That is one of t~ie
reasons I came over.
These are hearings of great long-range importance and we wouldi~'t
be holding them if we didn't intend to write a piece of legislatioji.
This is a very good beginning. I want to congratulate you.
Mr. ROSTENKOW5EI. Thank you, Mr. Chairman.
The committee will stand in recess until 2 o'clock.
[Whereupon, at 12 :55 p.m., the subcommittee was recessed to reco -
vene at 2 p.m..]
AFTERNOON SESSION
Mr. RosTENKowsKI. Well, gentlemen, I think the conversations th~t
have been held back here in the backroom subsequent to your testimon~y
are very encouraging.
I think it has been enlightening in the morning session and I a
sure that this afternoon we will be able to shed more light on whi~t
we feel we will have to do in creation of a national health insurande
legislation.'
I would like to pose this question to each of the panel member~,
preventive medicine, Dr. Wynder, is like the weather. Everyone talks
about it, but not many try to do anything about it.
What would be involved in making the concept of prevention
central part of our health care system? How do we get the healt
professions and the public to accept what structural changes woul
be needed in the organization of care and what would it cost?
Dr. WYNDER. First of all, there must be incentives for preventiv
care. It is apparent, as I said in my formal remarks, if we give ineen
lives for only therapeutic care but not for preventive care, ~ve wil
not have it; because, (a), the health care system is not likely to do i
unless it is being paid for and (b) the public at large really does no
go for preventive services, because, as I also pointed out, most of u
really believe it will never happen to us.
So that even in the German example which we cited before wher~
the German Health Service now pays for cervical sthears for women~
only 2~ percent of eligible German women have availed themselve~
of this~free service.
Part of the incentive is also the way we look at sick days we do not
advocate health days. Nearly every worker has so and so many sici
PAGENO="0056"
52
days that he can be off work. But if an individual wants to go to a
preventive care facility for an examination, or to a nutrition clinic
or hypertension clinic, when he is not symptomatically ill, he must
do this on his own time.
In our organization many of our clinics work in the evening because
the worker has come on his own time. One of the suggestions I would
like to make here, is that we establish health days for our citizens
in addition to the sick days that we have now.
The key `problem, Mr. Chairman, in preventive medicine, is lack of
economic incentives and the human apathy towards anything pre-
ventive because we believe that it cannot happen to us. It always hits
the guy next to you.
This issue has been with us throughout the ages and I doubt whether
we will ever change human beliefs that a particular sickness cannot
befall us.
Thus, I feel that we have to provide economic incentives for the
health care delivery system to undertak~ preventive measures, and
we must provide more incentives for the individual. Perhaps, we could
start this approach in our school system.
Most of our chronic diseases have their beginning at a very early
age. Hyperlipedemia really begins early in life from the way we, eat.
A study was done at harvard from data available to the health
service they could predict who would develop heart attacks later
in life.
Studies comparing blood cholesterol level of children in Wisconsin
and Mexico showed that the curves hardly overlapped. Thus, one way
to begin good preventive procedures woul d be to indoctrinate our
young children in knowing more about their bodies.
We have established at the American Health Foundation a KYB
program for schools, a know your body program where at minimal
cost we check schoolchildren, determine their cholesterol and hema-
globins, test their eyes and ears and carry out tests for physical fitness,
take a history on smoking use and then give them a health passport,
which is upgraded every year.
When you get children to know their own bodies they are likely to
become more involved in health care than otherwise.
In other words~ incentives have to be provided early in life, they
have to be provided at a cost-effective level for both the providers
and for the consumer.
The final question you asked is, what would it cost?
That is difficult to answer. I personally believe that if you concen-
trate on primary prevention which is really the way in which I think
preventive medicine must go and primary prevention means to iden-
tify these factors early in life and reduce them both in the environ-
ment and in the individuaL then preventive services are cost effective.
Tf you only deal with secondary prevention it is a costly service which
is not always cost effective.
Dr. Fein mentioned before that the social security service monitors
health care costs in this country. But, when you ask, how much do
we pay for, preventive services? We really don't know beea~ise pre-
ventive services have never been appropriately covered `by the health
economists.
PAGENO="0057"
53
Let me repeat, most of the diseases from which we suffer today in
our country are preventable. Prevention needs to start early in l~fe
and if we really do our job well we could all die at some old age, fiiee
of disease. That is the way our general timeclock has called for us to
die. Die we must, but we must not necessarily die sick. If Congr~ss
provides the necessary incentives we shall have meaningful preveiiti~e
services.
Mr. Ros?rENKowsIu. Thank you, Dr. Wynder.
Mr. Martin will inquire.
Mr. MARTIN. Thank you, Mr. Chairman.
Just as I want to commeiid tl~e panelists for the quality of th~ir
presentation, I want to commend the chairn'ian for presenting ~n
equally qualitative panel.
We have had a series of questions, as I am sure you have notic~d,
that not only give us a chance to give a varying perspective from diff~r-
ent points of view, but also give me a chance to catch my breath. B~it
one I wanted to get into was to ask generally of you what each of y~u
sees as the most critical need or the most glaring deficiency in the pr~s-
ent American system of health care.
I have to give some background before I breathe deeply here, but ~e
had mentioned in your remarks and in some of the questions, a series
of concerns which have been brought to the committee. We have h~d~
criticism of relying on or even permitting fee for service.
We have considered the loss of coverage during unemployment pe~i-
ods. This committee has looked into that earlier this year. There is a
problem of lack of catastrophic coverage; the need for more personnel;
the geographic distribution problem that Professor Fein and others
have dealt with.
It has been mentioned about the overgrown orientation tow~d
hospitals that Dr. Freymann has discussed in his introductory remarI~s~
Relative inaccessibility of middle-income people who have neithpr
wealth nor welfare and the problems of preventive medicine.
From this and other subjects we have to deal with, it seems to n~e,
in relation to the Vanik concept of a modular legislative approa~h
there is a need for us to focus on those particular areas that are most
lacking at the present time. Therefore, if each of you could sort
conceptualize that for us, it would be very helpful to me.
Start with Dr. Wynder and move across.
Dr. WYNDER. I think it might be useful if each panel member wou ci
give you an answer in a few sentences listing each priority.
No. 1 greater emphasis on preventive care.
No. 2 greater emphasis on ambulatory care.
No. 3 greater utilization of allied health professionals.
If these three areas would become the basic blocks of the syste4i.,
whatever system of financing health insurance we will finally settle
for, it would be both medically and economically the type of progra~n
that our country ought to support.
Mr. MARTIN. Thank you for that response.
Dr. Freymann?
Dr. FREYMANN. I will answer this as a physician but it will be inte
esting to see how my colleagues here answer it and how each of tI. e
members of the committee think of it in their own minds.
PAGENO="0058"
54
I think in terms of health needs. If I understand the direction of
your question, Mr. Martin, there is no doubt in my mind that what is
most needed is those health service~ included under the rubric of "pri-
mary care."
Now, primary care is not very well defined. I define it as lifelong
access by a citizen to a health professional who can assist that citizen
with whatever problems he or she may face. That is my idea of primary
care.
I think that the whole tenor of medical education today, particu-
larly the growing number of family practice programs, are a response
to a cry which is heard throughout the country: People cannot get a
doctor. They are not talking about getting a doctor to take care of &
coronary or to take care of cancer because there are no problems here.
There is a financial problem, but the services are there. The question is
how to pay for them.
In contrast, primary care services do not exist in many areas of this
country.
As Dr. Fein mentioned earlier, you can't even find a pediatrician in
an affluent suburb of Boston. This is true across the country in affluent
suburbs, ghettoes and rural districts. That, to me, is the problem.
Mr. MARTIN. Thank you, Dr. Freyrnann.
Professor Reinhardt.
Mr. REINHARDT. I also will enumerate points, rather than saying
there is one single important problem.
The first problem I would say is that certain segments of society are
denied adequate health services. One reason is simply that these serv-
ices are not made available to them even if they are financially able to
pay for them.
A second reason, of course, is that they are fir~ancially unable to pay
for them.
A third reason is that they are unable to use the very complex system
intelligently. We always assume that everyone in society is properly
educated to manage his or her own health and to use the system effec-
tively. That ought not to be assumed.
The second major problem is that an undue number of American
families in my view are exposed to high risks, being vulnerable to
the large financial losses associated with illness. Even if that number
is absolutely rather small, it is nevertheless there. An undue number
of families consenquently suffer a type of uncertainty which I think
this Nation is right enough to eiimiiiate.
Third-here I am speculating-it is quite possible that we do pro-
duce the wrong mix of services. First, there is perhaps too much hospi-
tal care being consumed. By hospital care I don't necessarily mean
"inpatient care". I think that the attempt in this country to reduce the
number of inpatient days is perhaps a misdirected effort.
Inpatient days yary enormously in resource intensity and perhaps
what we ought to worry about is how to get people out of highly
resource-intensive patient days and into less resource-intensive patient
days, that is out of acute hospitals and into extended care facilities. It
does not seem to be a wise policy to reduce inpatient care, that is to
send people home, when there is no adequate provision for care in these
people's homes, perhaps because there are no adults around to care for
them.
PAGENO="0059"
55
So, when I talk about the mix of services, the point is that too m~tny
acute hospital days are being consumed. Perhaps there should be adUed
consumption of extended care and more ambulatory care.
Although I am not an expert on the economics of preventive c~re,
and I hear many questions raised of how cost-effective preventive care
actually is, I would certainly wish to stand lectured on that poin~ by
Dr. Wynder. Perhaps we don't do enough preventive care. As to the
final point, the use of allied health manpower can backfire on us.
I have written on this extensively and recently have come to ~he
conclusion that the education and employment of an increasing film-
ber of allied health professionals may ultimately mean that there are
just so many more mouths who nourish themselves on this activLity
called health care delivery, that there will not take place the delegaton
of tasks from the physician to time paramedical that we have ant ci-
pated, and that the cost of health care will not fall.
The reason why I suspect that the delegation of tasks may not occi~r is
that at the same time that we are increasing the supply of allied he~lth
manpower, we are also increasing the supply of physician manpo*er,
and it is not clear to me why these physicians will feel compelled to
delegate tasks when some of them in some areas may well be unc~er-
employed themselves.
If my hypothesis is correct, and if we do not worry about providng
proper incentives for the use of allied health manpower, I think we ~ ill
find that the use of such manpower will increase the costs of hea th
care substantially.
One way perhaps to use allied health manpower wisely is to rem ye
them from the control of the physicians, as I mentioned before we
recessed for lunch.
Mr. MARTIN. Professor Fein?
Mr. FEIN. I think the most important thing would be a recognit~on
that the health system is interrelated in all of its facets and that th~re
is probably nothing that you can do in any single area that would ~iot
have a very substantial impact in other areas.
In that sense, or that recognition which the Congress has in many
fields, you are aware that housing policy will affect transportation
policy and energy usage and so on because patterns exist, and all of
that.
Mr. MARTIN. Are you then saying we should not proceed alon~ a
modular system?
Mr. FEIN. No. I will come to a modular system a little bit later. l~ut
i.t is important to recognize, I think, that as you proceed you have~to
worry about side effects. In terms of the priority questions that I beh~ve
you ame asking for, I would say the first would be achievement of eqi4al
access to care and the recognition that one can structure the financi~g.
mechanism in a manner that will affect the supply resources. Whetl~er
you will have the high intensive hospital care or.low intensive hospil~al
care will depend on what you will pay ~or it.
A friend of mine went out recently, a few years ago, to a city in i~p-
state New York, where the hospital wanted to add additional beds. It
was a multistory general hospital, the beds were full and there appeared
to he need for yet additional beds.
There was a top story and there the beds were empty. That was
extended care facility and the beds were empty because the. physici~n,
PAGENO="0060"
56
to move the patient from the other floors to this top floor had to fill out~
a long and complicated form and Blue Shield wouldn't pay the p}iysi-
cian for care delivered on that floor. So the patient stayed on the lower
floors, at high cost. It was possible to arrange an experiment in which
the form was reduced to half a page and Blue Shield on an experimental
basis agreed to pay for care on the extended care floor and as a result
patients were transferred. Within 3 months the application for yet ad-
ditional beds was withdrawn, and outmoded facilities were closed
down.
The financing mechanism can be used to affect where physicians'
are, what specialties they will go into, and what kind of care will be
delivered. That can be done by duress, it can also be done by incentives.
In that sense I would remind you that at the present time we have
created a structure of finance which is providing incentives but they
happen not to be the incentives that we would like to see. They happen
to be the high cost incentives.
I would also say that a high priority item, therefore, becomes struc-
turing the financing mechanism in the same way that most industries
in the United States face finances: All firms face a budget constraint
that causes people to ask: "What are my resources and how shall I
allocate them to `hit the high priority items?"
Given a constraint of resources, given a recognition that financing
can affect the supply decisions, one can, I think, within a limited `budget,
achieve much more equal access to care than we now have.
Now, I have not addressed the modular approach per se, that is, I
have not put forward my plan for how to phase something in. I don't
know whether this is or is not the appropriate time to start down that
path.
Mr. MARTIN. It may be that we have the information or a renort
on the example you gave of the Blue Cross experiment in New York
City, you said?
Dr. FRIN. New York State.
Mr. MARTIN. I would appreciate it if you could direct us to the re-
port on that. That would be very interesting to look into in d~tail.
Dr. FRIN. I will do SQ.
{The information follows:]
Cited in "Who Shall Live," by Victor R. Fuchs. On page 99 of his book (Basic'
Books, 1974), Professor Fuchs refers to a personal communication from Sidney
Lee in regard to this matter.
Mr. MARTIN. Both you and Professor Reinhardt commented on the
segments of society that have less access to medical health care and
I wonder if you could be a little more specific as to which segments
we are talking about. Are these the low income, middle income-cer-
tainly not the high income.
But are you saying that people who are not covered by medicare
and medicaid are still in the group with the least access to medical
care or are you saying people who do not qualify for those, but are in
middle-income category are the ones or is there some other concept
that you have in mind? ,
Mr. FETN. I would think that for certain kinds of care, the kind, th at
has been referred to in terms of primary care, most persons cannot
easily find that kind of care.
The system isn't organized to do it.
PAGENO="0061"
57
Mr. MARTIN. You are talking about segments of society, not geo-
graphic sections.
Mr. FEIN. In terms of population groups I would remind us tiftat
the medicare population, people over age 65, some of them of low
income, are in fact in today's market prices paying approximat~ly
60 percent of their medical care costs themselves; that is, medic~re
covers about 40 percent of the medicare costs of the elderly on aver-
age. Here we see a social program which over a decade has actua ly
decreased in its positive impacts.
Therefore, it would follow that some portion of the elderly po~u-
lation, those who are not affluent and those for whom medicaid n4ay
not pick up things, may be in trouble. They are likely to be in trouI~le,
all of them may potentially be in trouble, given that the medic~re
program does not have an upper limit as to expenditures.
Indeed the sicker you are and the longer you are sick, the more l~he
benefits phase out. Twenty percent coinsurance for physicians' f~es
continues ad infinitum, but the number of hospital days phase o~it.
If ~OU are not wealthy enough to have private insurance coverage in
~addition to medicare, don't stay in the hospital tdo long.
The medicaid population, we have introduced for this very low-
income population, we have introduced coinsurance and co~ay
provisions.
It does not strike me that for that population this is likely to
increase access.
There are individuals in many of our States with the States n~w
facing their own fiscal difficulties, who are slightly above that medic-
aid line but whose income is hardly sufficient to take care of medi4~al
care costs at today's market prices. Over $200 a day for a day of
hospital care in the city of Boston, for example.
You don't have to be sick very long to run up a whopper of a bill.
So that it is those population groups as well as individuals in he
middle-income group when faced with high expenditures beca se
most of our policies phase out after a period of time.
Mr. MARTIN. Thank you very much.
That was very helpful.
Professor Reinhardt, did you have any comment to add to th t?
Mr. REINIIARDT. I think my colleague has summarized that is ue
very well.
There are poor and rural areas where, despite the availability of
financing there are simply no facilities available.
Thereare people who encounter considerable difficulty in transpo~t-
ing themselves to health care facilities. Even if one looks at urban
centers where out-patient departments of hospitals make health seifr-
ices available, one can easily be misled to believe that enormc~us
amounts of resources are devoted to these people when one studies t~he
level of expenditures on such resources.
For example, in the municipal and voluntary hospital system in
New York City, an average ambulatory visit costs between $70 a~id
$100. Can you imagine a routine iihysician visit to a practitior~er
costing an average of $70 to $100? That i~ what it costs in New Yo~k
City. But you may say these people get a lot of care. On the contrai~y,
$70 to $100 buys a service for which, a short distance down the tulin-
pike I would have to pay only $15.
PAGENO="0062"
58
Where this degree of cost inflation originates is something worth
studying. I have not had a chance to sink my teeth into it. But you
can certainly be misled by monetary statistics. There are queues in
these departments so that the price of availing yourself of certain
services acts in as bad a manner as a money price does. You can make
the situation uncomfortable enough for patients ration by things other
than price. One of the things is to let people wait. So there really is a
problem for some segments and they tend to be lower income groups.
Mr. MARTIN. Thank you, and I thank the chairman for generosity
in time.
Mr. ROSTENSKOWSKI. Mr. Corman.
Mr. CORMAN. Thank you, Mr. Chairman.
I hope my patience will be rewarded with a long 5 minutes.
I was thinking about where would we go for that heart surgery
that Professor Fein mentioned. I guess it is fair to look at where we
are.
We all know there is a finite limit to the availability of health care.
Not everybody that needs heart surgery is going to get heart surgery.
But if you consid~r a 12-year-old boy and an. 85-year-old man, the
first is poor, the second is wealthy, we will probably patch up the
85-year-old man under the present system. Would you all concede
that we probably need to change the present system without knowing
where we go from here? Would you concede that, where we are
probably is not where we ought to be?
Mr. REINHARDT, This gets one into a kind of benefit-cost calculus
that some of us are simply reluctant to perform because it is so
uncomfortable.
We always talk about the infinite value of human life. It is, of
course, true that economists can infer from human behavior that the
individtial in society actually places a very limited price on his life;
otherwise, why would anyone ever speed? Clearly, while driving we
are quite willing to put a limited value on our life.
The question of the value of a human life really does arise, and I
think it was mentioned earlier that one can make a simple assump-
tion that enormous resources should, if necessary, be devoted to sav-
ing virtually any life, irrespective of the age of the person whose life
is endangered.
I guess one could use criteria to determine how much effort should
be devoted to saving a given human life, but the establishment of
such criteria is too uncomfortably hard-hearted to be seriously under-
taken.
Fortunately, you have to do that and not, I.
Dr. FRRYMANN. I should point out to Dr. Reinhardt that it i~ very
easy for him to say and for me to agree, but by 1990 we are going to~
have ~0 million voters over the age of 65, and they may object to~
setting arbitrary limits by age. On the other hand, those whom we
all agree need health services most, those under 18, don't have a vote~
at all.
So that there are implications here that go beyond matters of pure.
health care need, But I agree with. you, Mr. Corman. I think we
should be dissatisfied with where we are~ The concern which I ex-
p~ressed and which Ithink my fellow panelists also feel is that wher&~
we go from here to improve the system must be done very carefully..~
PAGENO="0063"
59
Otherwise we could throw an incredibly intricate system out of bal-
ance and make things worse.
Mr. CORMAN. I must say that I share that view, but the trouble ~s
I frequently get the feeling that some people in the health care syste~n
say you know we should go carefully, if at all. I do think we need t~o
go someplace from where we are.
Dr. FREYMAWN. May I come back to what I was saying to Mr. Ma -
tin? I think the main need to improve the system is providing pri-
mary care to the entire population.
This is something that the whole population needs, but that the e
is at present a grossly inadequate system for paying for any kind f
primary care. The only exceptions are the very few people who ha e
major medical insurance coverage.
Mr. CORMAN. Really it is because of economic decisions the Gover -
ment and insurance industry have made, isn't it ~
Dr. FREYMANN. Right.
Mr. CORMAN. But we must write that into the new formats that ~e
need to make.
Dr. FREYMANN, I am working with people who are going into
careers as family physicans. What concerns them, and they are fra4
about it, is whether they can make a go of it financially.
Mr. REINHARDT. On the subject of access to primary care, Dr. Fei~r
has already mentioned that this really touches all Americans. Pert-
haps no region is more generously endowed with physicians than th~
State of Massachusetts~ particularly the Boston-Cambridge regio4~
Yet I have had an unfortunate experience there involving my ow~i
child, in a case that seemed to me to be an emergency. In that instancf~
it was impossible to gain access to our own pediatrician within 2 hour.
That was the lack of access of a sort.
We have given one particular profession in this country, a monop-
oiy to serve as entry points into the medical care system. As I men-
tioned this morning, we have not burdened that profession with th
mandate to be responsible for providing those access points whei
and where needed. Ultimately, we may have to look to other healt
manpower to provide these entry points. We may have to use para
medical personnel to-say, pediatric nurse practitioners-to remov
them from the control of the physicians, to let them practice as in
dependent practitioners and so introduce a degree of competition mt
the health care market-a degree of competition that has never beer
there.
I cannot see why a society would want to give to one profession s
powerful a monopoly and ask literally nothing in return.
Mr. FEIN. Let me follow up on the comment about the primar
care residents. I am in a medical school and I meet a number of youn
men and women even as they enter school, highly motivated, taikin
about primary care and so on. Over the 4 years there is a significan
attrition in the number who speak that language and have that motiva
tion in part, I believe, due to the pattern of medical education, rein1
forced, if you will, by a society in which medicine is high drania~
Say to the average American what is medical care, and I suspect~
that the response will not be, "It is going to the doctor when I am not
feeling well." The response will be in terms of surgery and life an
death situations. Most medical care isn't about surgery and life an
PAGENO="0064"
60
~death in spite of the fact that our TV programs have heroic medicine
in our living room twice a week every week.
That is what we are bombarded by and it does affect decision-
making. If the student is trained with high drama in the hospital,
he is likely to feel that primary care is less prestigious, less interesting
and also less economically rewarding. He then1 even if he is interested
in going into primary care, is aware that if he goes into that field,
perhaps his reward will be that 25 years later there will be a profile
about him in the Sunday supplement to the Boston Globe. But that is
not enough reward.
He is out there lonely because if the medical school isn't interested
`in him because he isn't in the hospital and he isn't doing the kind of
research that has been supported in the past1 his professional col-
`leagues are not interested in him. I-ic is out there in the frontlines
~working very, ve.ry hard in a rather difficult situation. Furthermore,
there is a situation of which he is aware., that that what he does,
sad to say, has less to do with the health of the population than the
~quality of their houses, the quality of their diet, nature of their
jobs, and the opportunity to work.
Yet as a physician, though he knows that rat control is more im-
portant than treating the rat bite, he can't do anything about rat con-
trol, so he treats the rat bite in a very frustrated and very frustrating
~situation,
We pay a price for admitting very bright students to medical
school. The price is that they are bright enough to see that the Amer-
ican population, Congress, society, have not placed any great emphasis
on primary care and given that brightness and given that reading of
society they drift voluntarily, but nonetheless into the high special-
ties, high technologies, highly institutionalized, highly prestigious
~areas of medicine and then we say, "Gee, there must be something
wrong." Indeed there is.
Dr. WYNDER. Could I comment on that? I think Dr. Fein made a
point of what is doable is not necessarily what is right and what is
not doable is not necessarily wrong.
Many times I am sure you `have been in favor of bills that you knew
in your heart were right `for your citizens in your `district and yet you
knew that the Congress would not vote for it. Such limitations also
`apply to medicine. Much of what we have said here we know to be
right, but we know, it not to be doable.
Some ~½ years ago I gave a long and hard look at this and `decided
to learn from Einstein, ~ho said, "It is not so much important what
`people say, it is what they do." So I `asked myself what can I do in
preventive medicine for this country?
I recognized for reasons stated I could not do it within the medical
school. I could not do it within a hospital. So we set up our own
organization that we called, and perhaps that is the first smart thing
`we did-we called it the American Health Found'ation.
We just completed a $6 million research institute that specializes in
disease prevention. Supported to `a large extent by the National Cancer
institute we are looking at risk factors. We recognize that people like
Mr. Cotter will continue to smoke because perhaps he is likely to think,
:as I said before, that he is immortal, so we recognize-
[Laughter.]
PAGENO="0065"
DrS:WYNPER [continuing]. That for people like hiw we have to-nu~ke
smoking less harmful. We have a major program on how can we1~ia~kq
smoking products. less harmful. We recognize' that most of us ent~in
~excess in spite of the fact that we are physically~ not very actii~e. Thus
we have- a major program on how can we modi1~y tI~e American diet so
that we reduce its effects on coronary disease and several types. of
~cancers,
We call this managerial preventive medicine. It may be of inter~st
to you that this new institute stands in Valhalla, New York-
[Laughter.]
- Dr. WYNDER [continuing]. And perhaps that was kind of a fort i-
thus choice, because Valhalla implies immortality.- Second, we est
lished- a health maintainance institute. I would like to extend an invi a-
tion to all members of this- committee to go through our health man~
tenance center, to be screened in 90 minutes and to have a nine-pa e
printout on you on the physician's desk that has all your findings e-
ported by the tIme with all abnormal findings on the first page. -
We don't want the doctor necessarily to read all nine pages, so e
have the abnormal findings on the first page. Many of these relate o
asymptomatic conditions, your blood pressure, your cholesterol. It i a
different medicine from the way we learned in medical school. Wh n
I was in school, the first question we learned is where does it hu
what is your chief complaint? Somehow the doctor feels if the patie ,t
doesn't have a complaint, he -can't be sick. Yet if you have hypertensi n
or hypercholesterolemia, you are in fact potentially in worse heal h
than if you have a cold. -
Thus, smoke cessation programs, nutrition and hypertension pr -
gram were started. We h-ave such programs for adults and childre~i.
Clearly this is doable, and if yo,u like to see how it works, I would lil$
to in4ite all of you to come and see it. - - - -~
Third, we have established a public health action center because ~re
recognize that it is not just important what we do in our own institi~-
tion, but how we~ can `affect society. The public health action center h~s
tried to influence the tobacco industry to lower their tar nicOtine valu~s
with great success. The tar nicotine values are 30 percent less than ~0
years ago and we are seeing a reduction in lung cancer - among pêop~e
smoking lower tar cigarettes. -
We are trying to affect the diet. Other people have added iodine tp
salt and reduced goiter in areas where goiter was very common,
typical example of managerial preventive medicine. -
We are now newly funded by the NCI to establish sections in `healt
economics. Here we study to w-hat extent c-an preventive services reduc -
health care costs, a~ Mr. Martin a~ked -today. -
We are doing work in health motivation, though I believe this to -b~
the weakest area.- - Only up to certain points can man be - mqtivate~l -
toward better health -because we always cofrie to the point where tha~i
says, "Not me, certainly not now." - - ` -
And we are involved in school programs. Thus, -we have develope
an organizatiOn that employs today sOme 200- people that- is solel
committed' to preventive- care, an effort that could - be duplicated i
other~States. By sO doing I hope that we can rnake--~a~? imfluenc~ - t
change the current~medical care delivery system. - ` ` - - - -
- We need change- if we are going to- have a better health c~re system
57-677-75-5 - - - - - - - - - - - - - `-
PAGENO="0066"
`Mr. ReST ~OWS~I. The gentleman from C~li ~iiia~S time has cx-
pi~r~id.
I think Mr. cott~r will inqutre befere hee~pire~ ~[bai~ghte~r.]
Mr. COTh~R, Thai~~k i~ou very nm&~.
Frankly, Doctor, I don't want to die~e!f~senility. [La~ighter.]
Mr. B~trnLEso~i. Or any other way.
Mr. COTTER. It has been a most provocative session. I know We have
all benefited by the discussion back and fei4~h.
We have had figures made available to ~s `within th~ past 24 hours
that some 80 percent of the population under 65 has basic ho~pital and
niedical tare insurance and medicaid takes care of the mdig~nt and
medicare `those over~5. `
Now, how far do we go with the National Health `Insurance pro-
gram'? Do we go cradle to grave, inoltudes p1venti~re~nIethcine ? `Ordo~
we `take a piecemeal' approach and exp~n'd the eover&ges offered `by
Blue Cross~-Biue Sl~ield, or insurance companies in general? Do we
expand the care under medicare and medicaid?
This is the question. Would each of you care to comment on it? In
other words, how far do we go? Do we do something in between? Do we
do it piecemeal? How?
Mr. FEIN. This gets at the question in a different way, `the question
that Mr. Vanik asked.
Mr. Oomn. On another point, w'hen you start directing doctors as
they get `out of medical school, we need some in OBG or whatever,
I don't think this is right to dictate to doctors what fields they must
pursue or where there is a need. But let me return to my basic question.
How do `each of you suggest we approach national health insurance?
Mr. FEIN. On the latter question, the latter comment, sir, let me just
say that while it may be frightening to dictate to doctors where they
shall be, under existing financing mechanisms you are, in fact, if not
dictating, encouraging doctors to be in certain areas a'n'd in certain
activities, and in certain kinds of medical care. So it is not as if the
Federal Government and third parties have not already directed doc-
tors through economic incentives.
Let me address it-
Mr. COTTER. This should be correctable then?
Mr. FEIN. Yes; it should ,be and indeed I hope it will be ~orrected.
According to the Social Security Administration, which annually
offers us an article on national health expenditures and on private'
health insurance, I quote:
Despite `the growth of private insurance in the health care field, ~n estimated'
41 million Americans underage 65 have no economic protection through private'
Insurance against hospital costs. 42 million bare no insurance for surgical care.,
The picture is not quite as bright as one would think `when one looks'
at the i~i'umber of people who have insurance, be~ause in many cases'
that numberis not 100 percent, of course, but'in addition many of those
who have insurance have very inadequate insurance. We `do not count'.
"Do you have an appropriate policy or adequate policy'?'~,'
How far `should we go? Well, let me begin ~ a ñd~ienta'l prim.
ciple It seems to me that there is one Federal prO~UU which has in a
most ach~oit fashion intertwined the fa±e o~ , d4~'~1ass and upper'
income Americans with the fate of `lower ifiè'~e,~*tneri~ans in such'
a manner that there is `nothing the farmer can `do to "hurt the poor in
that program without hurting themselves.
PAGENO="0067"
I refer, of course, to th~ sothd seemity ~ysten~ Whi'ch ~nm~ses
all Americans. Frem that, and fro~~ ~ ad~i~i~ii~ii ~b~eFv~ion,
namely, that it is not likely that we are going to have an ~d1eq~iate
program for the poor and the ne~ar~poor ~pl~ tf w~ ~ly ~dd~ess
them. I conclude that it would be helpful to hwve ~ p~egra~m 1~ke sdcial
security, which did encompass all Ameri~can~.
* If the ~u~estio~i is then aske&,' `hew would ~on ~nO~e ~e~Eay i!1~ the
Gongress were ianwilling~ to go all, the way in on~ fell §*oep? That
is the que~tioia of Congressman Vanik.
Mr. COTTER. Which is a very practical c~onsirl~ration.
M~r. FEn~. It is a c~nsideration. I am not sure `It i's a pFaetical ~on..
sideration because, in fact, we are already spending the thoney. p'ut
if that is a consideration, there are, I be~Lie~ve, tiWee e~tiOns, tw* of
which ought to be rejected. Let me mentionthemall.
One way would he to phase in a benefits struetu~re ~tarting ~ith
certain kinds of benefits and not others. I don't think that Is de~ir~
a~ble for two reasons~ The benefit structure you select will tilt the
system in that direction; `and, second, it `is unlikely that you would
select the benefit structure' that emphasized primary care given that
public would say to you, "Is this what National He~1th Insura~nce
was about? You a're leaving me dangling on hosp~tai expenses ~nd
the stuff that frightens me. You haven't done arnyth'hrg." I wo~ald
remind us all that medicare started talking about ho~pital `care for
a very important social, economic, and political reaaon.
So that if you go for benefits structure, I think you will do `harm
to the ambulatory care system. The same observation holds for go ng
for catastrophic insurance.
You could phase in by starting with high coinsurance and h gh
deductibles on the theory that that will reduce the impact on `he
Federal purse and over time you will fill in the gaps. The difl~ct~lty
with that approach is that those who can afford to fill in the g~ps
immediately will do so, and you will have a two~clas5 system. You ~:iil
have the inequities. You will be back where you were.
Itt addition, you will have incurred In any system which attempts
to be refined, high administrative costs associated with sorting pi~ces
of paper.
There is a third mechanism and that would be to start with he
benefit p'ackage that is comprehensive, that covers the care that ne
would like to see for all the population, but starts with a segment of
the popu'lathm. I do not suggest a segment defined by income bec'a se
that is dangerous. We may never get rid of that. But start wit a
segment defined by age.
You can begin a fully comprehensive program without coinsura ce
and deductibles `for children and pregnant women, perhaps in to
correctly ~"ptegnant persons."
iLaughter.]
Mr. FErN. You can start' with that kind of a benefit package fo~'a
modest sum of money. One of the reasons that it is m~ciest is ki~ls
use much hospital care. ~f you began with that ~package `a~d
~rn t~ongress ~ean bind any future Congress, and I am 1v~v*e
~ history-
~Mr. COrrER. May I intetrtipt you?
Mr. FEIN. Yes,
PAGENO="0068"
Mr. CorrER. Could we interrupt foi~ a moment?
Mr.R0STENK0wSKI. We will recess for `5 minutes for the vote.
[Recess.]
Mr. CORMAN. Mr. Pike will inquire.
Mr. PIKE, Dr. Wynder, I have been thinking a great deal about your
emphasis on preventive medicine and it leaves me with a small philo~.
sopincal problem.which I am sure you can resolve for me very easily.
* If we go your route in Valhalla, and people stop dying of these man-
made diseases, what are they going to die of and what are the declin-
ing years of their lives going to be?
* `Dr. WYNDER, We shouldn't die.of senility, but we should "die young"
*~s late in life as possible.
Mr. PIKE. Does that really happen?
Dr. WYNDER. It should happen the way nature has intended it. A
key question really is, and I would like to address this to my friends
the economists, there was a paper from England suggesting that the
* ideal way to die in terms of health economics would be at age 65. In
other words, when you are about to lose your productivity.
Mr. PIKE. You have suddenly begun to strike a nerve.
[Laughter.]
* Dr. WYNDER. I thought I would say something provocative to my
friends on the left here. I suppose you can say "on the left."
[Laughter.]
Mr. FEIN. Thank you.
Dr. WYNDER. If we kept people well and really had a whol~ popu.
lation that died at age 80, what would happen-not in this case to
our health care system, because these people would die "healthy"-
but what would happen in `terms of social security cost and other
costs? This is a key question that needs to be answered.
The ideal for a physician is, of course, to keep patients well through-
out life. Our idea is not to prevent you from `dying, but to prevent you
from dying of disease. It can be accomplished that we die free of
`disease.
Now it is up to the health economists to tell us what would happen
indeed to other economic factors in our lives if a much larger seg-
ment in our population became very much older.
Mr. PIKE. Well, to me very frankly this is much more than an eco-
nomic problem. While I recognize the validity of the economic aspects
`of it, is it perhaps not true that the reason people speed and the reason
`they ~moke aIld the reason they live the kinds of lives they lead, giving
`them heart attacks, is `because that perhaps subconsciously some of
them decide that is not such a bad way to go?
Dr. WYNDEIt. The question you ask has been very central to `our
thinking' `and, indeed, on' September 29 our organization is having a
symposium in New York on "The Illusion of Immortality." We' have
asked these particular questions to Erich Fromrn~ Ashley Montague,
`aiid together with T)eBakey,:Robert Berg, arid William `Sloan Coffin
`will discuss `these points.
In corresi~Ondcnce~ I had with Erièh Fromm on this very point, he
indicated that one reason why we take improper care of ourselves is
becAuse rn~ny of us are chronically depressed. Like you say, some' of
us may feel well, to go that way is not all'that'bad. `` `
PAGENO="0069"
65
Another reason which I indicated before which he str~sses is t~mt
since we cannot ~f ace death realistically, we tend to ignore it. A th~rd
point that he makes is that we are egotistically in terms of our ~wn
immortality and thus believe it cannot happen to ourselves.
A fourth point he makes and he was rather apolog~tic on thi~ .i~
that the medical profession is so much known to be a healing ~rt
rather than a preventer that most of us don't want to go to a doc~or
when we are well simply because (a) he will not properly deal ~w~th
us; and (b) if you play the word association game aiid you. ~ay
day-night, table-chair-and, noW you say doctor and answer hea1e~-
in other words, you don't think of our profession as one that ~ri-
manly prevents. All of these things together, make us shy away fr~m
prevention.
Mr. Piii~. Thank you.
Dr. FREYMANN. Could I carry on, Mr. Pike? You are really gett ng
to the heart of the problem.
Let me give you a figure on what would happen if we ehmlna?d
all cardiovascular-renal disease, which is our major cause of deat~is.
Life expectancy of a white male at age 10 would be increased by 1~.2
years. The life expectancy of a white male aged 60 `would be extern4ed
by 11.3 years. In other words if we made this enormous medical ad-
va~ice, the increase in life expectancy on the sunny side of 60 woi~ld
be only 1.1 years.
We are extending life on into a time when most people are removed
from productive existence. So that the problem goes far beyond medipal
care. If we achieve this Nirvana, if everyone lives out his full bibli~al
"three score and ten," what do we do with them?
Congress is one of the few areas where you can keep on gon~g.
Everybody else has to retire at 65.
Mr. R0sTENK0WSKI. The committee will now refer to the question
offered by Mr. Cotter.
Professor Fein, if you will continue to address yourself to that.
Mr. FEIN. Thank you.
I was commenting that one approach would be to start with ch~i-'
dren and pregnant women, one could go a long way for a modest s~4m
in~an area where resources are available, in an area where preventi.~ve
care might most easily be organized and where capitation payme~rit
might most readily be accepted by physicians. While, as I indicat~d,
I recognize that no Congress would bind any future Congress, o~ie
would like the legislative history of the debate to show that it is t~ie
intention of. Congress that 1 year after the program is institutfrl
for all persons up to, say, age 19 that the effective age would becô4~e
age 24, and then 29 and then 34, and over a decade one covers tl~ie
entire population.
If one wants to move more rapidly, increase the age in 10~~ye~r-
intervals per annum and one does the whole job over a 5-year spa~i.
The appropriate interval is easily selected so that the fiscal impact
in any one year is about the same as the fiscal impact the year befoi~e.
One can do it. One can play with the numbers. it would cost abo~ft
$12 or $13 billion gross to cover everyone up to age 19 and pregna~it
women. The net figure would be significantly lower because of medica~ci
expenditures that are now already involved in that age group.
PAGENO="0070"
jf the r pous& that you made to such a sugg~sti~n were "flut tJ~ere
ave mnuy Amo~ieans who are coucer~ed about catastrophi~ e~peu~i~
t~tres, wh~ don't, have children and who would feel un v~c4veL im
this program aud it wonid be i~snfi~oient to say' t~ them that in a~ few
years they wGuld be c~w~r' tha~t you need somethi~g to address
thad~. ~QWOIn, I wonId~ re~pond i~ia th~ foiU~wing h~o~a:
All iwho are a~mr ages whpre~ they Lon't have chi]~èe1i
that wonM 1*. eligible f~v the program, hut who are iw~w~d ~
family mnit,' woieM finE ai s~ ifica~ut reduction' in their premniwu~ for
insurance by the s~ni~le act of covering children. Mp~t i i~rance POir
icies toda4y have the aame rate for a family of two a~ for a larger
family~ and if you removed the children, even the family of two would
benefit in its insurance premium. But if that were not enough, I could
see putting in place a program which said that we, would cover
children up to age 10, and which would also offer protection of a
maximum liability much like CHIP or other proposals that bare been
made, a percentage of inc6me, for others.
No one in the Uiüited States, for e~ampie, would face medical h~lis
that will ab~orh more than 8 percent of his, income. That, however,
will phase out as *e raise the age' for total coverage. So that as the
age of total coverage goes up from 10 to 20 to 30 to 40 to 50, the
catastrophi~ impact becomes less and less signi~1cant because more
of the population is fully covered; and eventually it becomes totally
irrelevant.
That, I would submit, is a proposal that would not do violence to
the structure of the medical' care system in terms of placing high
priority on expensive items, that would not put in place mandating
that we would never get' rid of, or coinsurance `~nd deductibles that
would cause inequities. It is a program. that could be viewed as a~ way
of going in a lbgicai progression to an ultimate goal over a period
of time consistent with one's feeling of administrative' capability
and capacity and so on.
I would make only one additional comment. You will note that I say
it is a program that could be put in place over a period of time and in
line with one's feeling. about administrative capabilities. I did u~t say
it is a. program that one would need to put in place over a period of'
time to meet fiscal problems. I did&t say that for an important reasons.
The expenditures `that are"reqi~ired~a~re moneys that are going to be
spent out' of pocket anyway. They~ arc~ in the health care' system m~y-'
way. There is no reason fortheCongress to be af~raidof national health
insurance on the ground that the United States can't afford it.
We are already affording $104 billion. The question is how will we
distribute those $104 billion? There is no new money i~v~ived. We
are not a little underdeveloped country saying "Shall we have a
health cave system ?" We have got:one. We have got an expensive one.
So that it is not a fiscal problem, but it may be an administrative
problem for any CongressiMn--I am sure it is~-who though recogniz-
ing that the money is' in the system already is not enamored of in~
creasing taxes because he may feel he cannot explai;adequateiy to his
constituency that that increase merely substitutes for expemliturea
that are already made.
Mr. RosTENi~owsEI. Mr. Crane will inquire.
Mr. CRANE. Thank you, Mr. Chairman.
PAGENO="0071"
6~7
I would libei to congratulat~ the Chairman on these hearings; and
~add. t~t while I share his appreciation of having acad~mioians and
people ~ith reseai~ch baclcgrouii~1s present erpert testhuony. I løok
fk~w~r4 lateir on to having the opportunity for an e~*cMng~w~ith s*tle
people actu~liy on the firing line of American medicine. Bascd~ n~on
what has been presented here, none of you would be in disagreem~nt
wi~th the idea~ that national health insurance is a desir~blc bhing~ Is
that correct?
You are all in uanimous agreement on that point?
[Affir~natii~e~ response.]
Mr. Ou4~r~,' P~ issue of spending the $104 `billion that we are
pending aii~iall~Th behalf of national health care undoubtedly co41'd
be move intelligently spent if I were King. I think every one of us
shares that assumption. But on the other hand, if to' change your p~r~
spective ever so slightly, you were to c.ontem~1ate trying to figure ~ut
ho~z to deal in a positive way with some of the deficiencies that you
perceive in the American health care system outside of an impos~d
sointion from Washington, D.C.-and I place vastly less faith th~n
you gentlemen apparently do in government's~ ability to soiv~ pr~b-
lerns~-~hat *~eul4 you recommend within the private sector? We t~lk
about the creation of incentives, but I think we have already creat~d
some incentives f~r a lot of physicians to get into' teaching and resear~h
than private practice, which is demonstrable evidence to my satisf~~c~
ti'on that we in government don't have omniscience. That has creatpd
some of the problems in our health care system.
Are there any of positive incentives within the framewo'rl~ of fi~ee
institutions rather than imposed solutions: that yen ~night sugge4?
Anyone on the panel at all I would appreciate h~e~ring from.
Dr~ FR~Y~NN. L would str~tu~ the paym~r~t system for phy~i-
cians? services so that the `physician who i~ capable of taking cam~ ~f
.8~ percent of the patient care encountevs~-that is~ the family physicia~
the general internist or the pediatrician-k--could receive su~eiemt pa.
ment for these services, so that he could make a go of pra~tice.
So~Io practice or `group practice--there ace all. kinds ~ ways~ I a~tcn
n~t making a pitch for any type of practi~e or for any type of pa~
ment. But if we can put money iu~o the system to~ pay for prima~y
care there will be an ineentive for. medical. students to go.'intoc the~e
fields.
Dr. Wr~wEn, ]n line with whatDr. Fein said, the p~a~s ~n~t ~o
be on, the question which is. a. little bit feir me4ici~ite as for what Martin
Luther said for celig~ion~ lIe said, "If you give.nie~ your child until. l~e
is. 5, he is.niine for lif&' I would. say, "If you give me~a child until 1~,
the child wouid.be a geod'hoal.th risk for th~ rest of h~a.or her life."
The question. is how do we do. that? As Dr. Freymanu says, "Pa~y
the physician." I do&t. believe that the behavioral mQcli~ication prii~i~
cip~res.that are in.voivedwill, sufUce in termsof interest to the,physicia~.
The `training' in medical. school today,' independent of economic r~..
wards, really has involves academic aspects that normally are not pa.4~t
~f preventive medicine. T'herefore~ I don't think that.eveu~ an adeqna~e
payment schedule can. we ge~ most ph~si~ians interested in that ty~e
of. primary medical care. Therefore,.. in addition to; economic ineei~..
tives, we o'ught.tq. realize that thes~ types of prima~y. preventive p$-
;grams are best conducted by allied health professionals.
PAGENO="0072"
68
We cleaHy have to vecogni~c' ~s'ph~sician~ what we ea~i do best. We
do well in therapy, but in terms of primary prevention unlike~Ey to
do as well as paramedical people Therefore, let me rOpeat o~1r em-
phasis ought to be on the early health care in prenatal, postnatal,
school progran~s cônduoted "largely by~ ~ ~health professionals.
Mr. CRAN~. Before we' go further, can I elaborate on thi~ point be-
cause I `am intrigued by it? My' recolIecti~n :j~ that there was a study
done on Mormons in this country that indicates that they were vastly
healthier, live longer and so forth. `The conclusion was made that `i~ is
in part because of their religious views on caffeine, cigarettes, liquor,..
what-have-you~ `
Are you saying that the development of the proper health `habits~
from birth would probably be vastly more helpful and beneficial in
terms of~the total health of' our national population than trying to~
repair deficiencies later on?
Dr. WYNDER. I think that is quite `clear. `In fact, VictOr Fuchs,.
another economist of note, wrote `a book, "Who Shall Live?";' and:
in one chapter he compares thO mortality in the State of Utah with
that Of the State of Nevada. `
`I don't `want to draw any personal conclusions from' this comparisrnr
excepting that the mortality is very much lower in Utah for a `variety'
of reasOns. Dr. Fuchs concludes if this ~were the health State of the
country' as a whole, our health economics would be in a very much
better shape.
Whether the lifestyle or whatever it is, these early formative years
are not. only important in terms of intellectual developments,' but
are `clearly important in terms of health development as well.
Mr. CnANE. Dr. Reinhardt?
Mr. REINHARDT. I agree very much with your point that we should:
perhaps not regulate the health care system too much `from Wash~'
ington, D.C. Of course, you realize that when you raise the question~
of what we can do, you are talking about intervention of some sort.
I guess the issue is this: Are we going to intervene directly through
regulatory edict, as we allow the CAB to do `in the airline industry,
or are we going `to use the more subtle `financial flows that are more
congenial' to the American temperament?
I think you are probably talking about the l~ttér. `
Mr. CRANE. If you will permitS me to intercede for a moment, I
think there are actions that we have' taken already and I touch upon
at least one where through' Government assistance we put a dispro-
portionate emphasis on recruiting medical researchers and faculty..
So maybe it is a case of removing some of our previous handiwork.
In another area, I read an article in a British `medical journal that
expressed apprehension over, the fact that the British are moving i~
the direction of FDA with' respect to drug approval. `Here is an
action that we took that has retarded introduction of modern life-
saving' drug~ into the United' States so much so that British physi~
cians consider us 20 years backward in that regard.
Mr. `REINHAROT. Yes, ~`s I said, you' `will see on page `20 of my pre-
pared statement that I come out very strongly against regulation. mci.
dentally there was a conference last year~-or perhaps 2 years ago-
at the Institute of Medicine, and the proceedings have been pub-
PAGENO="0073"
6
lished in a book called "Control of, Health," ii~ which these iss~ies
are debated at length, and the participating economists come put
much against direction regulation.
Now Dr. Freymann"s suggestion.to reimburse primary care ph~si~.
cians so that they can "make a go of it" requires added comm~nt.
Primary case physicians in this country are making an averagej of
about $50,000 a year. By American standards I would call t1~iat
making a go' of it.
So the question really-
Mr. CRANE. Do you know what the workweek is for the primary c re
physician on the average?
Mr. REINHARDT. Yes; we have rather good statistics on that. he
average-depending on the specialty-is about 50 to 55 hours. How-
ever, these are self-reported hours and they seem to be substantia~lly
overstated. I think a more accurate statistic would be between 40
~ind 50 hours.
Mr. CRANE. 0E.
Mr. REINHARDT. I think the proper policy is not one of raising he
income of primary care physicians and holding everyone else's inco e
~constant. Relative changes in income may in fact have to go the ot1~ie~
way. I refer to this point on page 17 of my statement: if we est~b-
lish a national health insurance system under which physicians ~re
paid on a fee-for-service basis, it is important that the third party
gain at least partial `control over the determination of the fee sch~d-
`ules. If so, it will be possible to change relative physician ineon~ies
through the fee schedule.
The system of customary local fees is exactly one of the evils t1~at
we have permitted which tends to motivate physicians to move ii~ito
areas where they should not go, where they are not needed. We shoilild
take a hard look at the system of customary local fees. This will ti~ke
courage. Ultimately `we ought to use fiscal flows to foster an effici~nt
nationwide distribution of health-care personnel. Such a metho~ is
quite different from direct regulation, whereby one would-for ~x-
ample-tell a physician he must have three nurses in his office.
Mr. CRANE. Well, except if we can e~laborate on this just a little, bi -
am I exceeding the time constraints?
Mr. R0STENK0wsKI. Go ahead.
Mr. CRANE. Well, don't hesitate to `interrupt me.
We had a discussion in here earlier in oversight hearings on utili~a~
ton review and the AMA's suit against it. The basic objective of' ut~li-
`zation review is cost control and prevention of alleged abuses by ph~si-
~cians in medicaid-medicare programs.
Do you not inevitably, when you get into reviewing fees, paymer~ts,
conditions for payment and so forth, get a degree of `lay j,udgm, nt
`imposed upon the professional? It seems to `me that that isan unavo d-
able consequence at, least in the legislation drafted to date, the prof s~
`sional standards review organization. That ultimate authority, of
course, rests with the Secretary of HEW. , ` , ,
When I put the question to Mr. Weinberger about sp~eifie prohi i~
tions in the law against his attempting to provide guidejines or reg4a-
tons that led to the suit, he simply cited other portions of `the `law tl$
gave him burdens and responsibilities' that highlighted the contrad~c~
PAGENO="0074"
70
tions within the law. He opted in favor o.f following one and did vio-
lencesirnultaneously to the other.
So he made a judgmental decision that has resulted in tlmt suit. This~
is the cOncern I have. You have lay people that are, in effect, getting
into the position of making decisions not just about expenditures and
how much you will pay for an appendectomy but you are getting them
providing guidelines with respect to medical care that it seems to me
should be reserved unto the medical professionals exclusively.
Mr. REINHAROT. There are actually two parameters to the fee sched-
ule. One is the overall absolute dollar amount for an initial office, physi-
cian visit-for example-or for an appendectomy. But'th~ other is the
relative fees; that is, how much more expensive is an appendectomy
relative to the initial visit?
If one sets about setting relative fees, I think one is indeed getting
into the practice of medicine, although economists surely are bold'
enough to attempt such an intervention; as for the overall absolute fee
level, I don?t think we actually are intrudir~g in th~ practice of medi-
cine `by saying an initial office visit of, say, 15 minutes duration should'
earn the same revenue-or perhaps less-in Massachusetts than it does:
in Mississippi. That was the type of levetage I was talking about. Only
the absolute fee level need be manipulated.
Mr. CRANE. Thank you.
Mr. R0STENKOWSKI. The time of the gentleman has expired.
Mr. Corman will inquire.
Mr. CORMAN. Thank you, Mr. Chairman.
I would just like to present another view to this problem of the doc-
tors' always telling us that somehow we are interfering in their profes-
sional decisions. Of course, that is not true at all. No one ever tells the'
doctor what'he can do for a patient.
We do sa.y how i,nuci he will be paid for it, if the Federal Govern~
ment is paying the bill. No one has ever told a doctor he cannot s~e his'
medicaid patient once a day' or whatever. We just say under certain
circumstances you will be paid x dollars for it.
it seems to me we can divide ~the problem of national health insur-
ance into two parts. One is what effect we are going to have directly on
the delivery system itself and one can `at least make a fair case for the
fact that the delivery system itself `is not all that bad now.
The ~other half of the problem is how are we going `to pay for it?
A great number of people `will concede that the way we pay for it flow
can be significantly improved on. How you pay for it and how it is'
delivered certainly has some relationship, but it seems to me you cai~'
make drastic eh~ages~in ~that~ secon4 part without radical changes in
the first part or without lestroying~all that is good in the first part.
Womld the panel pretty miich~cono&ierth,at ordo youhave a different
vãewabout it?' `
Dr. `FaEYw~N. This was `precisely the point that I tried to make'
ear'ier, Mr. Corman. The experience of ether countries h'as been that
national health insurance has frozen tbe~delivery system ratlwr than
changed it. To me, this is one of the threats ~f national~l~e~ith insur~
ante. J "do feel that our ~de~ivery system is inadequate, hut we could'
nctu&lly stop evolution toward improvement by the way ~th~se bills:
eventually become law.
PAGENO="0075"
71
Mr. COEMAN. What would be your guideposts for us as we m~ve
down this road? Are you saying we ought not to try to change the
way we pay the bill or are you saying when we make the change, t~'iat
we ought to try to give flexibility to how this evoltition in the dare
itself i~ carried out?
Dr. FEE~tANN. I think we should concentrate on the paym~n~
mechanism without attempting to transform the delivery systein~ si-
multaneously. Since the two are not inseparable, provisions can be
put into the payment system which would better fit the delivery ~ys-
tern to the perceived priorities of the American public.
This is why I keep coming back again and again to primary care.
This is clearly a deficiency, and I believe we can rectify it throi~gh
the payment mechanism.
Mr. CORMAN. If we devise a payment system that does not give
preferential financial treatment to nonprirnary care, make it e~en-
handed, then that is a system which I assume you would be in fa~ior
of? In other words, to raise the primary care opportunity for payments
to where the very intensive care is already?
Dr. FREYMANN. Yes; replace the overincentives toward using high-
cost care. But here, of course, you could go too far. You could ~nd
up with all the hospitals going broke even `faster than they are r~ow
if it were not carefully modulated.
Mr. COEMAN. If everybody had the financial ability to get to ~he
hospital when they needed to get there, I expeet they would be f~ill,
don't you?
Dr. FREYMANN. They are, sir.
`There is a lot of talk about people not getting to hospitals. Wel', I
think such people are few and far between. That is not our problen~i. I
think everybody can get to a hospital and does, and somebody p~ys
for it.
Mr. REINHARIYr. If you ask specifically what in health care legi~la-
tion should we do about reimbursement of providers, hospital and n~n-
institutional provider, or physicians, I think that that is so contro~er-
sial an area and so difficult an area that merits almost an extra sessipn.
But if the options you have-one might `be for noninstitutional p'ro-
viders to opt for prepayment. The other option is to continue with ~he
fee-for-service system.
My own sense is that you probably won't have the political opt on
to go with prepayment e~verywhere. You can certainly encourag it
and certainly allow it to exist, but I think ultimately the bulk `of
it~diealtr~nsaictiofis in the ambulatory side will be reimbursed o *a
fee-for-service basis.
Ifere you have nevertheh~ss opportunities to provide incentives t at
would move the sector toward a ~more desirable etate than w~ are' ow
in. The tprestion is how `quickly ~an you `do that~?
It is clear now that you could not cut medical fees payable m ew
Y~rk City hi half. I wouldn't propose this. But I wouMpropose a m re
gradual approach. Phat is to say, in a nationul fee sehedu1e you
would have to regionali~e it beca~u~e they are so di~e~ei~rt. . L
I `would freeze the high-fee States and let the~ others drift up. Tins
w~y no one can really scream, "I can't meet my mortgag~e ~aymei~t,"
because you can say, "Sir, von met' it last year ~ut of those fees. If ou
ought to be able to do it this year."
PAGENO="0076"
72
But in the gradual area I would let the underpaid area fees drift up
and you could do roughly the same with intraspecialty differences in
fees.
Mr. COIiMAN. Would you all concede that what is good in fee-for-
Service medicine can be preserved if that fee is negotiated between the
doctor and the intermediary instead of as it is now between the doctor
and the patient?
Mr. REINHARDT. Well, much of what is good can be preserved. An
argument in favor of fee-for-service is that it encourages productivity
on the part of the physician, or that-being paid on a fee-for-service
basis-a person by working harder can actually improve his economic
status. Those who are against any other form, particularly salary,
point out or hypothesize that salaried people have no incentive to go
the extra mile.
These are hypotheses that can be tested.
Mr. CORMAN. I am concerned about the entities that negotiate that
fee. The `doctors are on one side. On `the other side, are all the incen-
tives t'here for negotiating `with the intermediary or with the patient?
Mr. REINHATWT. I personally do not believe there are such negotia-
tions between the do~tor and patient now.
Mr. CORMAN. Patients feel that way, too. /
Dr. FRRYMANN. I think much of `total physician income is obtained
through intermediaries, sir. Again I must `admit I don't `have t'he exact
figures, and I am sure it varies from specialty to specialty, but most
physicians made a lot of their income through hospitalized patients.
Note this includes primary care physician's.
The vast majority of in'hospital professional fees are negotiated
between `the doc'tor `and the third-party payer. So I think your point
is `well taken. Not negotiating directly wi'th a paticut doesn't change
the doctor-patient relationship one whit.
Mr. CORMAN. The part `that discouraged me is the rapid erosion in
medicare where lower `and lower portions of the elderly's health bill is
being paid `because `the doctors rej'ect'the obligation to negotiate with
the intermediary and insist on nego'tiaiting `with the patient.
That is ~hy patient costs are climbing rapidly. I think whatever
we do we are probably going to have to reach a decision that if we
have fee-for-service medicine, that the fee has to `be negotiated between
the doctor~and the intermediary.
Dr. FREYMANN. Yes. Could I `make one more `comment abOut fee for
service? I hold no particular `brief for it, but I think that it does pro-
vide an incentive factor. A study published in 19'~O (Surgery, `vol. 68,
pp. 1-19) demonstrated significantly lower productivity among mem-
bers of tnedical school `facultMs on straight' salaries as compared with
those `who `could make rrIoney from patient fees in addition to their
salaries. The greater .p~oductivity of the latter group should be no
great ur~Fi~.e to'anyone.
Fee `for `servi~,e is today's whipping boy. Many people think that i~
the cause of all our prOblems. But I would like you `to look at Sweden
and Canada. In `Sweden, 99 percent o'f `all professional fees are pre-
~ai'd. In~ Cankda', 9~ perceiit' are paid through fee for service. Yet these
~tre two of "the most expensive `countries in the world insofar as the
rates ~of increase of percentage of GNP gOing. into health ar~
concerned. `/ ` `
PAGENO="0077"
73
Mr. CORMAN. I per~onally do not reject the fee for service at ill.
I just think the mechaiiism has to be a negotiation between the doctor
and the intermediary if we are going to have a national health inñr-
ance system.
Do any of your see the necessity or advantage in retaining the pi~iv-
ate insurance company in that intermediary role if we go to a bro~d-
`based health insurance system?
Mr. FEIN. There are two roles that private insurance-
Mr. CORMAN. Yes. Maybe I ought to specify. One is the fiscal in r~
mediary, and the other is the underwriter, as I underStand it. So
ought to address both of those.
Mr. FEIN. I see no necessity or advantage to preservation of `he
private insurance sedtor in the role of underwriter. It complicates
things and for no good reason.
As for fiscal intermediary, somebody is going to have to proc~ss
pieces of papers. It is likely that the kind of national health insurar~ce
bill that will emerge will require that somebody process pieces of
paper.
If that is the case, the question arises who can do it better, cheap r,
more efficiently, and if it is the case `that the Federal Government c n
do it b~tter, is the `difference `between the cost to Government and t e
cost through the private sector so large as to necessitate getting i
volved in a political battle?
I would like to think that if the. private insurance sector is going
perform the role of fiscal intermediary, it would do so with mo e
stringent standards set for it th'an was the case initially in medica e
because as a representative of `the Government, it just cannot process
pieces of paper without `being involved in the fee structure, the nego-
tiation process perhaps, et cetera, et cetera.
If it is our representative, then, ~t has got to protect the IJ.~.
taxpayer.
I would prefer `to see the Social Secufity Administration perfor~n
that function. Yet, it is hot a matter of principle. The role of fisc~d
intermediary can go to the private sector if the private insurance se~~
tor can demonstrate that it can dO it efficiently. I would say..this is $t
necessarily a role for Government.,
Mr. CORMAN. Do any of you find the role of underwriting as beir~g
a iiecessary part of the uational insurance, program ? `This'.is `the~.di -
ference between a compulsory private program and' the piibl c
program.
Do any of the others of you have a view as to their relative value?
* Mr. REII~HARDP. The question of necessity is quite clear. You ce
tainly can do ~vith'out it, as Canada has demonstrated. The Canadiai s
administer their plans-
Mr. CORMAN. Let's avoid administering. But the underwriting ~s
important, whether we go `to a compulsOry private system or the pub-
lic system which m'ay be fiscally managed by contract.
Mr~ REINEAROT. An'd the underwriting is eliminated also in C'anad
So certainly the elimination of underwri~ing is feasible and one ca
observe the effects of such an elimination in Cafiada.
The question could be pu't in another way: Could one live with th
private system in w,hich policies `are privately underwritten? In suci
a ~`ase, what would be the price one pays for that as far as the Gov
ernment is concerned?
PAGENO="0078"
74
Well, if one had insurance policies that were somewhat standard-
as for example, our homeowners insurance policies-and then allowed
the companies `to compete, if some companies can manage to compile
a better payout record, that would reflect itself in lower premiums.
Perhaps one could experiment with that.
But I remain rather doubtful that such experiments would ilidicate
success.
Mr. FEIN. This is not an unimportant issue so maybe I can take an
extra minute to take issue with the implication of your remark as `an
experimental program.
It is in the nature of the Government program that you can scale
the premiums which would not be premiums but taxes, to income and
you do it every day not only in the income tax, but in the payroll tax.
It is in the nature of the private insurance market that no private
insurance company is going to underwrite with scaled premiums as
a function of income.
This means that you are going to have a fixed dollar premium. If
you then want to provide, different levels of cost to individuals as a
function of income, you're involved in a Government assi~tançe for
some citizens to meet their premium payments to the private sector
if they have low income.
So now you have involved an extra burden of assessing a person's
income, transmitting a check from the public sector to the private
sector. I think that is `a complexity.
If, in addition, you permit the private insurance companies to cream
and select the good risks you are going to have different insurance
with different premiums as a function of the population that they have
managed to address. It is not clear then that the difference in
premuims comes out of effièiency. It may come out of seJectio~i of
risks.
Then we `are b~ck at the old ball game that led to the cliificulties
that Blue Cross got into. The philosophy of a community premium
and community rating was great, but then came the private sectOr'and
said to the iIarva~, f~culty, "You're healthy, why do you want to
be inv~lved with Blue Cross?" I make up the Harvard faculty, that is
only an example. We actually have Blue Cross. But they said to the
Harvard faculty, "You `are healthy, why do you want to pa~y for the
aged? Why not sign up with us and we can give a lower premium?"
The Harvard faculty, being socially responsible, said "No, that
wouldn't be fair." [Laughter.]
So they went to Boston University. [Laughter.]
But then when BU did it, they `came back to Harvard and said,
"Now the difference between Blue Cross, which now has a higher
proportion of aged than they once had, and what we can offer you is
even greater," and the Harvard faculty which was socially responsible
when t'he difference was low, now that the difference rw'as magnified
also signed up with `a commercial carrier.
rfIlat is where we got to the medicare situation. The strong pro-
ponent of medicare in many States was Blue Cross because they
couldn't compet~ with the private sector and keep the old people in
the program.
I think that we would find that history repeated if we went the
underwriting route with private insurance. I see no reason to repeat
that history. We should be able to learn from it.
PAGENO="0079"
Mr. ROSTENKOWSKI. Mr. Pike will inquire.
Mr. PIKE. Mr. Chairman, this is going to come as a si~ock to. ~ou,
but I have no additional questions. I would simply like to say that
I think this panel has been excellent in presenting the `backgroñnd
and perspective and I am very glad that we got them here first so i~ow
we can let those hard line professionals who are out in the front lipes
of medicine come in and attack everything that these people in their
ivory towers have stood for. [Laughter.]
Mr. ROSTENKOWSKI. Mr. Martin will inquire.
Mr. MARTIN. Yes, Mr. Chairman.
In response to a general question that I had asked earlier' abput
major deficiencies in the `present system, as I recall only Dr. R~in-
hardt indicated `a major defect in the present system was the ca~ta~.
strophic cost's of long-term care and acute surgery.
The ethers generally disregarded this in your perspective of ~he
highest priorities with the exception, of'course, of Dr. Fein,. who c~n-
sistently rejected it as a target or focus of legislative attention.
Now, it happens that' I have introduced a bill dealing, with c4a-
strophic coverage so you can understand how I' felt that Dr. Fei~i's
characterization of catastrophic as being truly catastrophic was soi~e-
what obnoxious.
I am kidding, of course.
Of course, I had gotten mileage out of the, same play on words by
describing the risk of starting with that catastrophic coverage w'h~ch
might evolve into a comprehensive program. In my view a `comp~e-
hensive program would indeed be catastrophic through the device of
paying f~r all your bills for all your ills' with a ~50-' or 350-p~ge
resolution to describe how `to go aboat it and the' tens of thousands of
administrators necssary to explain what' is meant 10 years' from n~w
bylines 19 `a~id 20 on page 274, or whatever.
Also `beca~se it would t~n ultimately shift the decisionmaki~g
out of' the'dichotomy that T~r. Fein set out, not from the doctor to t~ie
patient, not from the producer to the eonsum~er, but from the doc~or
to the' clerk `or `from the physician to the bureaucrait~
In what' I fêl~ was typical of, the entire panel, in his elbquent analy-
`si's,' Dr. Reiuh'ardt set out three features for this, oiIe, it shonld~
easily administered, and three, there' sl~oul,d~ be' a Coat~.s~1aa'ring fe'atu~e
to it, deductible feature'and copaymentS.
Dr. Fein, on the other hand, fears any soherne~~ha~' addresses th~se
rare and unusual costs that do not happen to many people shoi~id
be avoided because one, it will direct' our re5ource~ 1~o the long~teifm
care and the acute surgery and `bias the syStem in favor of those, i~ I
recall your answer to Mr. Pike's question.
Second, you made the' point' that only the person wealthy enough
to' carr~t through to the high deductible threshold would benefit froni
a catastrophic program. . ` `
And three; it would be administratively expensive.
What would happen if instead of a complex legislation comp e~.
hei~sively dealing with all of the problems, if we provided that
Government would insure 85 percent of your medical' expenses in e~
cess of 15 percent of your adjusted gross income? Here you wou'd
have a sliding scale; not an arbitrary level that would be too high for
people without substantial wealth. It would have a sliding scale
that for people with $10,000 with adjusted gross it. would..be'$l,SOO,
PAGENO="0080"
76
There would thus be a deductible feature relative to what your
income was. It would be 15 percent of your adjusted gross income.
Then to provide something of a ~opayments feature the particular
formulation that Senator Brook and I have would say that you would
have to copay or coinsure for 15 percent of the remaining cost above
15 percent of your adjusted gross income with the Government paying
the other 85 percent. It would be simple and not expensive to write such
a clause into the contract.
The bill only runs eight pages, and only six deal with the legislative
change. Thus if you average about 10 bureaucrats per page, you only
need just a few dozen to employ to administer the interpretations in
addition to those who would write `the checks from the Internal Revenue
System.
It would involve a reimbursible tax credit. You could take the credit
for previous years' income so if you need the money now you file an
amendment to your previous year's tax return. It would seem from
appearances to be very simple `and I would of course be grateful for
any immediate comments that any of you may have, and I will be very
`grateful to any of you who would send a more detailed response to
this.
That sort of leaves not really a question but an opporttmity if anyone
h'as an immediate reaction to that.
Mr. FEIN. It may be worth in addition to submitting something for
the record, to comment now on some `of this and the characteristics of
that proposal. `
I will be glad to, but maybe you want to begin.
Mr. REIN.HARDT. Well, evidently here we would `have a bill that insti-
tutes for cost s'haring. Cost sharing is really the goal of'the bill, and the'
`desire for cost sharing is predicated on the theory that consumers play
a. significant role in determining the overall utilization of health serv-
ices~ `Or, if consumers do not really have this':mu'ch power over these
`decisions, an alternate theory is `that a physician acting, as the con-
sumer's agent in puttin'g together the treatment package `is' conscious
of his patient's budget constraints; acts' `as if he were the patient, tries
to minimize the cost of the treatmei~t, I think that this really is ,the
philosophy be'hind' it and indeed' is the theory proposed `by those
economists who are infavOr of `coinsurance and. deductibles.
The Martin bill has this attractive `featur&-at least attractive to
those who believe that coinsurance has a role to'play in national insur-
ance. ` `
Having just looked at it briefly, `I think that there are some prob-
lems, however.
As the bill now reads, t'he amount of risk exposure suffered by in-
sured persons is not insignificant. It will in theory not be finite, and in
practice to can go very,' very high indeed; this, it would burden the
American citizen with precisely the uncertainty that I think our na-
tional health insurance should' not impose upon the citizen. You really
wouldn't know what' would happen to you in a given year. Indeed, if
your income `were $12,000-your adjusted gross inconie~ `that is-you
could easily become ill enough to incur expenses of $3,000. to $4,000, of
which you would have to pay $1,500 to $1,800.
I think a family trying to make it on $i2~000 a year would find it
enormously difficult to absorb su'ch a shock if they were to incur such
expenses' 2 or 3 years in a row.
PAGENO="0081"
77
That could be in excess of what we would call a catastrophe.
In addition, you really are taking a fully hands-off posture fr~m
the health delivery system, you would have absolutely no control o er
on the fee sdhedule at all. All the health-care provider system wo id
know is that some amount of the transfer from the consumer to he
providers would somehow be underwitten by the Government.
I really don't see how you could then use national health insura ce
to provide financial incentives toward a rationalization of the syst m.
Most of us agree that, whatever the nature of the national hea th
insurance legislation, there has to be, some~heTe, some sense o a
financial bottom line. The national health insurance system shotild be
constrained to a budget within which allocative decisions must be
made. You have to know roughly how much things will cost you sotne
12 months ahead of time.
In the case of this bill, you wouldn't have any such fiscal informat~on
ahead of time.
Mr. MARTIN. With regard to the first problem that you raised, 1~he
risk exposure not being finite, wouldn't it be possible to actuarily sh~re
that risk exposure by simply paying the premium on the insurar~ce
policy related to this tax credit formula?
Mr. REINHARDT. Yes; you certainly could.
Mr. MARTIN. And it would be no worse than what we have now as
far as those folks who have income who do insure themselves.
Mr. REINHARDT. But you would wind up with failures of the ins4r-
ance system that Dr. Fein cataloged and on which indeed I stahd
corrected. I do want to mention that. There are indeed the problems of
adverse risk selection on behalf of insurance companies. Persons seek-
ing insurance who are high risks would find the premium unbelieva1~ly
high, and you would not have solved that problem, because the peo~le
whom the insurance companies deem to be ~igh risks would be t~ie
people that would be most exposed and they couldn't get insutance at
prices they could afford. That is one of the fears we have.
Or you have to get into the business of subsidizing their premiu~m
Mr. MARTIN. On that point it would be helpful to get somebody frOm
the insurance industry to handle that.
Thankyou, Mr. Chairman.
Mr. FEIN. May I comment on that question, please ~
Mr. RosTENKowsKI. Professor Fein.'
Mr. FEIN. Let me say that I find more attractivethe concept of
~entage of income as a deductible than I dothe older concept ~f a flat
amount. Clearly the percentage of income is more equitable than say-
ing $3,000 or $5,000 which may mean much to some people and m~y
mean much less to others. So in that sense the use of the percentage is
desirable.
I find even more attractive, however, the maximum liability concej~t
as embodied in other legislative proposals, the CHIP proposal, the
Mills-Kennedy proposaL because there the upper line is set : you will r~ot
spend more than a certain sum of dollars-it would be even better to
say a certain percentage of income-in any given year.
]~n the proposal'you~inake there is the 15 percent cost sharing aft~r
the deductible with the sky being the limit although I agree one cou d
insure against that.
That, however, is complex.
57-677-75----6
PAGENO="0082"
78
You and I are in very substantial agreement on the concept of a
percent of income. Our point of difference is the. number that you
chose and the number that I would choose.
The number is important. Martin Feldstein, who once made a similar
proposal of a percentage of income, said in proposing 8 percent of
income, "But the 8 percent is oniy used as an illustrative figure."
Well, it is very difficult to discuss a bill where a number is chosen
for illustration.
If I take the 15 percent as a s~rious number, II would conclude it is
very high for people of average income in theUnited States.
If I take it as illustrative, then perhaps we could negotiate.
The figure that I would use is zero. The figure that you would use
is 15. The question is where do we end up in between?
Mr. MARTIN. And subsequently.
Mr. FEIN. And subsequently.
Dr. WYNDER. If I can comment on that; It seems to me that in any
society, whatever the figure budgeted that is at least the amount that
the society will spend. In Germany the average person spends about
10 percent of his income for health insurance. The emphasis should be
on what incentives we are going to provide the system to reduce costs
not only in terms of preventive care,. but in terms we do with thera-
peutic care as well.
We have certain groups that are e~cperience rate& and .t'her~. are cer~
tam amounts of incentives which usually are not great enough to
reduce the utilization of health care, or perhaps have a better life style.
But most of us are part of the great average, Whenever I heard the
word "average" I think of Walter Tidier who~said average is when a
man stands with one foot on the hot coals and one on dry ice and on
the average~ is comfortable. At present there is little incentive given
fiscally, medica.liyandpreventiveiy to rednce healtk care~costs.
I am surpr~ised~ we have n~t mentioned this afternoon IMOs. It is
an ~ the adni~nistration~:It has~fared not
asweilas~ti~fathersof this HMO coneepthadhop~d~ In part. I believe
it i~ because the meclieal profession really doesn't have its~heart `behind
the HMO concept.
In principle it is good. You have a fixed feeS for the system and,
thereby, the physicia?n is encouraged~ t~ not unnecessarily put ar patient
in the hospital and practice betterpreventive care~
We have in some areas, of course, clearly experience-rated phenome-
non; for instance, in fire insurance. If I were going to build a house
with a straw roof~ I am sure my insurance company~ wouJd have me
pay a higher premium than if I used a stone roof. How far d~ we go.?
r understand one' of your staff fell with her bicycle and. hw~t her knee
cap. Should bicyclists pay a higher health insurance premium than
n~nbicyc]ists? What about the people who go skiing every weekend?
There a~e rnan~y areas ir~to which you can carry this point. We ought to
be aware of course that our entire life style and' other' `factors affect
our own health care expenditures.
The point I would like to make is that in adthtion to worrying about
how we are going to pay for health care, all of you who have great
fiscal responsibility, should be concerned as to how we can get a better
health care system at a lower cost. Members of Congress can perhaps
PAGENO="0083"
79
put more teeth into that aspect of national health insurance than peo~le
who are part of the health care scene itself.
Mr. MARTIN. I have no quarrel with what you say and that was really
not related to my question. I am not trying to~ solve the necessit es,
which you have brought up, with this particular bill. I propose it as
a component of one of the building blocks in relation to Mr. V,an~k's
proposal. I think there is a lot of merit to what you say but certai~ily
the question of what your average percentage is-my point is ~he
Government would not get involved until your expenèes, including
insurance premiums, until expenses are of a proportionately higher
level. Not before then would the Government get invohted with ~he
financing,
Thank you all for your response to that. If you could share furt~ier
thoughts, you could file that for the record.
Mr. Ros~NKowsKI. You summarized the historical roots and p-
proach to medical education in the United States, Dr. Freyma n.
I take it you believe changes in our present system are now requir d.
What changes in your view are needed and how shall we go ab ut
choosing such changes?
Dr. FREYMANN. My answer to the first is, "Yes, I think changes ~re
needed."
I tried to show that you cannot blame the current state of our hea~th
care system on hospitals alone, you cannot blame it on financing alohe,
and you cannot blame it on the sch~ois alone. Together, these th~ee
created the system, and the essence of our current problem is that mpst
doctors are interested in taking care of acutely sick people, prefera1~1y
if they are in hospitals or can be seen in offices close to hospitals.
You cannot untie this knot simply by changing the eclueatio~ial
system, but I think it is crucial that student physicians and gradu~te
students (residents) be given an opportunity to learn primary $re
in authentic environments.
An authentic environment cannot b~ created;by taking a :sec~jox~! of
a `major teaching hospital and saybtg, "This is~ our f~mi1y
clinic and' you are going to go in there and l~arn how to take care of
families," because the students are too smart. They know where he
prestige and kudos are in tim institution. I'know of &ne medical sch ol
in this country that has really developed a system for teaching stude ts
nri'mary care in an authentic environment. That is the University of
Illinois at RockforcL There may be others. But `at Rockford they re
using doctors' offices, many built by the Sears Foundation, which co~n-
munities around the city were never able to fill. These are being stafi~ed
by faculty who are family practitioners and by students and resider~ts.
These students do not go to these offices for 3 or 4 weeks of interesti~ng
exposure to primary care. From the day they enroll until the day t ey
leave these students spend a certain number of days each week in t is
environment. They get to know the people of'their `town astheyt ke
care of them. It makes sense to me that this is the way to learn the gr ti.
fications of that kind of medical care.
As Dr. Wynder has said, what we were taught in medical sch ol
`makes primary care look dull. But it isn't. When you talk to th se
stu dents, they are excited by it. It is fun. It is gratifying.
rrhis is the kind of change I think must be brought into medi al
education.
PAGENO="0084"
80
Mr. ROSTENKOW5KI. Dr. Freymann, the problems are in the inner
cities. I know Rockford. That is not a bad place to live. But when you
get to Chicago, or Los Angeles, or New York, in the inner cities, ihis
is where the real problem is with respect to the patient and the general
practitioner.
I don't see any incentive for the student to become involved in the
ghettb except for something like combat pay. It is just that bad. This is
going tobe a real problem within the larger urban areas.
Professor Fein?
Mr. FEIN. Some of these areas that are unattractive to physicians:
are unattractive to other people, including schoolteachers. But school-
teachers are found in that inner-city environment because while they
would like to come to Newton, there are no jobs. So they go to the
inner city, not because they love the inner city but because the job
opportunities are there and not in the suburbs. If an individual is a
violinist and would like to play with the Boston Symphony Orchestra,
but the Boston Symphony Orchestra refuses to employ him because
it doesn't need any more violinists, he does not come to the Congress
of the United States and say, "1\~[y freedom is being interfered with."
There is an employment market and Americans recognize that they
as Americans must choose, to live in Pittsfield, Mass., and not be a
maritime engineer, or to be a maritime engineer and give up Pittsfield,
Mass., because if you want to be in Pittsfield, Ma~s., because you grew
up there and you want to be in maritime engineering because it is at-
tractive and there are no jobs in Pittsfield, Mass., you must choose.
That is true of most of the economic system.
I would like to teach `at Princeton, but they won't offer me a job.
I. don't say my freedom has been abridged.
It is in medicine and it is because of the payment mechanisms in
medicine and because of the power of the physician to do good that we
have a system in which physician individual decisions can be validated.
An individual who sets up a candy store does worry about how many
other* candy stores there a~rè, what is the competition going to be like
and will I make a~ go of, it? A physician does not consider that whether
he decides to go into a specialty and select a place. He can' validate
that decision by offering more care, more neurosurgery than the popu-
lat~ion needs, if you will, more appendectomies than the population
needs; he can generate demand for his product.
There are limits, of course, and I am not sugge~ting that if we had
10 times `as many physicians in the United States we would still be
having the same maldistribution that we now have. But within present
numbers and within the kinds' of numbers that we are generating,' the
demand for services can `be increased by any physician in an area
where he is. That is from whence comes the term "overdoctoring." You
can have too many doctors in Scarsdale and they will all make a good
livim»=~. That's why. knowing that, they don't go tathe inner city.
With the growth of HMO's for examples that situation is likely to
change. The Harvard Community Health Plan, a prepaid group
practic~ does not~ hire neurosurgeons just because they would' like to
practice ifl the Hurvard~C'ommunity Health Plan. The beauty of it is
that there is a bottom line figure. There is premium income in the
plan and they have to ask whether they need another neurosurgeon.
Why pay him if we don't need him?
PAGENO="0085"
81
Now an effective budgeti~iIg mechanism that puts money into 14a1
areas, that requires a local area to consider what it needs, may riot
induce physicians to go to Roxbury, but may induce the local area to
say we need three more primary care practitioners; we don't need a~iy
more neurosurgeons.
I think that what we are wrapped up in, of course, is a very compl~x
problem because our pattern of thought is the market. We dike t~e
market, we like to us~ the market. It is a convenient device. But t~ie
market in health care is a very peculiar market. We're also in difficul~y
because physicians have used words like "freedom" in very unusi~al
ways, ways that you and I don't normally use that word. We know that
we must make choices. We don't respond to every candy store that gqes
bankrupt saying, gee whiz, your freedom has been abridged. But t~e
physician has used the word "freedom" to mean he shall be permitt4d
to choose where to practice as well as what to practice and not to be
subject to market forces because third parties ought to pay for wh~t-
ever he does.
You have got to break that chain somewhere and I would sugg~st
that yes it is important that you hear from the fellows in the flri4g
lines, from physicians, but I would also comment that the physician is
not trained, equipped, educated to see the system as a system andi I
would also suggest most respectfully that what we. may need
American medicine is civilian control.
Dr. WYNDER. Mr. Chairman, you brought up a key point, namely,
what kind of medical care delivery system shall we have in the inn~r
city. The point to be stressed here: preventive medicine is a job of ~ll
society. Overcrowding, bad housing, malnutrition are the key medic~i
problems that face our inner cities. They are by and large not medic*l
problems, they are societal problems. It is easily shown there is more
TB, more cancer of the cervix and greater infant mortality, et ceter~,
et certera, primarily because of their social situation. tTnless we c~n
upgrade the housing and the nutrition factors in these inner city areas
the medical profession has no chance to have its effect and, therefor~,
in terms of a national health posture, in terms of our health schedu4e
delivery system, we need to recognize, Mr. Chairman, that if we a$
going to advance the health state of our country, the medical professio~
cannot do it alone but we must consider all of these other factors th~t
I mentioned.
Mr. ROSTENKOWSKI. Dr. Freymann?
Dr. FREYMANN. Following up Professor Fein's statement, I would
like to address two points:
First: As he said at the beginning of his comments, the usual rul~s
of economics don't apply to the health care system.. I will not argue tl~e
virtue or the evilness of this. It just seems to be a fact:.
Second: What he says is perfectly true; we can't get the docs to go t~
the boondocks, particularly the inner city. But this is not an exciusivel~
American projilem. It is just as much of a problem~ in every o~her
country in the world except China (as I explained earlier) and po~
sibly Britain.
If I may, I will use an anecdote to make my point. Dr. James, Wa1~t
was for many years the Chairman of the American~Deleg~tion to~ the
World Health Organization. In this capacity2 he developed fr&endshi
with the Chairman of the U.S.S.R. Delegation to WHO,: who was
PAGENO="0086"
82
senior official in the Ministry of Health in Moscow; One day the Russian
said, "I wish we could figure some way to get the doctors to go to
Siberia."
Watt said, "Now;look, you' mean you can't send `doctors to Siberia?"
The Russian replied, "Of course we can send them. I could `send a
hundred of our brightest young medical graduates to Siberia. But
then there would be a `hundred of them out there figuri~rg out how to
get back to Moscow, and there is only one of me."
Mr. RosTEN1~ows1~I. Well, Dr. Freymann, what do you envision the
hospital of the future to look like if the trend continues as you have
outlined it in your statement?
Dr. FREYMANN. I `have written a `whole book on the subject. (The
American Health Care System: Its Genesis and Trajectory. Medcom
Press, `New York, 1974, 406 pp.) It took me 8 years to write, so I won't
try to give you a full description, but I will try to boil down my view
of the hospital of the ~future.
When we think of hospitals today, we still think of a big box full of
all kinds of `advanced technology where all the patients are hori-
zontal, and where we treat acute crises in the course of chronic diseases.
When t'hese crises abate, we send the patients out pretty much on their
own `devices.
Returning to my theme that we should build on what we have now-
the hospitals are there. We can't get rid of them. What we can do is
change the vision of what `a hospital is. I think we can do this through
financing and through education. The center of technology where we
take care of these crisis will continue to be an important component, but
the mai'n function Of the hospital of the future will `be comprehensive
care (including preventive care) o'f a population which depends on
that in~titution.
I want to make very clear that when I am describing this hospital
o~ the future I am not talking about hospitals employing physicians.
There `are already some `places where that arrangement works quite
well. The Hunterdon Medical Center in New Jersey is an example. But
I think we can use any variety of payment and organizational
mechanisms. The key `feature of my vision is a fnnátional grouping of
all 1~ypes of health professionals about an institution which would still
br "called `a ~hospit'ai13ut wonl~d~ha~v~e'a `far bronder role in total health.
care than the hospitals of today.
Mr. R0sTENK0wSKI. Mr. Corman~
Mr. COIt~'AN. Thank you,~Mr.Ch~irma'a.
I ~s.:going tp ~suggest that either. now or if VOu' submit comments
on~'the `Bro~k-Martin `bill which is the catastroj~hic approach; if you
address this probletn df'cost `control, it would be fine. I am nOt sure it is'
in Ribicoff's bill, but it seems to me logical if you' put `in catastrophic'
illness insnrance in any ~form wii~hont co~t contrOl `thnt we will `see a
ballooning df certain~kinds"of care. Pf `I were a `normal doctor and I
had no co~t eonttdls ~on me and `the "~patient is `s~~p'posed to cover 1~
pe~nt ~of it, t think ~`woi1ld fi~ure'c' t how~to"ii~e on 85 percent just
in case I couldn't get the 15 because I know the Government `will pay
the~bill I ~rouItl like coinmeiit~ ~n that
`Dr. `rth~MA~. ~Mr, Coi~than, I ~n~ree ~1t~h ~`yeu. ~I~nt I think
catastrophic ilhie~s rnsnra'ace wo'uld ~kew the system even mOre than it
~lr~ady `Is toward acute crisis care. The "pt~thlem i~i1~h oataetrophic.
PAGENO="0087"
83
coverage is not so much what it would do as what it won't do. That is,
it will drain more and more of that "bottom-line figure" we keep t4k-
ing abo'ut into that portion of the health care spectrum which has ~he
least payoff in terms of a healthy population-the treatment of ac~te
crises in the course of chronic diseases. Less and less of the bottom l~ne
figure will be available for primary care and the preventive measures.
Mr. FEIN. I wouldagree ~with you also, Congressman Corman. All of
us sitting here are speaking about health care today. Obviously, ~ve
have as taxpayers, as citizens, many other interests. It would be
irresponsible to legislate a mechanism that will involve an escalation
of costs both because of the kinds of things that are covered or t~ie
kii~ds of fees that would be charged and where you would have a price
inflation that would use up valuable resources, leaving us less able to
meet the other needs of society. To legislate a blank check is a m~st
dangerous procedure. At least if you pick up a blank check that~ I
signed, you have to consider what is a sensible amount to fill in sii~ce
I don't have unlimited resources. You might put down $50, figuri~ig
that the check won't bounce. Maybe you're a risk taker and you p~it
down a hundred. Bitt you won't go very high. But if a blank check~is
signed by Uncle Sam, you can put down any number and the che~k
will be cashed. For the Congress to legislate a blank check to 4ie
American medic~l profession would be irresponsible to all the'other
social needs of the country and the approach which does not have c~st
control in it is, as we have found with other legislation in the past,~ a
blank check.
Mr. CORMAN. Do any of you have any suggestions for a form for
delivery of health care that would upgrade what we do for preventi~e
care other than HMO's?
As I understand it, the primary incentive in lIMO's is the economic.
Yoti keep the people well, and you will get the same income so y~u
have an economicincentiveto keep them well.
Is there anything other than that that would work to this end?
~Dr. ~ Dr. Freymann thinks perhaps more of how young
medical students could be modified in terms of good health educati~n
than I do. As it now stands the majority of the American young phy~i-
ciansliving in~the present environment will end up in therapeutic ca e.
Therefore, I feel that we have no ~hoic& but to better. utilize ~illi d
health professions. They cando the j~b~better at a lower costto socie y
than most physicians who perhaps are overtrained for this aspect ~f
medical care.
The allied health professiôn~ls are not properly utilized in o r
society. In our hospitals thìe imrses arendt~uti1ized~to their full potei~-
tial. It hasbeenmy~experieneeif you take nurses ~nd challenge the~n
with ~a position-that relates to~taking care of patients as for in~tan~e
~typertensivet~hera~y under a physician's guidance, nutritionitl advice,
or any other behavioral aspects of medical car&they do ver~v well.
~My key suggestion, cost-~wise a~d indeed in terrns~ df the way
deliver ~servic~s, would the increased utiliaation of allied health
pr~essiQn~}s.
-Mr.' CoR1s~A~rc. ~ t
into the business of deciding according~o licenthmg who `ean deliv r
~Whatkin-d c~f ~are1
PAGENO="0088"
84
Dr. WYNDI~R. This is a possibility. At present laws vary from State
to State. There are some State's where allied health profes~ionals are
utilized very well and there are other States where they are under
utilized. In part this utilization seems to depend on the number of
physicians in a~ given State.
To answer you specifically yes, you could very much help in raising
the utilization of allied health professionals in our country.
Mr. CORMAN. Did you want to add to that, Dr. Freymann?
Dr. FREYMANN. I would like to throw one of Dr. Wynder's quotes
back out, actually the quote of Martin Luther about giving me your
chi]d at five. I would like to emphasize, more effective than having
physicians or allied health professionals giving health education is to
get it into the school system.
Mr. REINHARDT. Yes, right.
Dr. WYNDER. Yes.
Dr. FREYMANN. It is often said we don't have a health education
program in this country. On the contrary, we do. It is on television.
In the course of a week, a single station in Detroit carried over nine
hours of health-related information. In the judgment of those mon-
itoring it, 70 percent of this was inaccurate or misleading or both.
I don't need to tell you what kind of health education we see on
television. It is dedicated primarily to whether you smell good or
whether you look good. But it i.s education related to health.
Health education is beyond the purview of a National Insurance
Programs but I think it i~ an important part of National Health
Policy. We must develop effective ways to get to our children and
teach them good health practices. The. drug education programs now
offered in our schools are examples of how iiot to teach good health
pradtices. They are all negative. All the children hear is how bad
everything is. Good education should be positive. It should be directed
toward why they should do things, not why they shouldn't.
Dr. WYNDER. Here is another area where you could help. I go along
with Dr. Freymann, health education on TV can play a role but we
should not limit it to' public service television.
I like to believe-because most kids in most areas don't watch
public service television. They watch commercial television. I feel that
commercial `television particularly on Saturday morning has a duty
to have some kind of meaningful health education programs for chil-
dren who sit glued to the TV set.
These are public air waves. I think they ought to b~ used at least in
~part to educate our young and certainly I am in, agreement with Dr.
Freymann thatthis is where the action lies.
Mr. COR~1AN. There is a legislative proposal before the Congress
that Leonard Woodcock refers `to as the Health Security Program.
It's a broad-based program. If you are familiar with it do you have
irny comments about it?
Mr. FEIN. I am quite familiar with it. I would comment favorably.
It' addresses the financing aspects'. While I might have reservations
about what I would consider details, it does so in an effective manner.
Americans would have access, would not have'the economic barriers
that many face now in seeking care.
It also addresses the supply considerations. It has' a bottom line to
it. It puts the money back where people can argne about what it ought
PAGENO="0089"
85
to go for st the local area. In other words, it uses a central financi~ig
mechanism while permitting a great diversity in the delivery systex~is.
It is a big country and it is a different country and we need tkat
diversity in delivery system. If some people `want `to opt for }iMp's,~
they can do so, but they dOn't have to do so. 1
In the present system by contrast, with multiple sources of funlds
It makes it' difficult to organize different kinds of delivery syste~is.
It is tough to start a HMO because it is thought to enroll a medic~re
population because they are covered by one prOgram, a medicaid p~p-
ulation, because we have to go to the Governor to get a contract 1~or
that population, and so on, So I have ne difficulty with the oent~at
budgeting device leading to diversity with the equal access to c~re
and with'the supply considerations. ` I
Of the various measures th'at ar~e before the Congress I would find
that the most appealing. In tine with my earlier remarks, if one wOre'
forced for a variety of political reasons to phase in a program, I wot~ici
like to have the Corman-Kennedy bill out there as what I am moving
toward over' a period of time in a manner that will actually get ~n&
there.
I would conclude with one additional point. While all of us, a~d
you, have been talking about the complexities of the system and t~e
difficulties and the interrelationships and the central city and the pie-
ventive care, I would not want th'e tone of our remarks to color all of
our judgment as we leave this room.
I would remind us that; yes, it is a very complex business but I
would also remind us that it is not all that tough to write a good b~li
on th~ equity side dealing with financial protection. Other countries
have done it.
What is tough is that we are trying to write or talk about a bill tl'~at'.
would change the system as well. That's very complex. But the qa-
nadians `without any great trauma, and they are not much brigh~e'r
than we are, have a program and it is not that tough to write a go~d
bill. It may be tough to get the votes for it, but it is not that tough.
to'write a good bill on the financial protection side.
Other countries have done it. We have the benefit Of their'thistal4es~
and of `their good points but that, gentlemen, we can do. It is when ~ve~
can bring in the system that life does get more complex. It is' in tI~at
regard that I feel we ought to give this high priority to the aQcess for
care, the Kennedy-Corman bill does just that.
"Mr. CORMAN. Any other comments from the panelists whether y~it
are familiar with it or not?
Professor Fein very accurately stated what it does, in any event.
Mr. REINIIARDP. Yes; I think if one contrasts that kind of bill bro'a~i-
ly with the catastrophic risk bill, I also `would opt for the form~r,
primarily because it does the catastrophic-risk bills really do not ad~
dress the one goal that I posited earlier. That goal i~ to free the Ame~'i-
can citizen from anxiety which is, I feel, totally unnecessary. At t~ie
minimum every `American citizen should have' a very concise idea bf
what the maximum potential financial loss due to illne~s is, if oi~ly
so `that he `or she can plan for it. ` ` I
Second, I wOuld recommend that t'he maximum risk should be
rather low.' I think one talks here really of percentages related to I -`
come and not just of some absolute amount. `
PAGENO="0090"
Dr. Feii would~ have ~vo~ as~ au~ optimum p eeutag~. I wouid~ be
~willing~ to g~. a~bove~ that but certainly not to l~ peroe~t. Tius~ `s~ a
matter~ as you said, whichonawneg~ti~te.
Health iusuranc~ legi~iaUou ought not he. that di ouitto~wthto~ The
difficult part does come as-Rashi Fein has observed~-~-in. trying to
obtain~ the'~ goa1s of, health insurance in~ a cost~effective m~imee. The
problem is to identify tl&e~cost eflectivesystem and to devaso measures
lil~el~, to goad~tlie healthrcare sector towards that optimum.
LegisLation declaring that a maximum of "x" residents can speeial.~
ize in surgery would have a very blunt nnpaet on a the health care
system, as would, for example, aoommandto acertain doctor to prao-
tice in Kansa~, quotas, and certIficates of needs for physiciaus~
I think such direct regulations would be appropriate only if~ one~
knew what the optimal organization of medical facilities in this~coun-
try would be. Unfortunately, we do not know precisely what `an opti-
mum system would look like. Therefore direct regulations can `be
counter productive.
On the other hand, one does not necessarily have to give up attempts
to modify the. existing system. You can use the physical flows that
accompany the delivery of health care in this country. Under National
Health Insurance the public sector will gain control over these flows,
audit, could use them as policy-levers.
It doesseern.to me, for example, that in the design of the fee sched-
ules under NHI, there lies an opportunity. to change the health care
system at the margin in gentle, ways that do not strike as bluntly as
direct regulation would,
Finally, I. believe that there is one measure whose impact might be
blunt and yet benign, and that is to remove certain artificial legal re-
strictionson innovation- in the health care sector that have strangled
that sector for so many years. I said this morning that licensure in
some way has amounted to granting a monopoly to one particular
profession1 I reiterate that. This method of licensure is not necessarily
optimal from soeiet~r's viewpoint, I. wouldi like to see a much more di-
verse set of entry points- into our health- care system. I would like to
see;, for example, legislation establishing independent paramedical
practitioners~ But ele.arly~ that is~ something you can. consider hide-
pendently from a National Health Insurance bill. Indeed, I would not.
wish to see-you couple it with a National Health Insurance bill1 It is
merely ~ometliing you ought to keep-in mind.
Mr. C0RMAN, We. have done precisely in that proposal what you
have laid out. We did avoid that latter point for very~ soundr reasons1-
Dr, Fu~YMAN~. I am not- familiar with all the details of your bill,
Mr. -Qprman~ but- agree that given- the choice between- that- approach
and the catastrophic approaeh~ there-isno question in my mind~w~h-ieh
is preferable1 namely, the Keiuiedy~Corinanbiil.. -
I. agree with my colleague that National IIea-lth Insurance would.
indeed free the-public from financial fear, but I would like to. make -an
appeaL I- address it not to you but to the Congress as a- whole. Please
a-void- the implication- that. there is a connection between National
Health Insurance and saving money on liealth~oam. I- know of no evi-
-deuce- that any health insurance system-has- savedmoney.-
I would like -to point out that we have- been here all d~y discussing
purchase of a product, but we have not defined- what that product is~
PAGENO="0091"
g71
~ow; if we were representatives of `the IDefense lDepairbment, i~ a~i~
surethat oit ~ us~tell youhow nb~l~,
how many aircraft ea~rriers~ aith hew' many missiles we are ta~i~g
&Dout.
Evei~ if we were represeutatives of another servdee iiidu~stry su~h
as education, I hope you would have been able to get us to telJy~u
how many students we were going t04 pro~1uoe. In other words~, y~u
would have insisted thatwequantify. the p~roduct;
Yet, in this entire~ discussionneitber we~oi~ thepa~ei noi~anyone4n
the committee has tried te define what we are buyii~g. I t~IMul~ t~uis is
why the economics of the health care are so peculiar. We talk aI~o~rt
what we are goithgto spen4not what wearegoi~ig~tobuy.
Mr. Corman, but I agree that given tire ~Iroice between tha1~ approa4h
have access to the services of' those who the States have licensed t~ota1~e
care of their health needs.
Is that sufficiently definitive ~
Dr. FREThL~NN. That does not answer the problem. M Dr. Fe n
pointed out earlier this morning, the provider is not always a ph
sician. There are the other health care providers. But beyond all the e
is a social demand that certain health resources niust be available.
I return to dialysis as an example. There is a social demand to ma e
a~ailab1e to all people who hwve end~stage renal disease~ unlirnit d
resources to keep them alive. This social demand has actually' be~n
incorporatedinto Federal statute.
Mr. OORMAN. Do you know how that came about?
Mr. FREYMANN. Not in detail.
Mr. CORMAN. The detail is that 25 people' would die if they didn~t
have it and they sat right where you are sitting.
If you could bring me 25 of anybody with anything and let u~1~ok
at them, I can promise you that we will take care of their proble
It isthe unseen ones that~ aredifficult to take care of.
Dr. FREYMAc~N. 1 am not surprised, and I sympathi~e with you ~n
facing tha4~ dilemma.
The point I am trying to mahe is that, if we are t~Uking about n~
tional health insuranee to free people from the fe~ ot being wip~d
out financially, that is laudable and I am all for it. But. we
say that and also say we are going to save money and hold down
There is no connection between the two.
The costs of keeping peopl~ alive are going to inorea~e because o~r
populatipn is getting older and older, and our technology is gett&Llg
better andmore eipensive.
We are going to be spending more and~ wQr~ n~oney at the hf
preservation end of the health care speetrwm unlesswe~ de~ine (to u~e
the title of Victor Fi~eh~' book.) "Wht Shall I Live." When 1 sey `~we,~"
I mean society; net' the hea~Lth~ professions nor the medical professiG1~
Who shall live? That, I believe~ is the ~rncia1 question wh~cb wi~
determine how much we spend for health care~ Until w.~ answer it~e
will be unable to control what we spend because we will not ha~e
defined what we are going to buy.
Mr. ConM~N. Dr. Wynder, did you have any comment?
Dr. WYNDER. There is nothing that I can add which has not a~-
ready been said. The bill that includes the basic premise to provide
effective health care at a price we can afford should be the right of
every citizen in our country.
PAGENO="0092"
88
The point just~rnade in terms of kidney dialysis and the marketin
problems we have had in preventive medicine prompt me to say
cannot marshal here even four people who are so delighted they are
healthy that they will come here before you, because if we are healthy
we take it for granted. Once we become sick, we worry about the
sickness that we then have.
Any bill has to make certain that physical restraint is being main-
tained by whatever health care system operates.
If y~u give upper limits, you can be certain that that upper level
will be spent. Such fisCaFrestraint'*must certainly be contained in any'
bill.
Dr. Freymann stated that perhaps as we get older ~ve will cost our
society more in terms of some'disease.
I am not that `pessimistic. As I pointed out, I do not believe we have
to die of ill health. There are, of course, other problems that we can
deal with in terms of our aged. I would hate at this point to mention
nursing homesbut certainly `nursing homes, if well run, are a far bet-
ter and cheaper way of dealing with some of our problems relating
to age than hospitals. Hospitals happen to be one of the most expen~-~
sive ways in which we operate our medical care delivery system.
/ I do hope that as the weeks come, you will have witnesses from dif-
ferent branches of the health care system. I hope you can ask them~
how they can reduce the cost of their operations and how they could~
utilize perhaps some of the bed space now becoming empty for ambula-
tory and preventive care services.
Mr. COnMAN. Mr. Chairman, on that note I would just indicate for
the record `that panel 1 `has opted for H.R. 21 and I won't ask `anyb'ody
any more.
Mr. Ros1~NKowsKI. `We have to get the votes and talk about the
dollars budget.
Gentlemen, it has been most enlightening. The comments, `as I said
earlier in t'he `back' room were just fantastic. You have really begun
our discussions and our investigation of the possibility of health insur~-
ance on a national scale on a real sweet note.
Professor Fein, did you want to s'ay something?
Mr. FEIN. On behalf of the panel, `and I am sure my colleagues
would "agree with me, I would want to make a comment to you, Mr.
Chairman, that if this is the way `the Congress always works, `then
the image that some Americans `have of the congressional process is
faulty.
If this, on the other `hand, is not the way the Congress always worksr
then, by golly, it should work this way.'
Mr. R0sTENXOWSKI. Well, thank you.
Mr. FEIN. B~cause I am sure we d'o feel, all of us, that this was a
most useful day to us `as `well as to you in the opportunity to leave'
feeling that `we had `an opportunity to share ideas `with you and that
these ideas then will be accepted or rejected but will be weighed as
you debate. `
It is a nice feeling to have.
Mr. Ros1~nwKowsKI. Professor Fein, this is a new concept. I would
like to continue this approach of' `h'aving'the subcommittee really
PAGENO="0093"
8~
geared to a dialog, conv~rsational dialog, with our witnesses. I `thi~ik
the advisory panel that we put together, and you are members of ~t,
are certainly going to help us frame legislation that will ultimat~1y
mean a great deal to this country.
I would like to say one thing to Dr. Fein. You talk about hea1~th
education for the young, that it is not all bad.
Well, it is nice to note that you have made the observation that we
are not all bad up here, Professor Fein, because we get that `all t~ie
time, comments on how `bad Go~ernmen't is run.
Dr. WYSDER. Mr. Chairman, may I add a final comment.
Some time ago in Japan I w'as called upon to give `a toast. I sa d,
"May a country's greatness in the world not `be measured by the hei ht
of the gross national product, but rather by a health care service t at
has in a most effective manner lead to the healthiest people in it."
I hope some day that Congressmen and that Senators would be e-
ceiving the most votes from constituents who have successfully labored
for a better health care system in America.
Mr. ROSTENKOWSKI. Thank you. This committee will stand in rec4ss
until 9 o'clock when we will take up the testimony of the Government's
role in national health insurance.
[The subcommittee recessed, to reconvene at 9 a.m. of the followi~ig
day, Friday, July ii, 1975.]
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PAGENO="0095"
NAPIONAL hEALTh INSURANCE
(The Role of Go;s~ei~ñment in~ Amerieawlieahli)
FRIDAY, J~ULY 11, 1975
U.S. HousE OF REPRESENTATIVES,
SuBCO1~EMITTEE ON HEALTH,
COMMITTEE ON W~t~s AND MEANS,
Wa~hington, D.C~
Thesubcommittee met at 9 ajm., pursuant to notice, in the committee
hearing roOm, Longworth House Office Building, Hon. Dan Rost~n~
kowski (chairman. of the subcommittee) presiding.
Mr. ROSTENKOWSKI. The subcommittee will come to order.
We would like to welcome the professors and doctors this morning.
1 would like to express our gratitude for taking the time out of yo~ir
busy s~hedules to participate with us in these discussions. The forn~at
of these meetings are an opening statementby each of you individually
and then an opportunity for you to have an exchange and then tb~~
panel opens up `to questions by the membership from this end.
It is quite informal. We would appreciate your trying to give ps
answers in as concise a n~anner as possible because, as you know, ~
are limited here' to ~ minutes on questioning at least the first go~rouri~d.
We are looking forward to indepth `conversation `with respect to'the
Government's role in the national health insurance. We would like y~u.
to know that in yesterday's hearing the Members of Congress th~t
participated in the discussions were quite impressed. I think these a~e
very informative and educational sessions. It really is a two-way stre~t,,
both for those of us Who participate and those who give the knowled~e
you have to offer.
I would like to present this morning Prof. Lewis H. Butler, profes-
sor of health `policy, University of California. It is nice `to see youba4k:
in Washington, Pro~fessor.
I would like `to present Lowell Bellin, New York City's commis-
sioner of health.
Richai~d Heim, executive director of Health and Soc~i~l~ ~rvi~s
D~partrnent, New Mexi~o; and Prof. Pierre E. de Vise, professor ~f
urban science, University of Illinois, in Chicago. It is nice to see yo'ü~
(91)
PAGENO="0096"
92
A PANEL CONSISTING OP LEWIS H. BUTLER, PROFESSOR OP
HEALTH POLICY, UNIVERSITY OP CALIFORNIA; LOWELL BELLIN,
M.D., COMMISSIONER OP HEALTH, NEW YORK, N.Y.; RICHARD
HElM, EXECUTIVE DIRECTOR, HEALTH AND SOCIAL SERVICES
DEPARTMENT, STATE OP NEW MEXICO; AND PIERRE R. de VISE,
PROFESSOR OF URBAN SCIENCE, UNIVERSITY OP ILLINOIS AT
CHICAGO
]~[r. Ros~rENKowsKI. If Lew, you will begin with your opening state-
ment, then we will go down in that order, and then we will be open tc~
discussion.
Welcome.
STATEMENT OP LEWIS H. BUTLER
Mr. BUTLER. Thank you very much, Mr. Chairman and members
of the subcommittee.
I think all ~f us here will find this kind of discussion very beneficial.
instead of your having to listen to long speeches from us, this kind of
informal exchange is really very productive for us and I hope it will
be for the committee.
I have written out a short statement, but rather than just read from
that, or even follow it in detail, I tho~ught perhaps it might be more
useful for the subcommittee for me to go over some of the mistakes,
~r at least misunderstandings, that I personally have been involved in
in the health policy field when I found myself in HEW doing the
health planning as the Secretary for Planning.
That started in 1969, and in going over today's agenda I found it at
least useful for me to try to think back and discover how many things
we thought were so-at least I thought were so in 1969-maybe it was
just my ignorance-and on which we based a lot of our planning and
policy, many of which just turned out not to be the case.
So if the committee can g~t any insight from hearing a story about,
in some respects, how not to do some of these things, I would be happy
to tell you that story. I apologize for the fact that it co'mes in some~
what personal terms, `but that is the only way I know how to tell it,
I guess.
I am sure you `have heard a lot about national health expenditures.
I must confess it took a long time for it to sink into my head how `huge
they are and `how fast they grow. The numbers are just numbers and
they don't mean much until you see them in relation to other things.
things.
For example, in 1969, when we started the policy planning in HEW,
national health expenditures were about $60 billion. That is Only 6
years age. This year they will be exactly double that, $120 billion. At
the time, we were trying to make 5-year projections-I must say that
none of our projections indicated that we would reach $120 billion by
now. We just didn't believe that the rate of inflation would continue
and, of course, it has, and in some respects has gotten worse.
So when you think about a doubling of anything as big as this in a
6-year period, it is a rather significant event.
I suppose the other striking aspect of the expenditures, at least to
me, was to see them in relation to other kinds of govermnental
expenditures.
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03
In, 1969, we had the view in HEW that if we could only get the D~-
fense Department's money, we could take care of HEW's needs an4,
specifically, if the Vietnam war would only end, why, we would be i~i
good shape.
It came as somewhat of a shock to me that the Vietnam war w~s
costing-I can't say only-but it was costing at its peak $25 billion ~
year. When we did the projections, we suddenly realized that the en~
of the Vietnam war would have some minor impact, but very littl~
really on HEW's ability to pay its bills, that our expenditures were
increasing and a lot of this was due to the health sector~ They were in1-
creasing at such a rapid rate that the end of the Vietnam war wa
certainly no salvation for HEW and, of course, that has turned out t
be exactly the case.
To give you some sense about that, right today total national expe -
ditures-this is not just Government, but total national expenditure
for surgery in medical care, just surgery, now exceeds the cost of th
Vietnam war's biggest year. HEW's expenditures for medical car
alone-forgetting the. welfare. and education side of the Department
HEW's expenditures for medical care alone now exceed the Vietna
war in its biggest year.
So gradually some of the enormity of these expenditures began t
sink into some heads such as mine that really had not been very .muc
exposed to the problem up until then.
The second characteristic of the medical. care area in the role o
Government that was sort of slow coming home to us is what wa,
happening with the medicaid program. At that time, o~ course, mps~
of the attention was devoted to medicare for older persons. Medicaid
was a program we knew had a problem, but that was just auotb4
problem among many in our view.
Gradually it became apparent to us that medicaid was not j~us~
another problem. It was an overwhelming problem. For example, afte~
a couple of years we began to realize that the growth in ruedicaid,ex-b
penditures, which, of course, were coming out of general rey~n~ues, no~
out of payroll taxes, but the growth in medicaid `expe~diti~res-~---r4
keep in mind the Federal Government was only paying half, of tI~a
was such that it was going to squeeze JIEW's entire hudgel~; th~t is
biomedical research~ education, all were going to be sque~ze4 beea~,q
of the growth in medicaid and some other sp-c'alle4 .uncontrollable~.
programs.
To `put it in another framew~rk, I and some oth~rs came, thinkin
that the so-called welfare. mess-~-we are talldng about cash payments,
for public assistance-was our biggest problem, and gradually we~
began to see that the payments under medicaid were going to outsl~rip
cash payments eventually at, the rate they `were going.
While not all of that has turned out `to be the case, because of `Sta4es
cutting back since then, in their plan for medicaid expen~ditures, we
are still now at a point where $7 billion is going out for that purpose
matched by another $7 billion by the States, That continups to be,,
at least in my opinion, the No. 1 priority for any approach to health
insurance on, the way towards national health insurance or as a part
of an overall bill.
Perhaps I will make one other comment about the expenditures. At
that time medical costs nationwide were inflating at 10 or 12 percent.
We, of course, had no idea that inflation generally would become as
57-677--75----7
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94
bad as it has in the United States, but that rate of inflation was dou-
ble the normal size of inflation for everything else, that is the Con-
sumer Price Index ~vas going up maybe 3 or 4 percent a year, and
medical costs were going up double that,
I will refer to this later, but the more we got into it, the more it
seemed that there ought to be a way to stop that; that if we could only
become more efficient and handle the Government's affairs better and
the Nation's and do something about inefficiency in medical care, we
would be able to control that inflation.
Now here it is 6 years later and the normal rate of inflation is under
control, if you call 6 percent under control, but at least it isn't in
double digits this year, and medical care costs are still increasing in
the range of 12 to 14 percent this year. So nothing much has changed
and we are spending 8 percent of our gross national product.
When I started it was 7 percent, and where it stops it is hard to tell.
It leads you to the conclusion that while it is possible to do nothing in
this field, that is, to have no further Government initiatives, it is not
possible to do that and stop the trend in costs that is going on now. If
the problems are to be addressed, at least in my view, it may require
spending some money to, in the long run, reverse some of these trends.
Now without going into any detail on the issues I have enumerated
in the testimony, I would like to hit five or six basic misconceptions
that we had at that time, or at least that I had, that underlay a lot of
our thinking about medical care policy. It took a number of years for
those to get out of our heads.
The first, and I think you have heard quite a bit about it over the
last few months, perhaps even yesterday in the testimony, is the influ-
ence of medical care or more nTiedical care on the Nation's health. I
remember then we would go up and testify before Senator Kennedy's
committee, and we would make statement such as "America is 10th or
12th in health standing in the world and life expectancy and, there-
fore, we need national health insurance."
Senator Kennedy would say the same thing, and he would also say,
"Therefore, we need national health insurance."
Well, we were both wrong. It is very clear now that while there are
a great many reasons for having a coherent health insurance system
and a national health insurance system, one of them is not to improve
these overall health indicators for the country. That is just not going
to happen.
Now I could not believe that at first, because I said, "Well, I know
people who, if they had had medical care, they would have lived longer
or their lives would have been saved or if they had a heart attack, if we
would have gotten the.m to the hospital in 20 minutes, and they would
have lived," and "How can you tell me that the cumulative effect is that
it won't improve the Nation's overall health?"
Of course, it will improve individual health and there are some
groups, particularly the poor, who should have longer life expectan-
cies, but the other factors that influence health, personal habits, stress,
employment status, nutrition, the environment, these have such a
major impact on these overall indicators that in that picture medical
care is not that significant.
So when we talk about the Nation's role in health, which is the Gov-
ernment's role in health, the subject today, we have to remember that
PAGENO="0099"
95
most of what we have been talking about, and I think we will be t4-
ing about this morning, is the Government's role in medical care. The~e
are all of these other things the Government is doing~ that have ~n
enormous impact on health. In that respect your programs for i~-
come maintenance, f~r housing, for nutrition, for jobs, all of tho~e
in the long run may turn out to be more important health progran~s
than any program that deals with medical care.
Unfortunately we don't know how to deal with these comparison~,
I don't think, at the moment and I don't want to take our time dn
such a global issue other than just to mention it.
I suppose the next misconception that we have had concerns t e
amount of science that is in modern medicine. We have made enormo s
strides in this country in the last 50 years in medicine. As a no -
medical person, an outsider, I have found myself, and still do, with tr -
mendous respect for the quality and dedication of the researchers anFi
the practitioners and so on, particularly now that I am working in ~
medical center. But the fact is, as my friends will admit in thei~r
candid moments, that modern medicine is a very limited thing. We
know how to do very well some things and we do not know very muc
about a great many other things.
What I find myself continuously astonished about now is how litti
we know about the efficacy of a lot of modern medicine. That is, we d
not really know how much good it is doing. There are some indica-
tions, and these can be misconstrued and warped, that a lot of ou~
effort is not doing very much good in some measurable sense. It ma~
be doing an enormous amount of good in the psychological sense, an
it really is important to care for people and to try to do as much a
you can and a lot of medicine is devoted to that. But when you loo
at the statistics on the rates of recovery or death from cancer or for th
major killers, they have not changed very much in 20 years.
So as Government gets more and more into paying the bills for al
of this, which of course it is, it is up to 40 percent of the total bill now,
it is incumbent on Government to try to find out how efficacious all o
this care is and, unfortunately I think, to begin to cut down on som
things that do not do very much good, not to mention things that d
positive harm. That poses enormous problems. It is hard to measur
what does good, since you are experimenting largely with human be
ings. You can't delay care to someone, on ethical grounds, in order
see whether he is worse off or better off in an experiment, so we hay
enormous difficulties in doing this. But I think we do have to con
tinually recognize, in thinking about Government's role, that we hay
not reached perfection by a long shot in medicine, and are way short o
that in many respects.
I suppose another misimpression that we had was about what
medicine did, that it was largely acute care and that a certain amount of
it could be avoided by prevention. But, having marvelously solved the
problems of infectious disease over the last 50 years, medical care has
turned in increasing portions to care for chronically ill people, people
who come back year after year. Most of the great killers that we
think of, heart disease and now cancer, we are learning how to manage
as a chronic illness. We are faced with dealing with populations that
we cannot cure, whose diseases we can only manage.
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96
These are the same populations in many respects that the Committee
on Ways and Means deals with in other* programs~ whether they are
called disabled, dependent people, or people receiving supplementary
security income. These are all of the same people in many respects, so
medical programs are going to have to be coGrdinated, I hope with our
programs relating to these people.
For example, there are about six different programs, all within the
jurisdiction of this committee, that may be sending money to the same
persons that visit our hospitals at IJOLA Medical Center every day.
That would be supplemental security income, social security, disability,
medicaid, medicare and social services and then there may be vocational
rehabilitation and a few other things of that kind.
So the role of government has become increasingly complex and a lot
of it focused on the same chronically ill popuiation~
Another point had to do with cost control.J firmly believed at that
time that if we could manage the inefficiencies in the program. We
could control costs. I used to write big statements about cottage in-
dustry and if we could only get it shaped up and make it efficient
and do away with profiteering, we could solve the cost control problem.
We went up and testified how our v~ariou~ cost control measures
were going to do wonderful things, various kinds of limitations on
fees, 75th percentiles and all that. I am not saying all of tho'se thing~
shouldn't have been done and: are not worthwhile, but the fact is that*
medical care costs, given the present system, are inherently uncontrol-
lable. I don't think it is an accident that this rate of inflation has
continued the way it has and I think it will continue to go that way for
the next decade tmless sOme major change is made in the payment
system.
The reason is not all bad at ail.Medical care grows everyyear; Every
year a day of hospital care is a different thing than ~t was the year
before. There is more technology, more technique, more good resear~h,
more of everything.'
* In most businesses normal cost constraints~cause you not to put rn
new technologies that will cost more ñioney. You only put them in if
you save money. But in the medical care business,this is n~t so because
of insurance which i~ a nece~sity to protect people against unforeseen
events. Because insurance is there, the money is'~there and bebause the?
money is therè~ the product grows in size and so no matterhow much
we `do, how' well we do with the ineffi~iencie~, `we have thi~ inherently
ballooning business. To st~p~ that bai1~oninE means that some things
that are good' to do,~t least for same people, can't be done.
So the cost picture is not ~n easy one to deal with.
The next point is on administration. At that time HEW was `having
a lot `of problems running things and still is. The committee knows a
lot about `supplementary `security income and the kind of difficulties
you have in administering those programs, problems with setting up
computers and all of that. At least I had assumed that the problems
with the health insurance system would not be `any worse than that, al-
though we were thinking about national health insurance going to deal'
with 200 million people', keeping in mind that social security only deals
with 25 million now on its computer banks and 200 million is eight'
`times that.
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97
Still that just seemed like a problem of scale to us. Now it see~s
much more difficult because, as with costs, mediëal care insurar~ce
systems are inherently hard to administer. That is because the thir~gs
that you have to determine are so subjective.
If you are dealing with social security, all you have to find out is
is the person 65? Did the man die? flow much did they pay into he
system?
With your disability programs, of course, you are getting ii to
trouble there because whether a~ person is disabled or not is a mat er
of judgm~nt. But when you get to health insurance, you are then de i-
ing with an enormous number of subjective decisions. Was the c re
necessary? Was it appropriate? Should the person really have been in
the hospital for 5 or 6 days or 2 days or 10 days?
And wheii you consider that medical care is an art, to some exte t,
rather than a science, and the number of t1~ose decisions you have to
make and then you look at that times 200 million people, you have ~n
administrative problem that is absolutely overwhelming.
So that at least leads me to a couple of conclusions. One is tI~at
whatever is done should be done on a relatively small scale `at the start
so we can work out the administrative difficulties. Perhaps, more i~n-
portant, I do not think we can successfully run a~ national heal~h
insurance program on a fee-for-service program. Whatever the mer~ts
of the fee-for-service system, I don't think we can get there from h~re
and will have to go to some other kind of lump suni payment system,
`such as a capitation payment. I don't see how we could run the otl~er
system.
Finally, there is the role of the States. I suppose when you get to 1~he
Federal Government, as I did, your figure the States have' to ~o~ve
their own problems and you have enough to deal with in the Fede~al
Government. We give far too little attention to the role of the States.
Medicaid, of course, is a State program. Thinking now about he
administrative problems of national health insurance, it is clear t at
the States have to have a major role. In one field alone, long-term ca e,
nursing homes, it is clear that the States are the major actors. We c n-
not design in my view a national health insurahce system with ut
them. We cannot just figure out what the role of the Federal Govei~n-
ment is and then fit the States in.
If it isn't designed with the States in mind, and there are others th~t
can speak far more knowledgeably than I, again I don't think we re
going to make it.
Mr. Chairman, thank you very much. I will go on later.
Mr. ROSTENKOWSKI. Thank you, Professor Butler.
[The prepared statement follows:]
STATEMENT OF LEWIS H. BUTLER, ADJUNCT PRoFEssoR OF HEALTH PoLICY; HEAL it
POLICY PROGRAM, SCHOOL OF MEDICINE, UNIVERSITY OF CALIFORNIA, SAN FRANCIS 0
Mr. Chairman, Members of the Subcommittee on Health, the discussion to4y
is on the Role of Government in American Health. My prepared remarks will be
short so that we will have as much time as possible for informal exchange. 1~Ey
`purpose Is to describe briefly the current role of government, the future decisio~s
to be made about that role, and some commop assumptions that turn out not to
be as true as we might expect.
At the risk of going ovet ground already familiar to the members `of `the s b-
comxmmittee,"lt miglmt,be'wort'h while to' review a few basic, facts about medical c re
and government expenditures.
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98
For the Fiscal Year just ended, total medical care expenditures for the nation
will be in the range of $115 to $120 billion. Last year they were $104 billion. That is
about 8% of the gross national product, and makes medical care one of the two or
three largest industries in the United States. This year medical costs are inflating
at about a 12% rate, twice the general rate of inflation.
The government's share of medical expenditures has, of course, increased
enormously since the passage of Medicare an~1 Medicaid in 1965. Total govern-
ment expenditures, Federal and State, are about 40% of the total. /Fëderal ex-
penditures alone are 27%.
The biggest single item in medical care expenditures, about 40%, is hospital
costs. The Federal and state governments pay more than half of these costs.
Not surprisingly, costs of care for older persons over 65 are much higher than
for other age groups and are about 10 times as high as for those under 10 years
of age.
That is the dollar picture.
Turning to the present role of Government, the Federal Government is in-
volved in almost every aspect of medical care.
Paying medical bills for the elderly, the poor and the disabled is the biggest
single item. The 23 million beneficiaries under Medicare now have bills paid by
the Federal Government at an annual rate of about $15 billion. Payments to
states for 25 million poor people covered by Medicaid programs amount to $7
billion, with the states paying an equal amount
Financing the training of manpower, principally physicians and nurses ($1 bil-
lion).
Promoting regulation and organization of the health industry to Improve the
distribution and quality of services, and control costs ($600 million) ; construct-
ing facilities ($1 billion).
Supporting biomedical research, at an annual rate of about $2.5 billion.
Caring for persons to whom the Federal Government has a special respon-
sibility, such as veterans, military personnel and merchant seamen ($8 billion).
State and local governments, in addition to financing and administering the
Medicaid program, provide most of the long term care and mental health care, and
run most of the institutions serving the poor.
In considering national health insurance and the future role of Government,
the question is not whether whole new functions should be taken on but rather
how much the current functions are to be expanded and bow that is to be done.
Specifically, decisions have to be made about:
Medicaid-Should it become a uniform program throughout the country rather
than a collection of state programs, should it be expanded to include new groups
of people (e.g. `laid off workers receiving unemployment compensation), and
should the state or Federal government run it?
Health insurance for all citizens.-Sbould it be provided and if so, how?
Should It be phased in by groups (e.g. children first?) Should it be limited to
coverage for higher cost illness only (catastrophe insurance) or be comprehen-
sive?
Regulation.-How will the flow of money into the system be redirected for the
purpose of improving the availability o1~ services, controlling costs `and improving
quality?
Manpower and facilities.-How will they `be geared to increased demand for
services resulting from more insurance and technological development?
Research-How can it be coordinated with insurance coverage? For example,
with Medicare currently covering kidney dialysis and transplantation, what
priority should be given to research on chronic kidney disease, and how? Should
dollars be spent on the development of an artificial heart, considering the costs
under national health Insurance of inplanting such a device in perhaps 50,000
people per year?
Federal beneflciaries.-Sbould veterans, military dependents and merchant
seamen be brought in under a national health insurance system and if so, what
should happen to the Veterans hospitals and Public Health Service hospitals?
The Role of the ~tates.-What will the state function be in all these respects?
Perhaps most important,' to what extent will the `states continue to have a major
role in paying medical bills, giving them an incentive to be concerned with effec-
tive cost control and regulation?
These are some of the issues that cannot be' avoided In any consideration of na-
tional health insurance and the role of government ln'health. They are so nunier-
PAGENO="0103"
99
ous and complex that rather than discuss any particular issue in detail it might e
more useful to respond to specific questions from the members of the Subcomm t-
tee on points of particular interest to them.
There are, however, a number of common assumptions about health and me~i-
cal care which I would like to review with you because they are directly releva~t
to these issues. I mention them because they represent what I and at least ,son~e
others took to be facts about medical care and government's role when we beg n
working on health policy in HEW a few years ago. It turns out that in some cas s
they are less true th'an we thought, and in other cases just not so at all.
We made these assumptions:
MORE MEDICAL CARE WILL MAKE THE NATION HEALTHIER
Not so-Other influences on health, such as nutrition, employment, stress, pe -
sonal life style, and the environment are too strong. The health of particul r
individuals will be improved, and perhaps the health of some groups, such as t e
rural poor, bu,t overall national measures of health such as average life e -
pectancy will not be changed.
This has enormous implications for national health policy. It means that t e
government role in medical care, which is what we have been discussing, is only a
small piece of government's role in promoting health. Programs to provide incom
employment, housing, education, a better environment, safer roads and cars ai~d
so on are all in a sense health programs. This leads into a discussion of how ~
ernment can set priorities among these programs, which is far too `broad a subje~t
for today's agenda. But it does put national health insurance in perspectiv~?.
National health insurance in any form should be viewed as a way of achievin~
greater equity in the provision of medical care, or of providing income protectio~i
against medical costs, or of controlling medical care for some other public pu -
pose. We should not expect such a program to make us a healthier nation,
MODERN MEDICAL CARE IS HIGHLY SCIENTIFIC AND OF KNOWN EFFECTIVENESS
Not as true as we would hope.-For all the advances In medicine in the pas~t
50 years, particularly in the treatment of infectious disease, the medical art ~s
still a limited one, due largely to our relatively primitive state of scientll~c
knowledge of life processes'. We know surprisingly little about the efficacy of
many forms of treatment and there are major legal, ethical and technical obstacles
to obtaining such information.
This is of growing significance as government pays more and more of the bi'l
for care. A major governmental undertaking will need to be launched to revie*
in whatever ways possible `the efficacy of treatment and to tie those findings t
governmental payment systems, including national health insurance.
MOST ILLNESS IS ACUTE AND AT LEAST IN PART PREVENTABLE
Less and less the case-The portion of medical care going to the treatment o
chronic illness is' rapidly increasing, with `the disappearance of infectious diseas~
as the prime concern of medicine. The number of effective preventive procedure~
as distinguished from measures to manage chronic problems is remarkably smal,
and as the nation's population becomes older the trend will continue.
The significance for governmental policy is that health insurance programs wil
have to be integrated more closely with income maintenance and other program~
for those in the society we now classify variously as "disabled," "chroncially ill,~'
"unemployable," "handicapped" and "dependent," often referring to the sam
person with the same problem.
MEDICAL CARE COSTS CAN BE CONTROLLED LARGELY BY ELIMINATING INEFFICIENCY AN
PROFITEERING
Not so.-Without question these factors have an impact on inflation in costs,
which is currently running at about 12% annually, but the major co~t problem i
far more fundamental. The combination of a growing technology and an indepefid
ent source of financing in the form of health insurance makes medical' care ex
penditures inherently uncontrollable, given the present fee-for-service paymen
system. Each year the product delivered, say a day of hospital care, tends to cx,
pand through the addition of new services and new equipment. Since the .needs fo
PAGENO="0104"
100
care, especially among the chronically' ill, are almost unllrqited, the pos~lbllities
for inflation in cost are similarly unlimited.
For government, this means that if cost control is a major objective, it probably
cannot be achieved under the present payment system, at least not without a high
degree of gOvernmental interventoni into day-to-day practice procedures. To the
extent that a national health insurance plan expands the amount of insurance cur-
rently in force, without modifying the payment system, the cost problem should
continue to be at least as bad as it is now. Limiting the supply of physicians,
hospital beds and other resources then becomes one of the few'cost control weapons
left to government and it may not be effective.
HEALTH INSURANCE SYSTEMS ARE NO MORE DIFFICULT TO ADMINISTER THAN OTHER
GOVERNMENTAL PAYMENT PROGRAMS
Again not so.-The very nature o~ health insurance makes it difficult to ad-
mlnister if claims against the system are seriously reviewed. A very high number
~of claims are made annually, particularly if drugs are covered. Since standardS
about whether care is necessary in a particular situation tend to be highly sub-
jective, given that medicine is at least as much an "art" as a science, controversy
is possible over almost any denial of a claim. Further complication occurs because
a denial of claims will occur in most instances after the care is given, thereby
causing possible financial hardship to the patient.
The question for government then becomes not whether private insurers or a
governmental agency should administer national health insurance but whether
`an~one could run such a system `based on the current kind of claims review
process. This suggests that at least governmetit should experiment with various
administrative forms before committing itself irrevocably to one or the other.
It also suggests that alternative simpler methods of payment, such as a lump
sum payment per person per year, (capitation), may be necessary purely for
administrative reasons.
THE ROLE OF THE STATES UNDER NATIONAL HEALTH INSURANCE IS A SECONDARY
ISSUE THAT CAN BE DEALT WITH ONCE A BROAD PLAN IS AGREED UPON
Hardly.-If administration of any part of national health insurance is to be
decentralized and given to the states, a major overhaul of state mechanisms
will be required to avoid the administrative disasters that befell some Medicaid
programs. If the Federal government is to take over prime responsibility for
long term care, such as nursing homes which now account for a third of Medicaid
expenditures, the fiscal implications will `be enormous and a Federal program to
monitor the quality of care in such institutions will be a necessity. Whatever
the decision, integration of existing state and local social service programs with
national health insurance will be required.
I know that the Subcommittee has been reviewing these and other questions
about the role of government in health and I appreciate having the opportunity to
disCuss them with you.
Thank you.
Mr. Ros~rnNKowsKI. Dr. Beilin?
STATEMENT 0]? LOWELL BELLIN, ~D.
Dr. BELLIN.~Thank you very much.
Before starting my formal statement, I do' want to say it was re-
freshing to hear `the comments of Professor Butler. I know that the
Subcommittee on Health is aware of the fact that comments so candid
are not that common in public testimony and he said a number of
things that deserve serious contemplation, `although I must `disagree
slightly with hitrt with respect to the capitation approach.
Mr. BTJTLER. I will be mentioning this in my formal testimony.
Dr. BELLIN. I defer to others today who wish to inventory the health
benefits that ought to be included in a national health insurance plaii.
I want to focu's only on the field of quality and cost controls.
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101
Publicly funded health programs have gone awry in this count y
not because this or that health benefit was included or excluded, b t
because of inadequate quality and cost controls. Make no mistake. U -
less we move fast now on the basis of what experience since 1966 shou d
have taught us, we shall be compelled to witness a quality and cost ri -
off of national health insurance which will make the previously pub i-
cized abuses under medicaid and medicare by comparisonappear ii e
chocolate cake.
To be sure, the professional standard review organization (PSR9)
is being touted as the mechanism to impose workable quality and cost
controls upon publicly funded health care services. I am currently t
work with the advocates of the PSRO in New York City, to ma e
Manhattan's prototypical Manhattan PSRO succeed. But I wou d
argue that the PSRO prognosis is guarded at best, and for the follo -
ing reasons:
One: The PSRO is functionally the ongoing responsibility of t e
local medical society. The constituency of the local medical society is
the membership of the local practicing physicians.
Two: The operative in-house review of the quality of hospital ca
cOntinues to remain under the control of the hospital staff.
Evidently many of us have yet to derive the appropriate conci -
sions from the farcical performance of the medicare hospital utiliz -
tion review (UR) committees since 1966. I shan't rehash in det~il
what my colleagues in the New York City Department of Health ai4d
I have been writing and preaching since our earliest official associati4n
in 1967 with New York City medicaid. Rather, I shall share with y4u
certain principles, or truisms, or managerial cliches that we hate
extracted from 9 years of nonromanticized experiences.
Now to these principles:
One: Most health care professionals, if given a choice, prefer to o
good professional work, rather than bad professional work.
Two: Most health care professionals are not saints.
Three: Therefore, some health care professionals-no fewer th~n
5 to 10 percent-~normally succumb to the temptation of the ea~y
moneys available in badly controlled publicly funded health cai~e
program. To earn these easy moneys, these health care professiomds
will do bad professional work.
Four: Bad professional work means one, two, or a mix of three no -
exclusive forms of abuse:
a. fraud, that is billing and collecting for phantom services (lea
important statistically)
b. overutilization, that is, providing reimbursable services justifi
neither for preventive nor for therapeutic reasons (probably m
important statistically).
Five: Professional societies conventionally insist that the percenta ~
of aberrant professionals and the magnitude of abuse are terrib y
exaggerated by governmental agencies and by the masS media.
Six: Professional societies conventionally insist that their ~wn tr
ditional mechanisms of professional peer review are adequate to contr
most aberrant professionals.
Seven: It is irrelevant whether such claims by professional societi~s
are advanced in good faith or not.
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Eight: What is irrefutable is that the only objective peer review is
arm's-length peer review. Peer review by a professional society of its
own dues-paying membership constituency is not arm's-length peer
review.
Nine: Peer review by a professional society need not be a conscious
whitewash to be ineffective. Professional societies almost never pursue
a policy of active case finding of malefactors. At best professional
societies scrutinize only those cases brought to their attention by com-
plaints. This absence of case finding means ineffective peer review.
Ten: Professional societies lack the means to impose effective dis-
ciplinary sanction upon many aberrantly behaving professionals.
Many abusers do not belong to the professional society. Threat of
expulsion from membership in the society is meaningless to nonmem-
bers.
Eleven: Peer review by professional societies and peer review by
hospital staff of work performed by colleagues can be classified as
"internal audit." No system can long maintain its integrity and effec-
tiveness on the basis of internal audit alone.
Twelve: To maintain the integrity and effectiveness of such internal
audit, it is obligatory to support a program of periodic external audit.
This is analogous to governmental bank examiners' checking periodi-
cally on the bank's own internal auditors.
Thirteen: The professional Standards Review Organization
(PSRO) is but the medical society by another set of initials. The po-
tential deficiencies of the PSRO reflect the deficiencies of all the in-
ternal audit mechanisms tried so far in hospital! chart review~ tissue
committees, clinicopathological conferences and medicare utilization
review (TJR) committees. The fact that at present it has proven polit-
ically necessary to promulgate the PSRO is prima. fade evidence of
the operative inadequacies of each and all these inhospital techniques
of quality control.
Fourteen: Although this time organized medicine may get the mes-
sage and will make the PSRO work successfully, the most ardent
enthusiasts for PSRO acknowledge that the prognosis for real success
of the PSRO is guarded at best.
Where do we go from here?
There is no alternative but to call upon the public agency to keep
the PSRO honest. The public agency to whom to assign this responsi-
bility is the health department. With due respect to my colleagues in
welfare, I must insist that to assign responsibility of health care
quality control to welfare departments is to trivialize the program.
For decades the constitutional deficiencies of welfare departments
have assured little better than mediocre health care services under
welfare department auspices. To put a health program into a welfare
department is to condemn it to guilt by administrative association.
No one advocates assigning the task of health care quality control
to the police department, fire department, or sanitation department.
We are left logically with the health department.
Only a public agency such as the health department has built-in,
legally enforceable, public accountability. Moreover, many local health
departments in the country have had regulatory experience in enforc-
rng standards in maternal and child health services. The New York
City Department of Health has pioneered in promulgating, monitoring
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103 J
and enforcing standards of health care Services, not only in the a-
ternal and child health category, but also in medicaid, in ambulatqry
care, in the outpatient clinics of 20 ghetto-medicine-funded volunt~ry
hospitals, in prison care, in private methadone maintenance clini~s,
in long-term care in proprietary nursifig homes and in prepaid capi~a-
tion care in HIP. Nevertheless, even smaller health departments with
no experience or limited experience in these areas are capable of
learning and continuing to learn.
METHOD OF ENFORCEMENT
Nine years of experience in the New York City trenches of quali~y
coi~trol have proven that judicious withholding of funds promoi~es
more religion on the part of practitioners, hospitals, and nursi~1g
homes than conferences, workshops, and pietistic, editorials in all opr
professional house organs. The courts are ineffective. The judge w~io
deals with foul-mouthed drunks, wife beaters, and child molest~rs
during the morning's work is unlikely to become particularly exercis~d
over an allegation of overutilization of laboratory tests which is pi~e-
sented before him the afternoon of the same day.
Better than the courts is the disallowance of payments by the reg~i-
latory agency to control abuses. Such disallowance of payments pip-
vides a calibrated administrative response that is practical, prompt,
unambiguous, and effective.
Recently a well-known voluntary hospital in New York City h~d
insisted that it could not find a full-time director of ambulatory cai~e,
despite the fact that the city health department's contract with that
hospital called for such a full-time director. The department's repeat~d
requests had been to no avail. Finally a threat to impose a financial
sanction equivalent to the salary of a director brought about prompt
compliance.
An ambulatory care director was found. Someone once comment~d
tQ the effect that the threat of hanging clears the mind most wonde~r-
fully. We don't advocate hanging professionals and institutions wl~io
abuse public programs. We advocate tak~ing thçth~ money away.
HMO AS A STIJ3STITTJTE
Suppose the millenium as conceived by certain health care idea1o~s
really were to occur tomorrow? That is to say, suppose all fee-for-
service were to be supplanted during the next 24 hours by prepaid capi-
tatioii groups geographically accessible to all Americans? Would su~h
a development obviate the need for quality control under ultimate puJ~-
lic agency auspices?
Not at all. To be sure, we would no longer have to deal with the
overutilization that derives its impetus from fee-for-service. Inste~d
we would now face the underutilization that derives its' own impet*s
from the tranquilizing salaried reimbursement of clinicians. Po~r
quality would still remain a problem.
Of course,, the health care millenium will not occur tomorrow. T}~e
fact is that the population percentage of coverage by the Kaiser-HI?
thodel. of payment and d~livery has not kept pace with the growth ~f
the American population. A recent front-page story in the Wall Stre4t
PAGENO="0108"
104
Journal described the demise of the well-known Brooklyn HM.O
group. The bulk of ambulatory care will continue to be delivered to the
middle class through traditional solo and partnership practice on the
basis of fee-for-service, hence my earlier comments about the medicaid
abuses still apply.
One can anticipate that National Health Insurance in a funda-
mental administrative sense will be medicare and medicaid experience
"writ large."
TECHNOLOGY VERSUS IMPLEMENTATION~ A CUR NT OUTRAGEOUS EXAMPLE
I do not pretend that the state-of-the-art of health care quality con-
trol has a refinement that bring jobs to those of us who must work with
it. I would insist, however, that the state-of-the-art of health care
quality control is good enough already, if applied, to bring about sub-
stantial improvements in the type of health services that the public
receives. The proble.m today is politics, not statistical correlation;
courage not chi squares. That is to say, the problem today is imple-
mentation, not technology.
Let me share a current grievance with you.
In New York City we have become increasingly infuriated by the
system of surreptitious kickbacks from clinical laboratories to ref er-
ring physicians. Incidentally, there is no reason to believe that this
system of paying physicians what is in effect a commission for steering
a patient to a specific laboratory is unique to medicaid. It is the old
abuse of fee-splitting now in modern guise.
Obviously such a financial incentive promotes overutilization of all
laboratory tests. As anyone in the enforcement game can tell you, it is
almost impossible to control this abuse-even for the New York City
Department of Health that is acknowledged to be the toughest med-.
icaid regulatory agency in the country. The bribers and the bribed
rarely will testify against one another.
Twelve months ago I decided to try to outwit the medicaid labo-
ratory fee-for-service system. Here was the plan: All medicaid
laboratory work in New York City would be put out on bid. The low
bidder for each of the five counties-or boroughs-in New York City
would henceforth be responsible for all medicaid laboratory work in
that county. This would include pickup at spots geographically con-
venient for the population as well as the technical performance of the
tests themselves.
What were the advantages of the plan ~
One: A. single laboratory per county rather than many laboratories
in the county would be easier to keep under quality and cost control
surveillance.
Two: By selecting five low bid laboratories rather than a single one
for the entire city, we would avoid rendering the city captive to one
firm that might take advantage of us in the future.
Three: By incorporating within the contract a roof or maximum re-
igibursement for all tests we removed incentives for overutilization:
Four: Because one laboratory per county wonid have the exclusive
rights to medicaid business, there would cease to be any, further in-
centives for kickbacks to referring physicians:
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105
Bear in mind that New York City medicaid has been spending 11
million annually for clinical laboratory work. As I had predicted to
the New York City Office of the Mayor, the bids came in for $5.6 il-
lion, or about 50 percent less than we had been paying. Certainly all
this 50 percent did not reflect savings realized through economies of
scale alone. Surely some portion of this 50 percent ~epresented he
inflated costs of kickbacks and attendant overutilization.
Now, members of the Subcommittee on Health, you might exp ct
that the initiative shown here to save the taxpayer substantial sums
expenditure would be rewarded with commendation on the Fede al
level-or if not with commendation, at least with harmless indiff r-
ence. After all, $5.4 million saved each year means about $1.25 milFon
returned to the city, $1.25 million returned to the State, and $2.5 ii-
lion returned to the Federal Government.
Well, disabuse yourself of the notion that we. received official writ en
commendation from the Federal level. Instead HEW has zealou ly
testified as amicus curiae against us in the current litigation. Incr d-
ible as it may seem, HEW takes the position that to put medic id
laboratory work out on bid violates the medicaid principle of "freed*m
of choice."
As a former private practitioner in Massachusetts, a board-certified
internist, I never encountered a single patient who exercised pref~r-
ence for one clinical laboratory over another. Patients are incapable~ of
distinguishing between the relative competencies of two laboratories
with respect to the technical performance of a serum uric acid, blood
urea nitrogen, blood glucose, complete blood count, or urinalysis. 0
*apply the concept of "freedom of choice" to clinical laboratories is to
stretch the meaning to absurd lengths, beyond' all connotations ever n-
visioned by the original framers of the medicaid legislation.
This attitude of HEW, if maintained, may cost the taxpayer $5
million and mOre per year in New York City in clinical laboratory w rk
alone. But this HEW attitude will impede other initiatives as w 11.
For example, ~e also want to move into nursing home pharmac u-
tical's. We know that we can effectuate substantial savings by putti g
the purchase of proprietary nursing home drugs out on bid as well. Is
this plan to die because of HEW's interpretation of "freedom of
choice"~
In short, if the subcommittee wishes to bring about some `over4ue
economies and simultaneously elevate quality of care, the subcomn~it-
tee would do well to scrutinize the entire concOpt of "freedom of
choice." Similarly the subcommittee might review the accompanyi~ig
papers in the appendix, which derive from our 9 years of medic~id
experience in New York City.
FINAL COMMENTS
With the passage of National Health Insurance covering the to~al
population, not only the poor, we may assume that the middle cl4ss
will be much less docile than the lower socioeconomic class in hangipg
onto legislated benefits. In contrast to the lamentable history of m~d-
icaid, it is likely that there will be no giving of services followed thei~e-
after by a taking away of services. The political penalties that ens~ie
from angering the American middle class would be formidable.
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106
Once promulgated then National Health Insurance will not be r~-
peaied. Therefore, it is imperative to avoid the medicaid and medicare
administrative absurdities that have promoted so much publicly sub-
sidized overutilization, poor quality, and fraud. We are obliged ,to
assign the job of quality and cost control standards to the health de-
partment, or we are obliged to invent another publicly accountable
agency like it.
But will this happen? It remains to be seen whether we have learned
substantive lessons from the accomplishments and follies of the past
decade.
Thank you.
[The additional material follows:]
FORESHORTENED FRANK MEMOIRS OF A FORMER MEDICAID ADMINISTRATOR
(By Lowell Eliezer Bellin, M.D., M.P.H., Professor of Public Health, Head of
Division of Health Administration, Columbia University School of Public Health)
Elsewhere I have commented on the desirability of preparing case studies on
the implementation of quality control programs of health services-with concen-
tration of those sociological, psychological, political, and organizational variables
that are relevant and generalizable. (11) Case studies on implementation are
to be distinguished from the anthological abundance of descriptive reports on
technical refinement and day to day administration of such quality control
programs.
How to prepare case studies on implementation? Ideally a competent historian
participating in none of the administrative decisions but privy to all their evolu-
tionary details would have to record events as they happened in the manner of
military company historians who write up skirmishes and battles. But such .a
convenient confluence of intellectual talent and current events within one agency
is unlikely. The best we can realistically hope for are after-the-fact case studies
similar to those in the professional literature of business and public adminis-
tration. In the meanwhile, pending the preparation of such case studies, partici-
pant observers in implementation of quality control programs would do well to
record their own administrative memoirs are candidly as they dare.
Of course, autobiographical history authored by protagonist tends to suffer
from generic defects: (1) partis'ans~iip; (2) subtle self-adultation with the
author and his cadre as heros; (3) polemical special pleading; and (4) the per-
ceptual blindness of the single observer as to what actually happened. Yet, these
defects need not necessarily inhibit the penning of memoirs, for, to be candid,
any paper on any subject develops similar defects, as soon as it departs from
the objectivity of charts and graphs to the subjectivity of interpretation. And
even the charts and graphs themselves may be deemed objectively suspect because
of the selectivity inherent in including, some details and eNcluding others. Often
the potential author is reticent for fear that the memoirs will reveal as much
about himself as about the program he is retrospectivciy describing.
It is probable that my collaborative associates would differ from me in sum-
marizing and interpreting the events that we shared. Unquestionably opponents
would differ even more. The Rashomon phenomenon certainly will be evident in
this very personal document of my impressions of almost ~ve years of adminis-
trative responsibility for New York City Medicaid.
MEDICAID ADMINISTRATION IN NEW YORK CITY HEALTH DEPARTMENT
Suffice it to say that New York City Medicaid translated the terms of the
Title 19 legislation into a pioneering municipal' health department program of
promulgating, monitoring, and enforcing standards of publicly funded health
care. There was unprecedented on-site auditing in the private offices of private
health care practitioners. There was review of the quality of Medicaid care pro-
vided by specific practitioners. We applied fiscal leverage by withholding' reim-
bursement whenever we found the quality of care provided to be in violation of
our standards. Monitoring and enforcement meant educating the health profes-
sionals, the state legislature, the Congress, the public. Enforcement meant in
PAGENO="0111"
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house bearings, imposition of financial penalties, and suspension from the Pr
gram. And, of course, enforcement meant periodically antagonizing the profes-
sional societies and the individual practitioners.
This paper will not rehash all the activities of the New York City Medica~d
program. Many of these have already been described in their technical a4d
administrative detail in the public health and medical care literature. (1-10;
12-21) Instead, this paper will present representative material that normal y
is confined between the lines in prudent, invisible ink.
POLITICAL INTERFERENCE AND HOW IT WAS APPLIEI)
"Did the Mayor or any other higher up ever apply pressure oi~ you or your st if
on behalf of anybody ?"
To answer the question explicitly: never did the Mayor, his associates, or a y
superior of mine in the City government ever to my knowledge communicate ~n
order or a hint to me or my staff to "lay off" anybody during my 41/2 years ~f
administrative responsibility for New York City Medicaid.
Even when crass political intervention does occur in the United States, It `s
typically episodic and self-limited. Substantive political interference uses mo e
durable budgetary means to achieve its ends, Pleasure or displeasure with t e
specific administration of a program is communicated by granting or withhol -
ing public funds. In public administration paranoia is an occupational hazar
One must beware of reading signals of hostility when none in fact exist, when t e
budgetary cuts are designed to impose austerity in its own right, rather than o
punish blundering. But each time we failed to receive all or most of the budgeta y
support we bad sought, we could not help but wonder whether forces in oppo i-
tion to our administration of Medicaid had finally assembled a working coaliti a
to thwart us.
Where were the "hostiles?"
The daily workings of New York City Medicaid policy predictably provok d
consternation and counter-measures among professional organizations and in i-
vidual practitioners. Representative but by no means comprehensive exampl 5
follow:
New York City Medicaid carried out a program of on-site auditing of the offi e
practices of physicians, dentists, optometrists, podiatrists, pharmacists, and chirp-
practors. Initial practitioner hostility to this unprecedented boatlh departmem~t
behavior was reflected in a formal resolution of censure by the AMA. (0)
New York City Medicaid made a certain number of hours of annual continuir~g
education a requisite for participation by practitioners in the program. (50
hours for physician-general practitioners, and 25 hours each for dentists, optom~-
trists, and podiatrists.) The local medical and dental societies registered publ c
opposition. The dental societies brought Injunctive action against the program f
compulsory continuing education. (10)
Of the 3 chiropractIc organizations, one challenged us in the courts because f
our decisions (1) to limit the chiropractic fee per visit to $8, and (2) to tight n
up administrative procedures to constrain chiropractic overutilizaton. (3, 9, 12;
13)
Aside from these conflicts with practitioner organizations, each time a sta~
decision was made to enforce standards of health services on the part of inc~i-
vidual practitioners, we made another enemy.
Tension between Albany as state capital and New York City as metropolis
has been a political constant for centuries, no matter which personalities ~r
which political parties occupied the State House and Cit~ Hall. But superi~i-
posed on this historical conflict between state and city was the nationally pub~i-
cized, peculiarly abrasive relationship between Mayor John V. Lindsay of Ne~v
York City and Governor Nelson A. Rockefeller of New York State. In Romeo ar4d
Juliet, the servants of the warring Montague and Capulet famiiles fight or~e
another and spill blood, although the servants themselves are not necessari'y
committed to the ideological viewpoints of their masters. A similar syndron~e
inevitably manifests itself in government among some public administrato*s
who identify themselves with the boss' proclivities.
Any Medicaid budget required both State and City approval. At best budgetüy
procedures involving both the State and City are lengthy and cumbersome. a
additional complication is the fact that the State and City fiscal years do a t
coincide.
PAGENO="0112"
108
DM thc~ budgetary cuts we encountered constitute political interference? Was
frugality the motivation behind the cuts? or was the covert n~otivation the desire
to clip the wings of a politically embarrassing program? or was there a conlpli-
cated mix of both? These quesions automatically, came to mind once Wheli the
State refused to support our request for a budgetar~t increase despite the fact that
we had conclusively demonstrated durIng the previous year that every dollar
spent for New York City Medicaid auditing returned many more dollars to the
general fund.
To some extent the true motivation was irrelevant. Ordinarily we would have
abided by the customary procedures and courtesies of private negotiation. But
these regrettably had failed. We believed we had persuaded the staff of the
New York City regional office of the State Health Department, but the main office
at Albany was adamant. Some of our own staff speculated that the Albany office
of the State Health Department had concluded that we had co-opted their New
York City lecal staff.
Accordingly I decided to go public. In newspaper and radio interviews I ridi-
culed the State's purported frugality in boldi~g us to the previous year's budget.
I likened such spurious economies tO a policy of Tiffany & Co., jewelers saving
money by getting rid of it~ expensive door locks. I appealed to certain State legis-
lators not only of the political left but of the political right as well.
After a few months of this campaign, we were notified that the State bad
reconsidered our budgetary request and we were to be granted precisely what
we had originally asked for.
OUTWITTINa T~X]l SYSTF~M
Yet we needed to expand our monitoring and enforcing capabilities beyond the
budgetary limit imposed upon us. It was clear that in the future we would
receive negligible monetary increases either from the State or from the City.
Quality of care was not' the~ only issue. Cost ~outrol was operationally inter-
twined with .quality control. every time we constrained fraud, poor quality, and
particularly overutilization-the troika of abuses in every health care program-
we saved money far in excess of the cost of auditing. Nevertheless, during our
negotiations we encountered the political reality that budgetary authorities are
loathe to approve a larger operational budget, even though that larger opera-
tional budget generates a return of moneys that in effect more than offsets the
budgetary investment. In the fiscal inte~change the additional moneys recov-
ered or saved by auditing do not accrue on paper to the credit of the agency Itself
but are ultimately pooled elsewhere in the general fund. On the State level we
never found anyone with the grasp to appreciate our argument about the poten-
tial economies to be realized and the political power to give us the auditing in
house capability we always sought. On the City level we were mOre fortunate,
although not consistently throughout the length of the program.
Almost at the onset of Medicaid In 1967 time was already running out. If con-
straints `on provider abuses were not to be applied promptly and vigorously, the
New York State Legislature would in its wrath eschew its initial generous defini-
tion of medical Indigency and benefits for Medicaid enrollees, and cut back on
both.
Because we could not get the moneys, we looked for another way to expand
our monitoring and enforcement capabilities. There was on incongruity that
might be utilized. Medicaid was so structured budgetarily that expenditures for
service benefits could expand almost indefinitely-at least until the State Legis-
lature might choose' to redefine eligible Medicaid beneficiaries and Medicaid
reimbursable benefits. At the same time there was no similar financial carte
bk&nc1~e for local health departments to support in house monitoring and enforc-
ing activities of these ever expanding health care services.
Suppose we could reclassify such auditing activities as Medicaid reimbursable
services? If so, we could then contract with specific professional schools to audit
quality by re-examining patients who had already received health care services
elsewhere. We would reimburse the schools on the basis of a Medicaid visit. We
made a preliminary check with the State to determine if there would be legal
objection. There was none. We promptly contracted with the Optometric Center
of New York and the H. J Levi College of Podiatry in New York City, each to
examine patients respectively in optometry and podiatry.
We chose the patients whose previous Medicaid services we wanted audited.
The schools in question examined the patients and sent us the reports. Medicaid
PAGENO="0113"
109
paid for this under the budgetary category of services rather than that of o cc
personnel. Throughout my official association with Medicaid, I had the persis ent
fear that either the State or the City would renege on the deal and would one
day decide to condemn these "patient visits" as a palpable fictiOn, on the gro nds
that Medicaid should not pay the schools, since such extra visits, strictly sp ek-
ing, represented overutilizatlon.
There were other benefits of this maneuver as well. When evidence of oor
quality and overutilization in optometry and podiatry ultimately emerged f om
these auditing activities, the practicing optometrists and podiatrists on an in-
dividual basis and through their professional organizations dared not pro~est
the validity of these findings. After all, the alma maters of the majority of New
York City's practicing optometrists and podiatrists had collected these dat~ on
the professional performance of their own alumni. This muteness of the optolme-
trists and podiatrists contrasted with the strident criticism by the denta1~ so-
cieties about a year earlier after we had released similar damaging data on the
professional performance of New York City Medicaid dentists. In the dental st~rdy
the Health Department rather than a dental school bad originally collated the
data. In turn the dentists and their societies had evinced less hesitation al~out
attacking the competence and good faith of a public agency with presumabl~ an
ideological axe to grind.
CONFLICT OF INTEIrEST OUTSIDE THE AGENCY
One group of providers who we alleged had rendered poor quality care and 4~ad
committed fraud and overutilization hired a prominent member of the New Y~ork
State Legislature as counsel. This is legal in New York State. It was to the
credit of the State legislator in question that he seemed somewhat embarrassed
about his role. He assured us, and with evident sincerity, that he supported our
quality control activities and wanted to arrive at a disposition that would sat sfy
the New York City Department of Nealth.
Nevertheless we wondered how a State legislator who votes oh appropriations
for Medicaid, on definitions of Medicaid enrollee eligibility, and on expansior~ or
shrinkage of Medicaid benefits can with propriety represent a Medicaid i~ro-
vider. There is nothing new about this problem'. Private law firms in which Sl~ate
legislators and Federal congressmen are mem:bers of partners have been rei~re-
senting clients whose interests more than occasionally conflict with the offi~ial
roles of the incumbents in public office.
In this case even the most sensitive among our staff dete~cted no attemp~ to
bring pressure directly ~r indirectly upon us. But the absence of an overt atter~ipt
to influence the enforcement procedures of a regulatory agency does, not excl~ide
the workings of operative lnfluence No one ever forgets that the legislator' at-
torney represents the power to fund, and, therefore, to destroy the regulat ry
agency in question.
CONFLICT OF INTExE'ST WITHIN THE AGENCY
A routine review of professional activities of the Medicaid auditing ste of
part time practitioners disclosed that one staff member was currently engage in
a type of private practice that could be interpreted as a conflict of interest in re-
liation to his official duties. Although his professional activities were legal, stri tly
speaking, I felt uncomfortable (1) because the behavior was wrong, and (2) be-
cause any perceived conflict of interest could jeopardize our credibility as an ob-
jective regulatory agency.
Discussion with the practitioner revealed that he had been engaged in this
activity for about a year. He had done so, he insisted only upon receiving ~he
formal permission of his then organizational superior, X.T., (not the real ~ni-
tials) who either had acknowledged or had implied that such a policy concess~on
was necessary to attract and retainable practitioners for the Modiceld andit~ng
staff. Working for Medicaid manifestly meant a substantial financial loss to ~ny
practitioner who sacrificed the opportunity cost of moneys that otherwise wo~iid
have been earned in affluent practice.
Now I had the utmost respect for the ability, integrity and judgment of X~Y.,
who allegedly had granted the initial permission. But the dimensions of Medic'~id
had changed enormously since then. Policy had to be modified to keep pac~. I
explained all this to the practitioner and offered him two choices: (1) either~he
remain on the Medicaid staff but discontinue the professional activities, or 2)
continue the professional activities but resign from the Medicaid staff.
57-677-----75-8
PAGENO="0114"
110
The practitioner urged that I discuss this decision with X~Y Perhaps I would
reconsider my decision. I answered that X.Y. no longer bad direct line responsi-
bilities for Medicaid. No one else but me now bore these responsibilities. I said
that my decision stood.
The practitioner then asked if I minded his discussing the matter witlii
X.Y. I responded that I wanted there to be no misunderstanding about how
strqngly I felt about this issue. I would interpret any attempt on the practitioner's
part to bring pressure by X.Y. upon me as an act of insubordination.
The practitioner replied that he understood my position. He agreed not to
communicate with X.Y. Furthermore, he would take steps to discontinue the
practitioner activity that I found objectionable.
About one week later I received a telephone call from X.Y. inviting me to his
office. My initial assumption that this call was coincidental was shortly disabused
by the subsequent subject for discussion. X.Y. apologized forgetting involved in
this matter, but he felt obliged to respond to the current pleas of the practitioner
at least to discuss the matter with me. I then reviewed with X.Y. my analysis of
the current situation, pointing out how matters bad changed since X.Y. my anal-
ysis of the current situation, pointing out how matters had changed since X.Y.
had granted the original permission. X.Y. could be agreed completely with my
decision and recounted an analogous incident where he bad only just made a sim-
ilar policy decision within his own current bailiwick of responsibility.
I returned to my Medicaid office. I called in the practitioner. I ordered and re-
ceived his resignation.
MAINTAINING INTERNAL PURITY
A chronic anxiety that troubled me was that at any time one or more among the
300 or so of the Medicaid staff, constituting practitioner and paraprofessional
auditors and their associates, would surreptitiously enter into colluSive relation-
ships with Medicaid providers whom they were auditing. Temptation is a feature
in a program of such fiscal magnitude. A sense of tension customarily accomn-
i~anied the daily act of opening the newspaper and skimming the headlines. It
was therefore prudent to take all practical precautions to render less likely the
corruptive infiltration of staff and the imminence of scandal.
Let the dental auditing program serve as a representative example, not only
of our internal protective devices but of our uneasy state of mind that produced
these. Morton Fisher, D.D.S., M.P.H. the first Dental Director of Medicaid, and
currently Director, Bureau of Dentistry, New York City Department of Health,
devised these administrative fall-safe techniques.
E~ach of the 40 or so auditing dentists of the Medicaid staff was assigned to re-
view the quality of professional work performed by practicing dentists whose
family names began with specific letters of the alphabet. For example, Dr. Jones
on our staff was assigned dentists whose family names began with A and B; Dr.
Smith, assigned dentists whose family names began with 0 and D; and so on.
Should there he any future suspicion of collusion with respect to a specific den-
tist, we could easily identify any collaborating suspect on the staff. But, more
important, the potential for collusion was statistically diminished 5-6 fold
because the imposed quarantine to specific letters in the alphabet constrained the
probability of collusion deriving from personal friendship. Normally people's
friends are randomly distributed throughout the alphabet rather than being
concentrated among a few letters.
Dr. Fisher imposed an additional safeguard. As a second level of audit he as-
signed to a separate dentist altogether, now reporting directly to the Dental
Director of Medicaid, the responsibility of continually auditing samples of the
Medicaid den:tal audits performed by the rest of the staff.
But what about the remote possibility of collusion even on thiS second level, i.e.
between the auditor and one or more of the staff dentists on the primary level
of auditing? As a third level of audit, Dr. Fisher requested that the New York
State regional dental officer periodically review the quality of the work of the
second level dental auditor.
All these internal devices should not suggest that we suffered from a brood-
ing lack of trust in the integrity of our staff. Indeed, we had reason to believe
that our staff was less corruptible than most. We had chosen them with care. We
subjected them to continuous supervision. We tolerated no departure from scrup-
ulously ethnical behavior. But, at the same time, we had to proceed on the as-
sumptio'n that there were a host of enemies who would gleefully discredit our
staff if given the opportunity. A program, so controversial as Medicaid, partic-
PAGENO="0115"
111
ularly with the unprecedented monitoring and enforcement functions that we
were administering, was fair game. The program was compelled to be pure ~nd
give the appearance of purity. All these devices against internal corruption ~4iid
external mockery were designed not only to preserve the intergity of the p~'o-
gram but also to protect the reputation of our beleaguered staff of conscienti us
auditors.
CURIOUS RELATIONSHIPS WITH SUPERIORS OUTSIDE THE AGENCY
The following is the rank of desirability with respect to working relatioush ps
between supieriordinates outside and above the program and the subordinate p 0-
gram director himself. The increments are arbitrary.
1. Most desirable
Superordinate has a comprehensive understanding of the program. Superpr-
dinate has participated with program director in determining objectives and
means to achieve these. Superordinate ha's absolute confidence in the quallty~ of
management of the program. Superordinate manifests keen interest in the pr~g-
ress of the program by requesting and analyzing periodic status reports. Super-
ordinate takes the initiative to protect and enhance the program. Superordin~te
does not permit other valid official responsibilties to divert his attention from he
program.
2. Less desirable
Superordinate takes no initiative to protect and enhance the program ut
responds positively to the initiative taken by the program director to enl st
superiordinate's support. Other comments in 1. apply.
3. Even less desirable than 2, but still acceptable and workable
Superordinate neither takes initiative to protect and enhance the program x~o'r
responds positively to the initiative taken by the program director to enlist 4u-
perordinate's support. Superordinate does net interfere, but does not help eith~r.
Superordinate possesses other qualities mentioned in 1. but to a lesser degr~e.
The general ambience is one of indifference.
4. Less desirable
Superordinate manifests little understanding or interest in the program a~id
has little confidence in the quality of the manageme~t. Superordinate may take
active measures to shrink the program or try to run portions of it himself.
The tolerance level of the program director determines at which rank order of
relationship he is prepared to resign.
What was the rank level of relationship of New York City Medicaid with t~e
office of the Mayor during my tenure in the New York City Department of Heal~th
between 1967 and 1972? If the evolutionary relationship between the office of
New York City Medicaid within the municipal health department and the off~ce
of the Mayor were to be portrayed graphically over time-from 1967 to 1972,~ it
would begin in 1966 between Level 1 and 2, show a perceptible rise during 1968
and 1969 toward Level 1 and plummet abruptly in 1970 toward Level 3. Why tl~is
inconstancy?
The onset of Medicaid in New York State and New York City in 1966 \V~S
characterized by generosity and optimism. Indeed, as the financial implicatio~s
and potential of Medicaid became clearer, the relationship with the office of t~ie
Mayor improved. For New York City at least, Medicaid represented, if not pie-
cisely a bonanza, at least welcome and belated financial assistance from the st~te
and federal government to provide health services to the City's medically ~n-
digent citizens'. The 1970 decline in relationship seemed less attributable to' t~e
municipal administration's disenchantment with the rising Medicaid expen~1i-
tures (75% of which was reimbursed by State and Federal government for ~Li-
rect services) than to turnover in key personnel in the Mayor's office. We d*e
the decline to a cluster of events shortly after Mayor Lindsay began his seco~i'd
term of office in 1970. New political intimates now gathered about the Mayor. 1~r.
Werner H. Kraroar'sky, Special Assistant to the Mayor and our primar~y liaison to
him, resigned,
It is speculative whether the Mayor's 1970 Presidential ambitions contributed to
his inattention to local Medicaid matters. The fact was that after Mr. Kram~r-
sky's departure we found no replacement of equivalent intellectual and poiiti~al
stature who enjoyed the confidence of the Mayor and understood Medicaid. The~e
PAGENO="0116"
112
now seemed to be no adequate substitute within the Mayor's office to worry partic-
ularly about what we were doing witl'~ a program that was spending over %
of a billion dollars annually for about 2.5 million Medicaid enrollees. In our
view the program deserved more scrutiny and concern than the conventional
budgetary reviews we were receiving.
Albert Moncure, Deputy Commissioner of Social Service, was my Medicaid
alter ego in his own department with responslbilty for overseeing Medicaid
eligibility and payment. Once I asked him whether anyone outside his depart-
ment was currently talking with him or with his* commissioner in any sophisti-
cated depth about the program.
He seemed puzzled. "Not at all. I've assumed they've been talking with you
or with your commissioner."
"They'~ were talking with neither of us. On one level, we supposed, this non-
communication bespoke trust. On another level, this inattention bespoke neglect
presumably due to diversionary activities of greater salience for the public good.
The ambience was one of indifference.
The bands off attitude gave Commissioner Moncure and me a free hand, but
at the same time precluded the City from seizing major oppOrtunities to restruc-
ture publicly funded health services for the City's medically Indigent.
One day we thought such an opportunity had arrived. An emissary from the
Bureau of the Budget asked me to put together an analysis of alternative ways
to spend annual Medicaid moneys to achieve reasonable health care goals. The
analysis was needed in a few days. This emissary, I was reliably informed, had
the ear of the Budget Director.
I cancelled activities. I put staff immediately to work, I updated my white
paper on the subject. I made.the deadline.
Then nothing happened. Nothing. There was no acknowledgement. A few
months later I followed up and learned that the major attentions of the Bureau
of the Budget had been directed to other matters.
In public administration this anecdote Is not unique.
TIlE IIEA~TH SIYPEBAGENCY OF NEW YORK CITY
The concept of a health superagency in New York City drew its impetus (1)
from the Mayor's decision to coordinate all municipal public health agenCies
more intensively within a single administrative structure; and (2) from the
reluctance of the 1~fayor to deal separately with individual commissioners of
health, hospitals, m~ntal health, and the Office of the Medical Examiner. All
relevant commissioners henceforth would report to a single superagency admin-
istrator, who in. turn would report to the Mayor.
The Health Services Administration (HSA) as the superagency was called,
was to concentrate its energies on data collection and analysis that would lead
to more intelligent decision-making in health services. The individual agencies
within HSA were to continue their traditional responsibilities and line opera-
tions as before. For the first few years this division of labor was more or less
maintained. But by 1970 with new appointments to I-ISA marking the Mayor's
second term of office, it was evident that the original policy was no longer in
force. Instead, the new HSA leadership was moving more and more aggressively
into direct line administration of programs of lead poisoning, methadone mainte-
nance, inspection of food establishments, prison health services, etc. These func-
tional incursions did not necessarily imprint themselves in the formal table of
organization. Nevertheless program directors soon found themselves compelled
to report to two bosses, one within the Health Department and one within liSA.
With thO passage of timC it was clear that much of the reporting within the
Health Department had become ceremonial.
This is not the place to discuss the pros and cons of this administrative devel-
opment, although the literature of public health administration would be enriched
by analysis on the part of proponents, opponents, and objective observers of the
superagency movement. Whatever such analysis might reveal about the con-
sequences to effectiveness and efficiency of public health administration in New
York City, there was certainly no ambiguity in camera about liSA's impact upon
the attitude of prominent Health Department staff and Board of Health member-
ship. A non-coincidental exodus of professionals of stature from both agencies
occurred.
In the meanwhile within the Health Department office of Medicaid we
became increasingly dismayed about this train of events. To be sure we had
PAGENO="0117"
113
b~en unhappy with our functional isolation from the office of the Mayor. We
initially had welcomed the idea of HSA participation as a means to reopen our
old conduit to the Mayor's office and to optimize our relationships with the e-
partment of Hospitals (now the Health and Hospitals Corporation). HSA as
coordinator and advocate were roles that appealed to us. But HSA as functio al
assimilator of Medicaid itself was unacceptable. We were jealous of our organi a-
tional identity. It is proper to list the reasons:
REASONS FOR ORGANISATIONAL ID1~ThtTItY
(1) We were undefensively possessive of our traditional Medicaid respo si~
bilities and prerogatives that we had wrested from so much opposition. In ~ur
view other Medicaid programs in the country had yet to attack the problems of
quality and cost control with imagination and vigor.
(2) We had assembled and trained a cadre to promulgate, monitor, arid
enforce standards of Medicaid health care services. We were certain that marty
of these would join the dismal exodus of Health Department professional if I-I~A
were to infiltrate Medicaid functional turf as successfully as it had encroach~d
on other areas of the Health Department.
(3) Since 1970 HSA had demonstrated a propensity for behavior and stile
that we found offensive and amateurish: expansion of expensive public relatloils
activities in the guise of health education, adoption of programs of high politi~al
visibility but of statistically meager pubic, health impact;, continued replacement
of departing health professionals with inexperienced "managers." According to
the argument or the cant, quantification cun~ hard nosed administration wo ld
now supplant the dysfunctional sentimentalism of rigid traditionalists.
In our view technique was supplanting rather than complementing qualifi a-
tion and experience. The once great New York City Department of Health of
Stebbins, Mustard, Baumgartner, and James was deteriorating into mediocra y.
It was now no longer just a question of preserving Medicaid intact wit in
the Department. We deemed it imperative to preserve every possible encla e
as a refuge where competent health administrators might survive in order o e
day in a more propitious future to emerge and rebuild the Health Departme t.
We concluded that it would be calamitous to Medicaid and to the Health Depa t-
ment if HSA were to take over Medicaid.
It is unimportant whether our analysis was objectively correct. A siege mont 1-
ity existed and was a factor in `our strategy. Perceptions govern the behavior of
actors.
Certain factors favored the continuing functional integrity, if no longer t e
total isolation, of Medicaid from HSA.
(1) The program itself was incredibly complex, encompassing a potpourri of
eligibility rules, modifications, modifications of modifications, service benefl~s,
technical issues, interpretations, and in-house history yet to be recorded. W y
need HSA go a1~ter Medicaid with more vulnerable game in the offing within t e
Health Department? For the present, HSA obviously viewed restaurant insp C-
tion, rat control, etc. as conceptually easier to understand and to administer.
(2) Medicaid required a physician as Executive Medical Director. Phis w s
the law. HSA had no available physician on its immediate payroll. HSA had 0
experienced health administrators. The health professionals in the number 1
and 2 positions in Medicaid originally hired by me reported to me directly. t
was not easy for an outside agency to invade a loyal' network of peer prof s-
sionals.
(3) Medicaid was located on 34th Stre~t about 3 miles away from the ma n
building of the Health Department. The geographic separation discourag ci
casual dropping in from liSA program analysts on scouting expeditions.
(4) New York City Medicaid's activities against provider abuse had enjoy d
an excellent press in contradistinction to the journalistic criticism that had be n
the lot `of much of the municipal administration. Medicaid had a reputation f
recovering or saving mllions of dollars annually. It would be hard for HSA o
classify it as stodgy as some other Health Department programs it had 0
categorized.
TACTICS
In order to protect the program, we did the following:
(1) We took precautions to assure that there would be no let up in the pa e
of the program, lest we unwittingly provide some justification to liSA to tal e
over the program. S
PAGENO="0118"
114
(2) T~ the extent possible we exploited every factor f~tvoring the program's
functional integrity.
Comple~rity.-We always behaved with formal correctness. Wijenever lISA
asked for status reports or programmatic analyses of any kind, we were detailed
and meticulously so. Rather than pursuing a policy of withholding Information
(Knowledge is power. Lack of knowledge means less power), we took precisely
the opposite tack, and provided comprehensive information. We would give HSA
no grounds to accuse us of insubordination, uncooperative attitude, or insuffi-
cient grasp of our own programmatic r~sponsibilities. Our immediately goal
was to overwhelm HSA with the obvious complexity of the program in order
to give the superagency pause about pursuing incursive tactics.
(3) Physician.-Here we could rely open HSA's evident distaste for public
health physicians. Although the Health Department, Health and Hospitals
Corporation and `other municipal health agencies used non-MD as well as MD
health administrators in important posts, HSA tended to downgrade the parti-
cipation of public health physicians. HSA's policies reflected a view that posses-
sion itself of the medical degree probably meant a trained incapacity to ad-
minister, even if the physician (a) held the Master of Public Health degree,
(b) had majored in health administration, and (c) had years `of successful
experience in increasingly responsible administrative posts. Indeed, experience
was suspect and tended to be equated with rigidity, i.e. resistance to the new
administrative style. M,D.'s would be tapped consultatively by HSA on strictly
technical problems in health, but otherwise the influence of Health Department
physicians in substantive formulation of health policies diminished perceptibly
from month to month. Whatever¼ the formal table of organization seemed to
show, there was an irrational shift of MD's from line to staff functions, and
programs analysis people from staff to line functions. But the law resolutely
required a physician at the head of Medicaid. At the head of Medicaid was David
Lieberman, M.D., M.P.IT. as Executive Medical Director, formerly director of
State Medicaid Program in Pennsylvania; his immediate subordinate, the Di-
rector of Operations was Morton Fisher, D.D. S., MPH., who had. already ac-
quired a national reputation for setting up the New York City Medicaid dental
quality control program. The Executive Medical Director reported to Florence
Kavaler, M.D., M.P.H,, M.S. (in biostatistics), who was Assistant Commissioner
for Institutional Review and Evaluation in the Health Department and whose
biostatistics degree protected her presumably from the conventional accusation
of inadequate analytical ability. She reported directly to me in my position as
First Deputy Commissioner.
There was thus a solid phalanx of experienced health professionals each of
whom, promoted by me, was personally loyal to me.
(4) Geography-Here we could stand pat. There was inadequate space at
the main Health Department building on Worth Street to accommodate a trans-
fer of a Medicaid staff of over 300 from our West 34th Street operations. More-
over, our West 34th Street office was conveniently adjacent to the Medicaid
office of the New York City Department of Social Services who would unques-
tionably have opposed any contemplated move.
(5) Press re1atio~s.-The Health Department had rOceived orders that all
stories henceforth were to be funneled through the public relations office of
HSA, the superagency. We were told quite explicitly that the public relations
staff within HSA saw as their major responsibility the enhancement of the
HSA public image. At the same time there was conspicous atrophy of effort to
present the Health Department's story. The public relations staff of lISA was
ordinarily too busy to attend Health Department meetings that produced
newsworthy policies and programs.
For example, restaurant inspections, a traditional Health Department respon-
sibility, were now `being publicized as an HSA program. In the weekly announce-
ment to the press, HSA, rather than the Health Department, would now list
those eating establishments that bad persisted in their violations of the sanitary
code. It had hitherto been customary for any program status reports to emanate
from the office of the pertinent Assistant Commissioner of Health or Program
Director Mary C. McLaughlin, M.D., M.P.H., the Health Commissioner, regarded
this as sound administrative policy to acquaint the public with the people in
charge of the Health Department operations impinging directly upon them.
She believed, moreover, that it was goOd for the morale of the programs and
their directors to receive such individual recognition. EISA now supplanted the
PAGENO="0119"
115
Health Department in announcing these announcements of violations in ea ing
establishments. This was but one of a number of similar preemptions that on-
tinued to occur. We assumed, therefore, that if Medicaid were to obey the SA
directive about public releases, we could expect that eventually HSA would s art
releasing under the USA imprimatur weekly lists of names of aberrant Medi aid
practitioners and institutions.
Accordingly we did not zealously discourage the initiative of newspaper re-
porters who continued to insist on talking with us directly despite the SA
directive. Stories about MedicaLd continued to emerge without previous p oc-
essing by the USA office of public relations. There was a detailed article of
our identification of a major abuse in Medicaid optometry by oue of the ost
important commercial vendors in New York City. There were stories and fa or-
able editorial comment about how we had terminated the "epidemic" of ~tat
feet in New York City by cracking down on the promiscuous prescribing o~ so
called orthopedic shoes by podiatists who would write bogus diagnoses to
justify Medicaid reimbursement to shoe stores. There were articles on Øur
discovery of millions of dollars worth of fraud perpetrated by commercial m-
bulance companies who sought Medicaid payments.
THE CADRE
Every program needs a critical mass of energetic talent. The cadre nepds
an extraordinary degree of commitment, almost fanaticism about the so~ial
non-expendable nature of the program. On a day to day basis the implementers
of a controversial program such as Medicaid are very much alone. They n$d
each other's support and trust in a program that they often come to view as
the moral equivalent of war.
Other considerations become secondary. This is not to say that the ca re
performs its tasks with no hope of reward. Salary increases and promoti ns
are necessary. But mutual professional esteem, particularly recognition rende ed
by one's real professional superiors, are equally indispensable.
The evidence of the normative high morale of the cadre are many: the ex it-
ment, the pervasive fun, the camaraderie, the long hours of work, the profus on
of professional papers, the identification of staff with prograths, the swag er,
even the resentment sometimes manifeSted by people of competitive agei~icy
programs not so endowed.
These were the characteristics of the Health Department Medicaid st4ff.
But, for there to be reasonable prognosis for survival of even the most d~di-
eated cadre, there needs to be the benign nurture of the health commissioner.
During my 1967-1972 service with the New York City Health Department.
Medicaid was blessed with the tenure of 2 supportive health commissioner~-
initially Edward O'Rourke, M.D., M.P.H., and thereafter Mary C. McLaugh~in,
M.D., M.P.H., both of whom played the indispensable roles of patron nd
protector.
FAILURE AND REGRETS
These brief memoirs properly should include representative failure and e-
grets. Had we been prescient, or more experienced, we would have done cert in
things differently. Regretably we could not tap the experience of other p o-
grams whether In New York City or elsewhere because ours was the fi st
program of its type and magnitude. This is not to claim that the New Y rk
City Department of Health in its role as regulatory agency was doing so e-
thing totally de novo. Health departments or their historical antecedents h ye
been in the business of regulating since their Biblical forebears identified and
quarantined lepers. The regulatory activities of New York City Medlc4id
represented a quantum leap beyond the important regulatory beacb-he~ds
originally established by the Children's Bureau in the Crippled Chi1dre~T1's
Program. The prograthmatic originality of New York City Medicaid deris~ed
from the fact that we took quite seriously the quality control implicati~ns
of the Title 19 legislation.
What were our failures? and consequently our regrets? A partial annotat~ve
inventory hints at a rich lode of detailed future case studies.
(1) *Pa4lure to manipulate Medicaid fees to achieve optimal health goals.H
Had the New York City Department of Health possessed complete control oi~er
the Meclicaid~ fee schedule of reimbursement to professioinal and institutioxjal
providers of services, we could have tapped the forces of the market place to
PAGENO="0120"
116
encourage the provision of certain desirable services and discourage the pro-
vision of others.
In physician care, for example, we cotild have encouraged more cervical
Paj~ smears. The State rejected our request for a specific supplementar3r fee i~or
Pap smears over and above what was incorporated within the fe~ per visit.
We felt that such a fee would act as an effective fiscal incentive because too few
physicians were performing such smears as part of the physical examination. In
contradistinction the State feared that paying a separate fee for cervical
Pap smears would act as a precedent for further separate fees for the now
fragmentized portion of the physical examination.
On the other band, we did have the authority to apply a separate fee for.
tonometry performed by optometrists. As a result of the fee that we authorized,
there was a renaissance of tonometric examinations in New York City. This
success in optometr3t made particularly bitter our legal incapability to use the
same technique elsewhere. We wanted to manipulate fees perticularly in den-
tistry, since the denial fee schedule seemed almost designed to promote the pro-
vision of extractions and dentures rather than preventive dentistry.
(2) Failure to restructure the practice of optometry.-We saw Medicaid
as our opportunity to eliminate a historical conflict of interest that has plagued
optometry since its inception. Optometrists simultaneously have prescribed lenses
and have sold glasses. This state of affairs is similar to the situation that would
exist were physicians to write prescripitons and simultaneously sell pharmaceu-
ticals as well. We tried to promulgate a regulation in New York City Medicaid
that every optometrist who wished to he reimbursed for any Medicaid services
would first have to decide if be were to be exclusively (1) a Medicaid refr.ac-
ting optometrist or (2) a Medicaid dispensing optometrist. The predictable pro-
tests occurred. The State Health Department subsequently declined to support
our petition on the grounds that We had no legal right to limit the scope of
professional practice permitted by state optometric licensure.
(3) Failure to make compulsory continuling education a requisite for partic-
ipation of practitioners in Medicaid.-(1O). This is described elsewhere in de-
tail. Here the New York Health Department and the New York State Depart-
ment of Education failed to support the pertinent administrative regulation
of New York City Medicaid. Actually here the failure was not total. The dental,
optometric, and podiatric societies ultimately went on record favoring such
compulsory continuing professional education as a requisite for continuing
licensure.
(4) Failure to restructure publicly funded health services-Here Medicaid
represented a chance missed-not only in New York City, but throughout tl~ie
country. Surely there bad to be a more Intelligent way to pay for and deliver
1.)ubllcly funded health services to the 2.5 million New York City Medicaid en-
rollees in a program costing $750,000,000 annually! Although the mix of ad-
ministrative constraints compelled certain absurdities, we discerned enough
theoretical flexibility within the program to permit overdue changes provided
there was exercise of opportunistic ingenuity. In part, what prevented the in~
ception of these changes was the total immersion of key Medicaid people on
the local, state, and federal level in the overwhelming start up problems of ~n
enormous program that bad begun abruptly rather than incrementally. The
division of responsibility between departments of social services and health
at each of three governmental levels almost guaranteed no intelligent overall
social planning. Within health and welfare departments in the nation-with
notable and honorable exceptions-there was a paucity, of ingenuity and courage
with respect to the administration of Medicaid. Although Medicaid fiscal lever-
age to enforce standards was available everywhere, there seemed to be almost
a difference in state after state, and in city after city-again with notable and
honorable exceptions-about applying It.
Well meaning Medicaid administrators from outside New York City would
visit t~s and depart now armed with reprints, memoranda, policy papers, pro-
cedures from our files. They customarily vowed to replicate at least portions
of the New York City program when they returned to their own communities.
We rarely heard from them or about their replications again. Once after a
presentation of our material at an APHA meeting, one State Medicaid director
called me aside and privately recounted an inventory of reasons why it was
manifestly impossible for him to institute anything but ceremonial enforcement
of Medicaid health care standards because of certain local pQlItiCaI peculiarities.
He was right.
PAGENO="0121"
117
GENERAL COMMENT
Quality control programs of health care services are always controvers~ial.
If seriously applied, they must provoke the hostility and often the coun~er-
measures of the professionals and institutions being monitored.
Certain attributes of administration are called for: absolute staff Integrity in
deed and image, superb technical proficiency, a secure political base, a ca~lre
of associates equipped with political cunning and zealotr~y, altertness and reádl-
ness to repel encroachments upon the program's legitimate turf.
None of these attributes is uniquely desirable for quality control. They ~ire
all desirable for effective management of any program. But for any future
grams, that, like New York City Medicaid, tries to enforce standards of he~lth
care services, these attributes will be found to be utterly indispensable.
BIBLIOGRAPHY
(1) Alexander, R. S., "Medicaid in Ne~ York: Utopianish and Bare Knuc les
in Public Health-lI." "Administrative Dynamics in Megalopolitan Health Ca e,"
American Journal of Public Health, 59:5, p. 815-820, May 1969.
(2) Alexander, H. S., Belli.n, L. B., ~(ava1er, F., Najac,, H., Rosenthal, J.,
"The Participation of Optometrists in New York's Medicaid Program," Pu lie
Health Reports, 84 :11, p. 1008-1012, November 1969.
(3) Alexander, R. S., "The Participation of Chiropractors in the New Y rk
City Medicaid Program," a case history written under contract with The Pu lie
Health Service for the Medical Administration Case History Series (Pu lie
Health Service).
(4) Bellin, L. E., "Medicaid in New York: Utopianism and Bare Knuckle in
Public Health-Ill." "Realpolitik in the Health Care Arena: Standard Settng
of Professional Services," American Journal of Public Health, 59 :5, p. 820- 25,
May 1969.
(.5) Bellin, L. B., Kavaler, F., "Policing Publicly Funded Health Care for
Poor Quality, Overutilization, a~d Fraud-The New York City Medicaid x-
perience," A.J.P.H., 60:5, p. 811-820, May 1970.
(6) Bellin, L. B., Kavaler, F., "An Inventory of Medicaid Practitioner Ab ses
and Excuses vs. The Counter Strategy of The New York City Health Dep rt-
ment," AJPII, 61: 11, pp. 2201-2210, November 1971.
(7) BellIn, L. B., "Testimony Before Subcommittee on Medicaire-Medic Id
of the Committee of Finance, United States Senate, Ninety-First Congress, cc-
ond Sssion :" Part 2 of 2 Parts, U.S. Government Printing Office, Washing on,
1970. p. 511-538, 558-561, Tuesday, June 2, 1970.
(8) Bellin, L, B., "Podiatry's Future Through the Medicaid Crystal B 1],"
Journal of American Podiatry Assoc., 59 :11, p. 437-441, November 1969.
(9) Bellin, L. B., "Should a Paper on the Administration of Chiropractic H ye
Been Published in Medical Care-With Comments on Derivative Questior s,"
Medical Care (in pres~).
(10) Bellin, L. E., "Compulsory Continuing Education for Licensed He ith
Care Professionals," a case history written under contract with the Pu lie
Health Service for the Medical Administration Case History Series (Pu lie
Health Service).
(11) Bellin, L. E., "Ever Subtler Refinement vs. State Implementation of
`Crude' Quality Control of Health Services-The P'SRO as Implementation or
Gimmickry ?" (in press).
(12) Dintenfass, J, "Chiropractic in the New York City Medicaid Progra ,"
Journal of Clinical Chiropractic, 2:4, p. 26-34, January26, 1969.
(13) Din~enfass, J., "The Administration of ~hiropraetlc in The New Y rk
City Medicaid Program," Medical Care 11: 1, p. 40, 1973.
(14) Fisl~er, M., "The Costs of Delivering Dental Services," Journal of Pu lie
Health Dentistry, 30:2, p. 76-79, Spring 1970 issue.
(15) Fisher, A., "New Directors For Dentistry," American Journal of Pu lie
Health, 60:5, p. 848-858, May 1970.
(16) Kavaler, F., "Medicaid in New York: Utopianism and Bare Knuckle in
Public Health-IV." "People, Providers and Payment-Telling It How It s,"
American Journal of Health, 59:5, p. 825-829, May 19f~9,
(17) Kav~itler, F., Bellin, L. E., Green, A., Gorelik, E. A., and Alexander, R S.
"A Publicly Funded Pharmacy Program Under Medicaid in New York Ci y,"
Medical Care, VII, 5, p. 361-371, September-October 1969.
PAGENO="0122"
11:8
(18) Kavaler, F., Bellin, L. B., Watkins, B. W., Schumann, N., and He'rbst, B.,
"Publicly Funded Podiatry-First Data From Office Audits of New York City
Medicaid Practice," Journal of American Podiatry Assoc., 59 :11, P. 442-445,
November 1969.
(19) Kavaler, F., Folsom, W. C., Jr., Rosenthal, J., Bellin, L. B. and Herbst, B.,
"A Preview `of On-Site Visits in Optometry Under the New York City Medicaid
Program," American Journal of Optometry and Archives of American Academy
of Optometry, Vol. 47, No. 9, p. 728-735, September 1970.
(20) Rosenthal, J., and Segal, C., "Frontiers of Careers in Optometry: Op-
portunity for Members of Minority Groups," Journal of the American Optometric
Assoc., 41 :6, p. 54O~-542, June 1970.
(21) Schumann, N. S., Kavaler, P., Bellin, L. E., Lieberman, D. J., Watkins,
B. W., and Haber, Z. G., "Publicly Funded Podiatry: The New York City Medic-
aid Experience," Medical Care, 9:2, p. 117-126, March-April 1971.
Reprint File: Bellin, Lowell B.; M.D.
[From American Journal of Public Health, November 1971]
MEDICAID PRACTITIONER Anusns AND ExcusEs vs. COUNTEESTRATEGY OF THE
NEw YonK CITY HEALTH DEPARTMENT
(Lowell Eliezer Bellin, M.D., MPH., F.A.P.H.A., and Florence Kavaler, M.D.,
M.P.H., F.A.P.H.A.)
Based in three years experience in the New York City Health Department,
abuses in the provision of Medicaid are analyzed and methods for dealing with
those involved are described.
INTRODUCTION
Neither to pander to administrative voyeurism nor to muckrake Medicaid
practitioner abi~isers Is the objective of this paper, but rather to pasts along
"savvy" in frustrating the behavioral excesses of certain participants in monu-
mentally funded health care programs. During three years of formulating, moni-
toring, and enforcing Medicaid health care standards, the New York City Health
Department has gained insight into (1) `the methodology of abuses by a small
percentage of practitioners (at least 5% by our estimate); (2) the normative
defenses of these practitioners against `the department's allegations of such
abuses; and (3) the requisite governmental counterstrategy of gathering ger-
mane evidence to anticipate these defenses.
THE DIRTY LITTLE SECRET
The accessible health care literature is sanitarily devoid of such mundane in-
formation. Has the subject been deemed too charged or repugnant to be discussed
save as gossip or savory anecdote? Consider where we would ordinarily inquire-
the third party payers.
But the private health insurance companies have traditionally viewed them-
selves as indemnifying conduits of payment, not as monitor's of health care stand-
ards. Historically the commercial carriers have kept han'ds `off the professionals,
relying on professional licensure for surety of their technical competeace and
professional worthiness. In short, the companies would have little to publish
about administrative enforcement of standards even in the unlikely event that
they chose to publish. And what abou't the nonprofit carriers who allege they
maintain quality an'd cost controls? Blue Cross, blue Shield and the prepaid
plans understandably prefer discreet privacy regarding their negotiations with
abusers.
Somehow administrators `of public and privately supported health service pro-
grams are- expected to leave about abuses and their controls-presumably
through the grapevine, or through individual enterprise.
NEW YORK CITY MEDICAID
Between late 1966 and 1968, New York City Medicaid burgeoned to encompass
Its zenith enrollment of 2.5 million citizens and pay out annually about 750
million dollars. By 1970, the subsequently more stringent qualifications for en-
`rollment in Medicaid. diminished the number of recipients to about 1.9 million.
PAGENO="0123"
119
Each year about 600 million dollars pass. to 18 municipal, 101 voluntary and1 27
proprietary hospitals. About 150 million dollars are distributed to the priv~te
offices of participating practitioners: physicians, dentists, optometrists, ~po~ia-
trists, pharmacists, and chiropractors. The swift growth of the program coup~ed
with the bicephalic administration of two separate city agencies posed nettleso~me
problems. (6) The political interplay in standard setting (7, 18) and the dep~rt-
ment's unprecedented governmental venture into on-site auditing of the offices
of practitioners submitting huge bills (8, 13, 14, 15, 18) provoked consternation on
the part of some professionals. But the statistics on abuses that the New Y rk
City Health Department subsequently released to the press and to the literat re
blunted overt opposition.
There are 134 professionals, 60 para-professionals and 113 clerks engaged ol-
laboratively in identifying potential abuse. The allegedly errant practitio er
comes before an informal hearing to account for professional behavior seemin ly
at variance with appropriate standards. The Health Department then takes act~on
on the basis of these hearings. (18) Previous papers have detailed the Medic id
activities of the New York City Health Department. (1-22)
THE VOCABULARY OF ABUSES
There are 3 major abuses: (1) fraud, (2) unsatisfactory quality, (3) o er-
utilization.
Fraud refers to the practitioner's charging for a service that in fact he ne er
performed.
Unsatisfactory qualilty refers to the practitioner's performing a health serv ce
that fails to meet Medicaid standards.
Overutilization refers to the practitioner's performing a superfluous servi e,
lacking therapeutic or preventive justification.
En dallar value, fraud has been the least important of the three abuses. It
is the easiest to identify. The Medicaid abuser who engages in fraud Is deen~ed
by the cognoscenti to be stupid, for fraud is easiest to detect and easiest to pro~e-
cute. Unsatisfactory quality is dc-emphasized in this paper, not because it is ri~re
and unimportant, but because this abuse deserves detailed analysis of its O\~Tn.
We shall concentrate on fraud and overultilization. The inventory in `this pa~~er
is representative, but by no means inclusive, of every variety of abuse that tve
have encountered. To avoid repetition we sel&~t typical examples. A spec fie
abuse by one type of health professional has its counterpart within the practi es
of other species of health professionals as well.
FRAUD
In all the professions there may be billing for a mythical office visit;
dentistry, billing for phantom dentures, extractions, or filling: in optometi~y,
billing for glasses never provided; in podiatry, billing for surgery never p~r-
formed. Two excuses are common:
1. The clerk erred. (Employees are routine scapegoats).
2. The event, under investigation occurred because the practitioner misundér-
stood the contents or policies of the program.
To counteract fraud, direct inspection is indispensable. The New York City
Health Department samples invoices, and calls back, and actually examir~es
Medicaid servlcee provided for patients. Health Department staff dentists ass~ss
the quality of dentistry. The Optometric Center of New York and the K J. Le~vi
College of Podiatry assess the quality of service of their respective professions in
accordance with the Health Department's contractual protocol of evaluation. T e
very existence of a program of direct reexamination represents a deterrent.
FRAUD IN P~IARMACY
The major fradulent abuses in pharmacy are "kiting" and "shorting" (1
Kiting refers to' forging upward the quantity of medication originally prescrib d
by the practitioner. In New York State the physician, the dentist, and the pod a-
trist may each write prescriptions'. The pharmacist may "kite" the quanti y
of the original prescription, for example, `by inserting two more X's to mere se
a total number of prescribed tetracycline capsules from xx to xxxx. The pha a-
cist then provides the patient with the `originally prescribed quaüt~y, but bi ls
Medicaid for the new and larger quanitlty. The patient recelves'the proper anion, t
PAGENO="0124"
120
of medication. The pharmacist may acknowledge that his act was illegal, but
will justify it on the basis of his alleged grievances with, Medicaid: the inorth-
nate paperwork, the delays ~in receiving reimbursement, the errors in payment
(almost always at his expense) the personal physical danger implicit in running
a drugstore in the Medicaid areas of New York `City.
We routjnely inspect, for signs of tampering, samples of prescriptions filled by
each participating Medicaid pharmacist. We insist on receiving the prescrip-
tion originally penned by the practitioner, rather than any carbon copy. The
original prescription containing the original ink is harder for the amateur forger
to alter without leaving some telltale sign for the experienced investigator. With
practice even novices become remarkably adept `at identifying differing tints
`of ink and non-compatible handwriting.
Shorting refers to measuring out a quantity of medication less than that
originally prescribed by the practitioner. The pharmacist then charges Medicaid
for the prescribed `amount and pockets the difference. Shorting is sometimes
considered to be more difficult to detect, since .the pharmacist does not tamper
with the written prescription itself. However, shorting may be more dangerous
to the pharmacist than kiting, because' an alert patient can ca'tch it. Furthermore,
in shorting, the pharmacist imperils the patient's life because he provides the
patient with less medication than the prescribing practitioner had originally
judged necessary to treat the illness.
The pharmacist generall~v offers the same justification here as fo(r kiting, but
shorting affords opportunities for additional `excuses of Ingenious subtlety,
The errant pharmacist may claim any one or combination of the following:
(1) His overall inventory was limited and cOntained less than the quantity of
medication originally prescribed. (2) The supply of the medication was limited
because the medication itself was unusual and infrequently prescribed. (3)
I)espite the pharmacist's instruction to come back, the patient failed to return
at a later time to obtain the deficient quantity of medication. (4) The pharmacist
owner or his pharmacist employee erred accidently.
To detect shorting we inspect the medicine cabinets of `a sample of patients
who have received medication from the pharmacist under investigation. Patient's
;theinselves have become more sensitized to qi~nantity and volumes and have
identified pharmacists who short. The patient may suspect shorting when he
receives a bottle too l'arge for the quantity of prescription. For example, a 6 oz.
bottle should be full and should hold ~ oz. of medication rather than 3 Os. Then
why should a pharmacist give `a patient a pttrtially empty bottle? Because be
is apprehensive that the Health Department may inspect the patient's medicine,
cabinet to look for `shorted bottle~. Any bottle too small for the prescribed dose is
prima facie evidence that the pharmacist shorted the prescription. Manifestly
6 Os. of liquid medication, for example, cannot fit into a 3 Os. bottle. Such bottles
whose sizes are discrepant from total dosage have been superb~ evidence of
shorting. On the other band, confronted with a partially empty bottle, the
pharmacist might claim that he had originally given the prescribed dose, and
that the patient had already taken `a portion of the prescription. Should the
patient deny that the bottle was full in the first place, the pharmacist can insist
that the patient was mistaken.
Our investigators routinely:
1. Collect samples of common prescriptions. (It is then impossible for the
~pharmacist to claim rarity of drug to `account for allegedly Insufficient inventory,
when the prescriptions shorted are a's common as tetracycline or cough mixtures).
2. Collect five `to `ten samples from different patients. (It is then difficult for the
pharmacist to claim occasional error).~
3. Take testimony from `a sample of patients by affidavit if necessary, (a) that
the pharmacist never informed the patient that the quantity of the prescription
was less than that prescribed, and (b) that the patient had been directed neither
verbally nor by written memorandum to return later to obtain the deficient
quantity of medication.
4. Collect bottles from the medicine chests of patients to compare bottle-size
with `the volume of the liquid medication prescribed. -
OvERUTILIZATTON
The Medicaid fee-for-service mechanism i~s an implicit fiscal incentive for
over~itilizat1on. The administrator reviews the printouts of computerized Medi-
caid payments and ponders whether this or that procedure was performed for
PAGENO="0125"
121
medical `or for fiscal reasons. Nor would the sophisticated health care admi4s~
trator be utterly at ease with a prepald capitatlon method of contracting ~ut
publicly funded health services. The'posslbility of underutilization would `trout~le
him, for the less than conscientious practitioner under this system receives the
same payment per patient no matter how little or how much care he renders.
M.D. Ping-Pongirtg
Looking astutely ahead, Freddie saw a better, an altogether more profita le
basis for cooperation between Andrew and himself. He would go carefully of
course, for Manson was a touchy, uncertain devil.
lie said: "Why don't you come in with me and meet Ida? She's a useful pers
to know, though she keeps the worst nursing home in `London. Oh! I don't kno'
She's probably as good as the rest of them. And she certainly charges more."
"Yes?"
"Come in with me and see my patient. She's harmless-old Mrs. Raeburn. Iv ry
and I are doing a few tests on her. You're strong on lungs, aren't you? Co~ne
along and examine her chest. It'll please her enormously. And it'll be five
guineas for you."
"What You mean. . . ? But what's the matter with her chest?"
"Nothing much," Freddie smiled. "Don't look so stricken! She's probably ot
a touch of senile bronchitis! And she'd love to see you! That's how we do it
here-"The Citadel, A. J. Cronin, Little, Brown and Company, Boston-1937, p.
270.
Promiscuous mutual referral among primary physicians and their consulta ts
is no flew phenomenon. More than three decades ago in Time Citadel the u-
thor-physician, A. J. Cronin, attacked the identkal abuse where ~hy~icia s
bounced patients back and forth between one another, pocketing incidental at
fees in the exchange. For example, a fee-for-service group practi~e comprising
Board qualified `and certified physicians, a large percentage of whose pracl4ce
was Medicaid, billed the city for an inordinate number and percentage of~
ferrals to the group otolaryngologist, gynecologist, um~ologist, pedia'trici~n,
allergist, etc. It was standard procedure for the intake group pediatrician to re~er
to the group otolaryngologist almost every child with uncomplicated acute oti~is
media. The otolaryngologist received ~ $20 Medicaid consultation fee'which ~s
then presumably pooled in the group's income.
At the informal hearing concerning pi~g-ponging, the group rejected time `~ml-
legation of wrongdoing They indignantly declared that their cousultatiye polic es
represented a conscientious level of quality care that, they were nqt dthposed to
compromise. The group saw no reason to attenuate professional excellen e,
merely because (a) the patients were medically indigent, (b) Medicaid wa a
publicly funded program, and (c) the City Health Department was interes ed
iti saving money. ` ` ,`
M'D. OVERUTILIZATION OF DIAGNOSTIC `P'ROCRDTIRES ` `
In private self-pay ambulatory care an, economic congiraint is .~constan ly
operative. The physician can never forgçt that th~ patient must nltimat~ly pay
for his diagnostic"tests. Not so,in any ~ystem where the third party pays. Inde~d,
when an insurance company or the government reimburses tbe practitioner, th~re
may' actually be a fl~cal incentive to order superfluous tests. The practitioner n~ay
derive additional income from procedures that h~s own, ~ performs ~y tha,$ a
contract clinical laboratory performs for him: In the' latter ease, `in ~effect ~he
practitioner acts' as the~middleman, For many conditions, simprer and les~ ~o~tly
tests' may be available, at least as a screening device. Every, "eniarged°' li's~er
need not be routinely scanned by the specialist in nuclear medicine. Every c4se
of periumbilical pain does not automatically call f~r the "Big rour": cholec~Ts-
togram, intravenous pyelogram, gastrointestinal series an~I barium çnema, not
to `speak of the supplementary small bowel series plus assorted blood tests. `I~he
physician may `respond in a number of ways when confronted with skeptici~m
about detailed, complex and expensive diagnostic procedures for conditions tJ~at
theoretically might first have been subject to simpler and less expensjve
techniques:
1. "Aren't you officials in government aware that it was imperative to exci4de
"X" disease in the differential diagnosis?"
2. "Haven't you officials read "Y" paper in "Blank" Journal pointing out hpw
"X" disease exists, in a higher proportion of eases than has hitherto b~en
suspected because of the inadequacy of conventional screening?"
PAGENO="0126"
122
(The practitioner then recounts a case history from his own experience where
X Disease had been "masked" before being identified by the unusual and ex-
pensive diagnostic procedure under question),
3. "The New York City Health Department is ill-advised to use its considerate
powers to buttress the status quo in medicine. For government to compel a
single level of practice means to risk recurrence of the type of muddled and
tragic behavior of the physicians who opposed Dr. Semmelweiss in the fight for
cleanliness to prevent puerperal sepsis.
4. "Norms appropriate for the middle class are inapplicable to the poor. What
is needed is an entirely different set of standards to assess the patterns of service
utilization by the medically indigent."
Are these remarks the serious rejoinders of thoughtfull people or the insincere
ploys of practitioners wanting to score a debater's point and make an incidental
buck? Certainly there is enough validity in the comments to give the adminis-
,trator occasional pause as he tries to enforce reasonable quality and fiscal
standards of care. But Medicaid was not promulgated to support diagnostic or
therapeutic procedures alien to the practice of informed health professionals.
We have ruled according to this principle, although we may face the future
ridicule of retrospectively prescient critics. There is an old adage about the
probability of pathological esoterica that is pertinent: "When you hear hoof-
beats in the garden, do not expect to see a unicorn when you look out the window.
It will probably be a horse."
Review of invoices is the most useful method to detect the abuse of overutiliza-
tion. The fee-for-service mechanism of payment conveniently thrusts into bold
relief many suspicious patterns of care. Number, frequency, and types of treat-
ment per individual patient not justified by the recorded diagnosis clearly calls
for further investigation. This may include on-site office visits, review of records
of specific patients, and always comprehensive discussion with the practitioners
themselves. It is imperative that the staff discussants be the professional peers
of the practitioners. By "peer" we mean that the staff man have at least the same
professional degree, ma1nta~n membership in the same professional society, and
be a part-time practitioner of the same specialty in the city. The staff discus-
sant differs only in that he is on the payroll of the Health Department.
Fraud seizes the headlines, but overutilization is the most costly of the three
Medicaid abuses. To brand a pattern of care as overutilization, there must be no
ambiguity about the competence of the staff person or persons. Moreover, the
alleged overutilization must not be marginal. Where there are gray areas, the
practitioner should receive the benefit of the doubt.
PHYSICIAN ABUSE IN NURSING HOMES-UNDERUTILIZATION
The quality of care in nursing homes throughout the United States has been
scandaleu& Rather than overutilization, underutilization of physician services
has been more common. The physician with few patients in a particular nursing
home may be reluctant to respond to what appears to him to sound like a non-
emergent compliant over the telephone. In consequence, nurses have been known
not to bother telephoning, rather than risk the doctor's displeasure.
On the other hand, there have been physicians who make "the 5 p.m. nursing
home visit." The jargon refers to the ceremonial visit to a dozen patients at
the same home, performed on the way home from the physician's office. The
doctor sees all these patients hurriedly and superficially and bills separately
fees for service for each.
In 1962 the New York City Department of Social Services Medical Section,
began a program of affiliating proprietary nursing homes, either with teaching
hospitals, or with medical groups associated with the prepaid group practice
Health Insurance Program of Greater New York. The affiliation agreements
contained a capitation method of payment. In return, the teaching hospitals and
HIP have provided the comprehensive health. care services to patients within
the nursing homes.
There is general agreement that the quality of care in those affiliated nursing
homes (now constituting about 60% of all proprietary nursing home beds in
the City) has improved enormously. The arrangement is not foolproof, how-
ever. Under the capitation method of reimbursement, the problem is not over-
utilization but rather underutilization of services. No matter how many or how
few services the institution or the physician provides, the provider of services
paid for by capitation receives the identical income. It is necessary, therefore, to
make periodic checks to certify that the quantity, quality and scope of service
accord with the terms of the city's contract.
PAGENO="0127"
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DENTAL OVERUTILIZATION-OFFICE AND NURSING HOME
Numerous alternatives are often available to treat similar dental conditi4s.
The situation in dentistry is not so clearcut as in other fields. Acute appendlci~tis
must be treated one way. An, acute coronary occlusion or a bleeding peptic u1~er
likewise needs instant and relatively standard attention. In dentistry the corr~ct
therapeutic approach is often disparate. Should the decision be to install ~in
expensive prosethesis with an expectant life of two decades? Or a less expens~ve
prosthesis that will be sOrviceable for a shorter time? Which approach will
amortize itself more frugally in the years ahead? The patient's dental con~li-
tion may change drastically within a few years so as to require a new prosthe~is
in any ease. There is room for honest professional disagreement between pr~ic-
titioners and members of the Health Department staff. The situation is obviou~ly
ripe for the accusation on the part of some practitioners that Medicaid admir~is-
trators are prepared always to sacrifice quality for economy.
Dentures represent the most costly item. All dentures are subject to prior
authorization procedures. The dentist must submit a treatment plan with st~p-
portive dental films before proceeding with fitting the patient with dentures.
1968, during the height of New York City's Medicaid dental program, our st~iff
modified downward submitted dental treatment plans for a worth from $1~1O
million dollars to $83 million dollars.
As previously mentioned, direct inspection is obligatory in order to discl~se
overutilization. Such assessment of dental work of patients in nursing hon'~es
revealed that a substantial portion of the dentures was unnecessary, ill-fitti~g,
or reposed uselessly in the patient's drawer. We were obliged to reorganize l~he
method of delivering dental services to nursing home residents. The Hea~th
Department now provides the dentistry in the nursing homes with staff from ~ts
own clinical services.
DRUG OVERUTILIZATION IN NURSING HOMES
The nursing home can be a substantial source of supplementary income to the
pharmacist provided there is a reliable "feeder" inside the home-generall~ a
cooperative nursing home director, together with one or more friendly physicia~iis.
Prescriptions written for the nursing home patients are thrown the way of a
individual pharmacy. But passing prescriptions on to a collaborating phar a-
cist is only part of the story. For additional shared profits these medicati ns
should be prescribed In amounts beyond the therapeutic need if not the biologi al
capacity of the patient to assimilate them. Excess quantities of drugs can bu ld
up the inventory of the nursing home and ultimately be resold. For such a d al
to be consummated a prerequisite is a sense of confidence between feeder a d
pharmacist.
The health care administrator must view any situation as suspect where p e-
scriptious for a specific nursing home are being filled primarily by a pharm cy
not within convenient distance from the nursing home. Indeed, the further the is-
tance between the nursing home and the pharmacy, the more the health c re
administrator should be troubled by the possibility of irregularity.
In 1962, four years before Medicaid, the city altered its policies of reimbur e-
meat to pl4armacies in an attempt to deal with this abuse. The New York C ty
Department of Social Services e~tablished a policy of paying only for certain p e-
scriptions for nursing home patients on public assistance. Invoices were honoi~ecl
only for those prescriptions filled in that pharmacy geographically the closest
to each of the proprietary nursing homes In the city. In essence, abandoned ~as
all freedom of choice of the pharmacy by either the nursing home patient, physi-
cian, or administrator. Geographical accident was the sole determining fact~r.
Individual departure from this policy required special approval. The policy i~n-
mediately eliminated surreptitious bidding by pharmacies for exclusive nursi~ig
home rights plus concomitant promises of profitable kickbacks to cooperat~ve
nursing home directors and physicians. The system doubtless eliminated ma~iy
abuses and potential abusers. But the question remained: What guarantee *as
there that even some geographically assigned pharmacists might not sub e-
quently enter into kickback deals of their own with nursing homes?
To deal with this contingency it has been necessary to make periodic spot che ks
of the inventory of each of the nursing homes and review the nurse's medicati n
notes on the patients' records. Do sample patients actually receive the prescr p-
tions that have been written for them by their physician? Or are quantities of
unused medications piling up somewhere? Certain nursing homes are subject to
special scrutiny when inordinate quantities of medication are prescribed.
PAGENO="0128"
124
PODIAPRY OVERUTILIZATION
It was predictable that Medicaid podiatry would become notable for reasons
other than just podiatric services. Some clients would view it as a potential mech-
áiiism to obtain shoes. Certain podiatrists and shoe dealers would view it as a
potential mechanism for profitable abuse. There was a special impetus t~ get shoes
via this unorthodox route in New York City when the City Department of Social
Services discontinued Its policy of granting special clothing allowances to its
clients on public assistance. Therapeutic shoes represent a legitimate ingredient
of the podiatrist's armamentarium. Many podiatric conditions require special
shoes. Medicaid pays for these. A minority of podiatrists have gained notoriety
among our staff for overprescribing therapeutic shoes. Unsurprisingly, the popu-
larity of these podiatrists has diffused among some Medicaid enrollees. For the
podiatrist to prosper tinethically from shoes it is not even necessary to relay on
kickbacks from special shoe dealers with whom the podiatrist may have an ami-
cable working relationship. lie can eschew kickbacks altogether. The increase in
income from straight podiatry can be formidable as the word spreads that ofle
prescribes shoes with unseemly liberality.
For a minority of podiatrists, unnecessary foot x-rays, strapping, molds and
toe jackets have become a favorite method to expand bills without giving services
to additional patients.
The routine excuse for podiatric overutilization-Insistence on professional ex-
cellence-differs in no way from that favored by all other health care practi-
tioners. When questioned, the podiatrist insists that be performed the procedure
because the poor deserve to receive the high quality of podiatric care hlstoric~tlly
denied them.
The health care administrator shofild stispeet improper podiatrist-shoe dealer
relationships when patients from a particular podiatrist's practice customarily
obtain their therapeutic shoe from a specific shoe dealer-particularly a shoe
dealer far from their own homes and from the office of the podiatrist. Always
worthy of investigation is the podiatrist who prescribes shoes beyond the norm~-
no matter where his patients ultimately obtain their shoes. Here too the admin-
istrator should be apprehensive about what is going on when patients live far
from the podiatrist who provides the Medicaid care. Periodic review of sample
cases of foot x-rays, strapping, molds, and toe jackets and repetitive procedures
such as nail. clipping in nursing homes is called for, parti~uláriy when analysis of
professional behavior diScloses departure from the peer norm., In New Yoi~k.
City the Health Departi±~~nt found it necessary to assign one pqcijatrjst to each
nuysing home and reiriab~irse hjm pn a session, basis rather than rout 1Medi~ai~
fee-for-service. The quality of podiatric care went up while `costs'. went 2own for~
podiatry in the nursing home~
GENER4L COMMENT
In ordOr to identify' abuses' and to assemble ~vidéflce, the sine qua nOn is staff-
the proper mix of health care professionals, paraprofessionals, attorneys; clerks,
investigators, and the like. In view' of the'enormouS ~un1s likely to be saved or re-
covered ftom programS of cost and' q'tiatity control, theoretically it should be easy'
to justify the budget for such a staff. The political opposition is fOrmidable, bht,
not invincible. To eradicate à'busés by `professionals in. a health care pi~ram I~:
impossible, but the objective, after' all, is not to eradicate bttt to constrain-a
concept quite familiar' to `epidemiologists. " 5' 5
Because of timidity; `dr'for `the sake of spurious public relatiOns ~iith ~rofes-
sionals or' institutions, the administratOr niay `try to oversee a iiealth care'pro-
gram with, pseudo controls, basically ceremonial and' ltidlcroti~ly ina~lequate to
discourage or ferret out abuses. `This Is bad adininistráti'on ~nd worse politics. If
he pursues `such folly, let the administrator recognize that he `IS CollabOrating in
efforts `to discredit, to, attenuate, and eventually to' butcher the socially impera-
tive program he believes he Is attempting to protect.
This paper does not deal In detail with the question of tba best atispices for
such controls. As before', we contintie ot insist that government cannot abdicate
its responsibility to watch the e~penditure of the tax dollar' and to protect the
consumer. Others may disagree. But there can be no disagreement with the irre-
futable truism that has emerged from Medicaid that controls to contain abuSes
and promote high quality care are indispensable.
PAGENO="0129"
12~5
~F~RENCES
(1) Medjcaid Synlpos~um-Collection of papers delivered at a symposium spo~i~
sored by the New York City Health Department in December, 196~' at the Ne*
York Academy of Medicine.
(2) ~el1in, Lowell ~., M.D., M.P.H. Medicaid Why Despondency Instead f
Jubilatlen? A..J.P.E. 58 :4,618-~619 (Apr. 1968).
(3) Alexantier, Raymond S., M.B.A., M.~., and Poclair, Simon. Med&caid: T e
People's Health Plan, Public Affairs Pamphlet No. 442 (Aug. 1968).
(4) Podair, S. What Medicaid Means to You, New York City Department f
Health Pamphlet for public distribution (Oct., 1968).
(5) Dintenfass, Julius D. C. Chiropractic in the New York City Medicaid Pr?~
gram, J. Clin. Chiro., 2:4,26-34 (Jan. 26, 1909).
(6) Alexander, H. S., M.B.A., M.S., F.A.P.H.A. Medicaid in New York: Ut
pianism and Bare Knuckles in Public }Jealth. II. Administrative Dynamics ~n
Megalopolitan Health Care, A.J.P.U. 59:5,815-820 (way, 1969).
(7) Bellin, Lowell E., M.D., M.P.H. Medicaid in New York: Utopianism ar~d
I~are Knuckles in Public Health, III. Realpolitik in the Health Care Areri
Standard Setting of Professional Services, A.J.P.H. 59:5,820-825 (May, 1969).
(8) Kavaler, Florence, M.D., M.P.I1E., F.A.P.H.A. Medicaid in New York: Ut -
pianism anti Bare Knuckles in Public Health, IV. People, Providers and Pa
nient-TelUng It How It Is, A.J.P.H. 59:5,825-829 (May, 1969).
(9) Kavaler, Florence, M.D., MS., M.P.EL; Bellin, Lowell E., M.D., MP.H~;
and Haber, Zipporah 0., M.A., M.P.H. Materia Medicaid-The Private Secto~,
New York City Health Department, June 19, 1969.
(10) Alexander, Raymond S., M.B.A., M.S., and Podair, S., Educating Ne~v
York City Residents to Benefits of Medicaid, Public Health Reports, 84 :9,767-7~2
(Sept., 1969).
(11) Kavaler, Florence, M.D., M.P.H.; Bellin, Lowell E., M.D., M.P.H.; Gree~i,
Alex, Pb.t.; Gorelik, Elihu A., M.S.; an~l Alexander, Raymond S., M.B.A., M.~.'
A Publicly Funded Pharmacy Program Under Medicaid in New York City, Med~-
cal Care, VII, 5, p. 361-371 (Sept.-Oct., 1969).
(12) Alexander, Raymond, M~BA., M.S.; Bell'in, Lowell B., M.D., M.P.H;
Kavaler, Florence, M.D., 1\41.P.H.; Hajac, Harold, M.D.; and Rosenthal, Jess~,
MS., O.D. The Participation of Optometrists in New York City's Medicaid Pr -
gram, Public Health Reports, 84:11,1008-1012 (Nov., 1969).
(13) Kavaler, Florence, M.D., M.P.H.; BeI~, Lowell E., M.D., M.P.Il.; Wa~..
kins, Benjamin W., Pod. D.; Schumann, Norman, Poti. D~; apd I~bs~, Eugeniá,
B.A., Publicly Funded Podiatry-First Data from Office Au~itspf New YQrk Cit~y
1\Xedicaicl Practice, J. Amer. Pod. Assoc., 59:11,412-415 (Nov., 1969).
(14). Bellin, Lowell B.. M.D., M.P.H. Pediatry's Future Through th~ MOdicai~l
Crystal Ball, J. Amer. Pod. Assoc., 59 :11,437-441 (Nov., 1969).
(15) Kavaler, Florence, M.D., ~\{.P,H.: FQlsom, Williarn~C~ jr~, B~S,, Q~D.~;
Rosenthal, Jesse, M.S., O.D.; Bellin, Lowell E., M.D., M.P.H.; aim, Herbst, Et~-
genia, B.A. A Review of On-Site Visits in Optometry Under the NeW ~ork Citjv
Medicaid PrOgram, Amer. J. Optom., 47:9, 728-734 (Sept., 197O).
(16) Fisher, Morton A., D.D.S. The Costs of DeliveringDental Services, J. Pu
Health Dent. 30:2,76-79 (Spring, 1970).
(17) New Directions for Dentistry, A.3.P.H. 60:5,818-869 (Map,
1970).
(18) Bellin, Lowell B., M.D., M.P.H., apñ Kavaler, Florence, M.D., M.P.
Policing Publicly ~`undecl Health Care for Poor Quality, Overutilization, an
Fraud-The New York City Medicaid Experience, A.J.P.H., 60:5,811-820 (Ma
1970).
(19) Rosenthal, Jesse, M.S., O.D., and Segal, Clement, O.D. Frontiers o~
Careers in Optometry: Opportunity for Members of Minority Groups, J. Amer.
Optom. Assoc., 41 :6,540-542 (June, 1970).
(20) Podair, Simon, How Medicaid Helps You to Dental Health, New Yor
City I-~ealt~ Department Pamphlet for distribution to the public, (Fall, 1970).
(21) Schumann, Norman 5, Pod.D.; Kavaler, Florence, M.D., M.P.H.; Bellin,
Lowell E., M.D., M.P.H.; Lieberman, David J., M.D., KP.H.; Watkins, Benjai~il~i
W., Pod.D.; anti Ilaber, Zipporah 0., M.A., M.P.H. ?ublicly Funded Podiatry~
The New York City Medicaid Experience, pending publication in Medical Care.
(Fall, 1970).
PAGENO="0130"
126
(22) Bellin, Lowell E., M.D., M.P.H. Testimony Before Subcommittee on Medi-
care Medicaid of the Committee on Finance, United States Senate, Ninety-First
Congress, Second Session; Part 2 of 2 Parts, U.S. Gov. Ptg. Off., Washington~
1970, p. 511-538; 558-561, Tuesday, June 2, 1970.
Dr. Bellin is First Deputy Commissioner, and Dr. Kavaler is Assistant Commis-
sioner for Evaluation and Institutional Review, New York City Health Depart-
ment, 125 Worth St., New York, N.Y. 10013. 5 S
This paper was presented before the Medical Care Section of the American
Public Health Association, at the Ninety-Eighth Annual Meeting in Houston, Tex.,
October 29, 1970.
Mr. ROSTENKOWSKI. Thank you, Dr. Bellin.
Mr. Heirn?
STATEMENT OF RICHARD HElM
Mr. HElM. Mr. Chairman, members of the subcommittee, Dr. Bellin
is always a very hard act to follow.
I appreciate the invitation to present this statement and to partici-
pate in this panel before the Ways and Means Subcommittee on Health.
My remarks will not address the need for, the extent of coverage of,
nor the methods of financial national health insurance. Rather, I shall
confine my remarks to the implementation and administration of what
may well become the most significant social legislation of the final
quarter of this century. I am not so pesumptuous as to think that I have
any hard suggestions to present at this time, but I do have a number
of concerns basecT on my experience, which I think are appropriate to
share with this subcommittee.
To put my comments in perspective, I should like to briefly describe
some of my recent experiences in Government-financed health care
programs. For ~ years, from 1967 to 1970, I served as administrative
assistant to Clinton P. Anderson, the senior Senator from New Mexico.
In this capacity I maintained close liaison with the Senate Finance
Committee, of which the Senator was a member, and assisted the Sen-
ator during the medicare and medicaid oversight hearings of 1969-70.
These hearings, I believe, provide the Congress as excellent spring-
board for the development of national health insurance.
For the past 41/2 years I have been the executive director of the
New Mexico Health and Social Services Department. This department
is an umbrella organization in the human services area, and includes
the following operating agencies: Public health, public assistance,
social services, . improvement, and a scientific labora-
tory system. The department administers more than 60 Federal-State
programs, each governed by different laws, regulations, guidelines, and
accounting and reporting procedures. Approximately 65 percent of the
revenue for our present operating budget comes from five Federal
agencies through grant-in-~aid programs. Because of the complicated
funding arrangements andbecause the majority of our programs deal
directly with the citizens of the State, the health and social services
department probably is the most complex and sensitive department
in the State of New Mexico.
In 1971 when Gov. Bruce King asked me to head up this organiza-
tion, the department was in virtual bankruptcy. The major cause of
thefiscal crisis was overruns in the medicaid program. It became my
unpleasant duty to request from the 1971 legislature the largest de-
ficiency appropriation for a single department in the history of the
PAGENO="0131"
127
State. The legislature granted the request, but not before wrestin~ a
commitment from me that I would not return to future legislatr~te
sessions for further deficiency appropriations. I am happy to repo~t
that I have honored that commitment.
To accomplish this, we decided early on that we had to mana*e
rather than be managed by the big-money programs we administ~r.
Four main techniques were utilized:
One: We developed a better financial reporting system than exist$d
in the past.
Two: When necessary, we cut back on the scope of programs. Fo -
tunately it was not necessary to use this device extensively.
Three: We dared to innovate new methods of management and 0
experiment with new ideas.
Four: We adopted a more aggressive posture in dealing with t e
Federal Government.
As could be expected, the results of our efforts are mixed. We ha e
had our successes and our failures. I believe, however, that our success ~
exceed our failures. One of the success stories relates to our innovati e
approach to managing medicaid..
As I mentioned earlier, the medicaid propram was the principal
cause of the department's fiscal problems. In early 1971 we set i~
motion three major efforts to rescue this critically necessary prograi~i
for the poor of our State. Two of the efforts are completely inte -
dependent.
One: We cut back on the scope and duration of benefits so that t e
projected expenditures would not exceed the Stat&s budget. This w ~
done as a temporary expedient until the other two efforts could g t
off the ground and prove their effectiveness. Happily, these restrictio s
were in effect only 14 months and, except for a few minor service~,
were completely lifted by July 1, 1972.
Two Recognizing that rational controls could be exercised best
by the physicians of the State. who performed or ordered most of th~
services provided in our medicaid program, the department contracte~
with the New Mexico Foundation for Medical Care, a nonprofit orga~
nization of physicians, to provide peer review of all medicaid claim~
to determine if the services were medically necessary and appropriatei.
In effect, New Mexico become the first operational statewide profes
sional standards review organization, even before PSRO's were calle
for under law.
Three: As the physicians' decision are dependent upon the accurac
and timeliness of the information they are reviewing, the depart
ment also contracted with the Dikewood Corp., a~ New Mexico-base
research and development organization, to develop and operate a so
phisticated online computerized medicaid information system whic
simultaneously would perform two functions:
A. The fiscal agent responsibility of receiving processing and pay
ing mediç~aid claims and providing nianagement information to th
department; and . .
B. Very importantly,, to provide all claims information, includin
patient and provider profiles instantaneously to reviewing physiciansJ
The Foundation-Dikewood-State system has been in continual oper-
ation since September 1, 1071, almost 4 years. Unfortunately, our e~Forts
have been concentrated on doing rather than evaluating, so that w~
PAGENO="0132"
128
do not have a complete, objective and thorough evaluation to submit
~s yet. We do, however, have some preliminary findings to present:
One: Since 1971 the medicaid program in New Mexico has operated
within its budget. While total medicaid expenditures in the country
have more than doubled in the past 4 years, New Mexico costs have
increased approximately 50 percent. Increases result from many fac-
tors. Significant factors in New Mexico are a larger. number of eligible
recipients, inflationary cost increases and changes in eligibility deter-
mination and benefits, which have encouraged greater use of benefits
both by the young and the aged client population.
Two: Average hospital length of stay has been reduced 24 percent-
6.3 days to 4.8 days. At today's average daily charges this represents
about $2.5 million per year in New Mexico.
Three: Use of iitjections in physician office care has been reduced
by two-thirds-14 per 100 office visits versus 42 per 100 office visits
previously. At today's prices this represents about $200~000 per year.
Four: The total disallowance rate of claims has increased to about
19 percent as opposed to 12 percent before our system went into effect.
Approximately $6 million worth of claims are disallowed annually.
Five: Prescription drug costs were reduced 12 percent the first year
and another 5 percent the second. Today we spend less on drugs than
we spent the year before the new approach was taken, even though drug
prices are higher and more people are eligible.
These examples of some of our preliminary findings, Mr. Chairman,
convince us that our system, though imperfect, is working. And be-
cause of it we have been able to provide the opportunity for quality
medical care to eligible citizens of our State without bankrupting the
State. In effect, New Mexico implemented and married two sections
of Public Law 92-603-The Social Security Amendments of 1972-
before the law passed.
I am referreing specifically to section 249-F, which mandates the
Department of Health, Education, and Welfare to contract with local
physician groups called PSRO's to monitor the necessity and appro-
priateness of care provided under the medicare, medicaid and maternal
and child health programs; and to section 235, which provides to States
90 percent Federal match for the design, development, and installa-
tion of mechanized claims processing systems for medicaid, and 75
percent Federal match for the operation of such systems.
New Mexico, under section 249-F, has been designated one of the
conditional PSRO's for institutional care review and is o~e of the two
States awarded a demonstration grant for ambulatory review. Further,
after long and torturous negotiations with the Department of Health,
Education, and Welfare, New Mexico's medicaid management infor-
mation system Ii as been approved for the 90 percent Federal funding
under section 235 for the design, development, and installation of the
system.
New Mexico also is the first State approved for the 75 percent
Federal funding retroactive to July 1973 for the system's operation.
}Iaving presented as background my personal involvement in at-
tempting to administer a very difficult and complicated Federal-State
program, I should now like to offer a few observations about the
implementation and administration of a vastly broader Government-
sponsored health care program, National Health Insurance.
PAGENO="0133"
129
1. iMPLEMENTATION
As great as some of the pressures are for passage and early imp~e-
mentation of national health insurance, I completely concur, Mr. Cha~r-
man, with your remarks before the Group Health Institute tl~at
"Implementation of any nation~J health insurance program woi~ld~
take several years' * * * and that the leadtime necessary to establish the~
administrative capacity for any substantive nati@nal health insuran~e'
program would itself take more than a. year." Adequate leadtime t&
gear up for such a program is absolutely critical.
I further support the concept advanced by former HEW Secreta y
Wilbur Cohen, in a statement to the House Ways and Means Coi i-
rnãttee on June 28, 1974, that a comprehensive national health insurar~ce
plan be implemented in an incremental step-by-step development ina~a-
~erwith due regard to administrative feasibility.
Let me further suggest that all regulations, program guides, a~id
other implementing documents prop~sed by the appropriate executi~re
agency or agencies be reviewed prospectively by the appropriate coi~n-
mittees of the Congress, to insure that congressional intent is beii~ig
followed and that the plans for implementation are administrativ~1y
sound. Too often I and other State administrators feel that regulatio s
are not in accord with the intent of Congress, or limit it.
ADMINISTRATION
One: Simplicity. I strongly and respectfully appeal to the Congr~ss
not only to concern itself with the goals and objectives of a comp4e-
hensive national health insurance program, but also to be seriously
concerned that whatever is enacted is capable of being administer d
by mere mortals. I prefer at this time not to suggest a position on su h
things as:
A. Who should administer national health insurance-Federal Go -
ernment alone, State government alone, combination of Federal a d
State, use of intermediaries or fiscal agents, Social Security Admin~s-
tration or some new Federal bureau; or
B. Whether there should be cost-sharing in the form of premiui s,
deductibles, and coinsurance; or
C. How and on what basis providers should be paid for their ser~r~
ices or
ID. What type of quality and cost controls should be included.
These are all issues which demand careful deliberati~n. My appeal is
that the end results are not such that either the costs of administratiqn
will be disproportionately high or that serious administrative err4r
will be inevitable. Let me cite an example.
The national food stamp program has a most noble objective: Iro
provide low-income persons an opportunity for better nutrition. Y~t
both by law and regulation this program has evolved into such a~i
administrative nightmare that it is impossible for most States to
operate the program anywhere close to acceptable error tolerance limi1~s.
The tragedv, of course, is that largely because of administrative difl~t-
culties and high error rates, the food stamp program suffers from an
extremely low public image.
PAGENO="0134"
130
2. THE ROLE O~' STATE GOVERNMENT
Again I am not so presumptuous as to suggest what role, if any,
State government should have in the scheme of national health insur-
ance. I assume there will be some at least in such areas as licensing of
facilities and health professionals, and in the residual responsibility
of providing care to individuals who fall through the eligibility cracks
or to provide services presently being received by State citizens and
which will not be provided under national health insurance. Regardless
of the decisions on these substantive issues, I respectfully suggest:
A. That the role of the States be clearly set forth in the legislation;
B. That States be given sufficient lead time so that their political,
legislative, and administrative machinery can be permitted to work;
and
C. That the Federal agency charged with implementing national
health insurance be mandated to involve in a meaningful way repre-
sentatives of State government in the drafting of those regulations
which will affect the States.
SUMMARY
Mr. Chairman, like most Americans I believe that some form of
national health insurance is inevitable. I know that the substantive
questions such as extent of coverage, eligibility and financing will be
given careful consideration by the Congress. My hope is that ample
attention ~Jso be given to the administrative aspects of the program
and specifically: (1) That adequate lead time be provided; (2) that
the program be capable of being administered without excessive cost
or errors; and (3) that the role of States be clearly set forth, and that
the States be permitted ample lead time and meaningful input into
the regulations which affect them.
Mr. ROSTENKOWSKI. Thank you, Mr. Heim,
Professor de Vise.
STATEMENT OF PI~1%1~E R. de VISE
Mr. DE VIsE. In response to the invitation of the Health Subcommit-
tee I prepared a 34-page paper entitled "The `Government Seen as
Santa Claus to Mischievous Doctors, and Other Views of the Role of
~overnment in American Health." In this paper I examine the under-
lying economic, historical and organizational factors which molded the
roTe `of Government in health care with particular reference to na-
tional health insurance.
I would like now to excerpt from this longer paper for my formal
statement.
Compulsory health insurance was first enacted in Prussia in 1854
and extended by Bismarck to the new German nation in 1883. It soon
spread to other European countries after the passage of British'
tional health insurance in 1911. Today, all industrial nations, with the
important exception of the United States, -have some form of compul-
sory national health insurance as part of their social insurance pro-
grams or as a national health service. A more affluent and larger
scale national economy, and philosophical and, constitutional ante-
cedents help explain the peculiar resistance of Americans to the idea of
compulsory national health insurance.
PAGENO="0135"
131
Before the New Deal of the 1930's, Cono'ress and the Supreme Cou t
held that the Constitution placed responsff~iiity for health and waif a ~e
matters with the States. Yet the States were unwilling or unable
finance costly welfare measures unless all States were required to do ~o.
Thus, the Federal Government was the only government that cou~d
achieve a broad social insurance program.
The Social Security Act of 1985 represents the first milestone in t4ie
new Federal role in social insurance. But health insurance was n~t
included because it was feared that the AMA's "unyielding oppositi'oi~"
might jeopardize the passage of the entire social security package. T e
health insurance amendments-titles 18 and 19-took 30 years, a d
national health insurance will probably take 42 years after passa e
of the original Social Security Act.
In both Europe and the United States, health systems emerged in t
context of economic resources, from political `and social values, a
from the influence of pressure groups. TJntil relatively recently, t.
American middle class was large and affluent enough to support t.
health system with private funds through `direct `payments from p
vate patients and through philanthrophy for the poor.
Perhaps no other nation in the Western World had a sufficient y
large and affluent middle class to support a health system. for the p0 r
and for the working class. Hence, most European nations turned ~o
Nh, first to underwrite the care of the poor and eventually to insure
most of the population.
But in America, advances in technology led to a shift of care fro~n
physicians' office to large and expensively eq.uipped hospitals, and t~e'
hospitals grouped together into Blue Cross hospital insurance plar~s,
providing hospital insurance to a majority of Americans in the deca4le
between 1940 and 1950.
GovernmeiTlt health services and funds expanded greatly to insu~e
major classes of the uninsured, culminating with the passage of mec~i-
care and medicaid in 1965. However, the extension of Government pr~-
grams to the self-supporting segment of the population was not in tui~e
with political and social values. The long gestation of the NHI idea w~s
due, in part, to three strong political traditions: The Jeffersonian vielW
that "that government is best which governs least," the laissez-f ai~e
doctrine which assigns government responsibility for insuring ma~i-
mum freedom for private enterprise, and the public philosophy ~f
"social Darwinism" `which limits government social welfare progran~is
for fear of frustrating the "survival of the fittest" mechanism by whi~h
society progresses.
The debate over national health insurance has been prolonged I~y
the determined opposition of the AMA ever since the idea first toc~k
root in the 1910's and down to the 1970's, and the AMA's two nation~l
health insurance bills, even though cost-benefit studies show that do~-
tors would be major beneficiaries of the vast redistribution of incori~ie
that would result from national health insurance. Conventional polii~i-
cal analysis would suggest that a pressure group like the AMA wou4d
lobby for, rather than against, the passage of medicare-medicaid ar~d
national health insurance, in anticipation that such programs would
add about $10,000 to the average annual income of a physician. This is
certainly the characteristic of traditional distributive policies whe$
various interest groups ask the government for public lands, incon~e
subsidies, pensions, river and harbor improvements, and other assisl~
PAGENO="0136"
132
ance. The amazing and almost un-American resistance of doctors to
programs designed to make them richer and their patients healthier
is truly baffling.
Ideological differences and fear of government controls and their
impact on income and freedom of practice are the main explanations
given for the opposition of doctors to Federal health programs. To
better understand the struggle of organized medicine against govern-
ment action in health care, we propose a theoretical framework within
which we can place this struggle in the context of national changes in
resources and subsequent shifts in demands on government:
Resources of wealth, urbanization, and industrialization are the
major variables in demands for new legislation. Four policy types may
be identified-distributive, redistributive, self-regulating,. and regula-
tory. Groups making demands on government may be scaled on a con-
tinuum ranging from fragmentation to integration measured by the
unity of activity among groups.
With urbanization has come a shift from fragmented to integrated
groups as large organized interest groups have allied with one another
according to shared ideologies. However, industrialization and tech-
nological advances lead to specialization of function, interest, and
demand. We are thus faced with a paradox of increasing aggregation
of demands diluted by specialty-induced proliferation of inteii~est and
demand.
The U.S. system has become increasingly integrative, bringing shifts
in policies of redistribution and regulation. But fragmentation has
grown apace with integration. Thus, there are pressures to turn poli-
cies of regulation and redistribution back to policies of self-regulation
and distribution.
In the case of medical care, the AMA is a highly integrated group
that seeks a policy of self-regulation. Although doctors would reap
the main benefits of a redistribution policy in health care, the AMA
vigorously opposes it because other groups such as employers and
labor unions that might be adv~rseiy affected could easily enter' the
decisional system and push for a policy of regulation. Alongside the
`integrated AMA there are literally hundreds of fragmented special
interest groups that make distributive demands on Government.
On the side of the decisional system we have the White House,
which seeks an integrated policy, doing battle with the Federal
bureaucracy and Congress, which often promote distributive and self-
regulating policies on behalf of the fragmented interest groups. These
interest groups are out for all they can get, whereas the White House
has the responsibility for allocating a fixed budget in a manner that
corresponds to the optimum satisfaction of all demands on Goi~ern-.
ment, and to the optimum application of cost-bene~t ratios.
Both Secretary Richardson and Secretary Weinberger sought
`mightily to rein the categorical interests entrenched in the HEW
bureaucracy. The attempts to reorder priorities and budgets included
reorganization of the health bureaucracy, shifting all the power from
the Surgeon General to the Assistant Secretary for Health, decentrali-
zation to regional offices, special revenue-sharing, the application of
efficiency criteria, and impoundment of appropriations.
rrhe latest attempts at controlling categorical interests are the pro-
:fes~ionai standards i~eview organizations (PSRO"s) and the health
PAGENO="0137"
133
systems a~gencies (~E[Si'~). Both sets oJ~ ~genoies `are çlesigned to r~-
spond to demands of integrated groups `and both have authority to s~y
`~no" to spending by categorical interests.
Both the highly integrated I~MA and the fragmented oategoric~l
interests re~present providers, with minimal input frQm consumers, ev~n
though, in the aggregate, Government intervention-or noninterve~ir
tion-may greviously affect the interest of consumers.
Health consumer groups have been remarkably ineffective in coup
teracting the pressure from providers. Even if we grant that the AM4.
is rational in opposing medical care subsidy programs out of fear th~t
adversely affected groups will press for regulation, there remains th&
puzzling question: ~How does the AMA's will prevail against tl~ie
public interest?
AMA membership counts less than 200,000. Yet the AMA l~as cha~E-
lenged such large groups as the AFL-CIO, the American Legion ai~d
the Democratic Party. It has frustrated the health care programs
such popular Presidents as Franklin Roosevelt, Truman, Eisenhower,
and Kennedy.
The answer to this mismatch proba)bly lies in the concept of iw-
balanced political interests. This concept holds that concentrat~d
groups will be more effective in the political process tiTian diffuse onqs.
Health care programs vitally affect the livelihood of doctors, but rn~y
mean insignificant benefits or costs to individuals, whatever th~ a~gre~
gate level of those benefits and costs. The related concept of irnbaiane~d
political market tells us that informed voters and rich voters fare more
influential than the uninformed and the poor.
Some diffuse interests have escalated into concentrated interests d e
to the high rate of medical inflation 50 percent higher than the rise f
the general price level. This high rate of inflation as been caused in pa t
by expanded Federal subsidies. Examples are medicaid costs to Stat s
and the Federal Government, social security payroll taxes to emplo -
ers, `and the proportion of fringe benefits absorbed by health insuran e
to labor unions.
The prognosis is that National Health Insurance with an unreg~i-
lated fee-for-service system is likely to further exacerbate medical
flation. However, the payment structure is still much too decentraliz~d
to deal effectively with medical inflation. Present Federal and state
strategies are to cut down on health services to the poor rather th~n
directly confront the concentrated interests of doctors* in a sel
regulating policy that leads to medical inflation.
The self-regulating policy of organized medicine has contributed o
medical inflation through the monopoly power of doctors and hospita s.
This power has been used to artificially limit the supply of doctors, o
discourage the use of salaried doctors, to restrict the activities 1~
osteopaths, chiropractors, nurses, and other physician substitutes, ai~d
i-o hamper the effective monitoring of costs and appropriate utiliz -
Lion.
The three major responses of Government to medical inflation a~e
(1 `~ to improve market behavior through coinsurance, deductibles ar~d
HMO's, (2) to establish public utility regulation dealing with faci1i~y
construction and rates nad (3) to create a monopsony of consumers 1~o
deal on equal terms with the monopoly of vendors through a stror~g
national system of the kind proposed in the Kennedy-Corman bi1i.,
PAGENO="0138"
134
It will probably take a combination of all three approaches to take~
medical inflation.
Organized medicine fought vigorously against medicare in the fear
that this legislation was the opening wedge to Nh. And indeed the
authors of medicare regarded this legislation as the first step in insur-
ing all social security beneficiaries. The HEW bureaucrats were con-
fident that medicare and medicaid would convince doctors and hospi-
tals that Government funding of private health service could work
smoothly. However, these hopes were not realized.
The demand for health services on the part of the elderly and the
poor exceeded expectations and far outpaced growth in the supply of
services. Price inflation at 150 percent the rate of the general price
level resulted, and more medicare and medicaid funds were absorbed
by inflated doctors' fees and hospital bills than by increased services..
Cost control became the new strategy-cost control not only in pub-.
hc programs, but in the private sector as well, since medicare and
medicaid charges are at the prevailing market. A whole battery of
cost control modalities came into being-health maintenance organi-
zations (HMO's), certificate of need for hospital constructioii, utili-
zation review (TJR), and professional standards review organiza~
tions (PSRO's), to name a few.
Although the original m~edicare strategy backfired, an even more
compelling need to bring the Frankenstein monster under control is
propelling us to NHI legislation. The federal role in health care was
irreversibly committed by medicare and medicaid. In the 10 years
since 1965 the Government share of all health care payments rose from
25 to 40 percent. Governmeht payments for physicians' services jumped
from 7 to 26 percent, and p~iyments to hospitals rose from 3 to 49
percent. Federal health programs mushroomed from 100 to 300 in 10
years.
The expanded Federal role in health care must also be seen in the
context of the growth in public spending. Governmeiit now takes 30
percent of the GNP and is projected to grow to 40 percent in the next
10 years. The trend is definitely toward Sweden where government
takes half of the GNP.
The inexorable progress toward the welfare state is the result of
long-term processes of industrialization and urbanization. IJufortu-
nately increased Government controls over economic life have not
totally prevented inflation and unemployment, any more than con-
trols over health care have prevented skyrocketing costs, maldistribu-
tion of resources and a dual care system. But there is no question of
retreating. We are irreversibly committed to increasing Government
controls simply because of the increasing complexity of economic life.
We must simply learn to do better in achieving our goals of social
policy, which may mean more experimentation, perhaps in the direc-
tion of more controls.
What are the prospects for National Health Insurance in the years
ahead? Until the late 1960's the business community and the Repub-
lican Party were allies of the AMA. But the more than doubling of
medical costs since 1965 made cost containment the major new political
strategy in health care. Thus, the traditional debate between the
National Health Insurance proponents among Democrats and the
AMA opposition is now joined by the administration and its cost-
PAGENO="0139"
containment policy. But we have no assurance that the administrat~on
and AMA plans would not bankrupt us, or that the Kennedy plan
would guarantee health care for all.
These proposals can work only if effective price and mode of del v-
ery controls of the three types already discussed can be implement d.
There is no doubt that ui~ider free competition subsidies for the me 1-
cal care of families above the poverty level would result in furt er
shifts of physicians from poverty to nonpoverty communities, ra~se
private practcie fees, and force up medical insurance rates.
Within 3 years health care could take 10 percent of our gross i~ta-
tional product, hospital beds would cost $150 per day, a physicia~i's
office visit would cost $25, a diagnostic visit $100, and physici4ns
would earn $80,000 a year on the average. If that day should co~ne
about, there is no doubt that the pressure on G'overnment to national-
ize hospital and medical services would become overwhelming.
The only thing preventing a workable national health insura cc
program for the United States is that our doctors would not acc pt
it, and our citizens would not impose it on recalcitrant doctors at he
present time. We must resign ourselves to an unworkable natlo al
health plan that will so exacerbate the present dilemma of poor access
and runaway costs that either the doctors or the citizens will hav~ a
change of heart, and decide to join the rest of the Western World~ ill
making health care part of the public interest.
[The additional paper follows:]
THE GOVERNMENT SEEN AS SANTA CLAUS TO MISCHI~VOUS DOCTORS, AND OT~IEIt
Vinws OF THE ROLE OF GOVERNMENT IN AMERICAN HEALTH: AN INTERPR~TA-
TION OF THE SIXTY-YEAR DEBATE ON MEDICARE AND NATIONAL HEALTH INS~JR-
ANCE
(By Pierre de Vise, College of Urban Sciences, University of Illinois at Cbicag~o
Circle)
THE SIXTY-YEAR DEBATE OVER NATIONAL HEALTH INSURANCE
Underlying any new social legislation is a concept of how to bring desi~ed
change to our social structure. Compulsory health insurance is the idea beh~nd
a half dozen national health bills now before Congress. The basic idea of pooling
resources in order to spread the economic risks of Illness goes back to anci~nt
Greece and does not exactly qualify aS a new idea. But compulsory. natio~ial
health insurance is essentially a twentieth century idea.
Compulsory insurance was first enacted in Prussia in 1854 and extended by
Bismarck to the new German nation in 1883. It soon spread to Other Europ~an
countries after the passage of British National Health Insurance in 1911. To~ay
all industrial nations, with the important exception of the United States, h*ve
some form of compulsory national health insurance as part of their social ins~ir-
ance programs or as a national health sevice. A more affluent and larger sc~tle
national economy and philosophical and constitutional antecedents help expl~in
the peculiar resistance of Americans to the idea of compulsory national health
insurance, or social insurance in general. The Social security Act of 1935, ~he
Hill-Burton Hospital Construction Act of 1946, the Kerr-Mills Act of 1960, 4nd
the Social Security Amendments of 1965 and 1972 are major milestones in ~he
progress toward health Insurance in the United States. A brief revIew of ~he
long legislative history of these programs is instructive for an outlook of futi~tre
developments.
A few feeble attempts were made by the Federal Government before the N~w
Deal to intervene in health care but most of these were aborted within a 1~ew
years. The yellow fever epidemic of 1793 led to the Act ~f 1796 requiring Fede~al
revenue officers to oversee state enforcement of quarantine laws on the groui~ds
that epidemics ignored state borders and therefore constituted interstate c~m-
merce.
PAGENO="0140"
136
The act was foUnd unconstitutional by Chief Justice Marshall w~o reasserted
state authority. The 1813 act providing for the free ~iistribuUon of cowpox vac-
cine was similarly construed as an attack on states' rights and was repealed in
1822. Another yellow fever epidemic led to the creation in 1879 of the Wat~onaI
Board of Health to study better ways to control epidemies and design a national
quarantine system. The Board's ei~arter was not renewed in 1~84. The Shard-
Towner Act of 192~ p~aviding Feder~J sub$idies for ntate prcgrarns o~ child apd
maternal health, was denounced by the American Medical Association as un-
warranted Federal intervention in private medical matters and the act ~ns
repealed in 1929.
Before the New Deal of the 1030's Congress and the Supreme Court held that
the constitution places responsibility for health and welfare matters with the
states. Yet the states were unwilling or unable to finance costly welfare measures
unless all states were required to do so. Thus, the Federal Government was the
only government that could achieve a broad social insurance program. The
Social Security Act of 193~ represents the first milestone in the New Federal
role in social insurance. But health insurance was not included because of fear
that the A.M.A's "unyielding opposition" might jeopardize the passage of the
*entire social security package. The health insurance amendments (Titles 15 and
19) took 30 years, and national health Insurance will probably take 42 years
after passage of the o~igiflal Social Security Act.
It took a great shift in public philosophy during the Depression and New Deal
to permit responsibility in social insurance to pass from the states to the Federal
Government. In terms of health insurance, the shift is still far from complete.
The population covered is limited to the aged and the indigent, and the govern-
ment enjoys the privilege of funding the programs without effective quality and
cost controls assumed by other national governments in their health insurance
programs. In both Europe and the United States, health systems emerged in the
context of economic resources, from political and social values, and from the
influence of pressure groups.
Until relatively recently, the American middle class was large and affluent
enough to support the health systen~witb p~ixate funds tbroug~ direct payments
from private patients and through ~ilanthr0phy for the poor. Advances in unedi-
cal technology led to a shift of care from physicians ~filoes to large and evpen-
sively equipped hospitals. But hospitals grouped together into Blue Cross hos-
pital insurance plans, and in the decade between 1940 and 1950, provided hospital
insurance to a majority of Americans. Government health sevices and funds
expanded greatly to insure major classes of the uninsured culminating with the
passage of Medicare and Medicaid in 1905. But the extension of government pro-
grams to the self-supporting segment of the population was not in tune with
political and social values.
Perhaps no other natiqn in the Western World had a sufficiently large and
affluent middle class to support a health s~steip for the poor and the working
class.1 Hence most European nations turned to NHI, first t~ underwrite the care
of the poor and eventually to insure most of the population.
MEPICA~E ~ND iTS AF~ERMATII
Organized medicine fought vigoroutiy against Medicare and Medicaid In the
fear that this legislation was the "opening wedge" to NHI. And indeed the
authors of Medicare regarded this legislation as the first step in insuring all social
security beneficiaries. The HEW bureaucrats were confident that Medicare and
Medicaid would convince doctors `and hospitals that government funding of pri-
vate health services could work smoothly. However these hopes were not realized.
The demand for health services on the part of the elderly and the poor exceeded
expectations and a outpaced growth in the supply of services. Price inflation at
150 percent the rate of the general price level resulted, and more Medicare and
Medicaid funds were absorbed by inflated doctors' fees and hospital bills than by
increased services. Cost control became the new strategy-cost control not only
in public programs but in the private sector as well since Medicare and Medinid
charges are at the prevailing market. A whole battery of cost control modalities
came into being-Health Maintenance Organizations (HMOs), Certificate of
O~1th W. Apc1~rson, The Uneasy EquilThriuin (New Raven, Conn.: College anl TJnl-
versity Press, 1968).
PAGENO="0141"
137
Need for hospital construction, Utilization Review (TJR), and Professional Sta~id-
ards Review Organizations (PSROs), to name a few.
The Comprehensive Health Planning Act and the Regional Medical Program
Services Act were enacted In 1906 In attempts to monitor new health services
stimulated by expanded federal programs. These proved ineffective and w~re
superseded by the Health Planning and Resource Development Act of 197g.
Although the original Medicare strategy backfired, an even more coinpell~ng
need to bring the Frankenstein monster under control is propelling us to ~flI
legislation. The federal role in health care was irreversibly committed by
Medicare and Medicaid. In the ten years since 165, the ~Overnment share of~all
health care payments rose from 25 percent to 40 percent. Government payme~ats
for phyiscians s~rviee5 jumped from 7 to 26 percent, and payments to bospi~als
rose from 36 to 49 percent. Federal health programs mushroomed from 100 to 300
in ten years.
OvCrall, health care costs rose from $38.9 to $104.2 billion in the ten ye~rs
between 1965 and 1974. In this period, public expenditures increased mpre
than fourfold-from $9.8 to $41.3 billion. The slice of health care costs out of
the GNP grew from 5.9 to 7.7 percent. Higher prices caused half of the ten-y~ar
growth as medical care Inflation rose 50 percent faster than tile consumer pitice
index.
The expanded federal role in health care must also be seen in the cont~xt
of the growth in public spending. Government now takes 30 percent of the G~P
and is projected to grow to 40 percent in the next ten years. The trend is defini~ely
toward Sweden where government takes half of the GNP.
The inexorable progress toward the Welfare State may suggest the renunt4a-
tion of formerly cherished values of laissez-faire and checks and balances. But it
is more likely the result of long-term processes of industrialisation and urbaniza-
tion than of basic changes in political philosophy. The increasingly complex ~co-
nomic forces here and abroad have forced us to regulate more and iii ~re of ~he
economy. The Great War followed by the Great Depression and a second W~rld
War were the spectacular breakdowns in the existing international social order
that led the United States and other nations to follow the path to the Welf re
State.
Unfortunately, increased government controls over economic life have ot
totally prevented inflation and unemployment, anymore than controls over hea th
care have prevented skyrocketing costs, maldistribution of resources, and a d al
care system. But there is no question of retreating. We are irreversibly commit ed
to increasing government controls because of the increasing complexity of
economic life. We must simply learn to dO better in achieving our goals of so4ial
policy, which may mean more experimentation, perhaps in the direction of mpre
controls.
WHY nocuons OPPOSE NATIONAL HEALTH INSURANCE
Most economic and cost~beneflt analyses reveal that doctors and other hea th
care vendors were the major beneficiaries of Medicare-Medicaid and
other fe4eral health programs that doctors and other vendors fought so vigorou~ly
against. Similarly, projections of cost-benefits would show vendors to be
major beneficiaries of the vast redistribution of ineGnie that would result fr~m
national health insurance. Conventional political analysis would suggest that a
pressure group like the AMA would lobby for rather than against the passage~ of
Medicare-Medicaid and National Health Insurance, in anticipation that stkch
programs would add $10,000 a year to the average income of a physician. Thi~ is
cbrtainly the characteristic of traditional distributive policies wher~ vari4~us
interest groups ask the government for public lands, income subsidies, pensio~xs,
river and harbor improvements and other assistance. The amazing and alm~st
un-American resistance of doctors to programs designed to make them richer ~nd
their patlenth healthier is trul~r baffling.
Ideological differences and fear of government controls and their imp ct
on incOme and freedom of practice are the main explanations given for the p..
position of dOctors to federal health prog?ams. We propose to review the hist ri-
cal development of the stuggle of organized medicine against government act on
in health care. But first we propose a theoretical framework within w1iich we an
place this struggle in the context of national changes In resources and mbsequ ut
shifts in demands on government and decisional system~s.
PAGENO="0142"
13S
THE THREE R'S OF HEALTH POLICY DEvELoPMENT: RESOURCES, REDISTRIBUTION AND
REGULATION
We repeat .that resources of wealth, urbanization and industrialisation are
the major variables in demands for flew legislation. There are three criteria
for judging the effect of a new policy-group benefits, equity, and consensus.
Four policy types may be identified-distributive, redistributive, self-regulating,
and regulatory. Groups making demands on government may be scaled on a con-
tinuum ranging from fragmentation to integration measured by the scope,
diversity and compatibility of demands made as well as by the unity of activity
among groups making them.2
With urbanization has come a shift from fragmented to Integrated groups
as large organized interest groups have allied with one another according to
shared ideologies. The two major political parties are the ultimate integrated
groups. However, industrialization and technological advances lead to specializa-
tion of function, interest and demand. We are thus faced with a paradox of
increasing aggregation of demands diluted by specialty. induced proliferation in
interests and demand.
Fragmentation of demand, which characterized traditional American politics,
leads to decisional systems based on consensus and to policies of distribution and
self-regulation. The U.S. system has become more integrative bringing shifts to
policies of redistribution and regulation. But fragmentation has grown apace
of integration. Thus, there are pressures to turn policies of regulation and redis-
tribution back to policies of self-regulation and distribution.
In the case of medical care, the AMA is a highly integrated group that seeks a
policy of self-regulation. Although doctors would reap the main benefits of a re-
distribution policy in health care, the AMA vigorously opposes it because other
groups such as employers and labor unions that might be adversely affected could
easily enter the decisional system and push for a policy of~ regulation. Alongside
the integrated AMA, there are literally hundreds of fragmented specialty interest
groups that make distributive demands on government. We now have over 300
categorical health programs resulting from the demands of these groups.
On the side of the decisional system, we have the White House which seeks an
integrated policy doing battle with the Federal bureaucracy and Congress which
often promote distributive and self-regulating policies on behalf of the frag-
mented interest groups. These interest groups are out for all they can get, whereas
the White House has the responsibility for allocating a fixed budget in a manner
that corresponds to the optimum satisfaction of all demands on government, and
to the optimum application of cost/benefit ratios.
Both Secretary Richardson and Secretary Weinberger sought mightily to rein
the categorical interests entrenched in the HEW bureaucracy. The attempts to
reorder priorities and budgets included reorganization of the health bureaucracy,
shifting all the power from the Surgeon General to the Assistant Secretary for
Health, decentralization to regional offices, special revenue sharing, the applica-
tion of efficiency criteria, and impoundment of appropriations. The latest
attempts at controlling categorical interests are the Professional Standard Re-
view Organizations (PSROs) and the Health Systems Agencies (HSAs). Both
sets of agencies are designed to respond to demands of integrated groups and
both have authority to say no to spending by categorical interests.
THE A.M.A. AND THE PUBLIC INTEREST
Both the highly integrated A.M.A. and the fragmented categorical interests
represent providers' with minimal input from consumers, even though, in the
aggregate; government intervention (or non-intervention) may grievously affect
the interests' of' consumers.
Health consumer groups and labor unions have been remarkably ineffective in
counteracting the pressure from providers. Even if we grant that the A.M.A.
is rational in opposing medical care subsidy programs out of fear that adversely
affected groups will press for regulation, there remains the puzzling question:
How does the A.M.A.'s will prevail against the public Interest? A.M.A. member-
ship counts less than' 200,000. Yet the A.M.A. has challenged much larger groups
like the AFL-cro, the American Legion, and the Democratic Party. It has
2 Robert H. Salisbury, "The Analysis of Public Policy: A Search for Theories and
Roles' in Austin Rannev (ed.) Political ~5cience and Public Policy (Chicago: Markham
Publishing Cbmpaiiy; I~8).
PAGENO="0143"
139 j
frustrated health care programs of such popular Presidents as Franklin Roosev it,
Truman, Eisenhower and Kennedy.
The answer to this mismatch prohably lies In the concept .of imbalanced pol~ti-
~a1 interests. This concept holds `that concentrated groups will be more effect;ve
in the political process than diffuse ones. Health care programs vitally affect the
livelihood of doctors but may mean insignificant benefits or costs to individu~rls
~whatever `the aggregate level of those benefits and costs. The related concept of
imbalanced political markets tells us that informed voters and rich voters re
more influential than the uninformed and the poor.3
THE A.M.A. AND MEDICAL INFLATION
Medical inflation at a rate 50 percent higher than the rise of the general pr ce
level was brought about in part by expanded federal subsidies. It has resulted in
escalating some diffuse interests into concentrated interests. Examples re
medicaid costs to states and the Federal Government, Social Security payr1 11
taxes to employers, and the proportion of fringe benefits absorbed by health in-
surance to labor unions. The prognosis is that National Health Insurance with ~ui
unregulated fee-for-service system is likely to further exacerbate medical in~a-
tion. However, the payment structure is still much to decentralized to deal ~f-
fectitely with medical inflation. Present Federal and state strategies are to c~ut
down on health services to the poor rather than directly confront the conc~n-
trated interest of doctors in a self-regulating policy that leads to medi~al
inflation.
The self-regulating policy of organized medicine has contributed to medi~al
inflation through the monopoly power of doctors and hospitals. This power l~as
been used to artificially limit the supply of doctors, to discourage the use of
salaried doctors, to restrict the activities of osteopaths, chiropractors, nurses, a~id
other physician substitutes, and to hamper the effective monitoring of co~ts
and appropriate utilization.
The three major responses of government to medical inflation are (1) to i~n-
prove market behavior through coinsurance, deductibles and HMOs, (2) to ~s-
tablish public utility regulation dealing with facility constructiop and rat~s;
and (3) to create a monopsony of consumers to deal on equal terms with *ie
monopoly of vendors through a strong national health system of the kind p~o-
posed in the Kennedy-Corman bill.3 It will probably take a combination of ~ml1
three approaches to tame the monster of medical infiation~
To recapitulate, the long gestation of the National I-Iealth Insurance idea
is due in part to the fact that the large and affluent,middle class was able to
subsidize the care of the poor until recently. It is also due in part to th ee
strong political traditions-the Jeffersonian view that "that government is b st
which governs least," the la4ssor-faire doctrine which assigns government resp n-
sibility for ensuring maximum freedom for private enterprise, and the pub ic
philosophy of "social Darwinism" which limits government social welfare p o-
grams for fear of frustrating the "survival of the fittest" mechanism by which
society progresses. The debate Over national health insurance has also been
prolonged by the determined opposition of the A.M.A. ever since the idea first
took root in the 1910's and down to the 1970's and the A.M.A,'s two natioi4al
health insurance bills.
THE A.M.A. AND NATIONAL HEALTH INSURANCE
The welfare state in Britain and the New Deal in the United States ma k
the evolution of nineteenth century liberal political philosophies of Stuart ill
and the Manchester School, and of Thomas Jefferson and the Federalists in t~ie
two countries. The fewer groups' that still voice these political philosophies a$
now regarded as conservatives, and many of their expressions are derided
reactionary and callous. Three such denigrated slogans of twentieth century
conservatism are:
"The business of America Is business."
"What is good for General Motors is good foI~ the couhtry."
"Health care is not a right but a privilege."
These political expressions made by the Presidents of the' United Stat ~,
General Motors and the A.M.A. would have been perfectly in tune with nineteenth
Theodore Marmor, "Politics, Public Policy, and Medical Inilatlon" (In press, 1975).
PAGENO="0144"
140
century libertarian principles of least government, laissez-faire, and social Dar-
winism. But they are no longer considered appropriate in most sectors of ~ociuty
and the economy today, with the flagrant exception of health care.
There is a possible explanation why physicians hold onto these nineteenth
century dogmas. Because of their years of demanding training and hard work and
their daily exposure to suffering, physicians often become callous to ordinary
human feelings. They also become fierce believers in free enterprise, hard work,
and self-reliance. In their tendency to value individuals by these standards,
doctors develop an image of women and children as the ignorant and the incom-
petent dependents of men.
Doctors have particularly rigid attitudes about "morals" and people "getting
something for nothing." Free health care for children and mothers raises the
image and unwed mothers and illegitimate children, guilty on both counts of
morals and dependency in the distorted catechism of doctors. These social values
explain in part the opposition of the A.M.A. to the Sheppard-Towner Act in the
1920's. It alsO explains the belief that health care is a privilege, not a right.
An interesting elucidation of the latter concept as recently provided by medi-
cal society spokesmen at a national conference on Partnership for Health Plan-
fling held in Nashville in February, 1969. These statements were `made by
B. G. Mitchell, M.D., of Memphis~ and,reported by the American Medical News
of March 17, 1969, to represent the feeling of the medical community:
"With the passage of the Medicare law our nation witnessed for the first
time a system of taxation of younger wOrking people to provide health care for
a segment of our population, whether they needed help or not. The medical pro-
fession vigorously opposed this plan and we shall oppose such plans in the
future."
"Beware of free medical services ~r any type of service that creates a feeling
of irresponsibility in the public. This is resulting in moral decadence, over-
u'ti'1i~ation, and a something-for-nothing attitude Which is difficult to combat.
Some element of this moral decay may even spread to the providers of service."
The views reflected in these comments are not often expressed so frankly any-
more, but the fact that this was unquestionably the prevailing attitude of the
medical profession `in the United States for many years has certainly influenced
the organization of medical and health services for the last 30 years and is thus
a contributing cause, at least, of some of the disjunctions for which the health
services are so widely criticized today.
The transformation of the A.M.A. role from a liberal-social guardian to that
of a comservative~economic protectionist occurred during the Depression and New
Deal of the 1930's. Its nineteenth century values failed to keep pace with the
great shift in American political values in the period. FurthermOre, debate over
nationahbealtir insurance between 1916 and 1922 converted the A.M.A. from a
professional association to a partisan labor union.
Actually, the A.M.A. showed little interest in Federal and state action between
the time of its founding in 1846 and the 1870's when it created a section of state
medicine and hygiene, which distinguished community health care from private
and curative medicine, `and which defined public hygiene as the control of con-
tagious disease. The A.M.A. set up its House of Delegate structure in 1901, with
menlhers chosen by state societies. The Council on Medical Education was or-
ganized in 1904 and produced, in collaboration with the Carnegie Foundation,
the Flexner report of 1910, which was to revolutionize medical education. Dr.
Flexner's final list approved 66 of 135 schools. Twenty-nine schools were closed
between 1910 and 1914.
THfi SIX nOUNDS IN TH~ NATIONAL HEALTH INSURANCu DEBATE
We can identify six rounds in the sixty-year debate over National Health
Insurance: 1916-22: In its successful fight against state insurance plans, the
A.M.A. transforms its.elf from a liberal professional association into a conserva~
five protectionist labor union. 1939~-49: The A.M.A. defeats Murray-Wagner-
I)ingeli, Taft-Smith-Ball, Truman and Ewing health bills. 1953: A.M.A. defeats
Eisenhower's Reinsurance Bill. 1957: A.M.A. defeats Forand bill, a precursor of
Medicare. I 960-65: A.M.A. accedes to Wilbur Mjlls' compromises of Kerr-Mills
(1960) and Medicare-Medicaid (1965). 1970s: Administration, Kennedy, and
A.M.A. bills are major contenders among a dozen National Health Insurance bills
that attempt to repair damage done by Medicare-Medicaid.
Until the late 1960's, the business community and the Republican Party were
allies of the A.M.A. But the more than doubling of medical costs since 1965 made
PAGENO="0145"
141
eost~ontatnment the ittaj~r new politiual strategy in health care. Thus, ~he
trathtionai debate between the National Health insurance proponents amc~ng
Democrats and th~ A.M.A. opposition iS now joined by the administration nd
its cost-contahimetit policy. Rut it is n~t certain that the administration ud
A.M.A. plans would not bankrupt us or the Kennedy plan would assure hea th
care to all.
THE flRSP Dh~APE ô~ NATfO~AL If EAt~Tf1 xNsunAr~cn: 1016-10 22
Pile British National Health Insurance Act of 1911 set the stage for the ~ st
great debate on insurance. At first the response was favorable to health ins r-
ance. it was endorsed in 1912 by the Progressive Party and its candid te,
Theodore Roosevelt. The American Association for Labor Legislation (AAL
founded by economists at the University of Wisconsin in 1906, developed a mo el
health insurance bill in 1915. By 1917 twelve state legislatures were consider~ng
the bill, eight had appuinted study cOmmisSions, with the first three to repprt
coming out in favor of the bill. Even the A.M.A. joined the bandwagon. Its ~oc~ai
InS~Xrance Committee, headed by Dr. Alexander Lambert of the AALL, rec m-
meaded compulsory state-run health ifisuratice in 1916. The next year the ~lo se
of ~elegates approved principles of government health insurance.
The Armistice brought disenchantment and reaction in the United States, ot
only about the Leagtte of Nations but about health insurance as well. The v ry
month after the Armistice, California voters defeated a health insurance p1 n,
and the following April the Ne~v York State Assembly defeated a similar bil1~
By 1919 the current of reaction which began with the Senate rejection of Pf~si-
dent Wilson's Peace Treaty became a tidal wave against all social innoVatiOn.
Health insurance was tagged with both extreme right ai~d left labels-the ~le-
feated "Hun" and "Bolshevism." By 1920 the A.M.A. House of Delegates re-
pudiated both its president, Dr. Ldfnbert, and its earlier resolution by coming
obt in "unequivocal opDosition" to health insurance.- The insurance and pbatr~ia-
ceutical industries joined the A.M.A. in public eainfmigns against health ins~ir~
ance. In 1920 and again in 1922 the House of Delegates declared itself aga-i4ist
state medicine; "Any form of medical treatment provided, conducted, control'ed
or subsidized by the fedei'al, or any state government or municipality." Only l~he
Army, Navy, Merchant Marines and U.S. Public Health Service were exempted.
The A.M.A. disapproved tile Sheppard-Towtier Act of 1922 giving grants-in-ak~ to
state programs of maternal and child health. (`the frogram was disContinued in
1929.)
T11EcOfITPE~5o~ TII~ COsT or MflOIcrAL CARE
Under the auspices of the Carnegie and five other foundations, the Commit e
on the Cost of Medical Care (CCMC) was established in 1927. Chaired by ay
Lyman Wilbur, President of Stanford, tile CCMC set out five areas for ~tu y:
(1) incidence of disease and disability; (2) existIng facilities; (3) expenditu es
for services; (4) incOme of providers; and (5) chronic care facilities. A resea ch
~taff of 75 under the direction Of Harry Moore, University of Chicago econom st,
prOduced 27 field stifdtes and a fihal report in 1932 approved by 39 of the 50
committee members. The sweeping recommendations included the follow! g:
"Medical service should be furnished by group practice physicians organi ed
around a hospital to reader cOmplete offlee and hospital care. Costs of care silo ld
bO placed on a group payment basis, through insurance or taxation or both." be
minority members strongly' opposed hospital-based group practice. In their report~
they argued that medicine waS personal service, not mass production; and tl~at
the role' of ~overtiment' should be limited to the care of indigents, public beal~h,
arid the armed forces-"everythlng else belongs to private practice." ~he
minority report urged that the general practitioner be restored to his cent~aL
place in medical practlce-"The GP can treat 85 percent of all illnesses ~nd -
injifries with very simple equipment." Insurance was secondary: it should be
attached to general practice and be under the control of county or state mcdl al
societies.
The Journal of the A.M.A. atta~ked the majority report in an editorIal da ed
December 3, 1932, concluding in these *ords: "The alignment is clear-oti he
one side th~ forces repreSenting the great fOundations, public health officiald m,
social theory-even sodalismn and communism-inciting to revolution; on be
other side, the organized medical profesSion urging principles of sonnd practice
of medicine."
57-677-75-10
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Tn 1933, the American Hospital Assijciation `endorsed hospital insurance as
-"one of the most effective ways to offset the increasing demand for more radical
and dangerous forms of state medicine." Vountary hospital insurance which the
CCMC report had passed over lightly, became the "opening wedge."
T~IE NEW DEAL AND THE SOCIAL SECURITY ACT S
In the midst of the Great Depression, Franklin Delano Roosevelt was elected
in a landslide in 1932. Early in 1934, FDR appointed a Committee on Economic
Security to make ~recommendations for a program against "misfortunes which
cannot be wholly eliminated." Illness was one of the misfortunes. The Committee
was composed of ~the Secretaries of Labor, Treasury, Agriculture, the Attorney
`General and Harry Hopkins. Many advisory committees were set up, including one
`on medical care. The original Social Security Bill that was developed by the
Committee said that the Social Security Board should study the problem of health
insurance, But' so many telegrams descended on Congress that the entire Social
Security program seemed endangered. In an editorial, J.A.M.A said some felt
the A.M.A. should oppose the entire program. It did not take long for this in-
i~ocuous reference to be struck out of the bill. But Title V restored the Sheppard
Towner Act that had lapsed in 1929. The Social Security Act was passed in
August, 1935:
MEETING THE CHALLENGE OF THE PHYSICIAN SURPLUS
The Great Depression further polarized organized medicine and government.
While the government met the challenge of economic chaos with the revolutionary
New Deal, the A.M.A. responded by greatly increasing its restrictive control over
medical schools, particularly their programs, curriculums, and admissions
policies. In the first three decades of the twentieth century, restrictions on the
supply of physicians were a by-product of the A.M.A.'s successful attack on low-
quality medical schools and low admission standards. In the 1930's and 1940's,
however, the desire to prevent undue competition and ward off "socialized medi-
cine" became paramount issues. Restrictive policies directed at medical school
admissions standards resulted in a steady reduction of medical school admissions
during these two decades.
Dr. Walter Bierrin, A.M.A. President in 1934, was the first in a long list of
`officials to warn of the "social dangers of an oversupply of physicians." In a
series of J.A.M.A. articles he called for "real courage and tenacity" on the part
of medical societies to "bend" the medical schools to the' "urgent social and eco-
nomic needs of the changing order. He foresaw that the principal function of
medical service would be to cut down by half the number of medical schools and
physicians. Dr. Bierring confidently predicted that "a fine piece of educational
work could well be done if we were to use only half of the 70-odd medical schools
in the Jjnited States."4
Dr. Bierring and his associates might well have succeeded in halving the
number of medical graduates had the Depression continued long enough. There
was an 18 percent drop in the number of admissions between 1933 and 1938, in
spite of an increase in applicants. As it was, the tighter admission requirements
did result in halving the number of admissions per 1,000 applicants through the
1930 and 1940 decades. Thus, there were fewer admissions in 1950 than in 1930,
though the number of applicantshad doubled `in the interim.
Attempts by governments, providers, and consumers to ease the physician
shortage were consistently opposed by the A.M.A. in this period. In a series of
delaying actions and strategic retreats in the 1930's and 1940's, the A.M.A. in
turn opposed voluntary health insurance plans, compulsory health insurance
legislation, federal aid for medical education, and prepaid group practice
programs
THE SECOND DEBATE: 1939-1949, THE A.M.A. VERSUS FDR, TRUMAN, EwING, AND
WAGNER
The Social Security Administration was charged with studying and recom-
mending legislation on old age pensions, unemployment compensation, and "re-
lated subjects." Many studies on the related subject of heal1~h insurance were
carried out' by the Bureau df Research and Statistics, drawing in part on the
massive field studies of the CCMC and of the National Health Survey of 19~5-36
based on interviews of 737,000 households.
W. L. Blerring, "The Family Doctor and the Changing Order," Journal of American
Medical Association, Vol. 144 (1934), 1997.
PAGENO="0147"
143
FDR appointed the Interdep~Lrtnlefita1 Committee to coordinate Health a~id
Welfare Activities in 1936. The Technical Committee on Health Care, set up t~ie
next year, found existing health care inadequate and called ior a national co~n-
prehensive heatlh program. This call for action resulted in the First Natior~al
Conference of Health convened in Washington in July, 1938. It was attended ~y
176 health care professionals and leaders.
The Second World War set the next stage for the great insurance debate. T~ie
A.M.A. successfully opposed the Wagner National Health Bill of 1939 (S. 1629),
the Eliot Bill in 1942 (HR. 7354), the Murray-Wagner-Dingell National Health
Bill of 1943 (S. 1161) and 1945) S. 1606), the Taft-Smith-Ball Medical Indigenç~y
Bill of 1946, President Truman's National Health rrogram (1947, 1949), a~1d
Federal Security Administrator Ewing's ten-year National Health Insurar~ce
~plan.
FDR asked for better medical care in Messages to Congress In 1939, 1941, 19~t2'
and 1953. Truman started supporting National Health Insurance in his 1946
Message to Congress. Oscar Ewing called for a second National Conference on
`Health in Mrty 1948. The National Health Assembly was attended by 800 peop e.
Ewing told them that "we cannot continue to use the purchasing power dema d
as our exclusive criterion of the adequacy of supply," In 1948, 40 percent of t e
population was covered for hospital insurance, 23 percent for surgical in'suran e,
and 9 percent for physicians' office services. Ewing predicted that no more th n
half of the population would ever be insured voluntarily.
President Truman's 1948 election victory panicked the A.M.A. Its House of
Delegates met in emergency session and voted an assessment of $25 per mem er
to prevent "the ensla vement of the medical profession." The public relati ns
firm of Whitaker and Baxter was hired and a $4.5 million campaign wa's launched
to combat national health insurance and "creeping socialism."
The A.M~A. made a complete turnabout and vigorously espoused the "Volunt~ry
way" of insurance as the "American way" in its campaign to defeat the Trun~an
compulsory health insurance legislation. But as late as 1949, A.M.A. offici~ls
were still lobbying to cut down congressional bills designed to stimulate medi~al
school enrollment. In a throwback to 1919 A.M.A. spokesmen linked compuls4ry
health insurance with revolutionary and un-American tags. The A.M.A. clain~ed
credit for the defeat of four senators and for the victory of eight new senat~rs
in the 1950 election.
Meanwhile, back at the fort, Truman established the President's Commiss o~
on the Health Needs of the Nation in 1951. Paul Magnuson, M.D., of the Nor h-
western Medical School, was chairman, and Lester Breslow, M.D., of the C li-
fornia Health Department, was staff director. Within a year, the Commiss on
produced its report and recommendations: Government ~bo'u1d prod and promOte,
assist financially but not control or operate health serviCes. Health is a b~sic
human right, and society must assure access to health care and provide hea~th
education. Then can personal action reach its full potential, the majority memb rs
concluded. They also urged that all methods of private and public financing be
given a chance. This time, it was the liberal members who constituted he
minority. They protested that states should not have the option not to enter i tO
a federal-state health insurance system.
The A.M.A. claimed victory and concluded its four-year campaign agai st
`national health insurance in 1952. Its successful campaign was reflected by he
omission of national health insurance in the Democratic Platform of [952 nd
candidate Eisenhower's repudiation of it. Years later Presiden't Truman was to
single out the one-sided debate `on national health insurance as his most bitter
disappointment.
THE THIRD ROUND: 1953-1957; THE A.M.A. VERSUS EISENHOWER AND THE AMERI~AN
LEGION
In the 1952 Presidential campaign, Eisenhower said: "American medicine o~it-
stripped the world on a voluntary basis and on that basis the needs of Americ~ns
will most adequately be met." Eisenhower assured `the A.M.A. in 1953 that he con-
tinued to `oppose socialized medicine and would keep government out of the ex st-
ing structure of medicine. By that year, 60 percen't of the population was cove ed
`by `hospital insurance. Half of all hospital charges were paid `by insurance.
* In his State of the Union Message of 1954, Eisenhower proposed the cone pt
of reinsurance. This entailed underwriting and supporting companies that wo ld
`insure high risk and lçw income groups. But the A.M.A. would not buy it. Its
president, David Allman, M.D., called it' the familiar opening wedge and s id
PAGENO="0148"
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government should stay Out of health in~uMnce eofi~Øletely. The A.M.A. board
ólalrned reinsurance iiivol~ved not only subsid~ntion of irelunMr~ health insutance
bttt 1~edetaI regnlation ai~d cotittol as well.
The 1~eiiisui~aiieé bill was defeated 288 to 134 in July 1954. ~isen~hower teas-
serted hiS snp~ort of the concept in 1~s St&te of the flnion Mesange of 1955.
`1~hat year, Marion Folsom succeeded Oveta Onip ]?1obb~ ~s 1T~iW $ecr~tar~. In an
interview hi the New York Times of August ~4, ~ Peisoni eaIlet reitienrance
the ke~tstone of the eisenhower l~êaith prOgrafli. But he hlnte~ that fhu ~xticy
would, be drOppe~ bocaiisn "ITherals say it ca±i't do the job, wo~'t teach lower
income people, ai~d dOctors don't want the govern~ment to do .anythhlg." Reinsur-
ance indeed was drOpped after 1956. Tt was replaced ~ an emphasis on grahts-
in-aid for facilities and personnOi', and to states for medical assistance `to intfigeilts.
After 1954, the A.M.A. became increasingly unhappy over the Veterans Acimin-
istration pOlicy of giving free care to veterans for ñonservice connected di'~abili-
ties. The VA netwotk of hospitals was the great exception to government re-
luctance to provide direct health Services. By 1954, 60 percent of VA medical care
4was fOr nonservh~e connected illness. ThuS it came to pass that the A.M.A. and
the American Legion, thOse two ba~stiOns of conservatism, came to blows on the
issue of misguided páttiOti5m. The A.M.A. asserted that the Legion was unwit-
tingly planting the seeds of socialization wheli it continued to foster free medical
care for veterans. "It would be unfortunate indeed," a J~AMA editorial warned,
"that if in our efforts to thward patriotisth we were responsible for the dreation
of a system of govCrnment medicine against the will of the majority.
THE FOURTH ROUND: 1957-1960; THE A.M.A. VEB5US THE AFL-CIO AND TIlE FARMERS
UNION
The bell for the fourth round of the debate was sounded by the ~orand Bill
in 1957, to provide health insurance for the elderly on social security. This time
the A.M.A. hired the public relations firm of Braun and Co. and was joined by
the insurance and drug Industries in opposition to the first Medicare bill. The
fight in this round was a little more even, with the AFL-CIO, the National
Farmers' Union and the American Nurses Association in support of the bill.
Although the bill was defeated in committee by a two-to-one margin in 1960, the
simple fact that it was brought to a vote was a signal victory fot its supporters.
Moreover, the A.M.A. h~d ~uftèred its first defedt in 1956 by unsuccessfully
opposing aid to the totally and permanently diSabled elderly beneficiaries under
Social Security. The next year the Social Security Amendments o~ 1957 permit-
ted states to use federal grants-in-aid to pay pr&viders of health services for
public assistance recipients.
TIlE FIFTH JIOUND: 1960-1965; TIlE A.M.A. tElusTxs MuDICARE
In the summer of 1960 the stage was `set for the fifth round and first real show-
down on the floor of the `Senate. On one side of the aisle was `the Republican
subsidy bill endorsed by Presidential candidate Nixon; on the other was a diluted
version of the Forand bill endorsed by the Democratic candidate Kennedy. In the
middle was a compromise bill endorsed by Representatives Mills, Senator Kerr,
and `the A.M.A. The Republican and Democratic bills were defeated 67-28 and
51-44. The minimal Kerr-Mills-A.M.A. bill then swept through 91-2.
The Kerr-Mill's Act provided between 50 and 80 percent of funds states used
in medical aid to the aged. But states had an option to determine eligibility and
benefits. Thus by 1953, only 32 of the `states had programs in effect. Five states-
California, New York, Massachusetts, Michigan and Pennsylvania-with 32
percent of the aged were receiving 90 percent of the Kerr-Mills funds.
In the 1960 election both Nixon and Kennedy promised to streng'then th~ Kerr-
Mills Act if elected. President Kennedy's victory signaled the fifth round in the
debate; the A.M.A. launched an all-out effort against `~the most deadly challenge
ever faced `by the medical profession." The grim prospect that the Federal g~v-
ernment might ensure the health of `the nation's aged, blind, and disabled would
`be challenged by a 70-man speakers' bureau and a newly-created American Medi-
cal Political Action Committee (AMPAC). In the first two months of Kennedy's
administration a Presidential task force recommended Medicare; the PreSident
endorsed it in a message to Congress; and the King-Anderson bill was introduced.
The bifl~ was immediately attackOd by the A.M.A.: "Medicare Is really Fedicare-
a costly concoction of bureâucrac~, bad medicine-and an unbalanced buclget.'~
After nine days of hearings In August 1961, `the bill was allowed to die in corn-
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* mittee. More hearings were held in 1962 and 1963 resulting in 14,000 pages of
testimony but no votes.
Some consumer groups were new adding their weight to the debate; The Na-
tional council of Senior Citizens was formed in 1961 with ~.FL-~CIO support and
count~ 600,000 members by 1962. In 1964, the AFL-CIO, orer 13 million meiahers
strong, spent $1 million in the 1964 elections, and another $1 million for lobbying
the following year through its Committee on Political Education (COPE).
A.M.A.'s AMPAC also spent a $1 million in 1965.
The November 1964 elections gave the Democrats 32 new seats in the House,
for a ratio of better than 2 to 1. The Ways and Means Committee shifted from 15
Democrats and 10 Republicans to 17 Democrats and 8 Republicans and Rep. Mills
promised Medicare action in early 1965.
The administration introduced HR. 1 and S. 1 in January. It did not cover
physicians services, an OmisSiOll Pounced upon by the A.M.A. The A.M.A. suddenly
proposed its own "Eldercare," administered by the states but including physician
care. Eldercare was held to be more compreheiisive than Medicare which was pro-
jected to cover only a fourth of the health care expenses of the elderly. The
A.M~. trotted out a survey showiiig that two-thirds of the resl)Ofldeflts preferred
physician care and selective coverage of the imligeiit. Rep. Byrnes introduced the
Eldercare bill.
At that point, Rep. Mills asked 1-IEW's Wilbur Cohen to merge the two bilLs.
Cohen's resulting ~three-layer cake" included Medicare, private insurance for
physician care, and an expanded Kerr-Mills for the poor. These became Title 18,
Parts A and B, and rjlitle 19.
The new bill Passed the I-louse in April 1965. In June, the Senate yielded to
the American Hospital Association position that hospital specialists should be
covered under Part A (hospital services) rather than Part B (l)ilysician serv-
ices). This threw the A.M.A. I-louse of Delegates into an uproar. The ~.H.A. was
accused by the A.M.A. President with seizing upon this bill to seek "ever-widening
dominion over doctors." An A.M.A. pamphlet predicted that Medicare would
result in "a complete takeover of medical practice by A.II.A. and the Federal
government." The delegations from ntiie states voted to refuse to Pai'ticipate in
Medicare. Fortuniately the Senate-i-louse committee set up to reconcile differences
between the two bills put the hospital specialists back in Part B and the signout
threat was over. The reconciled bill passed the Senate in July 1965 and the Social
Security Amendment-s of 1965 (Medicare and Medicaid) became the law of t ie
land.
Thus (lid the United States finally join the rest of the western world in insi
lug the health of its aged and indigent.
The expansion of Medicare/Medicaid insurance to the total workia~g populati n
~S `the agenda for the current (si~th) round in the insurance debate. The fi st
4ecjsi~ve blows in this round are the social Security Amen~meats of 1972 (H.R. ),
which somewhat eytend, and somewhat restrict Medicare and Medicai~. In ~t c t-
down ~ver~Lon of a eat~atrophie illness ii~suranee bill, SQeial `Sec~rity benefits a e
e,~ten~ed to 1.7 wihlion people under 65 who are victims o~chrotLic k~dpey disea e.
But victims of other cri~pplli~g diseases are not covered. t~rivate p~ys~cians ~ha e
lost the vendor monopoly, a major cause of the inflationary effect of Medica e
and Medicaid, and beneficiaries may now choose to receive their ~ar.e £~om n
lIMO. Perhaps the major impact of the new law is to allow states to great y
reduce Medicaid benefits because of camplaints of waste, fraud, aud ove~utihi a-
tion in the program. A more effective cost and utilization reyiew mechanism is
imposed in the form of PSROs to be made up of peer physicians.
As in the 1960's the two major national health insurance bills are linked with
the names of Nixon and Kennedy. But `as in 1960, these bill's are so' diverge~it
($6~5 versus $8.3 billion the first year according to HEW) -that a compromise b~U
wiil probably win the day again. Indeed such a compromise bill was attempted
by the Ways and Means Committee in August 1974. ~ut the committee could not
agree on such issues as financing catastrophic Insurance out of payr9ll tax~s
or general revepue and on mandatory or optional ,emp1oye~ participation.
~s in 1965, the A.M.A. has come up with it~own alternative plaps. The fir$t,
"~edicredit," wa~ a voluntary plan financed out of sliding income ta~t eredi~s,
The second plan, introduced in 4pril 1975, called for mandatory employer e~v-
em-age but voluntary employee participation, and would be financed largely otit
of general revenues.
TOWARD NATIONAL HEALTh INSURANCE IN ThE 1970'S
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146
WHY THE A.M.A. STILL OPPOSES NATIONAL HEALTH INSUItANCE
Organized medicine's fear of the effects of National Health Insurance on
freedom, practice, and incOme of physicians is probably as unfounded today as
it was in earlier decades. Physicians were by far the major beneficiaries of. Medll~
caid and Medicare in spite of their opposition. They will likewise be the major
beneficiaries of National Health Insurance. By the end of the 1970's organized
medicine will likely control even the HMO's and PSRO's that now seem to
threaten them.
The opposition of the A.M.A. to social programs that are supposed to enhance
the efficiency, quality, and income of physicians may make little sense on the face
of it. Various people have accused the A.M.A. of being regressive and reactionary,
of being unrepresentative of American doctors, or of shamming protest to dis-
arm potential critics of the huge Federal subsidies of doctors flowing out of
Medicare and Medicaid. Some of the A.M.A.'s opposition may indeed be seen
as an irrational counterproductive rear guard action for the preservation of the
social values of a bygone age. That is due in part to the hard training of doctors
and their strong adherence to the work ethic. It is also due to the Inability of
doctors to accept the advice of noudoctors such as association executives, lawyers,
politicians, lobbyists and public relations experts. Evidence of this are the tenu-
ous working relations between the A.M.A. staff and the committees, and the
reported low morale of the staff.
But It is hard to question the representativeness of the A.M.A. or impugn its
sincerity. It apparently speaks for the great majority of America's physicians,
and it speaks honestly for them. Survey after survey confirm the misgivings and
anguish of doctors at the prospect of National Health Insurance. In one of the
most comprehensive such surveys, reported by Medical Bcoaomics in August 1971,
most doctors (80 percent) believe National Health. Insurance is inevitable; 60
percent think padents should pay part of each bill, but 60 percent think poor
people should get free care, and a third think old people should not pay; two-
thirds prefer the A.M.A.'.s "Medicredit" tax credit financing rietbod. Only 12 per-
cent of the doctors think they will gain financially and 40 percent think they will
lose income. One-third would refuse to join a group practice required to do sofor
reimbursement. Two-thirds fear National Health Insurance will worsen medical
care; only one-tenth believe care will be improved. rrhreefourths would accept
physician peer-review boards sponsored by their medical society; one-fourth
would accept such boards under hospital sponsorship, and six percent would
accept such boards under government auspices. While 60 percent of the surveyed
doctors would accept National Health Insurance, 35 percent would retire, 10
percent would shift from practice to research or administration, 10 percent would
leave medicine altogether, and 5 percenteach would go on strike, leave the coun-
try, and take other desperate actions. (These add up to more than 100 because of
multiple anSwers).
A more recent survey of 2,713 senior physicians was reported In the May 1975
issue of Medical Care. Despite the fact that 56 percent of the respondents were
in favor of some form of National Health Insurance, almost three-fourthS
said most doctors they knew were opposed. Over three-fourths of the doctors felt
that NUT was inevitable. Over half preferred the tax-credit financing methocl~
and 37 percent preferred payroll taxes. With respect to reimbursement, three-
fourths favored fee-for-service, only one fourth favored capitation, and merely
14 percent favored salary. Two-thirds felt NHI would adversely affect their
work; only 17 percent thought it would improve quality of care, about half
predicted NUT would result in unnecessary hospitalization and doctors' services.
Over ~ fourth thought they would earn less money, and 14 percent thought they
would earn more. One fifth said the A.M.A. represented their opinion on most
matters, half on some matters, and another fifth, on hardly any matters.
In a sense the A.M.A. is looking after the inteersts of its constituency in the
well-established American labor union tradition. The A.M.A. Is probably wrong
in fearing National Health Insurance would destroy private practice, but it
Is not wrong in thinking that the technological and social forces underlying
social insurance would vastly affect doctor-political relationships. Even in the
absence of social insurance measures like Medicare, the revolution in medical
technology would have made huge demands on the amount and organization of
capital and specialized manpower and resulted in greatly expanding the role
of what Robert Cunningham calls the third world of medicine-medical schools,
PAGENO="0151"
147
hospitals, private insurance, group practice, and the drug industry.s That or~a~~
sized medicine has managed to shape and control these forces, as well as 1~he
forces of social insurance, is testimony to. both.the high soeial.credit of physicia~1s~
and to the success of their past political and propaganda campaings. ~ccordi~g
to most opinion surveys~ physicians generally occupy the top position amo~ig.
professions and occupations in public esteem, altrusm, and credibility. If te~e-
vision program values are any indication, physicians vie with policemen as 4ie-
most revered contemporary occupations. What other profession could ba~ve
maintained this stance after decades of ranting against health programs for 1~he~
aged, blind, disabled, and indigent mothers and children, and after half~ a
decade of charges of financial exploitation and other abuses in the medical ci~re~
provided these classes?
How then do we explain organized medicine's continuing paranoia ~a~ic1.
paroxysm of fear' and distrust elicited by the interposition of government
hospitals in the expansion of corporatism and of social insurance? Two reasons
are that the business community and the Republican Party are no longer on the
side of the A.M.A. in the insurance debate. There are indeed no longer tc~vo~
sides, but rather at least three sides in the current debate on National .Hea~th
Insurance.
This is the very development that the A.M.A. sought to prevent. [n the cont~xt
of the earlier discussion, the' A.M.A. fought against the redistribution policy of
Medicare in fear that government and employers would become adversely affected
as payers for excessive services at inflated prices and would consequently l~ry
to check inflated demand and prices with a policy of regulation.
THREE FACTIONS IN THE CURRENT DEBATE
It is the inflationary effect of Medicare-Medicaid, produced by ineffective c st
and utilizatjon controls insisted upon the A.M.A., that broke up the coaliti n.
Up to 1965, the National Association of Manufacturers, `the U.S. Cb~mber of
Commerce, and the Republican leadership were generally allies of the £M.A~
But concern over escalating costs of medical care in the United States-wbi~ch
more than doubled since the onset of these program's in 1965~-made co~t-
containment the major new political strategy in health care, and the Federal
Administration and the business community its principal proponemts~6 The 4d.~
ministration's new cost-containment policy first found expression in the "hea~th
cost effectiveness amendments" presented to Congressional committees in Octol~er
1969, which culminated in the Social Security Amendments of 1~72 alrea~ly
discussed. Big business for its part voiced its disenchantment with the A.MJA.
through such manifestoes as the January 1970 issue of Forturse Magazine on "o~ir
ailing medical system" and such spokesnien as the chairman of I.B.M. As quothd
by the Washington editor of Medical Economics, Thomas J. Watson, Jr. recanted
his former stance "as a dyed-in-the-wool free trader, free enterpriser, a~id
hater of bureaucracy," and declared: `We do not need National Health Ipsurarkce
as a political football in 1972; we need a new National Health Insurance la~w,
and we need it now. Indeed, I hope the Administration will put this at the thp
of its priority list."
The vastly expanded authority of states to reduce Medicaid benefits a~id
PSRO's to cut down on unnecessary medical care and financial abuses e~re
but the first step in the administration's cost-containment strategy. The Pre~i-
dent in 1973 called for a major shakedown of health programs that are "too f~it,.
too bloated," and assigned the task to Casper ("Cap the Knife") Weinberger, $io~
was moved from Budget to H.E.W. Although the Democrats are identified with
the more inflationary Kennedy bill,, both Democratic and Repulican platforms in.
1972 emphasized cost containment. "Incentives and controls to curb inflation
in health care platforms. But the Democrats sought "Universal National Health
Insurance" with free choice for both provider and consumer, and at kin'
affordable cost, whereas Republicans opposed "nationalized compulsory bea th
M. Cunningham, The Third Worid of Medicine (New York: McGraw-H 11,
- Pierre de Vise, "The Social Pressures: Health Care Plans Proposed by the Fede al
Government, by Corporations, and by Labor Unions May be Regarded as teclarations ot
Independence from America's Medical Dictatorship," Hospitals, Vol. 45 (February 1,
J. A: Reynolds, "Inside Washington: The Net Tightens Around Doctors," Medi ab
Economics (April 12, 1971), 230-240.
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148
Thsuranee" beeause4~t w~rnk1 tripie ~Lieaith ~eare ce~ts s~d iy4~e 61~ioe. These
di~erences are incerporated in twe oA1~ ~he ma~or in i~Qe b~l~s-rt~ 44fl4~iS
tratjon's Comprehen~sIce HeaJth Inanrainc~ Thian (OWP), ~U tb~ Kew~edy-
Cormftn B1II.
The ma~jor participants in the present debaite have he~n id~utWe~l ra~ the pur-
chasers of care (the Administration an~ ins~u~anee carrj~rs), the providers
of eare (physicians nud hospitals), ai~d consumers (the htbor ~jc~n~.)8 E,~ch
of these parMoipants has an insurance pio~ia-the Mmb~Ltatration, the Health
Insurance Association, A.M.A., £H.A., AFL-OIO, a~i4 the UAW-spQeU
KennecIy-~orman Pian. The three leading ~p1~us represen~ the l~ree ipa~or
parties at *stake-~the Administration Plan speahs ~or ~purehas~rs ojf care; the
A.M.A. Plan for the providers of care; and the Kenuedy~Oc~rmau Plan coin~s
the closestto representing the consumers of care.
The purposes, costs, and effects on doctors vary in the three plans ~ceo~di~g
to their underlying goals and objectives. Major priorJties in the Ainistration
Plan are economy and efficiency, and mandatory PSR~Ys aa'd opt~io~al lIMO's
are designed to penalize waste and reward e~ciency. The A.M.a. would prefer
no plan at all, but if a plan is inevitable, then the objective is to assure income
for treating indigents within the existing fee-for-service, private practice system.
The. A.M.A. Plan is strictly a financing mechanism, with voluntary epipioyee
participation and no change in the delivery system. Consumers are concerned
about botib access to care and costs. Labor unions, whicla are the best org~niged
health coaa~umers, are especially distressed by the increasing proportion of fringe
benefits and payroll deductions eaten up by health insurance. Thgs, the Kcunedy~
Corman Plan goes the farthest in overhauling of the existing delivery system,
with built-in controls on costs and quality.
CONCLUSIONS
In . Won to differences between these three plans that may be bard to recon-
cile, there is great uncertainty as to whether any of the plans co~ld actually ful-
fill their stated objectives. Based on the disastrous eaperience of Medicare and
Medicaid, there is .good reason to believe that the modest Administration and
A.M.A. plans would further shift medical manpower from poor to middle-class
areas and that the more ambitious Kennedy Plan would bankrupt us. But it is not
even certain that the Administration and A.M.A. plans would not hankrnpt us or
that the Kennedy Plan would assure quality for care and control costs.
These proposals can work only if effective price and mode of delivery controls
of the three types already discussed can he implemented. There is no doubt that
under "free" competition, subSidies for the anedinal care of families above the
poverty level would result in further shifts of physicians from poverty to non-
poverty communities, raise private practice fees and force up medical insurance
rates.
Fedtral controls on medical prices and delivery systems are justified even flow
with respect to the $40 billion expended on health care by government in 1974.
~l?bey would become mandatory if the government were to increase its health
budget to $50 billion by subsidizing National Health Insurance. Without these
controls Federal subsidies would drive up medical expenditures to levels that
would not be tolerated by Americans. Within three years health care could take
10 percent of our gross national product, hospital beds would cost $150 per day,
a physician's office visit would cost $25 a diagnostic visit $IGO, and physicians
would earn $80,000 a year on the average. If that day should come about, there
is no doubt that the pressure on goverilment to nationalize hospital and medical
services would become overwhelming.
The challenge for American government is not to spend more but to spend
better-to channel current annual expenditures of $40 billion into more efficient
and accessible health delivery systems made possible by medical technology ad-
vances and national health plans. In other parts of the western world, indeed
in parts of the United States covered by prepaid group practice plans, con~prehen-
sive care is provided to all the population for a fraction of what the American
government currently pays for fractionated care for the natiQn's ol~l and poor.
8 S. W. Oleon, "1-Tenith Insurance for the Nation," New England Jonrnal of Medicine,
Vol. 254 (1971) ii25-533.
the Light of Contemporary Policy Iscues." Inquiry, Vol. 8, No. 2 (1971), 20-36.
8R. M. Battistella, "National Health Insurance: An Examination Leading Proposals In
PAGENO="0153"
149
The ~nly thing preventing a workable National itealth Insurance program ~or
the United States is that our doctors would not accept it and our citizens wo~ild
not dictate it on recalcitrant doctors at the present time. We must resign ourseI~es
to an unworkable National Health Plan that will so exacerbate the pres~nt
dilemma of poOr access and runaway costs that either the doctors or the citiz~ns
will have a change of heart, and decide to join the rest of the western woridi in
making health care part of the public interest.
Mr. Eos'ruxi~owsnii. Thank you, Professor. I
We now will afford you an o~portunity for you to have an int~r-
change, if there is anything you would like to bring up~
Mr. Eirni~u. I was going to suggest that perhaps we spend some tirpe,
if the members are interested, in the subject tha1~ seems to have run
through all of the discussions here, not premeditated, because of
course, we did not get together before this. That is the question of
ccst control.
I was going to ask Dr. Bellin something, his illustration of the s g-
nificant savings on lab in New York is a good one, but I am goi g
to ask him when you get past a tangible service like a lab, such as an
X-ray or something else, how far do `you think you can go with ti at
device?
Dr. BIiLLIN. I think this device is a good device in a number of ar as
of health care services. It is worth keeping in mind that not all hea th
care services are provided by physicians. We found abuse in priv te
practice podiatrists working in nursing homes in New York City. e
found one lining up the patients and ~iipping the toenails and sim I-
taneously clipping the city of New York a substantial amount of
money, charging per clipped nail.
We stopped that fee for service or fee for toenail and put the pod' a-
tri~t in the nursing home for a specific amount of money for a sessi n,
at a savings of substantial sums of money immediately.
Similar types of approaches of putting Services Out on bid can 1e
done with optometry and specific institutiotis. We have done that. e
have done it with ambulance services to a certain extent. There re
a variOty of approaches.
There is always the question asked as to whether the money tha is
invested is worthwhile. "Are you not spendiiig more money in carry~ng
on the audit than you actually recover?" That haS not been ur
experience.
I wonder if I could invite two members of my staff to sit On the fr nt
row, beca~ise I think I am going to be referring in the conversat on
this morning to them on a few occasions, and they can gii~e so e
specific details,
I would like Mr. Philip Agree, a member of the office of the ew
York City Corporation counsel, and also Dr. Martin Paris, the Dep ty
`Executive Director of medicaid, to please sit here.
Recently, for example, you are aware of the terrible budget ry
problems we haiie in the city of, New York. We are constantly str g-
gling with the first deputy mayor to make certain that our staffs .rc
not cut. What has been very helpful in medicaid is and we have b en
able to prove to the first deputy mayor of the city, who makes t ese
deelsiQns about cuts in staffs, that in getting back moneys thro gh
additing' we more tban' pay for the salaries of our auditors. We re
the only agency other than the OT'B, the off-track betting activ ty,
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150
that is bringing back money in the city. We are accompli~hing this by
virtue of, auditing. There are significant amounts of money that can be
`recovered.
So I hope that the Subcommittee on Health, as a result of all this
testimony does not conclude that there is a need to be annihilistic about
this. One can bring quality and costs under some semblance of admin-
istrative control. I hope this point of view is being communicated.
Mr. BUTLER. Do not let me ask all the questions, but I did want to
talk of Mr. Heim about the experience in New Mexico. I have a sense
that things can be done in New Mexico that maybe cannot be done
in some other parts of the United States having to do with service and
people knowing each other and all the rest of it.
Going past that point, there is no question that you had fantastic
success with this PSRO approach that predated PSRO's particularly
on drug costs,'I gather.
People tell me when you really get down to writing out what good
care would be, whether it is pediatric care or something else, you are
going to find out that under the Medicaid program alone the physi-
cians are not giving enough care, that is the problem is not overuse,
it is underuse. So the PSRO mechanism, which was intended to cut
costs, in fact is going to increase costs in that regard, because the stand-
ards of care are always set higher than your recent practices. They
are set at a level of perfection rather than a level of common sense.
Do you want to comment about that?
Mr. HElM. When we went into our program, we did not specifically
set as the only objective to control costs. I think when we presented the
program to our legislature we said we wanted to guarantee to the citi-
zen of New Mexico that they are getting what they are paying for.
One of our very important objectives is to detect underutilization
as well as overutilization. I will submit that not as much effort has
been directed in this way. However, the same tools that are used to
detect overi,itilization ar~ also available for underutilization. rphat is
the instantaneous production of a patient profile which can show the
total care that a patient has received for the past 12-month period.
Any inappropriate care, and inappropriate prescription of medications
can be detected quite readily and the treating physician can be so
notified.
Mr. DE VIsE~. I have a question about your paper, Mr. Heim. I hope
your State's very commendable program of cutting costs is meant to
serve as an example for a Federal program, rather than urging the
Federal Government to give back to the States the decisions about
benefits and participation in the programs-because, as I indicated in
m.y own paper. States really cannot do the job.
We had, as you know,, a forerunner of medicare in the form of Kerr-
Mills between 1961 and 1965. After 4 years of Kerr-Mills it turned out
that 90 percent of Kerr-Mills funds were going to five States, `Cali-
fornia, New York, Massachusetts, Michigan, and Pennsylvania. That
is because in Kerr-Mills it was up to the States to decide how these pro-
grams would be administered. So the richest States turned out to get
the lion's share of the Federal funds. `
Similarly, of course, medicaid is a program in which States have a
lot of leeway in defining who is eligible for what benefits, even though
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151
they are supposed to provide a minimum of five basic services. ~Te
find today that three States, California, New York, and Massachuseti~s,
get over half of all medicaid moneys, even though they count about
a fifth of the Nation's indigents.
I do not suggest that these States should not be encouraged to have
generous benefits, but, on the other hand, it does mean that half of t~ie
medicaid funds go to these three States in a program that is design~d
to help poor people and poor States.
Dr. BELLIN. I wonder if I could ask Professor de Vise a question. I
would like some comments not only about `the American Medical Assp-
ciation-which I would argue has become increasingly a paper `tiger ~n
the last 5 years. I think you already cOmmented that there is on1y~ a
membership of 200,000. As those of you who have attended meetings `~f
local county medical societies are aware it is hard to get a quoru~.
Attenrance is poor, members do not show up unless there is a hot issi~e,
leaving the organization to be run by a skeleton crew, at best.
Our experience has been that it is not so much the county medic~il
sdcieties that represent a substantial locus of force' but, rather, t~ie
hospitals and their organization, the American Hospital' Associatio~.
Since you are from the Chicago ai~ea, that is "the territory," as th~y
say in "Death of a Salesman," how do you analyze the hospitals ai~d
the American Hospital Association?
Mr. ROSTENK0WSKI. Professor, we will have to suspend for abo~it
7 minutes. We have to answer a rolicall, and we will return for yoi~ir
answer.
[Short recess.]
Mr. PIKE [presiding]. The committee will come back to order.
It is my understanding that Dr. Bellin has just asked a question ~f
Professor de Vise, and for the benefit of those who went over to vo~e
in the meantime, would you repeat the question, please?.
Dr. BELLIN. Professor de Vise gave a very instructional organiz -
tional analysis of the various forces and counterforces involved in tI~is
entire medicare/medicaid Kerr-Mills history. I felt there ~was o~e
aspect that deserved significant emphasis and I am `sure he agrees.
I commented he was from the Chicago area, so he ought to know
what I am talking about. I am talking about the American Hospit~i1
Association and the force of the hospitals.
I think we tend to beat the AMA, and I think we like to use the~n
as a kind of scapegoat for all kinds of impediments to social progre~s
when, as a matter of fact, they really have not counted for that muc~i,
in my view, in the last 4 or 5 years. I think there is a psychological
momentum that maintains interest in what' they are doing, I thi4k
to a great extent the locus of the power and authority has shifted
the hospitals, the American Hospital Association.
This is what we have found in New `York City, and I was inte~r-
ested in how Professor de Vise and my other colleagues here at t1~ie
table see this as a potential problem.
Mr. DE VISE. In my long paper I do discuss some of the other pr~s-
sure groups and, of course, the AHA is another example of `an int'e-
grated group with considerable influence over national policies. Indee~1,
in that paper I say that the AMA is much more fearful of rival groups
like the AHA than it is of the Federal Government. The AMA is co -
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152
cerned about not only the Federal Government's role but it is also
afraid the Federal Government will give aiaother group like the AHA
some piece. of the action.
If you remember, there was a huge debate during the flegotiations
on medicare with respect to the reimbursement of hospital radiologist
and anesthesiologists under part A or B. At that time the AMA came
out with a statement predicting that medicare would result in the
complete takeover of medical practice by AHA and the Federal
Government.
While the AMA has considerably dwindled not so much in contrast
to the emerging power of AHA and the other groups but because of
the emergence of con~umer interests, due to the inflationary effect of
medicare/medicaid~ What we have seen is more than a doubling of the
cost of the health care in the United States and the Government's
share of the health care bill go from 25 to 40 percent. As a result,
the business community and the Feder~l Government now have parted
company with the AMA.
In my analysis the Republican Party and big business were allies of
the AMA until about 1967-68, when the first results of medicare came
in, with costs. going way out of control, as the dem~nd for medicare and
medicaid services rose way beyond expectations. The Nixon administra-
tion came out with health cost effectiveness amendinent~ in 1969,
which resulted in the social security amendments of 197~permitting
all States to do the kinds of cutbacks on serriees that Mr. Heiin has
been mentioning.
I see the declIne of the AMA also signalized by the new A~1A bill.
ghc AMA gave up its medi credit bill and has now come up with a
J~andatory hospital insurance, national health insurance from the
point of view of employers, although employees would still have the
option. I doubt, though, that the AHA has gained any influence oveii~
the AMA because it too is faced with the revolt of the consumers, the
Government, the business community, and labor. It is now the target,
as you know, of regulatory legislation.
The AHA reacted against a common assumption of government
ag~n~ies in a recent editorial on the ~itestion of "Are there too many
hospital beds P', and they denWI~ this. Hospitals actually are much
more affected l~y the public utilit~r types of reforms than doctors. ~Cer-
tainly nobody is talking about certificate of need for new pby~icians'
offices.
Also, there is new legislation in three or fo!ur States imposing rate
control for hospitals. Corresponding fee controls has not `been dis~
cussed for physicians yet. So I would say the AHA, although it i& eer-
tainl~r a strong rival of the AMA, has not eclipsed the AMA in political
inth~ence. I think the influence of both groups will be much less in new
health legislation than in previous legislation.
National Health Insurance, I am sure, will see tremendous eonces~
sions made by the AMA, but also by the AHA, because both groups
actually are targets of `cost containment policies of consumers.
Dr. BELLIN. Might I ask Mr. Heim a question?
Mr. Pi~. I am going to at this point let Mrs. Keys ask a question or
two,. if she would like to, and I might even like to ask a couple myself.
Dr. Bellin, I realize you are having a ball lip there, but it is our turn
to play.
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153
Mrs. Keys.
IShe nodded no.]
Mr. PIKE. Well, all right.
Dr. Bellin, I will ask you a couple of easy ones, and then I will a k
you a tough one.
You suggest that one of the reasons that these costs go out of contr 1
~s that there is no effective method of disciplining a doctor, a physicia
~n the present system. If the medical society kicks him out of the me i-
cal society, he may not belong to it anyway.
What would you recommend for a proper disciplinary procedure fpr
a doctor?
Dr. BELLIN. Well, one would need a few elements of discipline. O~e
element of discipline is to take his money away. That is the first thii~g
you do.
Mr. PIKE. At what level is the judgment? Who is going to make t e
decision to take his money away?
Dr. BELLIN. I would argue that it has to be a review organizati n
that is accountable to the public. I do not believe that the PSRO's w 11
be sufficiently tough. Maybe they can be tough in a city like New Yo k
where it might at least be theoretically possible to have physicians from
one part of town review the work of physicians from another part pf
town and these physicians do not know one another.
I would be interested to hear what Mr. Heim has to say from N~w
Mexico. I was originally health commissioner in Springfield, Ma~s.,
and I was a practitioner there before I went into public health, a~id
all the doctors know one another.
Mr. PIKE. I want you to know that all the doctors know each otl~er
up in Riverhead, Long Island, N.Y.
The question is, who isgoing to take away the money?
Dr. BELLIN. I would argue that it ought to be the health departm~nt
or an agency like the health department.
Mr. PIKE. Is this going to be done without any judicial proceedings?
Dr. BELLIN. There would have to be a quasi-judical proceedi ~g
within the health department.
Mr. PIKE. The health department will be both prosecutor and judge
in this case?
Dr. BELLIN. That is correct.
Mr. PIKE. All right, that is a good hard line.
Assuming that this is the way to do it, assuming, as you say tI~at
you have the toughest enforcement operation in the country, the f4~ct
is, as I understand it, that the city of New York today gets 20 perc4nt
of all the medicaid monoy spent in the United States of America.
If I could believe the New York Times, New York has just underg~ne
one of the largest scandals which has been seen in the health care opér-
ation in the form of nursing homes. Why?
Dr. BELLIN. One reason that you 1~now about what goes on in N~w
York City is because the national media, at least part of the natioi~tal
media, are in New York City, and the warts and blemishes of New York
City are publicized for the world to see.
I would argue if one were to go to Dubuque or San Francisco or
Phoenix, one could find analogous situations.
I have spoken around the country one the subject and it is v~ry
interesting. During the formal question and answer period that occ ~rs
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154
after this presentation and gospel is presented, people argue that this
may happen in your part of the country in Sodom, but it does not hap-
pen in our part of the country, that this kind of behavior is too gro-
tesque and would not occur here,
After the presentation there is a subsequent me~ti.ng that occurs,
and it happens eve~y single time. They come and talk with me and
then they start saying all the problems that you have discussed gen-
erically exist over here oniy we do not talk about it the way you people
talk about it, and it does not get publicized.
So I want to say that the evils of the country in medicaid are not
localized exclusively to New York City.
With respect to the nursing home scandal, what happened in the
nursing home scandal is that rome years ago the responsibility for
overseeing the medicaid program in the nursing homes of the city of
New York were taken away from the New York City Department of
ITealth and were transferred to the New York State Department of
Health, and One of the areas of investigation right now by the More-
land commission in New York City is to find out why that was taken
away.
I think that in itself is evidence that we were getting a little bit tOQ
warm for them.
Mr. PIKE. Are you indicating that the State department of health
was their handmaid?
Dr: BELLIN. I a.m indicating that it was a less than adequate review
of nursing home operations and other operations. I would argue that
in a State the size of New York State, it gets exceedingly difficult for
Albany to carry out appropriate quality and cost control for local
territories and you really should assign it to a local department.
Mr. PIKE. Let's take the State of New York as an example. You
would make the enforcing agency for a health care program the county
department of health outside of the city?
Dr. BELLJN. Depending the way the government runs. In some areas
we have stronger county health departments than elsewhere, and in
some places we have stronger urban areas and in some areas we would
use the State because the local health department cannot do it.
Let me share with you the following. I spoke before the American
Public Health Association on this subject a few years ago, and the
health commissioner of one of the States came to see me and said,
"Ypu know, you are doing the kind of job we would like to do in our
State, and we would do it in our State but we cannot."
I said, "Why can't you?"
He said, "You have to understand our State public health depart-
ment's board of health, for whom I work as health commissioner. On
it are the medical societies, nothing but the medical societies, I work
therefore for the medical society in our State, and I simply cannot
do it."
The man cannot do it. His pension depends upon his appropriate
behavior. So I would be loath to make a general rule about this. I
would say it depends on what is the governance of the local agency.
There would be many places where I would not use the health depart-
rneut.
I know too much about the blemishes of some of my colleagues in
the field of public health and why they behave the way they do, or
PAGENO="0159"
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why they cannot behave the way they should. Perhaps you have o
have a parallel structure to represent the eyes and ears of the Feder 1
Government.
Mr. R05TENK0W5KI. One of our difficulties in trying to legislate is
that we cannot legislate without having criteria, that are going to e
applied nationwide. As to whether you are. going to use the Stare'
health department or the county health department or set up soi~ie
parallel structure, I do not see how we can legislate along those lin~s.
Dr. BELLIN. One suggestion.: Offer a number of options. Estahli~h
qualifications and criteria for that type of agency appropriate to cari~y
out this kind of responsibility. The boat was missed in the PSR1O
legislation. If you are going to establish PSRO's, at least give an o~-
port unity not only to the medical society to have the first dibbs ~n
the PSRO, but assign the responsibility in some cases. on a de.monstr~-
tion project to a State department of health, assign it on some bas~is
to a city department of health, assign a few demonstration projects
to a university, to a school of public health, to a department of urb~n
studies.
Then in a period of 5 years~ you could compare to determine und~r
which auspices the work is better. By assigning all PSRO's to medical
societies you have essentially put all your eggs in one basket. Havi4g
assigned it all to the medical societies, you should not be too surpri$d
about what you will find in.3 to 5 years.
Mr. BvTLER. I would like to respond to Mr. Pike's point.
One is quality control on nursing homes. That is a very difflci4lt
thing, `although it relates to it, I think, more than cost control. If y~u
just have filth, if you have people dying, that is a standard rnedic~I
quality control problem. There are a lot of different w~vs to try to
deal with it. None of them is perfect, and, as has been indicated hei~e,
you have a wide variety of skills, talents, ability, organization, and ~o
on from city to city and State to State.
I am unclear as to how you would arrive at any one given soluti n
to the quality control problem. /
The second one has to do with corruption, just plain stealing. n
nursing homes that is not much different than paving contractors r
anything else. You never get rid of it. You find a lot of ways to t y
to deal with it, and it i~ a clossic city-county-State problem, and I o
not think it is uiiique to the medical care field.
The one that is unique tO medical care, even when `the nursing horn s
are clean and when nobody is stealing, is what is it they are suppos d
to be doing. It is unclear now 5 or 6 years later exactly what the peop e
had in mind when the nursing home benefit was included in medicaipi.
Of course, the legislation was not seen as' greatly significant at th~t
time, medicare was the big thing. But presumably one of the theori~s
was that nursing homes would be less expensive than hospitals `a.r~d
people could go into them and then they could come out.
Going back to the question about chronic care, I think the statis.tiFs
are now that the average stay in a nursing home is 4 years terminatqd
by death. This is one-third of all medicaid expenditures, so yo~i a~e
talking about $5 billion.
So our problem for the long range is what about a lot of chronical'y
ill people, are we goi~ig to house them in a health institution whi4h
PAGENO="0160"
156
is inherently more expensive than some other kind of institution?
Then that gets us back to quality control problems, because you say
you do not have to have registered nurses. Then what is this, a board-
ing house? And so on.
So that last problem is the toughest. ~[y own view is we cannot deal
with this problem of chronic disease through a medical model such
as a nursing home. We have to have a whole new residential approach
for that or put people back in their own homes, and that will take years
to develop.
Mr. R0STENK0w5KI. Mr. Duncan will inquire.
Mr. DuNCAN. Thank you, Mr. Chafrman.
Dr. Bellin, how many enrollees do you have in medicaid in New
York City now?
Dr. BELLIN. Currently 1.4 million now.
Mr. DuNCAN. You have increased that constantly each year?
Dr. BELLIN. No, sir.
What actually happened was in j968 we achieved our zenith enroll-
merit. It was about 2.4 million, as you are probably aware, there were
many definitions of what constitutes medical indigency under the med-
icaid program. Initially the rule was, if you were in a family of four
with $6,000 a year for the State of New York, you were defined as
being medically indigent and the enrollment was close to 2.5 million
with that rule.
But by 1968 the New York State Legislature redefined it to be
$5,aOO for a family of four, and then subsequently $5,000 a year later,
and with each decrement there was a slicing off of people who were
qualified to belong to the medjcaid. program, until ultimately we now
have about half the number we had back in 1968.
Let me comment about that. To give you an example of the terrible
abuse in this program, in 1968 when we had double the number en-
rolled that we have now, we were spending about $18 million a year
in pharmaceuticals in New York City. With half that number en-
rolled, rather than half the expenditure of pharmaceuticals, we are
spending close to $40 million a year in pharmaceuticals on the basis
of increased drug costs alone.
Let me reiterate something~that may sometimes be forgotten.
Costs of drugs have remained on a plateau for the last 5 or 6 years.
They have not gone up that much. Price per presci~iption increase
surely does not account for that kind of increase at $22 million. One
can only conclude that either there has been significant physiological
deterioration of the people in the city needing three to four times the
amount of drugs they were getting back in 1968, or there is a tremen-
dons amount of overutilization of pharmaceuticals.
I would opt for the latter explanation. One can give example after
example after e~amp1e for this escalation of costs.
I would plead with members of the subcommittee that it be very, very
careful indeed to structure within the framework of national health
insurance appropriate quality and cost controls.
Mr. DUNCAN. How many dollars are you spending on medicaid?
Dr. BELLIN. Close to $1.5 billion a year. This is a doubling. We were
spend.i~ig $750 million in that 1968 period when we had double the
enrollment,
PAGENO="0161"
157
Mr. DUNCAN. I read a paper recently that you had given-and i
indicated then a 1~ew years ago the money you were spending in Ne
York City was 20 percent of all the medicaid expenditures in th
Nation. S
Dr. BIa4LIN. That is correct, sir.
Mr. DUNCAN. Is it more than that now?
Dr. BELLIN. I do not know what our percentage is right now, but it
is double the amount that we spent in absolute dollars in 1968. I do no
know what our percentage is of the entire Nation.
Mr. BUTLER. It is about 10 percent of the country. S
Mr. DUNCAN. How much of that goes to the hospitals and how muc
to nursing home care, and how much to physicians?
Dr. BELLIN. If we put hospitals and nursing homes together, w
would say that about two-thirds to three-quarters of that money ap
proximately each year goes to institutions, and it is sometimes5 for
gotten that the bulk of the expenditure really goes to the institutions.
Keep in mind that a per diem of hospital care in New York Cit~r
can vary anywhere from $150 to $240 a day. That is a preview of corn
ing attractions for other parts of the country. S
Mr. DUNCAN. Does the other one-third go to-
Dr. BELraN. The remainder go to private practitioners in their offices,
to physicians, to dentists, to optometrists, to podiatrists, to pharma
cists, to chiropractors.
Mr. DUNCAN. Mr. Heim, you restrict coverage I believe in your State,
is that correct?
Mr. HElM. That is right, sir. S
Mr. DUNCAN. How many days would a person receive in a skille
nursing home?
Mr. HElM. As I mentioned in my statement, this was done as a tern
porary expedient. We had restricted coverage for only 14 months. W
have had an unlimited, coverage for the covered services since July o
1972.
Mr. DUNCAN. Does that also include dental care?
Mr. HElM. Yes, sir.
Mr. DUNcAN. When you first started it was emergencies?
Mr. HElM. We still limit dental care to treatment of children an
emergencies for adults.
Mr. DUNCAN. And does the person still have the right to select thei
own physician?
Mr. HElM. Yes. S S
Mr. DUNCAN. Or their dentists? S
Mr. HElM. Yes, sir. S
Mr. ~UNCAN. Would anyone on the pane1~ care to express themselve
on the lIMO's? S
Dr. BELLIN. In New York City we currently have a contract wit
one HMO, that is with the health insurance plan of Greater New York
that is about 25 years old right now and has an enrollment of about
800,000 patients cared for by 1,000 physicians through 31 confederate
HIP gr9up~.
Now the contract we have with them is to give them a specific amount
of money per patient per year. That actually represents a very small
proportion of the total enrollment in the medicaid program. On i~
PAGENO="0162"
1.58
nationwide basis there has not been the enthusiastic, at least, endorse-
ment on the part of patients of health maintenance organizations. This
represents a disappointment to many of us in the health care field.
We had hoped that more people would enroll from the standpoint of
quality control and of cost control. As an matter of fact, the marketing
ability of selling this plan to people has not kept pace with the grow-
ing population of the United States. Most people evidently prefer their
own physicians. I guess that is understandable, and they are reluctant
to break away from the previous physician and join what seems to
them to be a strange method of providing services.
Some of my other colleagues may have some opinions about that.
Mr. DUNCAN. I understand some of the lIMO's are in financial
trouble today.
Mr. BUTLER. That is correct.
I would say I was responsible for the preparation of HEW's HMO
initiative, and I will take some of the blame and maybe some of the
credit. They are like most undercapitalized industries right now in
the United States, that is the new ones. High interest costs kill them,
and that is why they are undercapitalized, because `they can not borrow
enough money.
Also, the HMO legislation, so-called enabling legislation, in fact, was
a little bit disabling and it is now being amended to try to make it more
possible for fledgling HMO's to get started. They were actually put at
a competitive disadvantage to existing providers of care. They had to
do more things and offer more benefits.
You see, they were going to require that employers give their em-
ployees an option of joining an HMO or continuing with the regular
employee plan, and that really has not worked out under the Federal
legislation yet, and that needs to be changed.
There are some basic problems, again problems that I think we
underestimated when we first worked on HMO's. Dr. Bellin referred to
one of them and that is a quality control. If you have an HMO, and
this has been a problem in Los Angeles over the last few years, you
have to make sure that people are not shorting on care, because, just
as the doctor with fee for service has an incentive to provide for more
care than is needed, the HMO sees itself getting a flat sum and has an
incentive to do as little as possible. There are problems on both of
those.
So quality control becomes an issue.
Even if you have good quality control mechanisms, which they did
not have in the case of Los Angeles and they are now trying to insti-
tute in California, there is another fundamental problem and it goes
back to this question about technology and how important do you
think medical care is.
For example, we have done studies on coronary bypass operations,
and you find out that in the fee-for-service system, that is with a lot of
surgeons who are very skilled at this, that you may have from 2 to 4, up
to 10 times as many coronary bypass operations performed on a given
population of people as you will have in a controlled organized system
like an lIMO.
In those situations the lIMO's will say, we are very conservative, we
do not think those operations do a lot of good, we are waiting to see
the evidence come in, sure it helps with angina and so on.
PAGENO="0163"
159
Maybe some of you have seen the article in the Wall Street ,Jour~ial
in the last few days about bypass operations. They are growing ei~or-
mously in the last few years. Here is where HMO will do a lot in c~n-
trolling costs.
Now which standard of quality are you going to use to determ~ne
whether the HMO is good or not? You see, they are operating really~on
very different assumptions, for example, in the case of that one ope~a-
tion. That is why I think that HMO's are always going to be a~ a
comparative disadanvtage as long as you have an unlimited insiir-
ance system, because they will always look as if they are not dong
enough compared to the fee-for-service system.
Mr. DUNCAN. Professor de Vise, I think in the past you have x-
pressed some reservation about the HMO's?
Mr. DE VISE. I have, Congressman. It is partly based on the valid~ty
of the models we had of HMO's, the prepaid group practice organi a-
tions like Kaiser-Permanente. These are mostly found in areas wh ch
have a surplus of physicians, the west coast, New York City, Haw ii,
but they are not found in places like Chicago because in places 1 ke
Chicago you cannot hire a doctor at $30,000 or $35,000 a year.
So in a way you are looking at the areas where you had suffici*nt
physicians and where an HMO could hire doctors at $30,000 or $35,000
a year, who would be willing to work for a salary.
Of course, most States do not enjoy a surplus of physicians a~id
in these States you have to either get the doctors involved in t~ie
medical care foundation kind of HMO, where the doctor gets a
fee for service, or else you have to rely on FMG's or else you have to
pay physicians $60,000 or $70,000 a year to join.
So my position was that HMO's will actually turn out to be mare
expensive than no HMO's especially if they have to compete with
the dual option of the private sector, and I guess we are committed
to the option. If there is a dual option, then indeed the HMO's will
have to bid resources away from the private sector at the going rare,
so they would have to meet the competition of $70,000 or $80,0~0
practices and what the hospitals can get from third party paye~s.
In that sense the HMO's, since they have to provide complqte
health care, are going to charge more than the private sector.
Mr. DUNCAN. Thank you.
Dr. Butler2 you mentioned something about we would have to
go to something besides fee for service, and I did not quite und r-
stand what you meant by that. Would you care to explain furthe ?
Mr. BUTLER. Dr. Bellin said that he did not agree, and I thi k
he and I are in more agreement than we think.
I think from the standpoint of Government payments, that if
you really are interested in putting a lid on medical care expen i-
tures in the United States-and that may not be something you wa t
to do, you may say medical care is important enough that we are goi g
to let costs inflate and go to a 8 or 9 or 10 or 12 percent of the Grqss
National Product-but if you do not want to `do' that, if one of t~ie
prime concerns is to put an absolute lid on those expenditures, th~n
I do not see any way to do that with the fee for service system.
Mr. DUNCAN. What would you suggest?
Mr. BUTLER. Then I think you have to pay somebody so ma y
dollars per person per year for the care of that person, but it does n t
PAGENO="0164"
160
have to be an 1-IMO. The most extreme form of that is in the Ken~
nedy bill, which essentially puts an absolute lid on expenditures,
allocates them all out by regions, and says, "All right, you in the fee
for service system, you only have so many dollars and you have to
perform the services within that amount of money."
I think we have to experiment with a number of variations of
cap~tation payments out to the regions, although I do not favor that
particular one.
Then the doctors within the region-and, of course, the so-called
medical foundation does this to some extent-the doctor in any given
area may be paid on a fee for service basis. That is, if the Federal
Government put out let's say $600 for a family of four people to some
institution in that area, then it would be very possible for that institu-
tion, be it a hospital or anything else, to hire doctors on a fee for
service basis or to do whatever they wanted to, provided they stayed
within that overall ceiling.
Mr. DUNCAN. My time has been up for some time and I apolo-
gize to the rest of the subcommittee.
\`Ir. RO5TENK0w5KI. Mr. Cotter will inquire.
Mr. CorrER. Thank you very much, Mr. Chairman.
Dr. Bellin, you have painted a pretty gloomy picture of abuses
in the medicaid program in New York City. Let me ask you this.
Do you think this is peculiar to New York City, or do you think
it is common to other parts of the country as well?
Dr. BELLIN. I would argue that there is a random distribution of
immorality throughout the United States, and it is not localized ex-
clusively in the city of New York. We just flagellate ourselves better
perhaps and publicize it better.
I would argue that if you put me into a similar post in any part
of the country, possibly with the exception of your part of the
country, sir, I would be able to find the same proportion of scoun-
~drels there as we have in New York City.
Mr. COTTER. What I was getting at, really, is the medicaid ex-
penditures in New York City are about 20 percent of the total in
~the country.
Dr. BELLIN. Ten percent is a better statistic.
Mr. COTTER. By multiplying it five times, the savings we could
accomplish would be that much greater.
Dr. BELLIN. You see New York City is a peculiar area in that
we have 5 percent of the Nation's population, but we argue we have
at least 15 percent of the Nation's social problems and other parts
of the country send their social problems to us, and we are compelled
to ab~Orb them.
Mr. COTTER. You pointed out these abuses in the labor field. Are
ther~ any other areas within the medicaid program?
Dr. BELLII~. I could regale you with story after story after story,
and statistics in every single one of the areas, any area you care to
mention. I can give you dentistry where we did a review of patients'
mouths where we had paid for false teeth, we had paid for extrac-
tions, and we found no evidence of false teeth, we had paid for.
We had paid $300, for example, for a bridge and the bridge was evi-
dently an invisible bridge. We paid for extractions of teeth and
PAGENO="0165"
161
when we examined the patient's mouth we found a third set of desi u-~
ous teeth had grown back into the patient's mouth. That is the o ly
explanation we could dope out other than one of fraud.
We found situations of poor quality of podiatry. Because we w re
accused in our department as not being totally objective, I sa d,.
"OK, I will tell you what we are going to do. We are going to ~te-
velop a protocol of quality. We are going to turn this over to your
alma mater. We are going to have the schools check their own alumn~."
We developed a protocol with the College of Optometry in N w
York City and with the College of Podiatry in New York City, a d
they checked the podiatrists and the optometrists in New York Ci y.
About 95 percent of their graduates work in that area. They fou d
about 20 percent of the optometry as professionally unacceptable y
their own professors. There were similar statistics in the field of
podiatry.
I think we are deceiving ourselves if we conclude that this is u4c-
essarily something unique to medicaid. The studies are yet to be p~r-
formed in this depth for middle-class health care services, and it
would be a very useful thing indeed if we would have some objecti~ve
analysis of the quality of care that is being rendered in private QffiC~5.
I would argue that we might find that there is some trouble do*n
in River City.
Mr. COTTER. Do you think it is possible to eliminate these abu~es
or to police them in such a way that the Government is not going ~o
be cheated in this fashion?
Dr. BELI~IN. We use two words in public health. We use "erac~i-
cate" and "eliminate" with somewhat different meanings. Elimin~te
means to bring it down to reasonable proportions, and eradic~te
means to extirpate it from the planet Earth. I think we can brhkg
it to better proportions than we currently are.
Right now there is a heyday going on out there, and the reas4n
why there is a heyday is the local and State and Federal Gover~i-
ment has been assigned the responsibility that it cannot carry out,
because it has not been given the wherewithal to carry out the~e
responsibilities.
I can understand the poignant plea that Mr. Heim has made, a d
I certainly agree with it, to remember we are mortals and keep n
mind whatever program you promulgate in health insurance th t
you are going to be dealing with mortals. We may be extraordina y
mortals, but we are mortals anyway.
Mr. COTTER. I wonder if the Government has a capacity to a
minister a national health insurance plan.
Dr. BELLIN. I think the Government has the capacity. I thii~k
up to the present time the Government has been reluctant to u~e
that capacity. The Government is not without power or author1t~7,
but there are going to be some hard decisions that have to be mad~.
You know there is an old Chassidec legend about when the Messi~h
will come. There is a theory that the Messiah will come only wh~ii
things get bad enough on Earth. I think that we will get the legisl~-
tion here only when things get had enough, and maybe it is $200 a d~y
in the hospitals now, and maybe we have to see $350 to $500 a da~y
before the message is communicated.
PAGENO="0166"
162
Mr. COTThR. Thank you very much.
That is all, Mr. Chairman. Thank you.
Mr. R05TENK0w5KI. Mrs. Keys?
Mrs. KEYS. Thank you very much.
Gentlemen, I would like to hear each of you on the advantages or
disadvantages of a truly comprehensive NHI program which would
bring under one umbrella all the varying programs we now have,
including service to veteransq et cetera.
Mr. BtJTLER. I guess the first thing I would say refers to the adminis-
trative problems which are not insurmountable, and the need for facing
such in problems in testing and figuring out the role of the States. That
would apply to any system.
Then you are dealing with basic value choices which only the Con-
gress can make on behalf of the American people. There is no such
thing as one health insurance system that is better than another, given
any set of values. It depends on what it is you are trying to do.
So when you talk about a comprehensive system, if you mean by
comprehensive in benefits, what you are saying there is that, well, if we
add as full medical benefits as we can, dental care for kids, nursing
homes, and so on, the Congress is making a decision that it wants to
buy that kind of thing on behalf of time American people and not put
the same amount of money into, let's say, income maintenance pay-
ments through social security or public assistance or some other pro-
gram. So there are very fundamental choices like that to be made at
the start about national health insurance.
Mrs. KEYS. I am speaking specifically about the administrative prob-
lems. That was the question I really wanted to ask.
Mr. BUTLER. I did comment before a little bit about that. I happen.
to think that the issue is not whether the private sector or the public
sector runs the program. That is a question, but there is no clear choice
in that.
Mr. Cotter, I think, suggested something like that. Is that one of
your questions?
Mrs. KEYS. Would not administration of health programs be sig-
nificantly simpler if there were not so many duplicating and over-
lapping administrations?
Mr. BUTLER. I am not sure exaitly what you mean.
Are you thinking about the Veterans' Administration?
Mrs. KEYs. I am talking about programs within the Federal Gov-
ernment. There is a great deal of controversy about whether or not we
should move ahead and leave medicare, medicaid, veterans health care,
alone or whether we should have absolutely one health insurance pro-
gram-one program that would abandon all of these separate
jurisdictions and be administered as one.
That is what I wanted your comments on.
Mr. BUTLER. I think it is possible to have single administration and
multiple programs, given benefits and so on.
Taking those one at a time, certainly medicaid and medicare have
to be integrated into any national health insurance system. There is
no question about that. That does not mean you may not have different
provisions for the elderly and for other kinds of people.
One of the major problems, for example, with the old Nixon
national health insurance proposal, which I had prepared, was that
PAGENO="0167"
- 163
it deals with people at their place of employmelit. When you get in o
high rates of unemployment and people are shifting into jobs and o t
of jobs, they run out of the health insurance, people fall through t e
cracks. That is one of the difficulties in any plan you work through t e
place of employment.
So I think you have to deal with that in any national health insui~-
ance system. In the case of the Veterans' Administration, you hai~e
to address that problem, but it is not essential that be integratecj;
that is, veterans could have dual eligibility. They could vote with the~r
feet and decide if they wanted to go to a VA hospital, and if they di~
not, the VA system would begin to dwindle.
The Public Health Service hospitals are just an anachronism. The~e
are only six or eight left for merchant seamen. That is crazy. ThebT
ought to go. But the VA is a separate question.
Certainly the military is going to have its own system but for mil -
tary dependents that are covered now, undoubtedly you would wa t
`to integrate with the national health insurance.
Dr. BELLIN. With respect to the question of simplification, I won d
certainly urge that there be simplification, as much merging as possibl
I think the best way of explaining how Gresham's law operates in t e
field of health care services one could give the example of medicai~l,
medicare.
I recall in 1966, 1967, when a nursing-home owner in New York Cit~r,
or anyplaace else in the country, could receive more money for a med~-
care patient than for a medicaid patient. On a per diem basis, even
there was no more than a $2 a day difference, if an individual had a
100-bed hospital that represents $200 per day, and that is over $1,0~0
per week.
What happened was, the nursing-home directors were kicking t1~e
medicaid patients out and putting medicare patients in their place.
Subsequently, a few years later when the Social Security Admini~-
tration began cracking down on medicare and was retroactively hoh~[-
ing back mon~y for nursing homes for services they had alreac~y
performed, nursing-home directors responded as anyone in the roo~n
would. They said, "We are not happy with the way medicare is treat-
*ing us," so now they replaced their medicare patients with medicaid
patients. So this ping-ponging back and forth must occur as long ~s
there are two different Federal systems with two different f~e
schedules.
We have this in fees for service as well. Suppose a physician c~n
`sell 15 minutes of his time and receive $25 from medicare and on~y
receive $8 from medicaid. The only thing he is selling is his time.
`Therefore, he is going to prefer the medicare patient to the medicaid
patient, and the medicaid patient does not have access to the systei$.
I think it is important to take a look at these anomalies-and, aft r
`8 or 9 years these anomalies are known to all of us in the field-and o
nttempt to do something about them. `
There is one comment that none of us has made. In order to ma e
any system work, we are going to have to have physicians.
Professor de Vise has already mentioned the question of surplñs
physicians, and the only way you can have an HMO is with your su~-
pius physicians, and I think that is absolutely correct. In order f~r
Government to be in any kind of a bargaining position, it~ is necessai~y
PAGENO="0168"
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that something be done about the sellers' market in physicians which
currently is operative, where the physicians and the dentists are call-
ing the shots. We simply need more physicians, more dentists out
there, and we need a better distribution of physicians and dentists and
other health care practitioners.
In Great Britain you simply cannot go into practice where you want
to go. You have to put in a certain amount of time in a lesser-served
area. Unless you have something like that in the United States you are
going to be in a situation where you are going to pass a piece of legis-
lation which simply cannot be carried out by any of the administrators
out in the field, because the physicians in their paucity and mal dis-
tribution have us by the throat.
Mrs. KEYS. Would you agree with Professor Butler that the veterans
hospitals should remain as an optional choice?
iDr. BELLIN. I think what is going to happen is, with the passage of
national health insurance, the veteran is going to decide, for example,
in New York City whether he is going to go to Harkness Pavilion o~
the Columbia Presbyterian Hospital or to the Bronx VA hospitals.
I think in most cases they would opt for Harkiiess Pavilion of the
Columbia Presbyterian and something would have to be done about
the VA hospitals.
Certainly we have heard through the grapevine that the VA hos-
pitals are very, very concerned about the passage of national health
insurance. In New York we hear there is an increasing interest on the
part of the VA to get involved with the community. There had not
been that degree of reaching out historically.
Mr. BUTLER. Could I explain, Mrs. Keys, what I meant by that~
I hope I did not say "should." I think what I tried to say is the vet-
erans' system could be kept separate for political or other reasons. I do
not think that is an inherent defect and exactly the kind of choices
Dr. Bellin talked about would be made.
Mr. HElM. Since I am not confronted with the same level of ad-
ministrative problems that Dr. Bellin is, I think I am much more
optimistic about the ability to develop the administrative capacity to
have a comprehensive national health insurance program take over
most of the Government programs that serve the people today.
I think there is an absolute necessity to cut down on what presently
I feel is some ridiculous duplication. Just to mention one example,.
family planning services are contained in at least three titles of the
Social Security Act that I know of, and maybe there are some stashed
away someplace else, all of which we have to administer.
I should like to think that you could bring in such programs as
CHAMPUS and maybe the services to veterans in a total program, but
I would throw out this caveat that again we do not try to do it all at
once, that we have plenty of lead time, that we do it on an incremental
basis and, for God's sake, that we do not cut off services to a certain
category of recipient before it can be picked up simultaneously by the
comprehensive program.
Mr. DR VISE. Let me summarize the advantages and the disadvan-
tages of a single health care program for the Nation. I see them more
as financial and economic than in terms of the simplification of ad-
ministration.
PAGENO="0169"
16ó
The great advantage of pooling all 300 health programs ii~ or~e
agen~cy I have suggested in my paper as combating medical inflatio~,
and that is simply to match the interest of doctors in Governme~it
health programs which now adds at least 10 percent to their incon~e.
There is only one consumer with 10 percent of the national income th~tt
would be affected, and that would be the Federal Government. So y~u
would concentrate all payments in one Federal program that would
effect have a consumer monopsony empowering it to bargain unilater~l-
ly with organized medicine.
There are other important financial aspects and aspects having to ~Io
with equity. I mentioned earlier that extreme inequities in the State
programs, the fact that in some States medicaid spends about 10 times
per capita more than in other States, because some States are mo~e
willing and able to finance the 50 percent local share.
Also, I mentioned the inflationary effect of the 300 Federal heait~h
programs. They are all vying for money. Institutions and physicia~is
can play the game of tapping in several programs.
In Chicago there are some physicians who are tapping different
Federal programs and make as much as half a million dollars just
from Federal health programs. This could probably be avoided f
there were just one payment agency. At this time we cannot even mat h
medicare/medicaid payments to individuals vendors.
The disadvantages of a single health umbrella organization are th t
we do want to maintain flexibility. We do want to maintain the oppo -
tunity for local government and local vendors and local organizatioi~is
to participate in decisions and, also, we want to have competition. We
do want to have as much competition as possible and to the extent th~t
this might be discouraged by one comprehensive national health s3~s-
tern agency, we should be wary.
Another issue, as we mentioned before, is the cottage industry vers~is
the larger scale hospital as the mode of health delivery. There are ma~y
~dvantages to the cottage industry organization of medical care both
economically and in terms of psychological needs. So we have to 1~e
wary about the possible effects of one large umbrella national syst~m
on competition, on small local institutions, ai~d the cottage industry
versus the teaching hospitals.
Mrs. KEYS. Thank you very much. You have been most helpful.
Mr. RQ5TENE0w5KI. Mr. Waggonner will inquire.
Mr. WA000NNER. Thank you, Mr. Chairman.
Professor Butler, in the assumptions that you set forth with regard
to several aspects of medical care, you said that it was not so, that mote
medical care will make the Nation `healthier, that there were other i~-
fluencing factors, and you listed a number of them such as nutritio~,
for example.
Are you saying or are you suggesting or do you have an opinion ~s
to whether or not national health insurance should be comprehensive
enough to include aspects of these matters such as nutrition?
Mr. BTJTLER. Of course a lot of them national health insurance i -
herently could not deal with.
For example, there are people's personal habits. You cannot legisla e
that. There is a marvelous analysis done by Vic Fuchs on the coiki-
parisons between Nevada and Utah. They are really identical in their
PAGENO="0170"
166
population statistics and so on, but, of course, the personal habits of
people in Utah and Nevada are very different, and you come out with
very different health indices. So some things are way out of the reach
of legislation.
Some of the prevention is, too, in the sense that if you are dealing
with problems of emphysema stemming from air pollution, presum-
ably you are not going to cover that in national health insurance. That
has to come under a clean air act and auto pollution controls and things
like that.
One of the major health measures we have had in the last 12 years
has been the 55-mile-an-hour speed limit which has cut down auto
deaths by 10,000 a year.
Mr. WA000NNER. Another one of your conclusions dealt with non-
effectiveness, and your conclusion was that it was not as effective as
you would hope, even though it is highly scientific.
Have we been on the wrong track a little bit when we try to apply
in the instance of medical care too much in the way of cost effective~
ness? Is this not really impossible?
Mr. BUTLER. I think we have expected too much of medical care. I
think people outside of the profession like myself expected too much of.
it and did not realize that there are certain fundamental things such
as, we are all going to die some day of something.
Beyond that, I think that the enormous successes with infectious
disease-here we are, everybody was dying of tuberculosis and pneu-
monia, 30 or 40 years ago, and we were so enormously successful with.
that I think there was `a sense on the part of some of us that future
breakthroughs would come as those did, that there was a cure for
cancer, and it would happen quickly, and with the heart problems.
We are now-~and doctors should talk about this-but we are now in
a stage where I think it is clear that those big breakthroughs are not
going to happen as soon as we would hope, and that means we have to
take a look, if we are spending all this money, at what our priorities
are.
To me the coronary by-pass operation is a very good test of that
because we do not know enough about its results yet. We know that
it does some good. The quality is such that I think we could probably
control that so that the dangers of death from the operation are limited.
But then we have to decide whether we want to spend that much money
on whatever it does, and since we do not know enough about its long-
term results, because it has not been going long enough, what will we
do in the 10 to 20 years we are waiting for the research?
Mr. WAGGONNER. Dr. Bellin, you spoke of HEW's refusal or non-
concurrence at `least, with your efforts to provide, on a county basis,
single providers of such things as laboratory service, and your bids
are something like 50 percent of what the cost had been in times gone
by.
Has there been any pressure on the part of HEW to try to require
you to develop that in-house capability rather than contract it for
that service?
Dr. BELLIN. What has happened during the past few weeks is there
has been some dialog that has begun between HEW and ourselves about
this subject, `and `they are making some recommendation that perhaps
this might be done either (a) on a demonstration project and put this
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167
out on bid in one of the counties and see `how it works out, or (b) let
the low bidder come in in each of the counties and permit other labb-'
ratories to participate in the program at the same low bid as the oth~r
low bidders.
We are very gratified that there has been this kind of response, ~t
least a `beginning of this kind of response, and we hope it continu~s,
and we hope it gets translated into a program.
I can give other examples of frustrations that administrators face
in attempting to effectuate what seem to be reasonable cost contrchs
and quality controls. These channels are extremely educative.
Let me give you another example. I do not want to say that HEW
is a villain. We work very closely with them and occasionally we ha'~re
a disagreement. Let me share one with you under the State Depart-
ment of Health in New York that occurred some years ago.
I agree with Professor Butler's disillusionment about what mec~i-
cine can accomplish and I am a physician myself. But we do kno~v
that if you perform a Pap smear every year on a woman over the a~e
of 35 or 50 and you pick up early cancer of the cervix, that is, tl~e
neck of the uterus, it is possible to intervene at that moment and ha'~re
an enormously successful effect at preventing cancer from spreading.
We have found in New York City that very few physicians were
performing Pap smears on medicaid patients. In other words, th~y
would do a complete physical examination of the woman, or tell ibis
they were doing a complete physical examination of a woman, a4d
not perform a pelvic examination and a Pap smear. When we check~d
into the reason for this, they felt it took too much time and it w~s
not worth while to them, and they skipped it.
Some did say, in order to justify financially the performance of tl~e
Pap smear, that they would invite the patient to come back the secor~d
time so that could be billed as a second visit, and the patient wou~d
not return `and so never had the Pap smear.
So I communicated with the State Department of Health. I sa~d
it is a lot cheaper to pay for a Pap smear now than to pay for `advanc~d
pelvic surgery and radiation in the future in case, God forbid, this
becomes widespread cancer.
From a cost-benefit analysis it is clear we ought to do what we c~n
to encourage. the physicians. Let's pay them extra so while the patie~it
is on the table the physicians will do the Pap smear.
Let me tell you the response I got. The response was "No dice~'~
we let you pay extra money for this part of the physical exam~-
nation, within a short period of time you will be asking extra money
to palpitate the right breast, to do a blood pressure, and you wi'l.
financially fragment various pieces of the physical examination."
That was the response I got about 5 or 6 years ago. I would urge
that there be a significant review of just what we are paying for, ar~d
when we have something like this which makes a difference.
Now, on coronary bypass, that is up for grabs, and maybe we wi~ll
know in 10 or 20 years, but in the Pap smear example we know `~t
makes a difference and that is where we ought to be putting the public
dollar.
Mr. WA000NNER. What has been your experience in the 19 municip~d
hospitals that you administer or have some authority over with regai~cl
to malpractice in a relative way?
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168
Dr. BELLfl~1. I am afraid I can't give you any comparative data.
There have been malpractice suits against house staff and physicians
practicing in the in-house hospitals. There have been some suits.
I can't give you anything more.
Mr. WA000NNER. You raised some question about administration and
you mentioned some possibilities of National Health Insurance pro-
grams, whether it should be Federal or joint Federal and State, and
that sort of thing.
You didn't come down in any particular place yourself, but as a
layman with the experience you have had with the bureaucracy here
in the legislative branch of government and now with the executive
of your State, what is your personal opinion? Should it be a federally
administered program without regard to the States? Should it be a
jointly administered program or what?
Mr. I-JEff. As I mentioned, I don't have any hard suggestions to
make at this time, Congressman. But I am assuming that there will
be State involvement in whatever is passed, and my appeal was that
this State involvement be clearly spelled out in the legislation and
that the State processes, their political legislative appropriating proc-
esses, be given sufficient time so the States can react to whatever is
required.
My personal view is that the closer you can get government to the
people, the better it is. But in a vast program like this we are talking
about a lot of money and about uneven performance by a number of
States and this, indeed, may not be practical.
Mr. WAGGONNER. Professor de Vise, on page 7 of your statement, the
last paragraph, I don't know whether this is a bad choice of words
or exactly what your intent was. But in the last paragraph, page 7,
you say: "The inexorable progress toward the welfare state is the
result of long-term processes of industrialization and urbanization."
You are not saying movement toward a welfare state is progress,
are you?
Mr. DE VISE. This is my wife's choice of words. I had another word.
But she said, "No; that is not positive enough," and she changed it.
My original wording for that was "The inexorable ascent or descent,
some would say, to the welfare state."
Mr. WAGGONNER. I have one other question and I am through. You
are not by chance either advocating that the Government involve itself
in the assigning of doctors to specific areas as a matter of policy,
are you?
Mr. DE VISE. I have not advocated that here, but I have testified
before the Kennedy committee and the Rogers committee last yeai
on the health manpower bills in which I commented on the proposals
with respect to the medical schools contracting with students to serve
in medically unserved areas.
I think it is indispensable that we find some way for the Federa'I
Government as a payer of services to start encouraging doctors to not
go in even larger numbers to glamorous areas like California, Massa-
chusetts and New York.
Mr. WAGGONNER. I agree with you that we have something in the
way of a problem with regard to maldistribution of these abilities. I
just don't know how in the hell we are going to resolve it.
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169
Mr. n~ Vi~. I don't know either, and I am not an advocate of t ie
current proposals being considered by Congress.
Mr. RIOSTENKOWSKI. Mr. Crane will inquire.
Mr. CRANE. Thank you, Mr. Chairman.
Looking at the testimony, is it safe to say that all of you either a e
supportive of the concept of national health insurance or else tee!
it is inevitable?
Mr. BUTLER. 1 would like to comment on that. I think we h4re
national health insurance now.
Mr. CRANE. Are you saying that because about 40 percent of health
dollars are now spent by the Federal Government?
Mr. BUTLER. That's right. I would not necessarily support incre~s-
ing that amount, but I think the point is that most of the probler~is
we have been discussing we have now, because we have a very, vei'y
high percentage of the Nation's medical bills now being paid by heal h
insurance and we have a national health insurance policy, a tax pohi y
certainly in the sense we permit employers to give the health frin e
benefit to their employees and we don't tax it the same.
So we have a national health insurance policy now and are we goi g
to change it and are we going to fill in the gaps for those people i~
the country remaining who have no insurance or something less? I
think we will have to have less of some kinds of health insurance f r
some people. I think the packages are far too rich and far too ta -
subsidized in industry now, and I think we need something more f~r
some others, such as low-wage earners in the South who don't ha~re
anything.
Dr. BELLIN. I find myself in substantial agreement with Profess r
Butler about this. I think that significant attention has to he paid o
what steps you are going to take, whether you are going to ha e
catastrophic insurance first and test that out and work the bugs o t
before you go to a more comprehensive package or whether you aire
going to do a comprehensive package on an incremental basis.
I would urge that you proceed incrementally, that you not ma1~e
the same error that was made in 1965, where some States respond wi1~h
extraordinary generosity in taking advantage of the medicaid legth-
lation and then had to live to regret it about 9 to 12 months later, bitt
found that they were stuck.
I think that the whole situation is too complex and beset with aE1
kinds of imponderables that you simply cannot predict to do ant-
thing but adopt a sensible public policy of going at this in incr~-
mental steps, small incremental steps, try it out and see how it worl~s
and then move on to the next step.
I would think that one of the areas you should concentrate on ai~e
those areas where we know there would be a payoff and lives saved.
Mr. CRANE. Mr. Ileim.
Mr. HElM. Yes, I believe it is inevitable and I think desirable. I, of
course, agree with Dr. Bellin. As is contatined in my statement, I thin~
we ought to move into the program in an incremental way.
Mr. CANE. Professor de Vise.
Mr. DR VISE. Also on page 7 of my report I have a word which yo i
may take exception to. The word is a Frankenstein monster, as I cafl
medicare, and I suggest that what now impels us to national healtI~i
PAGENO="0174"
170
insurance is the need to control what I call the Frankenstein monster
of medicare-medicaid and that is because we have got this monster by
the tail and we have to bring it under control. It is not enough just to
control costs in the public sector, but with the private sector as well
since the public cost is determined in the private market, reimbursible
fees are based on what is the ongoing market.
Unless the Federal Government can come to grips with the factors
that are responsible for medical inflation in the private as well as the
public market, then I think we are going to go bankrupt even with just
medicare-medicaid.
My own State of Illinois had to cut back 6 percent across the board
~on the State budget because of uncontrollable programs in which
medicaid is a major. factor as indicated earlier by some of the panelists.
Mr. CRANE. Don't you see, Professor de Vise, the danger that in
attempting to control the Frankenstein monster which was created
in medicare-medicaid with yet another program more far-reaching,
that we might be compounding error
Mr. DR Visi~. In the last page of my statement I say we will indeed
aggravate the problem if we make the same mistakes of the medicare
legislation and that is by greatly increasing the demand for services
within the existing framework of supply, and market conditions such
as the fee-for-service. I indeed assert that we will be aggravating the
problem if we h~ve national health insurance which does not have
effective controls on costs.
Mr. CRANE. On the subject of costs, under the British National
Health Service, they are paying 5.5 percent of their gross national
product for health care. When one talks to hospital administrators,
physicians, and staff within their system, they all say the same thing.
There is an insufficiency of money being allocated for health care in
Great Britain.
Mr. DR VISE. But at least the British can decide, the government can
decide how much of its income will go to health care. `F his is what we
cannot do. I am sure an individual in this country would not decide
to spend 9 or 10 percent of his income on health care, but we are forc-
ing him to do this collectively by buying medicare-national health
insurance. I think the British figure of 5 percent is too low. Sweden is
up to about 7 percent like we are. But at least the British people do
have the option of deciding how much of their income they will spend
on health care.
As Mr. Butler indicated, other things than health care make for
good health and these other things are much more important and as
individuals we can decide this, but as a government individuals lose
that freedom.
Mr. CRANE. The problem some of the health administrators and
physicians mentioned to me is that when you have political medicine
as they have in Great Britain, health care becomes increasingly a low
priority item when contesting with other budget priorities that are a
lot more glamorous to the electorate.
For example, building housing is a highly visible, presumably
highly desirable political thing. Mass transit systems, education, high-
ways what-have-you are competing for limited resources and unless
you as an individual are sick and need care, it is difficult to get the pub-
lic aroused to demand that more than, say, 5.5 percent of their GNP
be spent in health care areas.
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171
1 mean, the people who are with it day to day preach the need
:greater funding, but the public-at-large has not raised a politic~d
clamor. To an American looking at the system it is puzzling why wi1~h
the extensive waiting periods for surgery you don't have a great hi~e
nnd cry, a great public indignation over this failure on the part ~f
the politicians to allocate more money to the system.
Mr. BUTLER. Could I comment, Mr. Crane, a little bit about that ~
Mr. CRANE. Yes, sir.
Mr. BUTLER. I think a lot of what you say is very true, but it h~s
to be seen in terms of the British economic sphere even rigl~t now'.
you look at any particular government expenditure, of course the lev~l
of affluence is so much different there than here, the rate of infiati~n
is so high, the country is so close to national bankruptcy anyway 1~o
~single out the medical care system may lead us to some conclusioi~s
that are probably not to the United States. It might be more instru~-
tive for us to look at the Canadian experience with all of its meri~s
and disadvantages, because the level of affluence in Canada is so mu~h
closer to ours, the population and all is so much like the United Stat~s.
That is a very instructive experience for us.
By no means do I imply that it is all rosey. Costs have gone up co -
~siderably, they have still not solved problems of maldistributio
physicians' earnings have gone up by 50 percent, some cases 100 pe -
cent, and they have now a national health insurance system.
By looking at that system I think we can get a fairly good idea f
what might happen in this country under a similar kind of `approac
I don't think we should go the way the Canadians went, because I
don't think we can afford it. They have 20 million people. We ha~re
200 million. I don't think we can afford the kind of cost overruns th*t
they are going to experience before they get it under control.
Mr. CRANE. I think still this does not answer the question of t$
dilemma as perceived by the medical people in the profession ov~r
there. Admittedly the country is in dire financial straits right nor,
but that has not been the situation through the entire history of the
Health Service. And yet medicine has not been the highest priority
item so far as the t~xpenditure of the public dollar there.
Dr. BELLIN. Uitimately public decisions have to be made through~ a
political process and if that is the decision they have made, we c~4n
only conclude that is the decision they have made. If the people ha~re
not protested, presumably we have to presume they are reasonab'y
content with that level of priority they are receiving from tl~.e
Government.
Mr. CRANE. They may not know any better.
Dr. BELLIN. I don't think the British population is less intellige~it
than the American population.
Mr. CRANE. It might be what they have become accustomed to. Tilie
passivity and tolerance of the, British patients you would not find ~n
the United States, because Americans have not been accustomed ~o
that. So the current condition may not be totally novel with the Briti~h
people. They may have experienced it through most of their lifetimc~s.
Dr. BELLIN. I would like to make a comment about other things
being important in achieving health in a large population other th~n
medical care and this may sound strange coming from a physician.~ I
can reecho what Professor Butler has to say. I remember in medical
school we were shown statistics over what was the annual mortali y
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172
rate of TB throughout the planet starting during the early 1800's
when there were the early statistics available and to the early 1940's
and 1950's.
There is a slope of that curve, the TB is declining each year and it
continues to decline, and the first antibiotics against TB were only
available in the 1940's. When streptomycin and PAS para-amino~
~alicylic acid first appeared, the curve didn't change. the slope con-
tinned to go precisely the way it was going before. This tale is not
meant to be therapeutically nihilistic.
What was taught to us was that many, many decades b~fore there
was the first antibiotic, because of better housing, because of better
nutrition `throughout the whole planet, TB was already declining..
One, therefore, could identify TB not oniy as a bacterial disease, but~
also as a nutritional disease, and that this should not ,be forgotten.
Similarly, J remember at the Harvard School of Public Health
at one time receiving a lecture about Syria where a decision was to be
made. There was a disagreement in the Syrian Cabinet as to whether'
to build more roads for military roads or `to build more prenatal cIinics~
The argument was that you ought to build more prenatal clinics in
order to lower the infant `mortality rate. But they built more roads
instead of more prenatal clinics, `and do you know what happened? The
infant mortality plummeted because with the roads their people could
get to Damascus and get to medical care.
There are all kinds of public health byproducts of other govern-
mental activities that are taiking place. I am not at all certain even as
a public health person that much more of the gross national product'
should be put into health services. I think there ought to be a redistri-
bution of the percentage of the gross national product that we already
are in health and that it ought to be more wisely spent.
I advocate national health insurance, but again incrementally. I
think a piece of this national health insurance ought to pay for health
education, which is an idea that should get started. We could save a lot
of lives if we got people at the proper weight and exercise and cutting
out smoking. I am not referring to anybody in this room, but that is'
far more important.
Mr. ROSTENKOwsKT. Mr. Vanik will inquire.
Mr. VANIK. I would just like to follow along on the discussion. I
am so much concerned as to what `we can really do about the problem
in light of our costs of economic recovery and the cost of energy and'
all of these other things that are confounding our lives. When you
talk about ,an incremental movement into health care, what are you
talking about? How do you propose that we should legislatively to it?
I think it was you, Professor Butler, that talked about it. You all
talked about it. Do you have a comment on it? Or are you like the
House of Representatives on energy when we have 435 different plans?
Mr. BTJTLER. At the risk of speaking before the others, it does seem
to be on common thread and that is, the first increment would be to
deal with the medicaid program. My view is that it needs to be
federalized, and frankly States like mine ought to be talked about.
Calif orma has made off with most of the money and you have to have
a move in the other direction.
The rich don't need to get richer. That does not do New York City
much good, but we ought to start with the medicaid program. In
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173
starting with that we ought to take a look at what about people who
are not categorically eligible for medicaid now.
You have a lot of working poor people who do not have hea'th
insurance and are we going to include them? That includes the bill this
subcommittee has been considering about unemployment compensation.
Mr. VANIK. Do you concur in that, Mr. }ieim?
Mr. HElM. I do not entirely disagree, but I had something a little
different in mind when I was talking about detrelopin;g a program
incrementally. I think we ought to look, at where the needs are ~he
greatest right now which are not being met.
In my opinion I think this is in catastrophic coverage. My recom-
mendation is that we should provide assistance to the citizens of this
country where they are going to be hurt the most, and that is, you
know, if a true medical catastrophe strikes that could take $40,000
or $50,000 or more, that it should begin there.
I was thinking more in terms of-
Mr. VANIK. Does that meet Dr. Bellin's test of saving most of the
lives, because catastrophic coverage doesn~t mean you save most of l~he
~. lives, it means you save most of the costs in a castastrophic situatic~n?
Dr. BELLIN. If I could respond to that, it does to some extent n~eet
one of my criteria, because I am concerned about the lives of the
viving members of the families, and I am not being facetious wl'~en
~ I say that. I have seen familie& lives ruined because of somebody 1ivi~ng
who it would have been better for the family, callous as it may sound,
for the person to have died a week or two earlier.
There is the old moral delimma of who pulls out the plug. The plug
is pulled out when the family faces the financial catastrophe.
Mr. VANIK. I did a little bit of research and there is an interesti~g
~ correlation between the incidence of death and the termination of
medicare coverage. This is just a statistic we can measure.
Regardless of the philosophical or moral issues involved, there
seems to be a correlation that when they get near the end of co~rerage,
~ that suddenly somehow the medical scientists exhaust their capacity
r to maintain life.
Professor de Vise, how do you feel about this?
Mr. DE Visr. I realize the incremental approach has been the ~ay
~ the Federal role in health care has been. Every bit of past he~1th
legislation has been incremental. There has not been a single revolution
in legislation. Perhaps national health insurance will be no exception,
~ although I may imply in my remarks that I see nothing short of a
revolution in cost control as a solution in national health insurance.
There is a way to reconcile that approach with an incremental
proach and that would be to lay out what might be an ideal system
that might be achieved after 10 years, that after tO years of natioii~al
~ health insurance this is what the delivery system ought to look like
~ and begin inqrementally by saying that the first year 10 percent of
NFl money will go to this ideal system, the second year 20 perce~at,
and 30 percent.
If we decide that capitation is the best way to go in the long mn,
we should incrementally reach that 90 percent or so in a space of so
many years.
Mr. VANIK. It is awfully difficult to develop legislative 1angu~ge
that would approach your suggestions. I think we have to deal wIth
57-677-75----12
PAGENO="0178"
174
more definitive points when we administer a service. But would you
agree or is there some consensus that if we were able to combine the
medicaid problems somehow with modifications of a catastrophic cov-
erage plan, that we would take care of a tremendous problem in a
manner in which it would be more universally accepted, or where we
could make some reasonable estimate of costs based on the State experi-
ences in which there is a measurable program?
Mr. DE VIsE. I have a very uneasy feeling that if we are to reform
medicaid not just from the~oint of view of costs, but from the point
of view of access and quality of care, that we will actually result with
a more expensive medicaid program. Many of the abuses that we have
heard about have been because of the fact that the medicaid program
in many jurisdictions invite such abuse, because of low and uncertain
payments, redtape, and other obstacles. Typically physicians can only
make about $6 per physician visit, which is about half what they can
make in private practice.
So actually very few physicians are involved or participate in the
program. So in a way the public gets a bargain because it discourages
widespread participation by physicians in medicaid. We do have a
few hundred individuals who make a mint, who have learned to pro-
vide mass production medicine where they see a patient every 3
minutes, but on the whole medicaid is cheaper today than it would be
if there were comprehensive medicaid.
So if we just look at the cost containment on medicaid, we are not
going to get it and also improve the program and have all States par-
ticipate on the same basis.
Mr. VANIK. Here we have a political problem and it deals with the
problem of those who contribute most to support the country. I am
talking about the working people, the mature workers who are com-
plaining, and perhaps rightfully so, that they are "locked out." They
see the tremendous programs for the senior citizens. We have yet to
talk about any really decent programs for the young people, the people
whom we don't really do very much with from the standpoint of pre-
ventive medicine. But this group is one that is insisting, and right-
fully so perhaps, for a really effective program because they are the
ones who are supporting the entire existing system.
Medicaid doesn't really mean very much to them because this is a
group of workers and self-sufficient people generally who are contri-
buting through work and taxes during their working years. Do you
think that catastrophic coverage, for example, would be enough of an
indu~ement for them to contribute more money to support the medicaid
system?
Dr. BELLIN. I would say yes to that question. I have been thinking
myself the last number of months how do you translate the concept of
incrementalism into real programs that can be legislated? I think one
piece has to be catastrophic insurance. I can understand the growing
irritation on the part of the working middle class with respect to what
has been called the notch effect. If you are in the appropriate notch, you
get the service and if you are above that, not much. The only way you
can get to it is to spend down and make yourself broke.
If you make one buck more than that, you are out of the program
completely. I don't know of any better kind of social policy to render
PAGENO="0179"
175
the country apart than that kind of policy. In order to give something
to everybody, and appropriately certain catastrophic insurance ought
to be one part of it. There is intrinsic merit to it anyway aside from
the political utility.
The other aspect to this, and it gets back to the question of makjis-
tribution, you cannot run any kind of program without physici~ns
and whereas in New York City we have bombed out areas where there
are no physicians accessible. There are other parts of the country, rt~ral
areas, and indeed cities, that don't have the proper number to a great
extent because of maldistribution.
I think a responsible public policy cannot look at manpower sep-
arately from insurance. I think that error has been made and we have
suffered grievously because of this error. I think part and parcel of the
package must be the redistribution of physicians and there is no need
for the Congress of the United States to feel defensive about study~ng
this matter.
Anyone who goes to medical school today and is paying his or tier
way is being subsidized to the tune of 70 and 80 percent and that is
without exaggeration, and when they get out of school and interns1~iip
and residency, they are going to make a nice bundle for the rest of
~ their lives and there is no need for the Congress to feel defensive about
~ saying, "All right, you have been supported this amount of time. `iou
owe something to your country. During war we send you abroad, dur-
ing peacetime you put in 2 years of service in an appropriate ar~a."
Mr. VANIK. I yield.
Mr. ROSTENKOWSKI. Yesterday we had testimony that even in Rus-
sia you can't direct the doctors where they are going to work. how
would you do that in this country?
Dr. B~LLIN. I am not so certain about the Russian experience. All
the doctors want to practice in Moscow and Leningrad to be sure, ~ut
they do put in their time. In Turkey and in Israel people put in years
in other undesirable areas. I think there is no reason for us to consider
~ this is a hopeless problem. It is a problem that can be dealt with.
If we don't do it with the stick, we have to do it with the carrot. Ii~ we
don't want to use the carrot, we have to use another method.
We have to adopt as a policy that we will flood the market with phy-
sicians. We could double the number of medical schools, have medical
schools that operate at night as well, graduate twice the number.
Mr. VANIK. Now you have a little bit of that awareness in the Latin
~ American countries now. They say the quality of medicine isn't very
good, but the shocking thing is you can go to Mexico and see doctors
`around in even the remotest areas. The costs are very low and they com-
plain about not having a chance to make a good living.
In the Philippines, for `example, and throughout the Spanish-sp~ak-
lng countries where they have created a lot of doctors, they seem to I~ave
been able to hold costs down. Doctors creating doctors is not quith as
difficult as creating oil because it takes hundreds of generation~ to
create oil, but it should not take that long to create doctors. But where
there is a sufficient number of doctors, we at least find an availability
of medical care. ` `
Now I live in northern Virginia here and the only way I can get to
a doctor is go into an ambulance and get to the hospital. Of cot~rse,
PAGENO="0180"
176
there are some clinics nearby that I can go visit, but they are just as
tough to get into as the hospitals. They audit me and get a report from
Brinks or Dun & Bradstreet and decide what the fees should be. So
much of the doctor's time is lost in shuttling between hospitals and in
management of their own affairs.
I talked to some young doctors over in Sweden. This may not be a
good example, but I said, "How do you like your system?" They said,
`~We love it." I said, "Why?" "Principally because we work 53 hours
a week."
They thought that was a great privilege to have that kind of a short
workweek as a doctor. It was an a~complishment. They liked the easy
access to consultation with colleagues, which was not always available
in an individual practice. And they felt that they were really spend-
ing most of their time in medicine instead of other things that are a
source of distraction.
I can just tell you that in my community when I visit the sick irr
hospitals, I sometimes walk in with a Wall Street Journal and they
say, "liVell, that is the new surgeon." Other times I walk in with a
Baron's, a Financial World, and they say, "He is the new neurosur-
geon" or something else, but they judge my eligibility to enter the hos-
pitals by what kind of financial paper I carry.
I thought at one point we might improve the efficiency of hospitals'
if along all the screens that monitor the heart we have the Dow-Jones
averages put right on the screen so they could with convenience look
at my heart and also at their stock fluctuations, so that they could con-
solidate their time and not have to run out to call the broker so often.
But in any event I do feel that our system is wasteful of the doctors'
energies. Somehow we don't get all the efficiency we can out of the sys~
tern. Even in comfortable areas it is very difficult to find a doctor to /
give you medical care-you know, you go to the hospital to get a tet-
anus shot and it costs you $42. You may want a prescription for a
biotic and you just can't get it.
I think we lose more lives by denying standard medical care than
the lives we save from complicated medical procedures. We should
probably have a more open health dare system.
In Mexico I had an accident some years ago and I remember buying
some penicillin that was 50 cents a unit. When I got to the United
States and had to continue my prescription the same medication was
$7.50.
So these are some of the problems. I think Mexico ought to he
studied. I don't know whether it is a good example, but I feel that in
those communities even in remote parts of `the country there is more
medical help available, I don't know about the quality, but medical'
care certainly is available. Most of the time we don't need the sophis-
ticated high-level judgment that is always important. Sometimes it is
just a cut or a small illness that needs treatment. I feel that this kind of
medical need is almost impossible to satisfy under the present system.
I thank you very much. We appreciate your tremendous contribu-
tions. We would be happy to hear from you. If you get any other ideas
how we can develop an incremental plan which we can get through this
Congress and' get the President to sign-the latter point will be more~
significant than any other. We have this incredible burden of satisfy-
PAGENO="0181"
177
`ing all of us and then having two-thirds plus one to be able to ins~ire
;that we can put the program through.
Thank you.
Mr. ROSTENKOWSKL Mr. Vanik, maybe after this week's announ~e-
ment, the President next year will feel the National Health Insura~ice
is a priority item and will sign it.
Professor Butler, you are so sure that we should get rid of the fee-
for-services program, and yet yesterday in most of the conversati9ns
that we had this was one of the aspects that the panelists felt was going
to remain, if by negotiation or some other workable arrangement.
Why are you so sure that we should get rid of the fee-for-services ~
Mr. BUTLER. I guess I must not have said it very well the first coujle
of times. I happen to think there are a lot of good things in the fee-for-
service system. What I realy meant to say was that system functions ~n-
herently in such a way that costs are hard to control. For example~ if
you limit fees for costs for a hospital-day, you may get more hospital-
`days.
If you set the fees for a physician visit, you can get more physic~au
visits. It has that inherent characteristic. So really what I meant to
`say was if you want to have an absolute control over costs, you cah't
do it by the Government or through its intermediaries paying out oti a
fee-for-service basis. It may still be possible; for example, take ~he
foundation movement in California. It is conceivable that the Federal
Government could pay so many dollars to the San Joaquin Medical
Foundation to take care of all the people in that area and then tl~at
foundation would pay the doctors by whatever way they wanted to
pay them, including fee-for-service.
But the point is that the total bill to the Federal Government or to
whatever level of government was paying it would be fixed on the
basis of number of dollars per person year year. All I really meant
to say was unless the Government reaches the point where it can do
that, it cannot have any real assurance that it is going to control co~ts.
You may think that the advantages of fee-for-service is such that
you don't care that much about cost control and then all I would ~ay
is then you are inevitably looking at the kind of inflation that we h~ve
had.
So it is really a choice.
Mr. R05TENKOwSKI. Would you like to comment on that, Dr. Bell~n?
Dr. BELLI~. There is a terrible dilemma here in how you are going
to pay physicians. The advantage of fee-for-service is it encoura~es
enormous productivity. Doctors work long hours many, many days
`during the week. They are really not that much out on the golf coui~se,
~as has been accredited to them, particularly with `malpractice rates
being what they are. They have to work another day in the office to
pay the malpractice fees.
But you can get enormous productivity. At a time when you have a
`shortage or maldistribution of physicians, I think it is important to
decide what price you may pay by abandoning a type of paym~nt
`which produces productivity. The obvious other side of the coin~ is
overutilization.
There is a lot of that productivity that occurs that should not occur,
services that are unnecessary, unjustified, and sometimes perilous to i~he
patient. The alternative is to put doctors on a salary, to pay th~m
PAGENO="0182"
178
capitation, which is essentially a disguised form of salary. If you dc~
that, it is true that you can predict with some assurance how much you
are going to pay because you are only going to pay a certain amount
of money per patient per year.
On the other hand, the obverse side of that coin is underutilization,.
the number of people who are not getting service who ordinarily could.
I faced a problem when I was in the U.S. Air Force. There was a
small group of physicians on the base who refused to work. They were
hanging around the officers club all the time. The rest of us carried
the hospital by ourselves. Why were they hanging around the officers.
club? Because they got the same salary we did.
I thought it might be an interesting experiment to put everybody
on a fee-for-service basis on that base and maybe some would leave the
officers club and help us out at the hospital. Whethe.r it is fee-for-
service with the danger of overutilization or whether it is capitation
and salary payment with the danger of underutilization, it is necessary
that you have the appropriate administrative controls.
Those administrative controls differ. I would argue that wherever
you find different systems in the United States, either one or the other,
you find inadequate administrative controls. People are very bright.
when they figure out a stay how to beat the system.
Mr. Ros~rENKowsRI. Mr. Heim, would you like to comment?
Mr. HElM. Yes, Mr. Chairman.
Of course., in New Mexico we started out by saying, we trust yo~
doctors, we want you to come in and work with us to try to develop
the control system that Dr. Bellin was saying was absolutely necessary.
We feel that the record we have accomplished shows that this has
been a successful approach. We feel that by involving the physicians
in developing the control system, by involving them through the
PS1RO concept and actually monitorii~g the necessity and appropriate-
ness of care, that the fee-for-service problem should not be a signifi-
cant one.
I am not at all convinced that fee-for-service cannot be retained if
there are proper methods of control that can be imposed throughout
the country.
Mr. DE VISE. I oppose fee-~for-service because it is a monopoly profit..
I am. very much intrigued with the idea of the economists that fee-for-
service is here to stay as part of the market economy except that med-
ical care is not competitive. I indicated in my paper that organized
medicine has acted in many ways to restrict the supply of physicians,
to restrict the entry of physician substitutes, and to hamper effective
controls of costs. They will continue to do this as long as they have tkie
incentive, that incentive being fee-for-service.
In all the factors we see in explaining the skyrocketing costs of
medical services I don't think you can justify the doubling of physician
income in the last 10 years. The physician was earning on the average
of $30,000 in 1965 and he now earns $60,000 a year largely because he
has charged all that the traffic can bear.
So that is a ve.ry special kind of inflation. It is not inflation of hos-
pitals where the costs have to go up because they have to pull resources
from other sectors, because of increased personnel, because minimum
PAGENO="0183"
179
wage laws make them pay a living wage to the people. I think t~iat
there are same ways to reconcile the dilemma presented by Dr. Bel~in,
that is, the dilemma that you may lose productivity in the capitat~on
or salary scheme, and that is the compromise worked out by Kai~er-
Permanente which has a combination of salary and bonus based on
productivity.
So I think there is a way doctors could be reimbursed on the capita-
tion o ~ salary base and still assure their productivity. My main objec-
tion to fee-for-service is' that it is a monopoly profit and that in other
aspects of economic life our laws say that monopoly is illegal.
Mr. ROSTENKOWSKI. I want to thank you for participating in t~iis
discussion. We know that it is going to be a tedious job to put togetiper
a national health insurance program that it is going to be fair and
equitable. It is a proposition that we have not taken lightly and we
certainly will think about the discussion we have had with you tothy.
I am hoping that on July 17 we will have the private sector m~ke
their contribution. We will be meeting again on that day.
So, gentlemen, we greatly appreciate the time out of your biitsy
schedule that you have spent with us. We hope that from these 4is-
cussions something very fruitful will come.
Thank you.
[Whereupon, at 12:20 p.m. the subcommittee adjourned, to rec n-
vene at the call of the Chair.]
PAGENO="0184"
PAGENO="0185"
NATIONAL HEALTH INSURANCE
(Private Sector Role in American Health)
THURSDAY, IULY 17, 1975
U.S. HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE O~ HEALTH,
COMMITTEE ON WAYS AND MEANS,
Washington, D.
The subcommittee met at 10:05 a.m., pursuant to notice, in the c~m-
mittee hearing room, Longworth House Office Building, Hon. Dan
Rostenkowski, chairman of the subcommittee, presiding.
Mr. ROSTENKOWSKI. The Subcommittee on Health will come to
order.
The Chair would like to make several announcements before we
proceed to the panel discussion.
It is the intention of the Chair to work through lunch and adjourn
the committee at 2 o'clock because we have to surrender the com9it-
tee room to the full committee. And if the panelists will bear with us,
we will undoubtedly be interrupted on one or two occasions with r411-
calls or quorum calls. However, this should not discourage the con-
versation to continue principally because of the fact that your cOn-
tributions are for the record so we can use it in our judgment at a
future time with respect to writing national health insura~ice
legislation.
I would like to welcome the panelists. I might say that to date ~ur
meetings with the panels have led to very informative discussions. We
usually allow panelists to make an opening statement, but would l~ke
it as concise as possible.
After the concluding panelist makes his contribution, we will have
a discussion among the panelists if there are any diverse views t1~iat
someone would like to make. Then we would go to a discussion with
the members of the subcommittee asking questions.
If the panelists would introduce themselves as they make tI~eir
statements, we would appreciate it very much.
Mr. 1-lerman Somers, you begin the discussion.
(181)
PAGENO="0186"
182
A PANEL CONSISTING OF HERMAN H. SOMERS, PROFESSOR OP
POLITICS AND PUBLIC AFFAIRS, WOODROW WILSON SCHOOL OF
PUBLIC AND INTERNATIONAL AFFAIRS; NATHAN J. STARK,
PRESIDENT, UNIVERSITY HEALTH CENTER OF PITTSBURGH;
ROBERT G. ENGLAND, M.D., CARLINVILLE, ILL.; LAWRENC]~ 1YI.
CATHLES, ~FR., RETIRED SENIOR VICE PRESIDENT, AETNA LIFE
& CASUALTY; AND J~OHN LARKIN THOMPSON, PRESIDENT, BLUE
SHIELD OF MASSACHUSETTS
Mr. SOMERS. Thank you, Mr. Chairman.
I am Herman Somers. I have been working in the health field for
some 25 years. I am a former member of the Health Insurance Bene-
fits Advisory Committee and of the Advisory Council on Social
Security. I was on President Kennedy's Task Force on Health and
Social Security, and I have been a consultant to HEW for many years.
I am on the board of trustees of the College of Medicine and Dentistry
of New Jersey, and of Blue Cross of New Jersey, and the author of
four books in the health field.
I have been asked to discuss briefly the role of the private sector.
I will in these introductory remarks, for the sake of brevity, confine
myself to generalizations and if anybody asks, I will be glad to develop
them later.
Mr. IR05TENK0W5KI. Professor Somers, I might make the observa-
tion that your full testimony which you submitted will be entered
into the record.
Mr. SOMERS. Thank you.
The boundaries between private and public sectors have become
pretty murky. The distinctions present difficult definitional problems.
The statistical data usually are not illuminating on the real relation-
ships and can be quite misleading.
For example, of the $104 billion reported as the Natiofi's health
expenditures for fiscal 1974, about 40 percent is shown as coming
*from public funds.
Such expenditure figures do tell us the source of funds, but they
are not descriptive of the relative roles of the public and private sec-
tors. Government, of course, typically purchases directly or indirectly
from private providers the health care it finances.
The great bulk of Government payments is made to privately owned
and operated institutions and privately practicing professionals.
Even the Government payments themselves are in large measure fun-
neled through private insurance instrumentalities.
Further, the private institutions, particularly hospitals, receive a
variety of Government subsidies for construction, research, and other
purposes. Thus, there is considerable ambiguity in the data.
When Government merely pays for services rendered by and con-
trolled by private providers, should the figures present that phenom-
enon as public or private sector activity, or both? And how much
should be attributed to each? In practice, the figures are often
inconsistent.
Should we wish to complicate the matter further, we could note
that a large portion of the private sector is represented by not-for-
profit institutions of a quasi-public character. One could argue that
PAGENO="0187"
183
the nonprofit sectors should be classified as part of the private se -
tor, or the public sector, depending on the emphasis given to the
concepts of profit or nonprofit. Some have argued that we shou~d
really think and classify in three separate categories-Governrnen~,
private profit, and private nonprofit.
In short, our health system is now a marble cake mix of a pluralistic
multitude of enterprises; the private and public enterprise activi1~y
overlaps are great and clear distinctions usually are difficult, if n~t
impossible, to make. This seems to trouble some people who belie~e
in tidy packaging. I am not one of them.
The health care industry has been the subject of an increasWg
volume and range of criticism in recent years, due, I believe, primari~y
to the rapid inflation of costs and the uncertain access to adequate care
by Ia rge segments of the population.
The growing discontent is not due to the things having beco4e
generally worse, however. On the contrary, I believe any objectite
appraisal would show there has been substantial improvement ov~r
the years. To a large extent the discontents reflect the higher standard$
of expectation.
For example, the problems of the poor are not new and certain y
are smaller in relative volume than ever before, but unnecessary dip-
crirninations are now no longer morally acceptable. Or, of cour~e
sickness has long been a menacing hazard for the middle-income fa4L-
ily, but it is now seen as an avoidable financial hazard given prop~r
social organization.
The private sector has contributed substantially to these dissatis-
factions, but paradoxically~ I believe, it has not been primarily its
errors and omissions that have done so, but rather its successes th~t
have helped generate rising expectations.
By making more people acquainted with the wonders of mode~n
medicine, by opening wider the door of access to care, and by makii~g
the public aware of what is potentially available through improv~d
financial and organization mechanisms, it has greatly increased ir~l-
~patience with remaining barriers and inadequacies.
That is one of the reasons there is widespread agreement on the ne~d
for better and universal protection.
Since the private sector has been the most dominant and visil~ls
factor in the health field, it is natural that it would be the focal poi~it
of criticism. The inadequacies of private health insurance are mai~y
and real. But, if we examine the specific criticisms, we generally fi4d
that the faults are at least equally attributable to Government in ~rt
interactive process.
Mr. ROSTENKOWSKI. Professor Somers, on that note we will ha~re
to suspend 5 or 6 minutes to answer this quorum call.
We shall return.
Mr. SoMERs. All right. Thank you.
[Recess.]
Mr. COTTER [presiding]. I think we can resume now, Mr. Some~s,
if you would continue.
Mr. SoMERs. Thank you.
I was at that point saying that if we examine the specie eriticis s
of the private health insurance sector, we find that the faults are at
least equally attributable to Government and it is an interacti e
process.
PAGENO="0188"
184
Some examples. First, until recent years the health insurance indus-
try showed little interest in developing effective controls over costs of
care or pressing for more effective professional control of quality.
They used to say that their charters were merely to act as fiduciary
institutions and that their role was simply to apply the magic of
averages to spread risks and to ease the burdens of payment. Thus
the industry was providing increasing resources to underpin a system
that was progressively less satisfactory.
But exactly the same condemnation could be made of Government
and probably more sharply. Government also did little about quality
control or containing costs. For example, when in 1965 the National
Government undertook to finance medical care for millions of, addi-
tional persons through medicare and medicaid, the same omissions'
characterized those programs. Both private and `public sectors were
victims of knowledge lags which with the advantages of hindsight
both now recognize.
Second, the fragmentation of insurance has contributed to the frag-
mentation of health services. Some of this was historical accident, some
resulted from the obdurateness of the medical profession. The separa-
tion, for ex~tmple, of Blue Cross, the hospital plan, from Blue Shield,
the physicians' service, has obviously not contributed towards better
integration of delivery of health services.
However, a~ late as 1965 when the insurance industry was beginning
to move away from this pattern, Government adopted the same error
in its major health insurance program, medicare, and set up two
distinct financing and payment systems for the two types of services.
I have a list here of other examples which I will omit in the interest
of time. The point of these simple examples is to suggest there are no
automatic solutions to be found in doctrinaire formulas regarding
preferability of public versus private operations.
Observers of the current debate on National Health Insurance can,~
however, readily perceive that the symbolism of o]d ideologies remain'
a potent force and may interfere with what ought to be a pragmatic
search for answers in terms of workability and practicality.
On the one hand, we have proposals that would completely preclud&
any form of private participation in financing or administration. On
the other hand, we have proposals such as the old administration-
Nixon-plan which, in order to avoid Government financing, abandons'
the major objectives of National Health Insurance. Years of intensive
effort by some very bright young men at HEW demonstrates that it is
not possible to achieve universal coverage and to avoid means tests'
under amandating program.
Both approaches seem to me to pay more obeisance to so-called prin-
ciples than to realities of finance and administration. The fact is that
for the vast task at hand we need the `resources and speci al strengths
of both Government and the private sector and they need each other.
Our best protection against inadequate public accountability-of which
we have seen a great deal recently-lies in diversity, a spreading of
functions and power centers.
Historically, Government has been most effective at picking up and
advancing ideas and programs that have started elsewhere and won
support, or that need assistance against sluggish responses in the pri-
vate sector.
PAGENO="0189"
185
The cutting edge of a new movement is usually in the venturesom -
ness of relatively small and often new organizations.
Right now, for example, the most prominent organizational ref ori~n
being advocated is the nationwide development of health maintenande
organizations based largely on the success of the Kaiser Foundatio~i
health plan. But it should be recalled that Kaiser emerged from ver~r
small beginnings more than 30 years ago in the private sector and
persisted against the impediments of governmentally created legt~l
restrictions as well as the opposition of organized medicine.
}lad a unitary system existed in the 1940's, it seems highly doubtfi~l
that a Kaiser scheme could have gotten off the ground. Good as tl~e
Kaiser idea is, it will undoubtedly not prove to be the final word
health organizations for the indefinite future. From whence will tl4e
next generation's innovators, the potential Kaisers, get their launching
leverage in a unitary plan?
The ponit is we don't; have to abandon private initiative to obtain
the advantages of governmental financial strength, social equity, qr
democratic control. Government undoubtedly must assume respons -
bility for financing health care if universal and equitable access are o
be assured, because there is no other way. But that does not mean th t
Government must itself directly carry out the policies and administ r
all operational aspects to effect the execution of governmentally dete -
mined objectives.
Some time ago in a discussion of the administration's plan and h s
own, Senator Kennedy was quoted as saying:
The most basic difference is that the administration relies on the private health
insurance industry while we rely on the social security approach. I don't see ho~v
there can he compromise on that issue.
Probably the private insurance spokesman would utter siinilr~r
sentiments.
But the fact is that social security financing can be reconciled with
the use of private instrunientalities. In fact, with good will an
proach can be developed that borrows significant elements from a~l
the major proposals that have been submitted to the Congress.
For illustrative purposes Anne Somers and I developed and pu -
lished one such program several years ago. It was built oil the gener~d
model of the Federal employees health benefits program, a significai~t
practical experience with an effective public-private mix.
I am not here to peddle any particular program, so I need not d -
scribe the plan here nor is there the time. The point of the exercise w~s
to illustrate that Government financing and policy initiative can be r -
conciled with the advantages of private management.
There are undoubtedly other ways.
Finally, I again say that on the one hand Government merely ma -
dating the purchase of private health insurance-which has been e -
roneously called public-private partnership-would leave the essenti 1
health care 1?roblems just about where they are now, perhaps exace -
bate them. On the other hand, I doubt that there exists in this count y
the managerial competence to administer a unitary all-inclusive sy -
tern of diverse and continental dimensions dealing with such s~nsith~e
personal services. I doubt that the political system could withstand the
strains of the inevitable multitud~ of complainth, dissatisfactions, d~i-
mands and misfortunes of the entire enormous and complex health
system heaped on it alone.
PAGENO="0190"
186
To achieve the objectives of national health insurance, Government
needs help from the private sector. It needs the managerial expertise
and experience of the private sector for effective decentralization and
exposure to varied administrative alternatives.
It needs the diversity and incentives for efficiency that capacity for
risk-taking, innovation, and experimentation make possible. It needs
the political protection of a spread of responsibility and blame for mis-P
haps. It needs `the involvement of large portions of the private sector
to promote broader understanding and tolerance of the immense diffi-
culties of running such a system. it needs the support of such groups
as a counterforce to the tendency of Government budgets to become
unduly restrictive.
It is, of course, equally true that private health insurance needs Gov-
ernment to provide the necessary financial strength and stability and t~
insure universal and equitable coverage if it is to survive.
The traditional demarcations between private and public sectors are
obsolete. The fabric of a democratic society requires that Government
not be considered the sole vehicle with a public welfare mission. Public'
service is not antithetical to~private or voluntary auspices. The concept
of community involves something broader than strong government
alone.
Thank you, Mr. Chairman.
Mr. R0STENK0W5KI. Thank you, Mr. Somers, Mr. Stark?
STATEMENT OP NATHAN J. STARK
Mr. STARK. Mr. Chairman, members of the committee, I am Nathan
Stark. The role of the private sector in planning for national health
insurance is of paramount importance. Unless there is deep insight and
understanding of the private sector, designers of health insurance leg-
islation could structure a program that would not assure the full co-
operation needed. Without this cooperation a program could fail to
get off the ground. It is encouraging indeed to see the interest and
concern of this committee in examining with great thoroughness all of,
the complex' issues involved here.
First, let me correct what may be an understandable but erroneous
assumption of my position in this discussion. My titles at the Univer-
sity of Pittsburgh obviously identify me as a health professional. This
is a new role which I have had for less than a year now.
Prior to that-literally for a quarter of a century-my vocation was
private industry. My interest in the health field was strictly an avoca-
tion. As a business executive my primary concern was industrial plan-
fling and development. But like many industrialists there was second-
ary concern for community improvement. This led me progressively'
into the health field-as a hospital trustee, chairman of the board of an
urban regional planning agency, and on into the development of a new
school of medicine and a major medical center.
It was this experience in the health field and my commitment to it
that less than a year ago led to changing from a business career to an
academic health center. So in addressing the issue of national health
insurance you will understand that I speak from a long experience in
industry, as well as' a health professional.
PAGENO="0191"
187
I suppose also being from Missouri, originally, I have the right~ to
quote Mark Twain, who in talking about these various experien~es
said: "He who swings a cat by the tail learns things that one can orUy
learn by swinging a cat by the tail."
[Laughter.]
Mr. STARK. Now, health insurance is not a new concept for me. Af er
the enactment of Public Law 89-97 in 1965 I was appointed to the fi ~t
Health Insurance Benefits Advisory Council, along with my colleague
to my right, Dr. Somers. There we wrestled with the myriad prob1e~'ns
of implementing medicare.
Prior to that I had served as a member of the corporate board of
our local Blue Cross plan. But now the Congress, and especially t1~iis
committee, is faced with the awesome responsibility of deciding w1~at
this Nation wants or needs in the way of health insurance. Or indeed,
even whether such a program is really wanted or needed.
Few people ever questioned the need for medicare. Health servi~es
for the elderly was such a towering need and one that could not be n~et
by the limited financial abilities of the aged. Without adequate fina*c~
ing services could not be delivered by the health providers. Local arid
State governments were unable to cope with the problems short of the
indignity of the means test and some highly inadequate welf~re
programs.
Kerr-Mills had helped, but it was obviously not the answer. So i~he
health field and the public were ready to accept a Federal program~of
health insurance for the aged. In good part, through the wholehearl4ed
cooperation of hospitals, this new program moved fairly smoothly ii to
action.
There is an important lesson to be learned from medicare which
bears close examination as far as health insurance for the total popu~a-
ti~on is considered-the clash between expectations and reality, as ~as
pointed out earlier. The public, and even the field of health, saw me~li-
care as the answer to all the unmet needs of health care for the ag~d.
Congress, of course, did not intend it to be a panacea, a total cover~ge
insurance. But the public, unused to the fine print and stilted langu~ge
of the legislative package, chose to believe it met all their expectatio~is.
The health providers made similar assumptions. They simply belie~ed
that they would deliver services and be reimbursed their costs. They
never realized that the program would be hedged in with increasi~ig
limitations and an endless maze of regulations and controls that they
now feel threaten their very existence.
Medicare reimbursement, as you know, is used to encourage compli-
ance with accepted standards. I don't think there is anything wro~ig
with using financial approaches of that sort in those ways. In f ct,
such uses are tangible acknowledgment of interlocking relationsh ps
between components of health care.
However, I do not subscribe to the viewpoint held by some tha a
national health insurance program should be seen primarily a a
method of modifying the health care system. At the same time I do
subscribe to the fact that while the primary objective is underwriti~ng
the cost of illness, that objective can only be effectively achie~ed
through a modification of the present health care system. In otl~er
words, we must give close attention to determining that the financial
PAGENO="0192"
188
mechanisms support rather than determine, desired steps toward an
improved total health system.
From the private sector viewpoint any extension of Federal health
insurance will be met with a closer and more sophisticated scrutiny than
was ever given to medicare. This calls for complete honesty and a
rational presentation of all the facts.
Pertinent questions are beginning to surface in the private sector. Is
the push for NUT an emotional idea hedged about with slogans and
clichés and impassioned utterances? `Or are there some hard, solid facts
on which to build a case?
It is clear that the health care field today is undergoing tremendous.
economic, political and technologic change. Although the forces push-
ing these changes have `been around for `a long time, there is a quick-
ening of the pace resulting from increased expectations and `a phenom-
enal rise in costs.
Today many, if not most, of us find that we can no longer meet the
cost of a major illness. I am reminded of Oscar Wilde's statement,
"I am dying beyond my means."
Now access to quality health care is not readily available to many of
our citizens. There are inequities caused by a geographic maldistribu-
tion of physicians. There is also a deficiency of primary care and fam-
iiy practice physicians, a rnaldistribu'tion of specialists. Consumers
want `to be partners in decisionmaking and everybody agrees there
must be increased accountability in the expenditure of funds.
Who supports the national health insurance program? Organized
labor does, of course. But they support a program of total coverage.
Some people are wondering whether the United Automobile Workers
would yield its fine private health insurance program for a Federal
program if it were anything less than total coverage paid. Or would
Federal employees give up their excellent insurance coverage for
national health insurance?
State governments would press for a national program in the expec-
tation it would relieve them of the medicaid burden. Academicians
can theorize with intellectual fervor on the practicability of national
health insurance and compare this country unfavorably with other
nations. An'd yet almost all of these groups base their positions on a
program of total covetage. Some even ask what the cost would be, or
question what would happen if the Congress were to enact a less th'an
total coverage program.
The last question is worthy of careful study. If a program of modest
proportions were enacted-less than all needs met and all costs paid-
is it not possible, or even probable, that labor and in'dustry and the
general public would find it necessary to carry supplemental private
insurance to give them as. good an insurance program as they `already
have?
Many health providers are asking this question, `an'd visualizing the
incredible chaos of having to deal with dual coverage on a large pro-
portion of their patient load. They find it extremely difficult now to
deal with. the tie-in insurance with medicare and may well shudder
to think' what ~it would mean if the covered population jumped from
23 million to over 200 million.
While it is recognized that many special groups in this country are
voeally advoc~ating national health insm~ance, a question is raised
PAGENO="0193"
189
about the great "silent majority" who speak through no organized
groups. What does John Q. Public think or what would he think
if all the facts were logically presented? The architects of national
health insurance should study this diligently.
The health delivery system is undergoing a health process of
change and development at the present time. Some very real progre~s
is being made. Would the massive demands of a national prograrki
impede or speed up this progress? Or would the demands exceed the
capabilities of the system to produce services now? We should carefu1l~y
analyze our priorities here.
I have saved to the last that all-engrossing factor of program cost,
a cost in hard dollars that will be paid by the American taxpayer fqr
any program enacted. As a businessman I must think in terms of returli
on investment, of yield versus expense. Will a national health insurance
program, bringing health care within reach of those who may not hta~e
had it available before, bear tangible results in health outcome?
For example, how much improvement in the Nation's health s'tati~s
is likely to result from tan insurance program? I won't attempt long
comments on this, but a look back over the past 15 or 20 years sho*s
little increase in life expectancy in the United States and there is
presently no reason to believe that increased resources spent on health
care will alter this appreciably. When one examines the major causes
of morbidity and mortality in the United States for people over tI~e
age of 40, one finds the leading causes of death-heart disease, cancer,
and stroke-are all affected by behavior characteristics-lack of exer-
cise, smoking, weight control, and alcohol habits.
As a matter of fact, the highest return on additional investment in
health services is really a subjective one-albeit very important-thi~t
it resu]ts in an improvement in the quality of life. This relief of severe
pain and the alleviation of anxiety are two examples, but they are
difficult to quantify in terms of value and magnitude.
Which then is more beneficial to our Nation? Dollars spent to teac~i
nutrition to ghetto mothers, to buy more research into low-cost housing,
to develop and operate a coronary care unit in a hospital, to spend
more on research in new therapies affecting major causes of death?
Should our priorities be aimed at modifying human behavior related
to health in the broad* realm of public education? What about bio-
medical research or research related to health care delivery systems?
Obviously we do not choose between priorities. We arbitrate amon~
them, we harmonize and balance them.
I was impressed with a statement made just a counle of weeks a~o
by Dr. Theodore Cooner. Assistant Secretary for Health, DHEW, in
addressing the AMA. Dr. Cooper said:
Let us be frank with the American people, with their lawmakers, and with
ourselves. When it comes to influencing health status, health outcomes-even
probably the results of health care-there are a great many determining factoi~s
over which medicine has eff~ctivel.v no control.
It is one of the great and sobering truths of our profession that modern health
care probably has less imnact on the health of the population than economic status,
education, housing, nutrition and sanitation, and the impact of changing tecl~i-
nologies on working conditions and the environment. Yet knowing that, I think
we have fostered the idea that abundant, readily available, high ciualitv health
care would be some kind of panacea for the ills of society and the individual,
That is a fiction, a hoax * * *
57-677 0 - 75 -- 12
PAGENO="0194"
190
The question is What will the billions of dollars of our public's
money uuy Will it be a gooci recurn on our investment ~ I am not
opposed to the idea of national health insurance. But I hope it can
be studied with a clear, logical, analytical process that is not based
on emotion, or long espoused theories, or bland assumptions or political
expediency. It is too expensive and too important to be based on other
than cold, hard facts
Finally, about the health crisis It has always been with us Sim
plistically, we might say that polio vaccine was developed `as a response
crisis. Perhaps an Nh program will be developed as a response to a
perceived crisis. Many of us are on diets as a personal reaction to `a
crisis. Perhaps an NHI program will be developed as a response to a
crisis in health care. I hope that this committee, the Congress, the
people of this Nation will not fear the word "crisis." Without crisis
we will not have the slight edge that gives impetus to change, to
growth, to development.
It is paradoxical that when the Chinese write the word "crisis"
they do so in two characters, one meaning "danger" and the other
"opportunity."
Thank you. S
Mr. ROSTENKOWSKI. Thank you, Mr. Stark.
Dr. England? S
STATEMENT OF ROBERT U. ENGLAND, M.D.
Dr ENGLAND Mr Chairman, members of the committee, I thank
you for the opportunity to be a member of this third panel session on
national health insurance I have to apologize for my delivery because
the climate in Washington doesn't seem to be satisfactory with my
sinus and my upper respiratory tract is in bad shape.
Furthei, I reorganized my statement last night, some of it is pasted
together with Maclean's toothpaste and although it is fragrant it may
make the going a little bit rough.
I am RobertO. England of Carlinville, Ill., and I am engaged in the
practice of private medicine. My time is devoted to and my income is
derived from the practice of private medicine. These are the only
credentials I claim. I am not employed by any organization whose
existence is dependent upon Government grants or subsidies and,
therefore, of course, neither is my existence dependent upon subsidies
I am not part of any insurance interest whose profits or nonprofit
income depends unon the legislative process Nor do I represent `any
lobby anpealing for Government subsidy
Legislation and regulations emanating from the Federal Govern-
ment create such obstacles to the nrovision of anality medical care
that it. is apparent that opinions of physicians in the private practice
of medicine have been 1ar~ely ignored by the Congress. Surely only
by failure to consider what the private nracti'tioners know would Con-
gress have nromoted the existing situation.
Glancing at ~ list of members on other panels, I am not sure that
one of me from the private practice of medicine is enough to provide
a balance against the others who are outside the private sector
I am sin~ularlv imnres~'ed with the fact that there seems to be a
tremendous amount of academic personnel on these panels, many of
PAGENO="0195"
191
whom have been, ardent advocates of compulsory politicalized medi+
cine for many years; whereas, there seems to be a dearth of privat~
physicians who are not committed to Government intervention and
control.
Mr. Chairman, in your letter to me of June 3O, 1975, you made twd
statements that I think are pertinent to this discussion. The first iten~
I refer to is your statement that "My intent in conducting these pane'
sessions is to launch that vital educational and exploratory proces~
that must precede the construction of a legislative proposal by thi~
subcommittee."
The philosophy underlying this statement troubles me. Does every
complaint, every alleged social need constitute a demand for legisla4
tive remedy?
I submit such is not the case in a country of free men. To the exteiii~
legislation is used to provide such remedies, the liberty of free mer~
is diminished. Once one accepts the legitimacy of such legislation a$
the answer to all human problems, the information fed into the legis4
lative process is easily organized to impel further legislation, and~
consequently, further diminished liberty.
Unwittingly some who as short as 13 days ago hailed the free enter~
prise system as the bulwark of the Nation's liberty can now be foun
participating in an attack upon it. There is a mountain of unexplore
evidence on the case of national health insurance which, if reviewed
in the light of the historical development of freedom and the history
of this country, will cause any group of legislators to pause befor~
going ahead.
For example, the situation of the Indians in this country should b~
thoroughly explored. What role has the private sector had in caring
for their health and what role has the Federal Government had?
The record appears to be that this group of citizens was more pa4
ternalistically cared for by Government as far as medicine was con-
cerned than any other sector of this economy. Yet the morbidity anc~
mortality rates of Indians is one of the most unfavorable of any in
the country.
The second point I wish to comment on is your statement that:
Consequently, the aim of these first sessions is to undertake a broad assessment
of such fundamental matters as the historical development and current status o1~
oUr health care system. The respective roles of Government and the privat~
Sector as they have evolved over time and the critical and economic organiza4
tional issues involved in the delivery and financing of health care.
With respect to this point, we should take a good hard look at medi~
care and medicaid from the standpoint of patients and the doctor4
who take care of them. Also we should evaluate the result of similai~
socialized medicine programs in other countries.
It is my hope that this committee will rise above partisan politic~
and look at what is good for patients in general and not what is good
for labor union leaders or what would divert tax money to insurance
companies, medical societies, the bureaucracy, or whatever.
In this connection the historical developme~it of freedom in th~
United States did not come about by Government interfering in the
minutest detail of everyone's life. As a matter of fact, everyone here
knows that this country was founded by people who were trying to
get away from Government dictation and control. It doesn't make
PAGENO="0196"
192
sense to me to develop the greatest country on earth with the greatest
medical care under the system of individual responsibility and liberty
and then adopt a pattern of Government intervention and control
which our forefathers escaped.
An hone~st critical look at medicine in the United States and other
countries with socialized medicine makes it obvious that government
intervention and control is not the route to optimum medical care.
The most objective., comp1ete~ and factual study available on what
has happened in countries that have socialized medicine is in the book
"Medicine and the State" by Lynch and Raphael. This is a concise
source of reference as distinct from a work based on emotion, political
theories, or whatever.
It was carefully written and it expresses the conviction that it is
more than likely that the medical profession of North America will
find themselves in the frontline of the ideologic battle between the
planned and the free societies.
In this book specific claims of the Socialists and Communists are
unemotionally set forth in a deliberate manner and a comparative
analysis is made of the government promises versus performance.
rfhis committee should know that this book, which appears to be
carefully avoided by promoters of socialized medicine, starts out by
discussing the search for an ideal situation, enumerates the criticisms
of the private practice of medicine, sets forth the advantages claimed
for socialized medicine, then explores in detail what happened in
Germany and Austria.
It explains in the first half of the book what the legislators and the
government promised the people, how the medical profession was de-
ceived into believing the political promises, what came out in the way
of a legislative program and, finally, how it worked in practice com-
pared with the promises. The truth it portrays is not a pretty picture.
It details the same type of information for the Union of Soviet So-
cialist Republics, the British, New Zealand, Australia, and Sweden.
I think every Member of Congress would be enlightened if he would
take the few hours necessary to read this book and study the message
it contains. It explains a system different from our basic system. It is a
system of government subsidy and control with bureaucratic redtape
and patients treated on an assembly line basis. It does not compare
favorably with that part of our system which remains on a willing
exchange basis.
Another question with needs investigation in this connection is if
socialized medicine is so good, why has it been embraced by such as
Lenin, Stalin, Hitler, and Mussolini? A detailed study of why this
is so should go a long way to cause representatives of free men to be
very careful.
The British system has been held up as an example by many people
as to why we should `adopt socialized medicine here. The man who
knows most about this and is in a position now to speak freely without
coercion is Enoch Powell, who is the former British Minister of Health
from 1960 to 1963 and now a Member of Parliament. He has a pro-
found understanding of why government medicine doesn't work and
it was attained from experience.
He started out thinking it could be made to work if it were ap-
proached properly. He came to find out that inherent in the nature of
PAGENO="0197"
193
government medicine is the seeds of its own failure. It goes back 1~o
some very fundamental questions.
When a patient chooses his own doctor and pays for the services c~f
that doctor, he generally gets what he pays for. A willing doctor prq-
viding a service to a willing patient who pays for that service results
in satisfaction. The minute a third party, such as government, starts
paying for the service, all kinds of problems result. The patient has a
different attitude toward the doctor and vice versa. This is why even
here in the United States the attitude of a doctor who is working for
the Government toward his patient is basically different from that 9f
a doctor who is on a fee-for-service basis.
Mr. Powell said it this way: "America taught the world that you
get what you pay for." He also said, "There are two inherent evils ç~f
socialized medicine: (1) Centralization of decisionmaking, and (2)
damage to the doctor-patient relationship."
We have seen under medicare and medicaid that decisionmaking ~s
centralized and standardized against the best interests of everyboc~y
concerned. On the question of damaging the doctor-patient relation-
ship, Mr. Powell pointed out that in Britain "it is often the case th~t
the general practitioner who does a worse job, who serves more p~-
tients than he can properly attend, is paid more." He went on to e~-
plain, "You cut the direct link of service and appreciation betweQn
the doctor and patient by state medicine. Both the practitioner ai~d
the patient, instead of looking to each other, look to the State. It is ~n
alibi for `inadequacy'."
Mr. Powell decried the idea that is prevalent that a definable amoulilt
of medical care is needed and if that need is met, no more will he
demanded. This is absurd. "Every advance in medical science creat~s
new needs that didn't exist until the means of meeting them came into
existence. Its demands are not only potentially unlimited, it is also by
nature not capable of being limited in a precise and intelligible way."
Mr. Powell explains that waiting lists is the covert rationing devi~e
used in order to limit demand to the appropriations made by Parli~-
ment. Congress would do well to dig into this matter.
Congress should understand that medical school academicians haye
a stake in getting more Government money. They should also recog-
nize that labor union leaders are not interested in good medical cai~e
as such, but are looking at the politics of how to get more power f9r
themselves. They reason that if they can shift the medical costs ~f
their labor contracts off the back of the corporation and on the general
public, they will be able to get more salaries and fringe benefits frohi
the corporations and, therefore, improve their position in the unio~.
A lot of shortsighted corporations think if they can cut the costs of
medical care out of union contracts, they could increase profits. Fur-
ther, there are in some corporate organizations individuals whose
existence in that corporate structure is dependent upon the existence
of a militant and demanding labor union.
Some medical societies, responding to the arguments of the acad-
emicians, who are interested in getting money out of the Fedei~al
Treasury, think they can get money out of the Federal Treasury for
the organization. Neither the interests of the patients nor the doctors,
whom they are supposed to serve, is their dominant consideration. Of
course, a number of people are afraid that the Federal bureaucracy
PAGENO="0198"
194
is going to gain the upper hand and they had better make the best
personal deal they can with it in order to lighten the bureaucratic
blow.
With respect to the legislation now existing what has happened to
medical care? Has it become cheaper?
Congress was forecfully warned befoi e medicare and medicaid was
enacted about their costs and the inevitable damage to the patient
physician relationship and to the economy. This was prior to 1965.
Congress didn't pay any attention, but listened to the bureaucrats
and labor bosses and others who had an interest in betraying the peo-
ple. As a result we have medicare and medicaid programs, the costs
of which are absurdly high and going higher.
Bureaucrats told Congress in a most solemn way that the costs of
hospitalization the first year would only be $900 million, but the first
year it turned out to be $2.7 billion, three times as much. They also
said that in 19Th it would only cost around $1.7 billion. It cost $10.9
billion, six times what they said.
When costs skyrocketed, as every reasonable person knew they
would, the answer was to publicly blame doctors for the bureaucratic
miscalculations and to apply controls on the medical profession to
force a reduction in costs. This, of course, was impossible and costs
have continued to mount because demand is insatiable, particularly if
the service or product is thought to be free.
In 1972 Congress passed the PSRO law, which puts all the power
in the hands of the Secretary of HEW, who is a layman and who
would have to act as a layman and politician even if he were a doctor.
That law can be used to deny patients the right to choose their own
doctor and the right of doctors to take care of medicare and medicaid
patients. It denies the patient and the attending physician the right
to decide what is medically necessary and medically appropriate It
denies the patient the right to have the kind of medical care the doctor
thinks is best and denies the patient the right to talk to his doctor in
confidence about his illness.
When the bureaucracy was challenged in a lawsuit in 1973 by the
American Association of Physicians and Surgeons asking the Federal
courts to declare PSRO unconstitutional, the reaction of the bureau-
crats was to try to bring about the same result through utilization
review committees A Federal judge has issued a preliminary injunc
tion against this abuse of power, but this type of bureaucratic control
has been imposed in every country in Europe
Again if you read "Medicine and the State," you will see that PSRO
is not new here in the United States. It was introduced in every coun-
try in Europe that has socialized medicine and it resulted in poorer
and poorer quality medicine. Of course, it injured the doctor-patient
relationship. Police physicians were appointed there to look over
doctors' shoulders similar to PSRO here.
In Russia, under a Communist dictatorship, where one might ex-
pect the most brutal control, agent provacateurs are created. Their job
is to go to doctors, feign illness and when the doctor tries to treat the
illness, the doctor is brought before the authorities as an enemy of
the people. This degenerates into doctors looking at patients and
wondering if they are enemies or someone who needs compassionate
care.
PAGENO="0199"
1.95
Lynch and Raphael put it this way:
In such a climate the physician is placed in a hopeless dilemma On the one
hand his responsibility is to the patient with whom he must establish mutu~l
confidence and trust if he is to. diagnose and treat correctly. On the other hand,
he is obliged to protect the state of which he himself is a poorly paid servan
This is where we are getting in the TJnited States with respect t
medicare and medicaid even though sectiou 1801 of Public Law 89~-
97 says:
Nothing in this title shall be construed to authorize any Federal officer or
employee to exercise any supervision or control over the practice of medicine or
the manner In which medical services are provided, or over the selection, tenur~,
or compensation of any officer or employee of any institution, agency, or perso~i
providing health services; or to exercise any supervision or control over the a~-
ministration or operation of any such institution, agency, or person.
Has medicare under existing legislation become more. compassion-
ate? Does it have more dignity? Is it more personal?
I submit the answer is "no" and under the prevailing circumstanc~s
it never will be "yes." HEW regulations which must follow such le~-
islation are hardly the substitute for the desires and needs of a patier~t
or the personal knowledge and judgment of his physician. How cab
medical necessity be defined in a general way to apply in the particul~r
in the case of an 86-year-old female who is a social security recipient,
lives 30 miles from a hospital and is in need of a hospital service, such
as a barium enema. What should be done for a 73-year-old female wI~o
becomes disoriented and combative at night, for whom a nursing hon~e
bed is not yet available and whose only other source of care is a
daughter in her mid-fifties whose lower extremities were crippled by
polio at childhood?
Is an extended stay in a hospital justified for an arteriosclerotic
woman in her seventies, unsteady on her feet, but who must wait for
her daughter's home to be cleared of throw rugs and carpeted. The~e
patients should be hospitalized.
There is no way under the regulations that medicare administrtt-
tion will allow such extensions or recognize such medical necessit~~.
Changing the regulations or even, as the AMA has done, obtaining an
injunction against some of them, is not the answer. More will, and
indeed must be promulgated. By its very nature the legislation now in
effect and all others proposed demand such regulation.
Again, providing scarce services free to the consumer and creates
unlimited demand. Some method to control demand and maintain
some semblance of fiscal responsibility is needed and the bureaucratic
response is rationing.
Along with the superinspection method needed to implement the~e
devices there grows the notion that since everybody is being cared fer
by everybody's taxes, then everybody's care is everybody's busine~s.
From our record rooms in our hospital copies of records are provicl4d
to third parties at the rate of about 10 per week. This is in a hospit~d
that has about 150 admissions a month.
Frequently I wonder how many of the consents to release informa-
tion that are executed by medicare patients upon admission to the
hospital are truly informed consents.
Has medical care become better? To the degree that medical inno-
vation has manged to remain slightly ahead of bureaucratic regul~i-
tion, I suppose so.
PAGENO="0200"
196
But this cannot be expected to prevail To some it will not matter
If you are rationed out, the quality of care you don't get is irrelevant
Further, there is no way to judge the excellence of what would have
been developed in the absence of smothering regulations from HEW
This, perhaps, is the most tragic result of the policies we are following
Comparisons of varieties of mechanisms of patient care soon become
impossible. Any improvement becomes an unlikely dream.
Turning to the matter of cost, important because, today, we have
the Government spending 48 percent of the income of all of its citizens
Surely there are statistics available to the committee which will mdi
cate it is now more expensive to be sick.
It is also more expensive to eat, buy clothes or get a haircut. Popu-
larly this is explained by saying, "Well, that is inflation." If one rec-
ognizes the true nature of inflation, I propose no further explanation
is necessary But opinionmolders-unhappily some Government fig
ures are among them-have led people to believe inflation is the price
at the grocery, the price on the gas pump, the light bill and the doctor's
fee Here though in this room we all know that only the Government
can create inflation
Further, the more the Government does for or to us, the more infla
tion there will be. The so-called crisis in health care is peanuts corn-
pared to the crisis created by ever-expanding and ever-expending
government. The problems I face in trying to provide quality care to
my patients are minuscule compared to the threat constituted by the
rampaging growth of the Federal Government and what it represents
to the liberty of Americans in general
Yet there are panelists who will appear before this committee who
have gone on record as favoring more subsidies and more controls As
a matter of fact, some of the panelists in other papers have talked
about controlling the behavior of physicians What kind of talk is this
in America? Who gave Government employees or academicians in the
universities the authority to control the behavior of anybody?
You had better take a good hard look at what you are buying when
you substitute the European dictatorial system for the American sys
tern Congressmen should not listen to the voices who say that Gov
ernment employees have omnipotent wisdom and can decide better
than ordinary citizens what they need in the way of medical care We
should not substitute a pattern of failure for the proven pattern of
success based upon our willing exchange system
One final word The labor unions and the corporations who have col
lective bargaining contracts with them take the attitude that they are
the ones who should dictate the kind of a system we should have for
medical care in the United States. Labor unions only represent about
25 percent of the people gainfully employed in the United States. This
beino~ so, the big corporations that are unionized from top to bottom
couldn't represent more than 25 percent of the workers Who repre
sents the other 75 percent? Should their best interests be betrayed to
give power to the labor unions or provide temporary illusory relief to
corporations?
In summary, I suppose my contribution to this educational and ex
ploratory process we are engaged in would be this: Please, Mr. Con-
gressmen, do nothing more and undo what you can.
PAGENO="0201"
197
I would like to express my appreciation to the subcommittee for its
invitation, particularly in view of the fact that telling it like it is is so
unpopular with those legislators who would like to believe they are
solving problems when, in fact, they are creating them. I also recognize
that in pointing out these problems that I am, therefor, running the
risk of not getting as we say in rural America; another invite. Than~
YQU.
Mr. Rowri~NKowsKr. Thank you, Doctor.
Mr. Cathles ~
STATEMENT OP LAWRENCE M. CATHLES, 1R.
Mr. CATHLES. My name is Lawrence Cathles, Jr. Until I retired o~
June 1, 1975 I was senior vice president of the Aetna Life & Casualt~y
and in charge of the group division offering group life, group health,
and group pension coverages. The Aetna is one of the very large~t
group companies in the group business, insuring more corporations
than any other insurance company and developing a premium volun~e
in exces of $2.3 billion annually.
In considering National Health Insurance it would seem desirab~e
to look closely at the present system for financing and delivering
health care to identify its accomplishments, its values, and its failings
so as to focus more clearly on what needs to be done, whether slight
adjustments are required or more drastic changes are needed. I wi~i
address myself primarily to the financing aspect, touching on the d~-
livery of health care only in the context of cost and quality control.
There are presently two private mechanisms for financing health
care, a group mechanism and an individual mechanism. Both are uti~-
ized to some extent by different kinds of entities. For example, the
group mechanism is used by HMO's, by Blue Cross/Blue Shield, 1~y
insurance companies and by self-insurers. The individual mechanism
is used by all but self-insurers. My comments will be generally appli-
cable on a much broader basis than just group insurance policies.
Group insurance policies are generally offered to employers with two ~r
more employees.
There i~sually will be waiting periods for maternity and small~r
claims have other waiting periods for present existing conditions. A
typical plan might provide 100 percent of the first $4,000 of hospital
expenses and 80 percent of charges for a broad range of other medic~il
services after a $50 deductible. These services are typically broader
than coverage under medicare and specifically include coverage f?r
private duty nursing and drugs.
The deductible would apply to each person, but there would be a
limit on deductibles for the family in any calendar year of $150. After
the employee pays $500 out-of-pocket in any one year as a result pf
coinsurance, the plan pays 100 percent of expenses incurred by that
member in the remainder of the year and in the next following year.
Children are covered in full from the time of birth and there is a
$500 all-inclusive maternity benefit.
The lifetime maximum benefit per covered individual is $250,000.
Although this might be a typical plan, particularly for smaller em-
ployer groups, there is a great deal of tailor-making and great fiexib~l-
PAGENO="0202"
198
ity in plan design and lifetime maximums are currently tending
toward $500,000 and $1 million, and even to unlimited
Now the cost of these~benefits will vary by age and by geographic
area. For example, the annual claim cost-no loading for expense, risk,
or profit-for a family of four, for an employee age 30 would be about
$435 in Little Rock and $703 in Los Angeles. For an employee age 50
the range would be $723 in Little Rock to $1,175 in Los Angeles.
Group insurance policies are generally sold by insurance agents-
both life and casualty-and also by brokers. Typically the employee
benefit plan includes life insurance and disability income benefits as
well as medical benefits and currently many plans include dental bene
fits as well. Usually the various benefits are combined for administra-
tive purposes as well as for communication and explanation to the
employee
There is a high degree of competition even in the small case cate
gory. For example, a recent survey by the Health Insurance Associa-
tion of America of 20 companies writing 49.5 percent of the health
premiums in 1973 showed for the less than 50-employee category
244,629 proposals submitted There were 36,626 new cases sold and
26,200 lapses and transfers
In the 200 and over category there were 6,380 proposals, 501 new
cases and 438 lapses and transfers There are proposals which show a
great deal of activity
There are probably 500,000 insurance plans, including the Blues
as well as commercial insurers in force.
The larger benefits tend to be governed by the collective bargain-
ing negotiations and typically the labor agreement will specify the ben-
efits in considerable detail together with the employee contribution, if
any The selection of the underwriter and the administration of the
plan are usually left to the employer Most collective bargaining plans
are noncontributory, at least for employee coverage
Where employer units tend to be relatively small or where employ
ment is characteristically on a 1ob basis, such as in the construction in
dustry, collective bargaining tends to center on* the rate of employer
contribution; for example, 25 cents per hour worked, to be paid to a
trust fund with trustees representing union and management, as pro-
vided under the Taft-Hartley Act.. The trustees then determine the
rules of eligibility, the benefits to be provided and select the under
writer which might include HMO s, the Blues commercial carrier, or it
might be self insured About 10 pereent of all group health insurance
benefits are provided through these Taft-Hartley trusts.
Health Insurauce Association of America figures as of the end of
1973 show 170,250,000 persons under 65 covered for some form of
health insurance; 82.272.000 were covered under group insurance;
46,837.000 under individual policies; almost 73,000,000 under Blue
Cross/Blue Shield-both group and individual-and 8,876,000 under
other which would include HMO and self-insured arrangements. If
you exclude members of the Armed Forces and their dependents and
institutionalized persons, these figures indicate that about 94 percent of
the under-65 population is covered for private health insurance.
The group mechanism is a highly efficient one and the average ex
pense rate (exclusive of taxes) for the 17 largest companies, represent-
PAGENO="0203"
199
ing approximately 70 percent of all group health insurance for 1972,
was 8.3 percent of net earned premiums. Of this the distribution cosi~
or commission to the agent represents only 1.6 percent.
Group policies covering larger groups-say those having 200 em~
ployees or more-are experience-rated so that at the end of each yeai~
any portion of the premium not needed to cover claims and expense~
for the particular group is returned to the policyholder. Smaller poli~
cies are also experience-rated, but less credibility is given to the experi~
ence of the individual case and there is more pooling. Expenses tenc~
to increase as the size of the case decreases and reaches a level of 20-2w
percent for the smallest cases and as low as 3-4 percent for the very
largest groups.
Larger policyholders tend to be very sophisticated. There are severa'
organizations of corporate employee benefit managers which regularly
conduct seminars and workshops so that there is a great deal of i.nter4
change of information. These include the American Society of Insur
ance Managers, the American Medical Association, the Employe
Benefit Council and the National Foundation for Trustees and
Administrators.
In addition, there are many experienced consultants ready, will1n~
and able to assist employers and trustees in analysis and evaluation
their plan. As a result great pressure is exerted on carriers for 1ow1
cost efficient administration and financial arrangements which opti~
mize the cash flow requirements of the policyholder.
Profits in `this business are very low, particularly on the larger case~
where the risk of loss is small. Typically carrier profits on group insur~
ance range from 0.5 percent to 1.5 percent of premium after taking int~
account investment income on reserves and Federal income tax.
The group mechanism has really been very effective, but there ar
problem areas.
One: `There are groups of employees not adequately reached by th
group mechanism: (a) marginal businesses where profit margins ar~
very thin and wages very low; (b) agricultural workers; (`c) parttim~
employees. So the penetration in these categories and the adequacy of
benefit level leaves much to be desired and there is no easy answe~'
under a voluntary system. Of course, some are `covered by medicaid, but
this is a very unequal thing and varies from State to State.
Two: There are inadequate provisions in most plans for coverage
of those temporarily unemployed. `This is a more pressing probler~ii
during times of recession and `this subcommittee, some of you, ha~
already demonstrated its concern for the plight of these unernploye~l
individuals. I would like to congratulate you for designing a sound
and workable solution to the problem and would encourage you tb
continue to press for your proposal.
Three: `The carriers have been unable to exert effective control o~i
provider `charges. No one carrier is a large enough factor in the ecoi4-
omy of any one community t'o have complete persuasive power over
the providers in that community and under current antitrust ia~s
carriers cannot work in concert to negotiate wi'th providers.
In smaller communities if there is one employer wh'o is `a dominant
economic force, he `can exert sufficient influence to have some impac~t
on hospital charges. But even `here it, is difficult to control physi'ci'ali
charges.
PAGENO="0204"
200
Some carriers, notably the Aetna., tried a stricter control on doctor
charges by developing computer profiles and using such techniques as
notifying employees when the doc.t*or~s charge wa.s above what they
had determined was the usual and customary for the area. Under some
plans we went. so far as to advise the employee that if lie was pressed
by the doctor for payment of the portion of the charge which had not
been recognized for payment, because it exceeded the prevailing charge
in the area, the. Aetna would defend and pa.y all court costs in addition
to any judgment.
This, as you might imagine, produced a bitter reaction from the
doctors and many large employers who were just not ready to go this
far. Consequently, Aetna was not able to establish these controls on
a widespread basis. The carriers have accomplished some control
through active participation in planning agencies, support of medical
foundations and the development and maintenance of surgical I)roflles,
but accomplishment lags behind what is desired.
Now, insofar as individual insurance policies are concerned, indi-
vidual policies are offered by a number of major insurance companies.
The benefits offered vary from comprehensive plans simila.r to those
offered to groups t.o very modest plans providing oniy hospital indem-
nity benefits or accident only coverage.
Except. under conversion policies there is usually medical selection
and poorer risks are simet.imes clemued coverage. These poorer risks
can usually obt.ain coverage from the Blues by applying during their
oPeii enrollment periods, `but these are usually held only periodically.
Because the agent selling the coverage needs to be compensated for
his time, the distribution cost of individual insurance is quite high and
expense rates of 45-50 percent are the rule. Premiums are accordingly
sithstantial and policies actually bought tend to be less broa.d in cover-
age. in part because of budget considerations.
The more limited policies are, however, often supplemental t.o other
coverage and the overall adequacy of coverage is somewhat better than
the statistics would indicate. Profits are quite moderate and approxi-
mate 2 to 3 percent, including investment income and net of Federal
income taxes.
There is not the same level of sophistication on the part of the pur-
chaser of individual coverage that there is on the part of the purchaser
of group insurance and there is some abuse in the mass-marketing of
very limited policies which are not always as clearly describe.d as
might be desired. In these mass-marketed plans preexisting conditions
limitations sometimes seem to be excessive and claim practices on occa-
sion have also left something to be desired. St.ate supervision has been
something less than effective in this area since many States do not have
the authority t.o enforce sound practices when the policy is issued out-
side of their borders.
The insurance industry is by and large a very responsible industry
with a very high degree of social consciousness, but whereas much
headway has been made in recent years, particularly in the extent `and
adequacy of coverage, the industry cannot do the whole job without
help from the Government.
Although there are the forces of collective bargaining and competi-
tion in the labor market to `assure adequate benefit amounts for "em-
PAGENO="0205"
201
ployee" groups, something more is needed to provide continuity df
coverage for: (1) temporary layoff and leaves, (2) transfers of the
plan from one underwri:ter to another, (3) transfer from one plan to
another, and (4) dependents of deceased employees.
This might be accomplished by (a) tax incentives for "qualified"
plans meeting a minimum standard in continuity, (b) it could be
achieved by a mandate on insurers requiring all policies to confor~n
to a minimum standard or (c) a mandate for all employers to provide
a minimum standard. The mandate on employers would be the mo~t
immediately effective approach, but if the minimum standard were 1~o
include benefit amounts-as would be advocated by some-it wou!d
have to be a less liberal level of benefit than will otherwise gradually
emerge because of limitations of available facilities and general eco-
nomic considerations.
Whereas these approaches would be effective in improving the ad~-
quacy of `benefits for employer groups which can afford to pay, the4~e
remain the problems of the marginal group and the individual who
does not belong to a group who is not poor or near-poor, but oann~t
nevertheless `afford the higher cost of comprehensive individual
insurance.
What is needed is a policy providing adequate coverage which is
available at reasonable cost to the individual who wishes to purch'a~e
it, "reasonable" being "without loadings for uninsurable risk and with-
out loading for the high cost of individual solicitation." If this cover-
age `were available at the option of the individual, much `could 1e
accomplished and `whereas the `competitive impact on individual poliç~y
companies w'ould be severe, the public intere'st would be served.
The extension of coverage would be greatly helped if tax incenth~es
could also be made available. In any event, such coverage would ha~re
to be subsidized. I would say it would have to be subsidized `by t~ie
insurance industry and it would have to be offered through a pool ~o
equalize the cost impact on individual carriers.
Legislation would be required to specifically permit carriers to ba~'d
together for this purpose. It would probably be necessary for the legis-
lation to require insurance companies to participate in the pool a~ a
condition of conducting a health insurance business. It would also ~e
necessary for self-insurers to be required to participate. The päol
should be administered by the carriers the'm'selves under Government
supervision.
Coverage for the poor and near-poor should be subsidized by the
Government, although administered by the private sector on a fiscal in-
termediary basis. It is important, however, that incentives be bt~i1t
in for `the carriers so that they feel justified in allocating the resources
necessary for the proper administrative effort. If these' pools wero to
be Government-administered, there would be no economies and the
danger of perpetuating second-class care for the poor would be greatly
increased.
`The third problem, lack of adequate cost and quality control of
providers, is not an easy one. As far as hospitals and other instituth~ns
are concerned, probably the most effective controls are planning, cer-
tific'ate of need, and prospective rate review.
The new planning legislation recently passed by Congress would
seem to take care of part of the problem. We will know more spec~fi-
PAGENO="0206"
202
cally when regulations are finally issued, but `there is no federally man-
dated prospective rate review
We have had 2 years' experience in Connecticut with prospective
rate review and I understand that Maryland has also had some experi-
ence. In Connecticut, budget's for October 1, 1974, to October 1, 1975,
were approved at an average increase of 8.3 percent. This compares
with 16.2-percent increase in charges nationally, and the 6 percent per-
mitted under wage price control. Budget increases submitted for
1975-76 average 10.7 percent on a weighted basis-beds for hospitals.
Again, this is well belou the `werage increases being experienced na
tionally. The discipline has been responsible for increased efficiencies
`md resti `mint which otherwise might well not have been there
Yet the hospit'tis seem to be relatively comfortable with the exist
ence of the cost commission after 2 years, `md ~mhere they have opposed
its operation in the past, they have been working with it comfortably
now.
Now, the problem of controlling physician's charges is a much more
complicated problem and unless an answer can be found to the mal-
practice problem, it will be difficult to get the full cooperation of the.
medical profession. Without their full cooperation there can be little
hope that any approach to cost control will work.
&ny number of schemes have been tried to control doctors' charges-
fee schedule in Canada, per capita tried in the United Kmgdom and
profiles tried in medicare-none h'ts been really successful Currently
profiles are almost universally used by insurance companies and by
Blue Cross/Blue Shield to monitor and control physicians' fees.
Increasingly there are effective peer review mechanisms run by the
doctors themselves to review cases involving substantial amounts in
excess of carrier profiles. The problem lies in strengthening these
mechanisms and providing an objective and acceptable means for
physician-carrier determination of the magnitude of increases in phy-
sicians' fees and profiles which should be permitted from year to year
The carriers can develop and apply fee profiles, evaluate the effec-
tiveness of physicians' review of disputed cases, and, with the indirect
backing of appropriate Federal legislation, negotiate with physicians
concerning the average increase in fees acceptable for the year at hand.
Carriers would be supported by both employers and employees in their
efforts and have the medical, `actuarial, and data processing capacity
and they do have the incentive to do a good job in this most difficult
area.
There are many advantages to having health care financed by the
private sector.
If administered by Government, new bureaucracy would be built
md it is just not easy to control or limit its growth There are stcong
competitive pressures in the private sector which bear an actual sur
vival for an individual company. This pressure insures quality, fair
and prompt payment of claims, and efficient administrative systems.
The private sector is more responsive to change.. There is constant
innovation and change in medical treatment and the needs of em-
ployers and employees change. The bargaining position of the em-
ployer is such that he can force carriers to meet his needs. Government
is traditionally slower to respond.
PAGENO="0207"
203
The present system is pluralistic. There are many approaches t4
providing the financing needed. No one would satisfy all needs. `J~$
private system breeds innovation and pluralistic response.. Government
through its regulation tends to stifle initiative and to develop mono~
lithic response.
I think the most compelling reason is that the private insuranc~
industry has proven it can efficiently administer many different health
plans covering almost 200 million individuals. The organization is i~i
place and has a record of efficiency surpassing that of Government.
The challenge to you will be to design legislation which will full
utilize the strengths of the private sector and also stimulate it to cop~
with the remaining problem areas by providing the Government a~-
sistance which is needed.
Thank you.
Mr. CORMAN [presiding]. Mr. Thompson, please.
STATEMENT OP JOHN LARKIN THOMPSON
Mr. THOMPSON. Mr. Chairman, and members of the Subcommittee
on Health, my name is John Larkin Thompson, and I am presidei~t
of Blue Shield of Massachusetts. Blue Shield is a nonprofit medict~l
service corporation which provides private insurance coverage fdr
physician-related costs as well as serving as the part B carrier fdr
medicare in Massachusetts. Working in tandem with Blue Cross ~f
Massachusetts, Inc., which covers hospital and other institutiona'-
related expenses we endeavor to make available to our subscrib~r
population the most comprehensive protection possible.
The health care system is now and must be, under any form of n~-
tional health insurance, the most effective coordination of a variet~y
of necessary ingredients; providers of care, beneficiaries, administr~-
tive capacity, financial resources and others. It is not my intention t~o
praise the private involvement generally or dwell on Blue Cross-Blue
Shield system specifically. It is important, however, to identify whit
is actually "out there" operating the system today in order that legi~-
lation utilizing the necessary talents existing in the country can I~e
developed for benefit of those to be served under national health insu~-
ance. In this, I will draw on the experience of the national system of
Blue Cross-Blue Shield organizations as well. Secondly, I will ma*e
some observations as to problems in the health care delivery system
as a whole. Lastly, I will tie in a list of considerations for nation~l
health insurance; items which should be addressed prior to makir~g
any kind of commitment to a specific piece of health legislation.
Almost everyone has heard, at one time or another, the story of pi~e-
paid health insurance concepts. In 1929, the outset of the Depressioli,
a group of Texas schoolteachers banded together and agreed to pay a
small sum of money annually to the hospital at Baylor University. ~n
return for this, they received a guarantee of hospital care withtht
charge should the need arise. Sometime later-1939 to be precise4a
prepayment mechanism for physician's services was established in Caji-
fornia. The history of this phenomenon as it grew in Massachusetts is
typical to that of many other plans across the country.
Mr. CORMAN. Excuse me, Mr. Thompson, I hate. to interrupt y~u.
We will have to suspend-oh, excuse me, the chairman is back.
PAGENO="0208"
204
Mr. ROSTENKOWSKI. Go ahead, Mr. Thompson.
Mr. THOMPSON. It is interesting to look at the level of benefits
available in those early years. Briefly, on an inpatient basis, general
nursing care for 21 days per annum, $5 per day toward the cost of a
private room, operating or delivery room, ordinary medications and
dressings, routine laboratory and pathology service, anesthesia up to
$10 per admission and maternity benefits after 11 consecutive months
of membership was available for a mere $1.25 per individual per
month. In comparison with today's costs it is hard to believe that these
benefits were adequate. It does serve to point out, however, the tre-
mendous changes that have occurred in all aspects of medical care-
from technology to economics.
In my own State, Blue Shield `was organized in 1941 to provide a
nonprofit medical surgical plan designed to nieet the physician com-
ponent of medical bills. The corporation was then and still is com-
mitted to certain basic principles. These include free choice of physi-
cian by the patient, freedom of action within ethical restrictions for
the physician, full and open opportunity to participate for all physi-
cians duly licensed in Massachusetts, subscriber representation in the
corporation and supervision by the Commissioner of Insurance.
Enough history-let's take a look `at what we are doing today.
Blue Cross and Blue Shield of Massachusetts are two plans within
a national network of 94 nonprofit organizations which in 1973 insured
one out of every three Americans and paid some $11.2 billion in claims.
The figures for 1974 show substantial growth on that point.
In 1974-total Massachusetts Blue Cross and Blue Shield member-
ship was 3.4 million people-providing services of one type or another
to 63 percent of the Commonwealth of Massachusetts. Some 3 million
claims were processed for both group and nongroup enrollees and an
average of 93.2 cents per premium dollar was returned to our sub-
scribers through benefits. This segment of the corporations' business
resulted in total payments to providers and beneficiaries of $581
million.
The same two institutions, as the medicare intermediary and carrier
within Massachusetts processed some $416 million in claims payment
during 1974. In addition, we provided supplementary coverage for the
over 65 to a total of 354,000 people which generated claim payments
of $33 million.
In 1974 as well, three other programs, CHAMPTJS (`Civilian Health
and Medical Program of the Uniformed Services), the over 65 por-
tion of the Medicaid program in Massachusetts, and the Massachusetts
Commission of the Blind recipients accounted for $21.2 million in
paid claims.
In total, Blue Cross and Blue Shield in Massachusetts in 1974,
received, investigated, processed and paid claims amounting to more
than $1 billion. This represent's the activity of only two of many
organizations within one State of this country and should serve to
establish a dimension of the enormity of the administrative task that
is currently being accomplished and that will be dramatically ex-
panded under any national health insurance program.
Let us shift slightly to the roles of the public and private sectors
and how they interface.
PAGENO="0209"
205
The inception of the medicare program in 1966 was the culmi~a-
tion of a great deal of work begun many lecrislative sessions prior to
actual enactment. Indeed, the idea of proviâ'ing some form of health
care to all U.S. citizens-or a portion thereof-is by no means new.
It dates from the early 19th century. It was during the medicare
debate, however, that the issue was raised as to who or what witI~in
the established system was best qualified to provide and/or administer
the program.
The congressional decision to include the private sector in the
medicare program was both a practical and a political concession that
strongly influenced passage. However, consider the alternatives. T~he
Social Security Administration in 1966 had a wealth of experieiice
dealing with social welfare programs with relatively few variables-
unemployment security, old age and disability benefits, et cetera. Th~se
programs did in no way begin to approach the complexity of a~y
type of medical assistance, however narrowly conceived. Imag~ne
replacing a system of private insurers already on line and doing 1~he
same kind of things needed by the medicare program with a super
SSA bureaucracy headquartered in every State. The numbers of
employees necessary, plus the costs of wiping out one system to repl~ce
it with another are staggering.
It is amusing to note that one of the strongest arguments agai~ist
utilizing private carriers for medicare, was in reality the one that~ is
probably the best reason for utilizing the system in place. Unlike the
defense industry, where the subcontractor is asked to produce hard-
ware or tangible commodities, a subcontractor providing human se~v-
ices is asked to provide something intangible and indeed someth~ng
which has to be subject to the strictest delicacy and sophisticatjon
in the way it is provided. Since this type of service subcontracting
had never been tried, many people were legitimately concerned tl~iat
these considerations would be overlooked, should the Government iiiot
retain direct control.
Turning this argument in on itself, the insurers, Blue Cross-Blue
Shield and commercial companies had been dealing with hun~an
health issues since their inception; providing good and timely service
to their publics in every area `from collecting premiums, paying bepe-
fits, answering questions and providing consumer education. Th~se
talents represented a known health care asset which was in e~en
greater need when the time for the implementation of medi4re
arrived and such is the case today.
From an administrative standpoint, medicare represents a very
interesting marriage of the private sector already in plac~ with ~he
regulatory and financial functions of Government. This is not to ~ay
that problems don't exist, because they do. Considering the popilla-
tion to be served and the sources of the funds, this marriage seem~ to
come closest to satisfying most of the obvious needs. The Governn'~ent
retains a regulatory function while at the same time providing bene-
fits to the public through existing organizations.
As the debate over National Health Insurance continues, this côm-
mittee will at some point have to determine whether the private sedtor
possesses those management and organizational characteristics re-
quired to make the system function on a basis responsive to public
57-677 0 - 75 -- 13
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206
need. That system will represent approximately 10 percent of this
country's gross national product with an administrative cost alone
that could reach $8 billion annually, and an administrative force of
up to 700,000 employees Some excellent insights into that choice can
be found in two significant studies of the pi ivate government relation
ship within medicare today
The first report was by the National Academy of Public Adminis-
tration and the second was from the Advisory Committee to the Sec-
retary of Health, Education, and Welfare, otherwise known as the
so-called Perkins report. Both of these documents while pointing out
inadequacies in the medicare system, point out that private sector
participation has worked. More attention to goals and standards by
the Government, while at the same time allowing their contractors
to actually manage their commitments would produce additional
efficiency in the system, both reports noted
Clearly, there is a role for the private insurers within any health
care system And that they will have a role should be a foregone con
clusion. The medicare experience is very persuasive on the issue of
private sector management and I would urge the members of the
committee to review personally each of the mentioned reports. Obvi-
ously, the debate over private sector involvement will continue, but
I believe it to be imperative for the committee to see that debate not
in the perspective of the Government `~ desire to continually expand
in numbers and services but rather as to which entity can provide
services to the public on the most cost-efficient basis.
One aspect of this debate deserves special mention and that is the
allegation that the current system generates an exorbitant marketing
cost which provides little or no actual benefit to the public. Based
on our experience in Massachusetts, it is apparent that there exists
substantial misunderstanding as to what is a marketing cost. Our
marketing area is not only a sales area per Se, it also provides all the
direct service functions associated with health insurance. On an em-
ployee basis; of a total of 392,318 or 81 percent are directly engaged
in service, 56 or 14 percent are categorized as sales and 18 individuals
or 5 percent are performing management functions.
In addition, let us define further the 56 who are involved in sales.
Fully 80 percent of their time is spent in activities characterized as
service; including contract renewal and consulting with established
accounts. This consulting is in the areas of upgrading health benefits
to maintain or improve the level of protection and to assure the most
adequate means of financing the plan.
In terms of dollars expended by us in Massachusetts, the marketing
effort cost approximately $5.3 million per year, of which only $251,000
or 0.4 percent would be identified as acquisition cost while the re-
mainder is customer or public service cost which will continue regard
less of National Health Insurance.
The same is true of advertising expenditures where the overwhelm
ing percentage of cost is devoted to subscriber education typical of
which is the exhibit attached to my statement, which portrays an
education program recently run in the media throughout the State.
[The exhibit follows:]
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209
Rising health care costs, whether we like to
admit it or not, are everybody's problem.
Doctors, patients, hospitals.
Ours.
We're concerned.
And at Blue Cross and Blue Shield of Massa~
chusetts, we're trying to do something about it.
The advertising campaign you're about to s~e
unfold in the next few pages is just one small thing
we're doing.
Hundreds of thousands of people, includin~
doctors, patients, and hospital administrators,
will see it.
Our intent is simply to dramatize a very
real problem.
We're all part of the solution.
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211
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212
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213
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214
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215
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216
Mr. THOMPSON. Despite ~ these low percentages of total, these items
reflect costs that must be dealt with. Shifting these from the private
sector to the Government would only serve to move the cash from
one pocket to another-someone still has to foot the bill for all of
these service related items
Looking at costs from a broader perspective, let me interject a few
more statistics To compute what it costs us administratively on the
`tverage per contract, we simply divide out total operating expenses
by the number of existing contracts In the case of Massachusetts
that comes to approximately $2 30 per contract per month A low
enough figure when you consider that this entails enrolling, billing,
paying claims, utilization review, servicing claims problems, answer
ing direct inquiries and processing that contract out should the sub
scriber leave the group
All of this is not to say that we have found the answer to controlling
overall costs in the system-no one has We are doing many things to
~t least get a handle on why costs have moved so sharply and what
can be done about it Utilization review in 1974 in Massachusetts saved
$3 8 million for Blue Shield and between $2 5 and $4 million foi
Blue Cross. That is a start-but more must be done. In order to do
that we must get at the root of some of the problems within the system
itself--the same problems which must be resolved before any National
Health Insurance plan can be successfully implemented.
Let me quickly go through some of the more obvious questions
Acute versus preventive care Insurers for years have been subiect
to criticism because we seemingly emphasize sickness rather than
health, the fact remains that insurance whether Government or private
is provided to insure against a risk In this case, the risk is that you
will get sick and seek medical attention Blue Cross/Blue Shield were
originally set up to meet the needs of the acute illness because tech
nology and the means of the system at that time were also in that mode
The system has experienced a shift away from the heavy institutional
emphasis to the more flexible ambulatory and the private sector has
kept pace. However, there is sincere and credible concern as to whether
`~ total reorientation toward providing preventive care benefits would
either lower the incidence of acute illness or be the most cost effective
means for the subscriber and the public at large
As an adjunct to this, no matter how sophisticated medical tech
nology and engineering becomes, hospitals will probably never be
obsolete, at least not in our lifetime The secret to stopping high cost
institutional settings from proliferating is not by refusing to acknowl-
edge them by removing benefits hut simply to look realistically at the
costs entailed and devise methodologies for adequate regulation. No
small job, but one that is becoming more and more necessary.
Resources, are a continuing debate, are we overbedded, are we under
bedded How many physicians per thousand and in what specialty
distribution is adequate Again, good planning is the key Planning,
however, should be based on specific area needs and not on some master
plan solution for the Nation as a whole Only after we are able to look
at each region, each area objectively to assess what is good and bad
will these questions be resolved.
In summary, there are some basic principles which can be applied
PAGENO="0221"
217
to the National Health Insurance debate which are entirely consistent
with those of my organization and I believe, of others within the
private sector they are:
(1) Retention of the private sector within any national healt~h
insurance structure.
(2) Maintenance of free choice for individuals as to physiciali,
hospital and mode of medical delivery.
(3) Public financing of medical care for the poor and the medically
indigent.
(4) Mandated minimum benefit levels and standards coordinat~d
with supplemental and catastrophic coverage.
(5) The phasein approach to massive new programs or untried risks
such as well baby care, universal dental coverage, vision and heari4g
benefits.
Those are some of my perceptions of the health care system, t~ie
problems and national health insurance considerations. Thank y~u
for the opportunity to present them.
Mr. ROSTENKOWSKI. Thank you, Mr. Thompson.
We open now the panel to a discussion. Is there any comment th~t
any member of the panel would like to make on another panelis1~'s
testimony?
Any observations?
Mr. SOMERS. Just to get things going, I would ask Dr. Englan~l,
who was pointing out that under certain Government systems there is
in effect a rationing of medical services. I don't think that is necessari~y
true. But assuming that to be so, don't you believe we have rationir~g
now here?
Dr. ENGLAND. Well-
Mr. SOMERS. Is one form of rationing better than another, is th~it
your point? Don't we ration now on the basis of those who can affoii~d
and those who can't?
Dr. ENGLAND. I think what you are talking about is an individu~il
making a judgment of the allocation of his own resources.
Mr. SOMERS. No.
Dr. ENGLAND. I don't call that rationing.
Mr. SOMERS. I don't either and that is not what I am talking aboi~t.
Suppose you don't have resources for medical care. Don't we rati~n
in terms of affording it? You don't have access if you don't have the
financial resources? Isn't that a rationing process?
Dr. ENGLAND. The presumption is that there are a number of people
not getting medical care. I am not expert in what goes on all over the
country. All I can say, that in my area, this is not happening.
Mr. SOMERS. Anybody who wants medical care in your area auto-
matically finds access to it?
Dr. ENGLAND. That is right.
Mr. SOMERS. How, can you-
Dr. ENGLAND. Go to the doctor and they get taken care of.
Mr. SOMERS. You don't send bills, I gather.
Dr. ENGLAND. I send bills. I don't always collect them. That is after
the fact.
Mr. SOMERS. You don't expect me to pay my bills if I come to yo~ir
area.
PAGENO="0222"
218
Dr. ENGLAND. You look like an honest and able man; I would expect
you to, yes.
Mr. SOMERS. Meaning the other people are not so honest.
Dr. ENGLAND. No, some of them are not able.
Mr. SOMERS. I see.
Mr. ROSTENKOWSKI. Mr. Cathles.
Mr. CATHLES. I had always thought the question was not the ability
to pay but access to care. It has b~en said that the areas where you
have the biggest problem are in the rural area where there are insuffi-
cient facilities and in the ghettos where you don't have adequate
facilities But I thought the poor were pretty well taken care of in
those areas where facilities existed State to State there are variations
Some States are liberal, others are not quite so liberal. But I didn't
think it was so much a question of income.
Mr. SOMERS. The figures would support you in one sense. Actually
the poor right now use medical services more `than higher income
groups, measured in terms of number of visits to physician and number
of days spent in the hospital.
But that can also be interpreted `as a sign of lack of access in the
sense that they get treated at `the point of emergency and where the
illness has become very serious since there is a barrier at the earlier
stages by the very fact that to receive the care that you expect, they
have to go through a means test process which is either very delaying
or rejective because it is in all States and all areas a deeply humiliating
process. You have to declare poverty and pauperism to caseworkers
under very difficult circumstances. Most people try to avoid it. The
net result is they eventually get access when `there is no choice.
Dr. ENGLAND. May I make an inquiry about that?
These people that-these statistics would be based on figures that
would come from people being taken care of by Medicaid. That kind
of indigent?
Mr SOMERS No, these figures are published by the National Center
for Health Statistics which does it on a national survey basis, which
they ask of a representative sample How many visits were made to
the physician, for what, how many days in the hospital, et cetera
Dr ENGLAND Sort of like a poil ~
Mr. SOMERS. Yes, it is a survey.
Dr. ENGLAND. I guess it is all right. I have never been asked anything
by anybody from a poll and I don't know anybody that has been. I
am always a little suspicious of them. I don't think you can necessarily
jump to saying that the fact the patient sees the doctor more often
or he is in the hospital longer means he has been denied access This
could well represent what I was talking about before in terms of
overutilization and the unlimited demand placed upon the service that
is free at the point of entry of the patient
Mr CATHLES I think I would like to make just one more comment
That is, you know, you talk about reluctance and you talk about the
awful thing about the means test, but most of these people that you are
referring to are already part of our welfare system. They already have
identified themselves as needing assistance. They already are receiving
welfare payments from the Government.
Mr. SOMERS. Well, I don't think so.
PAGENO="0223"
219
Mr. CATHLES. You have the near poor; they are better educat~d
people, they have jobs and there may be a problem insofar as th~ir
ability to afford adequate care. But I question whether it is really
standing in the way of their getting the care that they need.
Mr. SOMERS. The State of New Jersey, which is fairly typical does
not make payments, welfare payments, to people who can't affo~d
medical care. They are not covered under our medicaid program for
example. You have to be on welfare. Therefore, if you are in that
category not being able to afford medical care but also not on welfare,
then you are going to go through the local means test of the local coib-
munity and declare yourself a charity case. I can't say numerica~ly
whether they outnumber the group you are referring to. I don't know
of any studies of that. But there are large numbers involved.
Dr. ENGLAND. May I make one other remark?
Ever since this got started back in, when even medicare first ~ot
staj~ted, I don't know how long you have to go back, but it was a lor~g,
bug time, this business of the means test has been emphasized, how it
is humiliating. There is, I believe and again I am only expert in taki~ig
care of sick people, not sick governments, but isn't there a means t~st
of a sOrt that is attached to the food stamp program?
May I ask the committee?
Mr. CRANE. Yes; there is.
Dr. ENGLAND. Has that stopped participation in the food stamp pito-
gram?
It started at $40 or $50 million per year. Now it is up to $4 billh~n.
If the means test keeps people out, it does it in a strange manner.
Mr. SOMERS. Nobody has alleged that people don't receive-
Dr. ENGLAND. I thought that is what you were saying.
Mr. SOMERS. Obviously, there are millions of people on welfare. It
doesn't prove that it does not keep a great many other millions out.
Dr. ENGLAND. I don't think the many millions of people on welfare
are all that are on food stamp. I think there is some difference.
Mr. THOMPSON. Mr. Chairman, I would volunteer a comment on the
issue of accessibility.
A more troubling aspect looking in that area is looking at the figures
presented to a committee such as yours, the figures that seem to pr~ve
one thing or another and yet statistics can be used to prove the opposite.
I am sure all of us sitting here and all of you up there, you have ~ll
see the statistics on the beds per capita in this country and they are
used by one person arguing, saying that means we have too maby;
another would use them to say we have too few. I can't say whether ~ve
are ahead or behind another country in any argument of that sort.
On the issue of access it seems to me it is hard to measure that by
some abstract term. The key is really what do people perceive as 1~he
access. It is not what they use. I don't think it is particularly important
to measure different categories of people either by economic level or by
any other characteristic, geographical or otherwise. The key is wI~at
they believe the access is that is available to them whether by their oWn
perception they need care?
We attempted to get a handle on this in our State and we did an
interview process of some 700 MassacIius~tts citizens which I am t9ld
means you can draw conclusions as to the universe. The public's perc~p-
PAGENO="0224"
220
tion of access as it relates to them as individuals, not measured after
the fact by utilization, is substantially higher than probably all of us
is ould say what that real access was
I am very troubled that all of us in dealing ~ ith this issue, as diffi
cult as it is at times, are dealing with it more from the side of looking
at many times unrelated statistics that don't prove what the public
thinks they have
As an example, even though you are hear ing colTitinuing arguments
as to the number of physicians in the so called primary carriers, those
in practice in even my own State, the second highest State physician per
capita basis, something like 75 percent of the people in my State be
heve they do in fact have ~ primary physician or a general practitioner
Now, if you count the physicians by medical specialties you will know
that just isn't true.
But I think we tend to deviate from what the public thinks they
have I think that is the issue that has to really be dealt with in a
much more sophisticated way than previously done
Mr Rosr~NKowsKI Yes
Dr ENGLAND I forgot to to resent something a moment ago
[Laughter]
Dr ENGLAND The idea that somehow access is limited in the rural
areas, I would like to take issue with. No one is more rural than I am
and I think we do a job that ~ ould rank with any area I think that
is true generally. The statistics that come from rural areas are sort
of peculiar. I saw a survey performed by Southern Illinois University
Medical School, which is located in a county adjacent to mine and
according to their information on a ceiisus of hospitals in my county,
they were off 50 percent They concluded there ~ as no medical society
in existence in the county and I am the secretary of it
In surveys somehow, you get out what you put in In the rur'il `treas,
I don't think that they have a particularly peculiar problem with re
gard to access. I would agree that the situation in the so-called ghetto
is different but I think there are explanations for that, too
Mr. STARK. I have heard the argument many times that there is an
opposition to the Government intervention in the health field. The
argument goes that we h'tve adequate insurance for the majority of our
citizens I heard some figures today, and I am not sure which panelist
mentioned this, that we have some 90 percent of our citizens covered
by health insurance I may have misunderstood that but I would like
clarification if I did hear con ectly
But I wonder how comprehensive the insurance covering these peo
ple is and whether it is universal enough to warrant saying we don't
need additional coverage under Government sponsorship or any other
sponsorship?
Mr. CATHLRS. I am afraid I was responsible for the 90 percent figure.
It is a figure developed from surveys of the Health Insurance Associa-
tion of America. The figure is 94 percent and that is an estimated
figure because there are no precise figures It is related to b'isic hospital
care, which, of course, many of us would say is not comprehensive care
But nevertheless, although the total figure is related to basic hospital
care, there is a very high percentage of these p°ople covered foi what
might be described as c'ttastrophic care The HIAA estimates that to
be at the end of this year 144 million Now 144 million out of 185
PAGENO="0225"
221
million noninstitutionalized people is a high percentage for compre~
hensive health coverage.
Mr. SOMERS. Mr. Cathies, I think the last HIAA estimate showe~
about 82 percent. I suspect that the difference may be that you may
have added up the various figures they use for the different types o~
insurance. Whereas, HIAA does concede that there is a tremendou~
amount of duplication in tho~e different figures; that is, many millions
of people have duplicate health insurance-I am one of them, covered
by two or more.
So I think that reduces the total by a very great many millions which
brings it down to, I think, somewhere in the order of 82 percent o~
those under 65.
Mr. CATHLES. If you add up all categories which the HIAA ha~
identified, group, and HMO~s, et cetera, et cetera, you will come to
more than 100 percent. You have to adjust for the duplication betweer~
group and individual policies and you have tc adjust for the dupIica~
tion between the Blues and commercial insurance. This is not an exact
adjustment. So that, as I said before, this is not a hard-and-fast figure.
But nevertheless, that is the estimate that th~ people or the actuarie~
in the insurance industry have come up with int~rpreting the HIA~
figures.
But it doesn't make a great deal of difference whether it is 82 percent
or whether it is 94 percent. I guess those might be the opposite ends of
a range because the Social Security Administration has come up witI~
a figure of about 78 or 80 percent. Theirs was based upon equally
unscientific, perhaps, or even more unscientific approaches and prob-
ably the truth is somewhere in between. But it is a very high proportibiii
of the total population that is covered.
Dr. ENGLAND. What is it that should determine the comprehensive~
ness of the policy?
Mr. SOMERS. Whom are you asking?
Dr. ENGLAND. Anyone that will answer.
Mr. SOMERS. It is now determined by the resources of those whp
buy it. Comprehensiveness means exactly what the word means, cover-
ing virtually all necessary medical costs. In practice, I suppose com~-
prehensiveness is actually defined as somewhat more than you have
now.
For example, medicare reports that it covers in monetary term~,
roughly about 48 percent of the actual costs of the aged for medical
care. That is not considered, comorehensive by those people.
Should it be 100 percent? Probably not. But it should be considerabl)T
more than we have now.
The way it is actually determined now is by what can you afford
to buy. The insurance company will gladly tailor-make a contract
for you in terms of what.you are willing to pay.
Dr. ENGLAND. I don't think that is strictly arbitrary as long as
the individuals are deciding it. The problem I am having is trying
to identify that person who has the kind of knowledge that must be
necessary to control the other guy's activities and determine how he
is going to spend the money he has? Who is that? It is not me..
Mr. SOMERS. Mr. Chairman, I think we may be getting away fror~
the topic for which you invited us which was, I gather, correct n~e
57-677 0 - 75 -- 14
PAGENO="0226"
222
if I am wrong, the role that the private sector must appropriately
play in a national health insurance scheme.
Mr ROSTENKOWSKI We will go to the 5 minute rule, and the panel
will take questions of the committee
Mr. Cathies, I take it you regard the individual private insurance
mechanism an inadequate approach to meet the health insurance
needs of those who cannot be reached by group insurance mechanisms.
You describe the individual policies of about 45 million people as
plaqued by problems of high cost, incomplete regulatory supervision,
limited coverage, and questionable claim practices.
How do we deal with that problem ~
Mr CATHLES I think that is one of the problems of the present
insurance mechanisms I have suggested as a means of dealing with
the problem, a competing mechanism which would make available
to anybody who wanted to buy it, a policy at a basic cost Right now
part of the problem with the individual policies is the high distribu
tion cost, expense rates of half of the total premium. If you could
eliminate that distribution cost and if you could make a policy
available without any loading for the selection which it will obviously
get from the uninsurables, then this would make available to in-
dividuals almost the same opportunity for reasonably priced coverage
that an employee has who works for an employer which has a group
insurance policy
Now, this is going to have impact on the existing system because
this would be a policy in competition with higher cost individual
policies but at least it would leave the individual the choice as to
whether he buys it at this lower cost or whether he decides there
are other advantages in the individual policy from the standpoint
of supplementing. his existing program and from the standpoint of
filling his special needs which is more important to him.
I did not intend to impute to individual policies in general, either
incomplete regulatory supervision or questionable claim practices. My
comments iii this vein were directed at certain mass marketing tech
mques used by a very limited number of companies
Mr RosmNKowsKI Would any of the other members like to com
ment
Mr THOMPSON Let me add this comment, that the nongroup cate
gory presents a dilemma The fact of life is though that in an institution
like mine the cost of that particular group is consistently subsidized
by the groups.
In the process of premium regulations as it presently is in effect,
through the insurance commissioner, the nongroup rates do not rise.
They are subject to public hearing, public scrutiny, public debate,
md the political pressures on that particulir sensitive category of
people results in the fact that insurance commissioners traditionally
deny changes in the premium level th'it reflect the real cost to the
group so employer groups as a fact of life underwrite a substantial
portion of the cost.
In the last 7 years-this is my own experience now in one part of
the country-it amounts to some $12 to $14 million paid by employer
to subsidize those people who have no relationship with them what-
ever.
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223
Mr. RosmNKowsKI. Doesn't that put them at a competitive dis-
advantage with the commercial groups?
Mr. THOMPSON. That creates quite a problem. We argue that with
the insurance commissioner and employers, who understandably feel
that that category of citizenry within the State is not their respon-
sibility.
However, the track record as it were is such that they have4 in
fact subsidized them.
Mr. SOMERS. If I may?
Mr. ROSTENKOWSKI. Dr. Somers.
Mr. SOMERS. That degree of regulation which you describe applies
only to the Blues, doesn't it, because of their nonprofit status. Unfor-
tunately, it does not apply to most of the commercial and especially
the mail-order houses.
That leads me to ask Mr. Cathles, you did say in your presentation,
I believe, that the State regulation of the industry leaves much to b
desired. I believe you said that.
I entirely agree.
Yet, the industry has apparently resisted any attempt to go to
Federal regulation in insurance. I am wondering why that is so foi~
companies like yours, Aetna. The industry as a whole has gotter~
a worse image than it should because of the mail-order houses, fly-~
by-nights, et cetera, which don't resemble the respectable Aetna's
and Metropolitan's. Wouldn't you be better off if that were made
clear through a regulatory process that evaluated these rather dubious
operations which are going on throughout the country?
Mr. CATHLES. You took one little statement I made and blew it up
into quite a bit.
Mr. SOMERS. That is a good debating technique, I believe.
Mr. CATHLES. Yes, I know.
But I did not mean to imply that State regulation of insurance wa
ineffective with respect to the great bulk of the insurance which i
offered.
But I did say there was this one thing in the insurance operatioi~
which the States have trouble in regulating because it is markete
under a trust which is established in a State which has no laws an
then marketed more broadly. So that the powers of the particulai~
insurance commissioners just don't enable them to cope with that
kind of a situation.
But this represents a very small portion of the total insuran$
coverage that is marketed in the United States. And to infer I rorr~
that that the State insurance departments do an inadequate )Ob,
I think is a very big jump.
Mr. CORMAN. Excuse me, gentlemen, we are under time pressure.
Mr. Crane wanted an opportunity to inquire before we had to g~
vote. Then we will be back with general discussion and further quest
tions by other members.
Mr. Crane wanted to get some questions in at this point, however.
Mr. CRANE. I thank you for generously yielding to me. I do hav~
a conflicting meeting after this vote, too. .
There is something in Dr. England's testimony that intrigued me.
I believe it is based upon-I saw in your biography that you had
PAGENO="0228"
224
worked with the Indian Service hospital at Fort Defiance, Ariz.
I also see you have worked in rural areas of New Mexico, too.
You made reference in your testimony to familiarity with the In-
dian health care program. The reason that struck me is I think
Mr. Stark or maybe it was Mr. Cathles had indicated that where
Federal funds had been reduced in support of State mental health
programs, particularly, that there had been a cutback in appropria-
tions made at the State level to continue those services and I am
intrigued by that inasmuch as I was recently in Great Britain and
they commented on one of the problems of total public expenditure
in the health care field being that when you politicalize medicine, it
becomes a lower priority item. There are other more glamorous ap-
pealing areas for public investment.
I gather, Dr. England, that something comparable to that was
your experience with the Indians in Arizona or New Mexico?
Dr. ENGLAND. At the time that I had experience with them, the
Indians, of course, had no vote, so they were politically castrated.
They were the sole responsibility of the Federal Government and
while the few devoted physicians that were there did, I think, a
superior job given circumstances and resources available to them,
it was far from ideal. There have been some changes made since then.
At that time it was the responsibility of the Department of Interior,
Bureau of Indian Affairs to provide medical care. I believe it is now
the responsibility of the Public Health Service.
I don't think that any improvement has stemmed from that
reorganization.
I was struck by a television documentary a year, perhaps 18 month
ago-I can't remember what network it was on, CBS perhaps-
but they studied the dilemma of the Indian and his general circum-
stances and the social situation in which he finds himself on the
reservation, and if that was a truthful documentary it would indi-
cate to me that the Indian has experienced absolutely no improvement
in spite of the fact that there has been more activity to improve
his lot since he has become more of a political animal.
Interestingly enough, never in that documentary was it ever pointed
out that the one responsible for all the things that need to be corrected
is the Federal Government and what is wrong is due to lack of
action on the part of the Government.
Again, it demonstrates that Indian health, given the Federal budget,
is not a high priority item and I think that would be true of the
medical care of all of us if we continue to pursue the route we are on.
Mr. CRANE. That was essentially what I had heard from a number
of British physicians' staff people and administrators within their
health system where the figures are 5.5 percent of their GNP is spent
on health and you have these incredible waiting periods for surgery
and a variety of classifications for admittance into hospitals. Emer-
gency care as I understand it is comparable to here in the United States
but when you get to the chronic level they have categories of early
admittance and then "when convenient." If you are unfortunate
enough to be in the "when convenient" category you may be able to
look forward to moving up to the early because of aggravation of your
condition and at some point your "early" may put you into the emer-
PAGENO="0229"
225
gency category and while we were in Great Britain, in fact, ther~
was a case of a women who died because of three delays in admissior~
so she obviously had gone from "early" to "emergency" to an earl~r
demise.
But I think that has been not the experience peculiar to all system
with respect to that percent of GNP, but it does seem to me to b
a very real danger.
I have to run and I apologize to the panel.
Mr. CORMAN. We will suspend briefly, gentlemen, but we will b~
back as soon as we can.
[A recess was taken.]
Mr. CORMAN. I see we're back.
Mr. Ros'rJiNKowsKI. All right, go ahead. You will come bacl~,
won't you, Mr. Crane?
Mr. CRANE. Unfortunately, I can't. I have a meeting that I must
attend of about 20 people.
Mr. ROSTENKOWSKI. Mr. Stark, I have some questions for you.
Mr. STARK. Yes, sir.
Mr. ROSTENKOWSKI. You say that incredible chaos would resu~t
if people generally chose to supplement the modest Nh benefit
package. But isn't it true that large number of people already hai~e
dual coverage and not just medicare beneficiaries? I didn't realize th~s
makes for chaos.
Mr. STARK. I think I could turn that over to our insurance peop~e
and let them describe it firsthand.
Mr. THOMPSON. Well, you do have a substantial number of peop~e
in the country who are carrying duplicate polices. There is no question
about it.
The majority of the insurance companies, ourselves and Aetna and
all the others, have provisions whereby those benefits are coordinate~I.
So the issue of two payments for the same single cost is really being
eliminated from the system.
We also provide, as I mentioned in my direct testimony, a suppl~-
mental coverage for people over 65. That system has worked pretjy
well because frankly the advantage of being able to coordinate tho~e
two claims processing systems, since we also act as the medicare carrh~r
within the State, so there are efficiencies in doing it that particuli~r
way.
There still is a great deal of slippage though within this counti~y
and when you see the concern over the total cost of health care y~u
have to recognize that in areas such as no-fault legislation which ~
have in our State and which many of the States have and Congr$s
is considering that now, you have a direct opportunity for dual pat-
ment and that is an excess in the system that must be eliminated. Tl~e
most recent Senate bill does take that into consideration. But in e.vei~y
State that I am aware of now, you have the opportunity except jn
New Jersey, you have the opportunity otherwise but you have the fact
of dual payment.
Mr. STARK. My concern is not so much the fact that the private
sector will be able to cope with this eventually, but you are jumpir~g
from a matter of 20 million people in terms of medicare up to 200
million people. I think for that period, unless something is looked
PAGENO="0230"
226
very carefully, dual coverage is going to create a good deal of chaos,
perhaps not for the insurance company which sells the coverage, but
for the providers and the beneficiaries.
Mr Ros'rrNRowsKl Mr Cotter will inquire
Mi'. COTTER. Thank you very much, Mr. Chairman.
Gentlemen, its been a most provocative session and I want to wel-
come you all here p'trticularly Mr Cathles from my home State with
whom I have had a long and rewarding friendship.
Mr. Cathies, to get back to that 94-percent figure which has been a
source of some discussion here, could you break that down for us to a
finer degree?
Mr. CATHLES. This comes from the sourcebook of Health Insurance
Institute, 1974-75 It lists for years, beginning in 1940 to 1973-which
is the last year for which data is availabl&-the number of people
covered by ~Jl insurers, by all insurance companies, by group policies,
by individu~l and family policies, by Blue Cross and Blue Shield, and
Medical Society plans and by other plans
It starts out with the under 65 population covered, $170 million,
nhich is mide up of $103 million by all insurance companies That is
broken down to $82 million under group policies and $47 million under
individual policies. Obviously duplication exists because the group
and individual add up to more than $103 million, which was the total
figure.
For Blue Cross-Blue Shield, just one figure for both the group and
the individual coverage., $72.7 million. Then for all other plans, which
is your HMO's, self-insurance arrangements, et cetera, et cetera, $8.8
million.
If you take the total of the 103 and the 72 and the 8 8, again you
come lip to more thin $170 million So again we have duplication
Mr COTTER Even if we were to reduce that figure to the 80 percent
figure as put forth by the Social Security Administration, it would
appear to me that a very high percentage of the under-65 population
have some type of coverage. Of course it can vary between groups and
between individual policies Some may be adequate, some may be
highly inadequate.
But it seems to me that if we are covering some 80 percent of the
population, it would appear that we have the mechanism or the vehicle
upon which coverage to all people could be expanded at a minimum
of cost and a minimum of administrative headaches and so forth
Would any of you care to expand on that?
Mr. CATHLES. You have the mechanism in place, but you have some
problems. You have the problem of the group that cannot afford to
buy more than just the basic hospital coverage, so if you want to get
that marginal group of employers covered, there has to be some
mechanism which helps them to pay or which subsidizes them in some
way.
Mr COTTFR But if I may interrupt, I am just exploring this, you
also mentioned some individual policies the acquisition costs are much
higher. Of course, if these were to be brought under a group, there
could be a ~avin~s in that area, could there not ~
Mr CATHLES If theie were mechanisms to make available compre
hensive coverage at reasonable cost to the individual, you would have
a greater percentage of our total population covered. No question
PAGENO="0231"
227
about that. Some people do not buy because they cannot afford to or
they buy less comprehensive coverage than they want because they
cannot afford to pay more in premium. That is one part of the problem.
In addition to this there are people temporarily laid off, and, people
terminated at their place of employment. A period of time elapses
before. they can get another job and coverage lapses because they can-
iiot afford to pay the premium. They are not welfare cases, they are
not even near-poor. But there are many demands on their budget
and with the insecurity which comes from lack of a current job they
frequently do not continue coverage. This is a third category which
makes up the difference between the 185 million who are potentially
eligible for private coverage and the 144 million who we estimate
have comprehensive coverage.
Mr. COTTER. For the sake of argument, let's assume the 80-percent
figure is correct. Of that 80 percent, how many would you estimate-t
or guess, and I know it is a matter of conjecture-would have what
we would term adequate or near-adequate coverage for the basic hos-
pital and surgical coverage ~
I know it is an unfair question to throw at you.
Mr. CATHLES. We estimate 144 million and you take what per~
centage of 185 million that is and that would be it.
Mr. COTTER. I am talking about the 144 million. What percentag
would you say have adequate basic hospital and surgical insurance
Mr. CATHLES. We estimate that 144 million have catastrophic typ~
coverage, which I would say would be reasonably comprehensive
coverage.
This would include those covered under HMO plans which provide4
comprehensive coverage. This would include the auto workers, th~
steel workers, the rubber workers, patterns have been established iu~
these industries which provide very comprehensive benefits; fol~
example, 365 days of semiprivate hospital care, 730 days of extended
care facilities, reasonable and customary surgical diagnostic X-ra*
and laboratory benefits, and, prepaid prescription drugs, now eve~
dental benefits in auto and steel; very liberal basic benefits.
It would also include those with major medical coverage which pro-
vides maximums in excess of $10,000. Most of these major medical p01-
icies supplement basic benefit plans. So the maximum coverage avai~-
able is a lot more than the $10,000. But this is the kind of coverage
which goes to make up these figures.
We also include the Blue Cross-Blue Shield major medical prd-
tection which is available through their more liberal contracts.
Mr. COTTER. What strikes me about this figure, 80 percent or 94
percent, it would strike me that we have the mechanism, that they ai~e
doing a reasonably good job and the simplest approach would be to
expand on this type of mechanism rather than to start from scratclu
with some type of a bureaucratic Government entity handling it.
Mr. CATULES. I think a real good job has been done in reaching tI~e
potential market. The potential market, as I see it, is not those who
cannot afford to pay. I think an insurance mechanism can only reac~u
people who can afford to pay.
Now to reach the people who cannot afford to pay, I think you have
to have some other mechanism which helps them to be covered, b~h
you can use an insurance mechanism in the administration of coverage
for those who cannot afford to pay.
PAGENO="0232"
228
Mr COTTER W1th Government subsidies and whatever ~
Mr CATHLES Yes And they are efficient mechanisms which have a
good record of cost efficiency vis a vis Government administration
Mi COTTER Thank you My time is expired
Mi ROSTFNKOWSKI Mr Vanik ~
Mr VA~ 1K What von are saying, Mr Cathies, is that you can
handle the cream but you cannot handle the skim milk and the trouble
some things that occur, so for that group you think probably the Gov
ernment ought to assume responsibility perhaps by assuming the
expanding medicaid to take care of the group of where that is now
~nd where the private enterprise can handle it through insurance
carriers
I am talking about the funding
Mr CATHLE5 I do not think that is a fair interpretation of what I
said, however
Mr VANIK Well, how are we going to handle that group that is
below the group that can pay ~
Mr. CATTILES. We can administer it.
Mr. VANIK. But where would the resources come from?
Dr. England is worried about where the taxes are going. He does
not want to pay for it How are we going to raise the money to pay
for this for those who cannot pay ~
Mr CATHLES In the final analysis, from the public as a whole
Mr VANIK You mean Congress or the county commissioners or the
township trustees ~ Who is going to do it ~
Mr CATHLES The public will have to pay the bill
Mr. VANIK. By public, who is that?
Mr CATHLES All of us, you, me
Mr. VANIK. The local governments? Do you think Congress should
worry about it?
Mr. CATHLES. I think the Congress has a function here. I think some-
how the public has to pay for those who cannot pay themselves.
Mr VANIK Yes, that is what this is all about
Mr CATHLES I think we are presently very inadequately trying to
cover the cost of those who cannot pay for themselves
Mr VANIK I would like any of the members of the panel to put in
the record the kinds of policies that they know about that are avail
able-I know you have talked about catastrophic coverage, you were
talking about the full year's coverage Catastrophic coverage in my
parlance goes for expenses that are beyond that, are recurrent
You know you have a system in the insurance system where, if I have
a claim for example, some given ailment and I am an individual policy
holder, I am not talking about groups, maybe you treat groups dif
ferently, but the time my policy comes up, you will exclude the thing
that is the basis of my claim because you have a very complicated
registry system that transfers the information on my claim to every
body in America that belongs to this group
As soon as the person has a claim, the information is telegraphed
and made available to every insurance carrier Any insurance carrier
that I deal with will say, we will cover you, excluding the very thing
that you are likely to claim for Now what about that ~
Mr CATTILES I do not think that that is a fair statement
PAGENO="0233"
229
Mr. VANIK. Well, it operates that way. You know that it operates.
Mr. CATHLES. The policies written today are guaranteed renewabl~.
You do not have riders eliminating coverage which has been in force.
Mr. VANIK. What are the problems with your relating to depend-
ents? I will take your former company. But they send me a tick~t
saying your premium is so and so. The agent says, I have a better po~-
icy. I say oh, I get notified in the meanwhile the old policy lapsed
because the computer up there did not know I got a new one. They th~y
come back and say, we cannot cover you on that new policy, but we wi~l
reinstate the old one which is already lapsed for 4 months, but th~y
want me to go back and pay the premium from the time of tI~e
beginning.
In other words, they want 4 months for coverage when they to~d
me I have been canceled if I had a claim. All of this comes to me in a
computer card. The agent, the representative, has no obligations at a 1.
He is not my agent nor yours. I do not know who he is. He tells me I
am covered.
If I went to court and tried to prove it, I would be washed out
the box and I know that as a lawyer. That is the problem I have havir~g
with your company, which is one of the best ones in the business. No~v
if this is an experience with one of the best, what can I expect fro
some of the others?
Mr. CATnLES. I would think that would be a very responsible reac-
tion because what you have said is that the company said all right, tI~e
computer made a mistake.
Mr. VANIK. I cannot argue with computers. I do not argue with oijr
own.
Mr. CATETLES. We would have had to pay the claim.
Mr. VANIK. You could have told me that. Your company could ha~re
said, we gave you a cancellation on the old, we turned you down on the
new one, `and I would have gone from here to the Supreme Court argp-
ing about it but I do not have the resources nor the time.
The next point I want to make, and I want to commend Dr. En -
land, I think his testimony represents what most of the doctors f
America are saying. Some of the doctors that I know think Attila t~ie
Hun was a terrible liberal and this is one of the reactions we get.
ILaughter.]
Mr. VANIK. I know, and I have full understanding about how y~u
feel and how most doctors feel. But this is the problem that I ha~e.
I think we in the Congress have to establish d&ente with the medic~a1
profession. I think it is one of the most crying needs in America. We
have to find out just how far the doctors are willing to go before *e
can make any system work.
Now, I `am glad to learn that everything is happy in Carlinville be-
cause in the rural area of Fairfax County next to the affluent area of
Washington, it is very difficult to find a doctor. All of us have h~d
those experiences. You cannot go to a clinic because whatever happehs
happens after the office hours, and if it happens on Wednesdays, there
is not a doctor available but on the golf course.
But we sit in offices and we wait and most of the time we cure o~ir
own illnesses. One of my colleagues just told me his injury healed i~p
while he was waiting for a doctor to get him in a local area hospit~1.
PAGENO="0234"
230
So some of this is ~ orking out all right But there are a lot of people
that are not healing themselves
We do have a problem in putting them within the reach of decent
medical service.
Now we do not sit here, Doctor, and dream up plans in the night to
stretch the gargantuan hand of the Government over all the world and
all o~ er the people We are pushed and shoved into this by an angry
constituency, all of us are suffering the anger of constituents who most
of the time deplore the quality and availability of their medical serv
ices and that is what prompts us to action We aie not innovators here
Dr ENGLAND I know that
Mr. VANIK. There are bulldozers behind use and there are thousands
of people who want to replace us if we fail to do something to take c'tre
of their health problems.
I have been around here a long time and I can promise you that I
have not seen any places that I know of on Capitol Hill where Mem
bers are sitting in quiet d'irk chambers trying to think of new ways to
spread the heavy hand of Government over the people.
There is no sinister thing like that going on We are just trying to
deal with the problems that are thrust upon us and, believe me, we do
not feel that we have created the problems entirely We feel that the
problems are or have been created in part by your profession, by the
health services activities, and by the people We all have a hand in
creating that problem.
But I would like to have your-you suggest no action Most of the
doctors I talk to suggest no action
It is difficult for me to stand by and see people that I love and whose
friendship I cherish and whose votes we need-we need to keep them
alive, you know-suffer needlessly
ILaughter]
Mr VANIK I just hate to see them perish for lack of decent medical
service and hospital service
I want to say this, that this evil thing called medicare was conceived
right in this room, and do you know why it was conceived ~ At the time
we brought medicare to life, most of us weie only thinking about a
hospital insurance program but the doctors say, "No "AMA says, "Oh,
no, there should be full coverage" They did not believe that but they
wanted to mess up our plans, so we just consolidated the two ideas and
medicare, and part of medicare, was created by cooperation with the
American Medical Association, which I assume you are a member of,
are you not ~
Well, you do not have to answer that
Dr ENGLAND I am
Mr. VANIK. That is how it came to being. Now, if it is an evil thing,
I want you to know that the doctors of America, through the orga-
nized association, helped us to bring it about. They have a part in
the conception.
Dr. ENGLAND. May I make a comment?
Mr VANIK Sure
Dr ENGLAND You covered an awful lot of bases
Mr VANIK Well, I do not have much time Give me 15 more mm
utes and I will go
PAGENO="0235"
231
Dr. ENGLAND. I have the feeling that what is interpreted as con-
stituents' demands frequently finds its voice through an exercise such
as we are participating in this morning, where parties who have vari-
ous interests in this problem come to Washington and say thus and
thus and thus is so, and the response of the legislator is, "Oh, the voiCe
of the public."
Well ~, I am not the voice of the public. I am Bob England, I
am nothing more. I am a member of AMA. I cannot and did not sup-
port the tragic errors that they committed even back as far as Kerr-
Mills.
There were terrible misjudgments of what really was right and
wrong.
That is no secret to you now nor to them then.
Now, the figures that Mr. Cathles was talking about, those people
who do not have the type of insurance that is spoken of here today
as ideal or comprehensive or whatever that might be by who ever's
definition, it would seem to me it ought to be by definition of the guy
paying for it, he should decide what he wants.
Now I will agree, there may be some people who are not able to
afford what they really want. In my experience, this is not a great
number. There are other people to whom paying their hospital bill
and paying their doctor is a low priority item. That is freedom. They
can do that if they want.
Then we take whatever is left over and say, here is the problem that
we have to take care of. These people-well, the ones that decide not
to spend the money for the type of insurance deemed proper are mak-
ing a judgment that is wrong. Now, these are your constituents that
are making these mistakes. To what other areas of decisionmaking
might their stupidity extend?
That is the question that T think ho Congressman really wants to
answer, or ask even.
I do not believe that it is the function of the Federal Government
to wet-nurse us all.
I cannot think of anything that is more stifling to the development
of an individual than to keep. him in a nursery school forever and ever.
Now, we are approaching the area where an idea has become extant
that the citizens of this country just do not know what is good for
them and somebody here has to tell them.
Now, I do not believe that it is Congressmen. But unfortunately,
you are the ones that have to take the rap.
I presume that identification with regard to Attila the Hun should
be responded to somehow. For purposes of identification I would-
Mr. VANIK. I did not apply that to you; I said I have heard other
doctors that I knew who-
Dr. ENGLAND. Well, I prefer not to get tarred by a lot of brushes. I
am a registered Democrat, for whatever that does to that side of the
table.
ILaughter.]
Dr. ENGLAND. And I am not a right wing extremist, but I am sure
a lot of people think I am. But you know, what they think about me
really does not matter a - o~ a lot as long as I have my own head
on straight in a manner that satisfies me. If I am free, I do not have
PAGENO="0236"
232
any other responsibility except not to impose my judgments on some-
body else in the exercise of his liberties.
What I am saying is that while being a Democrat, perhaps even in
spite of it, I still revere the Constitution and it disturbs me to see the
general welfare clause pulled and stretched and pushed in every direc-
tion to promote social action on the part of the Federal Government
that the framers of the Constitution had no idea they were setting up.
It is personal opinion, probably way off base, but that is the way I feel.
Increasingly there are more and more people that strangely are
beginning to identify Government as somewhat of an enemy. Water-
gate sure did not help you in the public image. The things that have
happened with gas and oil, and legislation with right to employment
such as affirmative action, none of this is helping you or your image.
The people are beginning to identify the cost of living with those
really responsible for it. You talk about the price of medical care and
the policies back in Massachusetts when you started out and com-
pare them with now. Now what kind of comparison is that?
It is in fact completely illegitimate. What position would a house-
wife be in, following a recipe, if every day some son-of-a-gun came
along and changed the volume that a cup of sugar contained? Cooking
would be in the same situation that we are running into now and
would be just as indigestible as what we are going to get.
I think all you have to do is take the 1930 dollar, where is it now?
For that matter, take the 1967 dollar. Where is it now? Sixty-seven
cents in 1973. I do not know what it is now. But I can tell you it sure
ain't what it used to be. That is a problem.
Mr. ROSTENKOWSKI Your time has expired, Mr. Vanik.
Mr. Corman will inquire.
Mr. CORMAN. Thank you, Mr. Chairman.
Gentlemen, I have just been reflecting on my own history, which I
realize is not any guide for a general situation. But I have lived 5
years of my life under a totally socialized medicine system, 15 years
with a very good private insurance, and 35 years in an out-of-pocket
situation, and in exercising my individual judgment as Dr. England
has suggested we all do, I have decided never to become a patient in
a hospital. I am glad of that because a great number of my peers who
did decide to die, and I think that may illustrate really what the
individual decision in this field really means.
We do not decide to be sick or not sick, and we really do not decide
how much to spend for needed medical care at the time the problem
arises because if we could do that we would never have had a private
insurance system in the first place.
I would like if each of you would make a selection among these three
general categories without defending them or getting into the
intimacies of them because, depending on your answer, I may want
to pursue other questions that relate to how the private system can fit
in with all this.
If you had your choice of a public system, a compulsory private
system or leaving things where they are now, which would you opt
for, realizing that there are wide variations among them but philo-
sophically those are three distinct approaches.
Professor Somers?
PAGENO="0237"
233
Mr. SOMERS. Yes, first, if I may, just as a way of getting into this,
I would say I was under the impression when we came that we were
being asked what role we would see for the private sector in some
future national health insurance plan. Til n~i~ opening remarks I tried
to indicate I think it is very important that in any plan a role, a very
significant role, be permitted for the private sector that could be
constructive.
However, I found myself in a peculiar position with my colleagues
on the panel, I gather the burden of the statements has been that there
is nothing wrong with what is being done now in the private sector,
and I do wish to completely disidentify myself from that, particu-
laTly the notion that 144 million people have adequate health insurance
and defining a Blue Cross contract as that.
I happend to be a member of the board of directors and have been
for 15 years of one of the largest Blue Cross plans in the United States,
and the notion that what we are selling is an adequate program strikes
me as absolutely absurd. If we doubled it we would not be adequate.
My family spends over and above the-
Mr. CORMAN. You are going to use my 5 minutes and I will not have
a chance. Perhaps I did not make my question clear.
If I could have the floor back just a moment, I think I did not make
my question particularly clear. I am talking about the financing end
of health care, not that we draft all doctors or that we burn down all
insurance buildings. I am talking about the financing end.
Mr. SOMERS. If you are talking about financing only, of the three
alternatives you mentioned, it seems to me there really is no option. It
has to be publicly financed. It cannot be done any other way.
Mr. CORMAN. Thank you.
Mr. SOMERS. But I would add one remark. I would not think that
implies it has to be administered by the Government.
Mr. CORMAN. We will get back to that.
Mr. Stark?
Mr. STARK. Yes, I would say we have all been born into this world
and I do not believe that we should be forced to save all of our lives
for a future illness. I do not think that we are ever going to be able
to do this entirely in the private sector. I think it is going to need a good
deal of support from the public sector.
Mr. CORMAN. Thank you.
Dr. England?
Dr. ENGLAND. Well, I think it is pretty well understood where I
stand. I think that is a Hobson's choice, frankly.
Mr. CORMAN. At least at the moment you would not move us from
where we are to the direction we are apt to go?
Dr. ENGLAND. Let's not make any more errors, no.
Mr. CATHLES. I do not believe you can solve the problem completely
by going any one of these routes. I think there has to be a mixture.
I do not think you can leave things the way they are and solve the
problem. I think you have to have some public financing. I think if you
mandate private you will have something less of a problem, but still
a problem. You have to have some public financing~ but I do not think
public financing by itself is the right mechauism by any means.
Mr. CORMAN. We are not going to undo the $4-O billion of the public
sector we have now. I am not suggesting that. But I assume the next
PAGENO="0238"
234
step you would foresee would be a compulsory or mandated private
ilibUi ai1t.~e b~b~CiU lIning in tile gaps wnei e neeued with J~ euei a! luncis
is tnat pretty much your leering ~re you tamiliar with the former
~N ixon proposal?
Mr. ~..)ATHLES. Yes, I am, generally.
Mr CORMAN Well, as oetween that and the old Kennedy Griffiths
bill, Kennedy Corman I hope now, which of those two directions do
you think we ought to go?
Mr CATHLES t.Aoser to the old Nixon approach
Mr THOMPSON Congressman, I wouiu reject the status quo and I
would expend public and private funds for this support.
Mr. CORMAN. All right. If we go to the compuisory private, would
you anticipate that there will `be a significant part of the population
that has the ability to pay premiums and should not be the subject
of public assistance I her efor e, who would be eligible for this kind of
group standard if they want to buy it, but who might just opt not to
do it when they look at the cost ~
To put it another way, will that not take a significant selling job
on a case by case basis which will have to be added to the cost of
health care
I would ask you gentlemen to speak to that, perhaps Mr Thompson
and Mr Cathles
This is where I get hung up on, you can compel an employer to `buy
insurance for his employees, but what do you do with those who do
not opt for it and their income is such that the public would not accept
them as charity cases?
Mr THOMPSON Obviously in the category of the employer employee
group or the group so stated, the concept of a voluntary participation
at least I find distinctly unattractive I do not think it makes sense
We are talking about a mandated period and a voluntary participa
tion I do not see a point to that, no
You mandate the nongroup level, to a certain degree substantial
economies should be inherent in that. The fact that. everybody would
be participating would go to that
Mr CORMAN How do you get them to participate ~
Mr THOMPSON In the nongroup category you wind up you do not
have a representative sampling of the society at large That is why
the nongroup is difficult
Mr CORMAN What do we do with those folks or should we not do
`Lnything with them ~
Mr THOMPSON Of course you should do something with them There
should be a mandated minimum level of benefits in that category and
there should be `r mechanism to the extent thit people s income prohibit
or inhibit their participation that they ire able to participate through
financi'd assistance
Mr CORMAN Then you would require every citizen to buy a private
he~1th insurance policy g
Mr THOMPSON I would provide every citizen a minimum level of
insurince which he would either buy or be mide available through
some o~overnmentil mechanism
Mr COPMAN I oiiess we have to suspend `i.o'ain I hope to get another
5 minutes becruse I want to get through this one barrier with respict
PAGENO="0239"
235
to whether any system will work without compulsion. If I could get
the private insurance industry to admit that we will need everybouy
covered through exercise of ~`ederal police powers, then we can start
talking about the proper role of private insurance companies in that
system.
I will be back as soon as I can get here.
[A recess was taken.]
Mr. RosTENKowsKI. I have a general area of consumer understand-
ing of insurance policies that I would address to the panelists.
You have booklets on your insurance policies and certicates that
are distributed to the policy holders, and for the most part they are
apparently written to protect the insurance insurers, or to satisfy
various State regulations.
My question is who will protect the consumer, at least make sure he
has a chance to make an informed decision. Since you suggest that
State supervision of individual policies in the area is less than effec-
tive, what do you think needs to be done? Should the Federal Govern-
ment get involved in such supervision?
It is quite apparent, since I have become chairman at least, that
there is a wall against Federal Government involvement in this are~.
That is why I am interested in your observations.
Mr. CATHLES. I think you have to distinguish between group and
individual policies, Mr. Chairman. Group policies are perhaps un-
intelligible. That is the certificates distributed to the employees. But
you also have booklets which explain in more understandable language
what the benefits are and you do have procedures which are followed
of explaining the plan to the employee and facilities are available jn
most organizations where if an employee has a question about his
coverage he can go and have it answered by someone who can and does
understand what the coverage is. So I think insofar as the group is
concerned there is very little problem.
Insofar as the individual policies are concerned, you know, it is not
easy to read any insurance policy, doesn't make any difference whether
it is a fire insurance policy, automobile insurance policy, home owners,
or even life insurance policies are not the easiest things in the world
to read.
The reason for it, I think, is because they are supposed to be precise
and anytime that you want something precisely stated it seems cumber-
some. We had an illustration of this when we put in the Federal em-
ployees' health benefits program.
Warren Irons was the Director of the Civil Service Commission at
that time. He had a horror of complicated insurance policies. We were
going to distribute to Federal employees a combined booklet certificate
so it had to conform with the requirements of law as to what was in it,
but yet, it also had to explain.
He said, "Now, look, I don't want any of this complicated gobbledy-
gook. I want it written in kitchen English, written in language that
anybody can understand."
So we worked and worked and we produced a reasonable facsimile
of `what he wanted. At least he ~inproved it. hut for the first couple
years nobody really knew what the coverae'e was, because it was not
stated precisely and all matter of things came up that we had riot
foreseen.
PAGENO="0240"
236
The question is, are they covered or not? So you know it is extremely
difficult to oversimplify and write something in language which any-
body can understand and still be clear.
Most insurance departments probably would not let us use kitchen
English if we wanted to. Things have to be included and they have
to be included in specific language.
Insofar as the insurance departments are concerned, they do an
effective job in the individual policy area. They do regulate the rates,
and the policy forms. They may be cumbersome but nonetheless they
are fair and equitable.
Now, when I re~erred to incomplete State regulations I was re-
ferring to a policy which is issued outside of the State in a State which
has no group insurance law under an arrangement whereby the cov-
erage is extended into many different States and the insurance com-
missioners of those States are not able to discharge their normal
functions. This is something that the NAIC is coping with and we hope
it will be resolved in time.
Mr. ROSTENKOWSKI. How would you envision the Federal Govern-
ment becoming involved in some State agency that wasn't functioning
properly?
Mr. CATHLES. I would think under any national health insurance
which is legislated that there is a role which is best fulfilled by the
State insurance departments. But I would also think that there would
be guidelines-general instructions which would govern the way in
which they operate so that where as you would be utilizing facilities
which are in place and the expertise which is present, you would at the
same time be insuring a greater degree of uniformity among the several
States through the Federal oversight.
Mr. ROSTENKOWSKT. Mr. Cotter?
Mr. COTTER. Thank you very much, Mr. Chairman.
Mr. Stark, I think you heard Dr. England's testimony where he
emphasized the virtues of our present procedures to serve as a guide.
What type of arrangements do you people have to pay radiologists
and pathologists within the facility you are working?
Mr. STARK. In the six hospitals that I have something to do with,
all but one are hospital based, and now two are paid under a salary
arrangement, the other by direct billing of the physician. The hospital
is reimbursed under part A under medicare.
Mr. COTTER. What do you mean salary arrangement?
Mr. STARK. The hospital bills for these services and reimburses
the university, which in turn pays the physician as a faculty member.
Mr. COTTER. There is a specific fee for each service; is that correct?
Mr. STARK. There is a unit value placed on each service, that is cor-
rect. But that does not go to the individual physician except in the
case of anesthesiologists.
Mr. COTTER. Who pays for this type of service?
Mr. STARK. It can be paid by the individual, it can be paid by third-
party providers.
Mr. COTTER. On the question of third-party, the hospital bill is
handled by the provider?
Mr. STARK. In the case of Blue Cross they would bill the provider.
Mr. COTTER. But your doctors do not receive the fee, the hospital
receives the fee and you reimburse the physician?
PAGENO="0241"
237
Mr. STARK. In the case of radiology and pathology, yes; but not
anesthesiology.
Mr. COTTER. Are the çloctors satisfied with this procedure?
Mr. STARK. No; not entirely.
Mr. COTTER. What seems to be the objection?
Mr. STARK. Well, at least the perceived objection is that they feel
that they are treating patients as all other doctors are treating patients
and that they ought to have a direct one-to-one relationship with those
patients and they should be permitted to bill those patients directly.
Mr. COTTER. Is this a common procedure?
Mr. STARK. Oh, it is mixed. I would say that in pathology it is not
done so much within hopitals. In radiology in various parts of the
country it varies with a majority of those practicing being paid fees for
services. In our State of Pennsylvania it is not very common except
in the central part of the State.
In terms of anesthesiology it is almost entirely on a fee-for-servic~s
basis.
Mr. COTTER. Is this a hospital service or doctor's service?
Mr. STARK. The doctors consider it doctor's service and the hospitals
generally consider it a hospital service.
Mr. COTTER. Doesn't the average patient have coverage under Blue
Cross and Blue Shield?
Mr. STARK. I wouldn't say the average. I am not sure what that is.
There are large numbers of patients who would not be covered under
Blue Cross.
Mr. COTTER. It is possible they would have coverage under both?
Mr. STARK. It is most common to have coverage under both, I pre-
sume. But if you, for instance, went to a direct fee billing from any
one of these groups and the patient did not have coverage under Blue
Shield, the patient would be responsible for the payment unless there
was arrangement made between Blue Cross and Blue Shield in this
regard. If there is no arrangement, the patient would be out of pocket
for that amount.
Mr. COTTER. This could be a great source of revenue for the hospit~d,
couldn't it?
Mr. STARK. It is a source of revenue but there are offsetting factots.
Office space, equipment and all overhead charges that have to go into
that. If you are doing good cost accounting, there should not be any
profit particularly to the hospital.
Mr. COTTER. Well, as a particular fee for this service, there is a fee
for this service, isn't there?
Mr. STARK. There is a unit value placed on each service multiplied
by the dollars.
Mr. COTTER. It is not a specific amount of money is what I am saying.
Let's assume that
Mr. STARK. In determining the cost they use a formula.
Mr. COTTER. Assume I go to one of your hospitals and I have to have
surgery and the anesthesiologist is on the scene and all. Would I get
a bill from the hospital for this service or from the doctor?
Mr. STARK. In our hospitals, using anesthesiology as an example,
until 1 year ago the hospital would have billed for the service. For
radiology and pathology the hospital still bills for service. Now anes-
thesiologists are on a fee-for-service basis. Therefore, the patieht
57-677 0 - 75 -- 15
PAGENO="0242"
238
receives two bills-one from the hospital and one from the anesthesio-
logist.
Mr STARIc You will pay two bills You will pay one directly to the
anesthesiologist and you will pay one directly to the hospital
Mr COTTER For one service
For one service I get two bills?
Mr STARK No, no You will get a bill for the anesthesiology service,
you will get a separate bill for hospital charges.
Mr. COTTER. What would the hospital charges be?
Mr. STARK. They may be the room, use of the operating room.
Mr. COTTER. I understand that. But just for this one service which
is being performed now, why would I get a hospital bill?
Mr. STARK. You may have administrative and nonphysician per-
sonnel costs for the anesthesiology program within the hospital but
for the anesthetic, the doctor's services and all, you would receive one
bill from the doctor. You would receive the other bill from the hospital.
The only part of the hospital bill that should be included would be
some of these overhead administrative and personnel costs.
Mr. COTTER. If I am in the hospital and I have X-rays taken, do I get
two bills?
Mr. STARK. Not in our hospitals, no. If you were in a hospital other
than our health center, you might get two bills for all hospital-based
services. In our hospitals it is a single billing from the hospital for
radiology and pathology.
Mr. COTTER. Two billings for anesthesiology?
Mr. STARK. The same is true for pathology. But this varies through-
out the country.
Mr. COTTER. It isn't common then, I mean.
Mr. STARK. It is common. I think it is very common for the double
billing. I think, as I say, it varies in different parts of the country. If
you were to take a poll of those anesthesiologists within our State,
Pennsylvania, you would find that most of them are billing separately
on direct billing.
Mr. COTTER. This bill which the anesthesiologist would send out to
me, would I submit it to Blue Cross oi~ Blue Shield ~
Mr. STARK. You don't submit the anesthesiologist's bill to them.
Mr COTTER I have to pay that, don't I ~
Mr STARK The billing for the anesthesiologist under Blue Shield
would go directly to them
Mr. COTTER. I see.
Then the doctor gets the money?
Mr. STARK. Then the doctor gets the money
Mr. Co'n~n. But he is a hospital-based physician?
Mr. STARK. Yes, but he. is also a practicing physician.
Mr. COTTER. What is the average income of anesthesiologists?
Mr. STARK. That varies all over the lot.
Mr. COTTER. You must have a typical amount in your area.
Mr. STARK. I don't know what it is typically because I would have
to find that out. We have not been able to find that out. We have not
been able to determine just what the community rates are.
Mr. COTTER. What type of profit do you derive as the hospital from
this service?
PAGENO="0243"
239
Mr. STARK. Non-profit hQspitals never make a profit. They have a
surplus. [Laughter.]
Mr. COTrER. Well, it is a surplus position then you are getting into.
Mr. STARK. I would have to say if you talk to hospital administra-
tors-and I am not a hospital administrator and I don't directly oper-
ate any of these hospitals-but they will deny that there is any profit
made from any of these hospital-based servi~es. They don't view this
as a separate entity. They view it as a total enterprise.
Mr. CorrEn. I mean if it costs you $1,000 a month to provide this
service, and the income derived from the carrier or the individual is
$5,000, I could say it is a profit for that service.
Mr. STARK. But they don't view it as an individual department.
They view it as the entire hospital.
Mr. CO'rrER. I understand that.
Mr. STARK. You may have $4,000 surplus, in one area you will ha\Te
a deficit of $5,000, and you come out with a net loss of $1,000 overall.
Mr. Corrini. When you go to double billing, does the total cost go u~?
Mr. STARK. I would say any time you double bill, you will increase
administrative costs.
Mr. COTTER. Any idea?
Mr. STARK. Depends on the size of the bill. If you are in anesthegi-
ology where the bills tend to be larger, the percentage is going to be
less. If you get into radiology where there are small bills for services,
the number of bills would be greater and probably the cost of biflihg
would be higher.
Mr. COTtER. Do you think we will get to the point where all of th~se
radiologists and pathologists and anesthesiologists are independent
contracts?
Mr. STARK. Are independent contractors?
Mr. COTtER. Yes.
Mr. STARK. Well, I don't know. I would say that the concern that I
have heard from these various groups is that Government in cracking
down and putting in more regulations on what happens to hospital-
based physicians as against what is happening to the private pr~tc-
titioners, the radiologist who has his own office practice, or the pathbl-
ogist or anesthesiologist, might be treated differently. This might
cause a mass movement into the separate billing or the fee for service
arrangement.
Mr. COTTER. But then the hospital would lose a great source of
income.
Mr. STARK. Not if they cost-accounted properly. If the hospital is
making-if this has become, as you implied, a great source of income
and profit to the hospital, then I think, yes, if the hospital cost accounts
properly, they would probably proportionately reduce the revenue
from that service. But if they have been doing this in a businesslike
cost-accounting manner, they shouldn't lose anything.
The sum total of the two except for additional billing expense ought
to be the same, at least to the patient.
Mr. COTTER. I have been down this road before and it appears to
me that the doctors are jealous of their prerogatives. I think they have
every right to be.
Mr. Thompson, you wanted to comment?
PAGENO="0244"
240
Mr. THOMPSON. We did a study on that particular issue, Mr. Cotter,
4 or 5 months ago, and we have a long report which analyzes the shift
that is under way, particularly in radiology and anesthesiology, from
being hospital based to going fee for service.
Mr. COTTER. This is because of pressure from doctors?
Mr. THOMPSON. Because the process is underway today. In my state
there are probably 250 physicians who either have just accomplished
that change or are in the process of going that way.
We did the study to determine whether in the total cost of the total
care system that decision to shift from one payment mechanism to an-
other, whether it actually generated more cost.
The study was done using a small original sample of only two hos-
pitals where the shifts had just taken place and is being expanded to
a larger sample. On the first analysis, however, the total cost of the
health care system remained approximately the same. In other words,
the shifting by itself was not in any way inflationary.
There are some costs that obviously are being substituted for others
but at least our analysis demonstrated and to my knowledge it was the
first study that had actually taken place trying to figure out who was
going on relative to that decisionmaking, in essence it was awash as a
practical matter.
I would be pleased to send you a copy of that.
Mr. COTTER. I would appreciate it.
[The information follows:]
JULY 22, 1975.
Hon. WILLIAM R. COTTER,
2ubco~mm4ttee on Health, Committee on Ways and Means,
Washington, D.C.
DEAR CONGRESSMAN COTTER: During my testimony last Thursday you asked a
number of questions concerning the implications of physicians switching from a
salary relationship with a hospital to a fee-for-service practice. To my knowledge
very little has been done by way of analysis of the impact of such a decision. Ap.
proximately six months ago I was asked to address the American College ot
Radiology on the position that my organization took on this matter and as a
result we did do considerable research into the various effects of such a change.
I am enclosing a copy of that statement and hope that you will find it responsive
to the various questions you raise. Please notice that the data underlying the
speech was preliminary in nature and that our review of the issue continues at
this time.
Very truly yours,
JOHN LARKIN THOMPSON,
President.
Enclosure.
STATEMENT BEFORE FINANCIAL MANAGEMENT SEMINAR, AMERICAN COLLEGE
OF RADIOLOGY, BY JOHN LARKIN THOMPSON, PRESIDENT, BLUE SHIELD OF
MAssAcHusEris
It is indeed a pleasure to have the opportunity to speak at thiS Seminar. The
advanced information indicated my subject matter as "Independent Practice
from a Third Party Payers Point of View." The general subject of methods for
compensating professionals and particularly physicians is one of exceptional long
standing. Documentation on this point can be found in the Law Code of Ham-
murabi where Babylonia of 1750 B.C. physicians were compensated for their
operations in accordance with a fixed fee schedule.
I should start by saying that my remarks should be interpreted in the light of
policy and perspective as it exists in Blue Shield of Massachusetts. I do not wish
to infer any inconsistency with National Blue Shield or other Blue Cross or Blue
PAGENO="0245"
241
Shield Plans throughout the country. I should also add that although this parti0-
ular speech was prepared for presentation to this Seminar and therefore draws
upon information pertinent to radiological services and compensation, it is clearly
not *my intention to limit the applicability of its central theme to a single
specialty. As a final caveat, I must add that precise information pertaining to
individual practice patterns, actual net compensation and other data would be
extremely helpful in this area but is in desperately short supply. The informa-
tion base from which I draw is "charges to" and "payments by" my own Plan for
services rendered to our 3,000,000 subscribers and other relevant information
which becomes available through our role as the carrier for Part B of the Medi-
care Program within the Commonwealth of Massachusetts.
Massachusetts has approximately 720 radiologists which are split roughly 80%
practicing in metropolitan areas and the remaining 20% in rural areas. Ackno*l-
edging the fact that a particular radiologist may practice in more than one sys-
tem of compensation, we estimate that 28% of our radiologists are compensat~d
primarily on other than a fee-for-service basis. During 1974 Blue Shield paid
radiologists approximately $10 million for 785,000 radiological services.
In recent years, and more insistently in recent months, an indication of whk~h
is that 23 radiologists in Massachusetts have switched to a "fee-for-service" basis
within the past four months, the question has been raised as to whether it is le~s
costly and more efficient or more costly and less efficient for radiologists to bill
patients directly for their services. The most obvious alternatives would be to
provide services as salaried or percentage-of-charges members of hospital staffs.
The professional questions raised by the various alternatives have been dealt with
by the College with a clear position in favor of separate "fee-for-service" as dis-
tinguished from the "less desirable arrangements" to use the language from yoi)r
1909 Guide for Radiologists.
The "cost-benefit" relationship of the various alternative compensation sys-
tems is of obvious significance to an institution such as Blue Shield. Late in 1974
the Pennsylvania Insurance Department took an extremely strong stand on "fee-
for-service" from the perspective of its "cost-benefit" relationship to the public.
That Department issued a statement concluding that: "a move by physicians to
direct billing is unnecessarily and exorbitantly expensive and inefficient; and "tl~e
Insurance Department will explore every avenue open to us in order to preclude
such direct billing."
These conclusions were based on a paper describing the views of the Depart-
ment written by a Special Assistant to the Commissioner. Radiologist and oth~r
specialty groups reacted strongly throughout the country to this position. Let's
take a look at the Department's position since it does offer an excellent vehicle fQr
exploring the entire matter.
Two of the arguments used by the Department turn on the ideas that (1) t1~e
patient generally does not select the physician, and (2) other hospital staffs
require their services.
The report implies that remuneration in these specialties is uneonscionab~y
high. It point's out that on a percentage-of-charges basis, the most prevalent n~i-
tionally, 14% of a million-dollar department is $140,000 annual income. One is
left to assume that one radiologist handles that department. The report men-
~ions "incomes which range up to $150,000 per year and occasionally higbei~."
`The report argues that though this is "adequate" compensation, radiologists ap-
parently desire to further increase incomes and costs through direct billing. A
major increase would come in the cost of the billing process itself. A study was
done in Pennsylvania comparing hospital costs with Association-recommend~?d
direct-charge levels. It was concluded that radiologists would experience a 112%
($1.65 million) increase.
Essentially, the report contends that direct billing is inflationary, that it wjll
deprive patients of some third party payments, and that it will lose the controls
of a hospital salary structure.
At Blue Shield of Massachusetts, we believe, that direct billing, far from being
anathema, may be the better way to go-not just for the physician, but for the
health care system as a whole.
Let's take a look at the allegations one-by-one. I don't believe that we need dis-
cuss the prevalence of $150,000 and up salaries here today, so I'll pass that o~ie
and get to the issue of third party payments.
The report implies that this is a major issue and, in some cases, the Depart-
ment has a point. Medicare, of course, covers inpatient radiology in full, regard-
PAGENO="0246"
242
less of billing method. Most Blue Cross and I3liie Shield cOntraCts cover in-
patient radiology in full between them---~Bltm Cros~ thrbügh tile hospital cost
base for salaried or percentage radioIogI~th l3lue Shield through usual and
customary payments for Individual, direct-billing radiologists. HMO-type groups
must also be included here-HIP in New York, Gill in Washington, HCHP in
Massachusetts, and so on. Thus, In Massachusetts, some 70% of the j~iphlat1on
is covered In such a way that it makes no difference, from the standpoint of bene-
fit entitlement, to the patient how radiology services are bIlled~
For those people covered under most indemnity health lti~ttrance policies, how-
ever, we all must recognize that In some cases It nia~ 1h~ke a difference. If fees
charged directly by radiologists for Inpatient s\~k~s do not fall below scheduled
limits, the patient would In general, be rmpllred to make up the difference be-
tween the limit and the fee In additloti, further payments might be required
through deductible provisions.
This is a factor which should be weighed carefully in making any responsible
decision regarding direct `radiology billing.
The Pennsylvania report states that "The most obvious and direct cost Increase
would be incurred in the area of billing expenses.", pointing out that two bills
would be required where now one suffices. It estimated the cost of producing a bill
at $2-3. If :fl~~ were true, billing costs alone could raise the charges on some serv-
ices by as much as 50% for low cost procedures. In the first plkce `similar claim
information must `be assembled and transmitted by the radiologist regardless of
the system within which he participates. Otherwise stated, there Is a cost factor
involved where the radiologist bills the third party directly and also where he sub-
mits the information to the hospital and it bills the third party.
The report completely ignores the other side of this cost Issue. Medicare i-c-
quires a split between hospital charges and physician patient care charges. Iti
cases where radiologists bill directly, Part B simply pays them. In cases whete
the radiologist's fee is included in the hospital charge, however, someone, some-
where-either in the hospital or in the offices of the Intermedlary-nuist artifi-
cially develop the amount of the physician charge billable to Part 11 (direct
patient care) and `that amount chargeable to Part A (supervisory time and other
activities not considered direct patient care). The time and money involved In
making these determinations has apparently not been included In the calcula-
tions reported `by the Pennsylvania Insurance Department.
In arriving In its final conclusions regarding cost, the Department made, it
seems to me, a serious error in methodology. The report stated "Figures from
a recent study conducted In several major Pennsylvania hospitals revealed that
If hospital-based physicians billed directly in accordance with the recommenda-
tions of their various Associations * * * radiologists would experience a 112%,
of $1,673,000 increase." Clearly, they were comparing applies with oranges, that
they are being paid `with wha't an admittedly self-Interested group thinks they
ideally should be paid. This is rather like comparing a current u~1on wage with
the first union demand as a contract negotiation session approaches. What should
have been compared was the current per-procedure amount attributable to the
physician in a salaried or percentage situation with the amount the physician
would have been allowed for the same procedure under a usual and customary
system.
As a check on the Pennsylv'ania conclusion, we sampled our own Medicare data
and came `to a startling different conclusion. We chose 20 procedures at random
and compared the physician portion of the hospital bill, In two randomly selected
hospitals, with the allowable Medicare Part B level II in each of our two areas.
We made, then, 40 separate comparIsons and found tha't in 6 cases, the allow-
able payments would have been equal. In 18 cases, the usual and customary pay-
men't would have been higher. And in 16 cases, the physician's portion of the
hospital charge would have been higher. Thus, far from being necessarily more
expensive, direct billing charges can be lower than charges in salaried situations.
We are entering into a full-scale statewide study of this issue `with Blue Cross
and our Insurance Department of Massachusetts.
We wanted to find out more about aggregate differences so we applied the
differentials determined in our first-phase study to the number of times each
procedure was performed for Blue Shield's regular business. The 20 procedures
represented about 140,000 services or 20% of total radiology services paid for
by Blue Shield. We found that had these services been performed for Medicare
patients in a situation in which the physician were salaried, the aggregate cost
would have been more than $15,000 greater than if they had been performed by
fee-for-service radiologists. The actual differential would probably have been
PAGENO="0247"
243
greater still, but we assumed that all direct-billing radiologists would have been
paid 100% of the maximum allowable limit-which is not our usual experience.
The statement made in Pennsylvania that direct billing is "exorbitantly ~x-
pensive" then, is clearly untrue. Not only do the differentials vary from pro-
cedure to procedure, but it is highly likely that, overall, the usual and customary
system is slightly less expensive. The usual and customary fee, by the way,
routinely includes normal costs of doing business-including the cost of billim~g.
So much for the exorbitant cost of direct billing.
The report also makes a number of references, obliquely, to the lack of con-
trol supposedly inherent in direct billing. First, it touches productivity. "When
the physicians are employed by the hospitals their income (sic) is usually tied in
to the productivity of their departments, whereas in direct billing situations
creases in incomes can be generated by simple fee increases." It also touches on
quality, stating that the move to direct billing "would increase overall costs ~or
their services without increasing quality. . . ." Both comments Ignore the r~al
state `of controls in the health care system. They assume a complete lack of cost
or quality controls outside the hospital setting.
In Massachusetts, at least, the situation delineated in the Pennsylv9la
report seems to be reversed. The move to direct billing would expose the radiolo-
gists to more stringent controls, In both areas-cost and quality. Let's take a look
at precisely bow the controls really work.
Most hospitals these days have Utilization Review Committees, or some vari-
ant, whose sole purpose is to review procedures performed at the hospital ±or
propriety and necessity. In general, because radiology is an ancillary procedi~re
requested by another physician and because, unlike, say, anesthesiology, ~a-
diological procedures rarely have adverse effects, radiologists come in for rela-
tively little scrutiny.
Claims for hospital services are processed through commercial insurers or
through Blue Cross. In general, commercial insurers do not provide any cont~ol
whatever on the system. They simply either pay the full charge or the c~n-
tractual indemnity amount. Although our Blue Cross contract with hospit~ls
specifies cost containment methods, these appy only to the bottom line and ~tre
generally based on the current hospital cost base. That is, rather than sc~u-
tinizing each radiological procedure, Blue Cross looks at the total cost of prov~d-
ing ancillary services and limits increases in that cost.
In point of fact, the only mechanism that provides any procedure-by-procedi4re
control in the area of radiology is Blue Shield-and that works only for fee-fbr-
service, direct billing radiologists. Lets' look at the cost control side first..
In `order for a radiologist to bill Blue Shield directly for non-Medicare busi-
ness, he must sign a participating agreement with us. This agreement insu$s
cost control in two ways. First, it requires the physician to abide by the usñal
and customary mechanism. Second, it precludes balance billing by providing that
the physician accept the usual and customary payment as payment-in-full ~or
that service.
Far from permitting simple fee increases as the Pennsylvania report threate~is,
increasing fees under usual and customary is a long process. The U & C pro1~1le
development process insures fairness and control. A radiologist's fees for l~he
preceding year are first arrayed by procedure. For each procedure, the median
fee is termed that radiologist's "usual" charge. The usual charges for all ~`a-
diologists performing that service in that area are then arrayed and the "cüs-
tomary" limit is set at the 90th percentile (75th for Medicare) of the array. Our
participating radiologists agree to accept 95% of the lowest of their chai~ge,
their usual charge, or the customary charge as payment-in-full for that service.
This method provides the only direct control on radiology fees in the health care
system today. It certainly does not provide permission for simple and unlimited
fee increases.
In terms of utilization control, too, Blue Shield again provides the most direct
method. While Blue Cross looks at the aggregate departmental costs, Blue Shl~ld
looks at the procedure. When a charge is submitted to Blue Shield, it is pas~ed
against our utilization screens and is checked, among other things, for the appro-
priateness of the procedure in terms of the stated diagnosis. I should say that the
computer screens were Implemented in 1972 after extensive consultation with
the Massachusetts Radiological Society. If a chest x-ray were done, for exami~le,
in conjunction with a hangnail on which no surgery requiring general anesthetic
was performed, the system would suspend the claim for further review. If, In fact,
the x-ray were determined inappropriate, no payment whatever would be made
PAGENO="0248"
244
for it. In addition, we currently have contracts with two foundations for review
services relative to determination of medical necessity of specific claims.
This mechanism, of course, also provides an additional control on costs through
controlling unnecessary utilization. A *check with our Utilization Review De-
partment produced the information that four radiologists will probably over
the next year have almost 750 claims reviewed and that their total denials and
reductions will probably exceed $1G,500. Overall, the department experience
indicates that some $50,000 In radiology claims will be denied in 1975, largely
because they were unnecessary services.
In addition to Blue Shield's own review mechanism, direct-billing radiologists
are also (or will be) subject to peer review through the PSRO mechanism. Thus
another cost/quality control is being added to the direct billing side of the
equation.
In any case, National Health Insurance is likely to tend to tip the balance
slightly in favor of direct billing in both cost and quality/utilization terms. The
most recent proposal, last year's Ways and Means Committee draft proposal,
for example, provided for a fixed fee schedule system for direct-billing physicians
with balance hilling precluded by law. It also would have made the peer review
system mandatory for all portions of the government-mandated program. Con-
tracts between hospitals and radiologists would be regulated only indirectly
through control of increases in hospital costs. Most NHI proposals would operate
in roughly the same fashion.
At present, however, some things are clear. First, in purely cost terms It Is
highly questionable as to whether hospital-based radiology billing is really
cheaper and more efficient than direct billing. Certainly it is not true to the extent
that the Pennsylvania Insurance Department claims. We found direct billing
to be slightly less expensive. We await the results of the full scale study being
begun in Massachusetts. Second, in terms of controls, direct billing definitely
provides more options to the system than does the salaried arrangements.
Our operating policy in Massachusetts is entirely consistent with this. We be-
lieve that the decision as to methods of compensation is the prerogative of the
individual radiologist. We assist the physician, if asked, in identifyng the
varous factors that must be taken into consideration in order to reach a rational
decision. We do not proselytize for any particular form. A decision to shift from
one method to the other does effect our counterpart-Blue Cross with the result
that both corporations are striving to insure that a decision to shift is not stimu-
lated by a different net compensation for the same services resulting only from
the choice of compensation mechanism. It would be inappropriate for Blue
Cross and Blue Shield to be so called "competitors" on this issue.
The issue raised in Pennsylvania and under discussion here today Is a weighty
one and should be studied carefully and analyzed rationally. Inflammatory dec-
larations are out of place in this dialogue in which each side has valid points of
view for discussion. My purpose here today has been to attempt to return the
ongoing discussion to its previous rational base. Straw men set up solely for the
purpose of argument must be ignored so that the real issues-cost to the system,
quality medical care, freedom within responsible limits-can again become
central to the resolution of this very serious problem.
Mr. COTTER. In Massachusetts is the surgery work performed by the
pathologist, anesthesiologist, is it considered a doctor's service for
which Blue Shield reimbuses or is it a hospital service for which Blue
Cross reimburses?
Mr. THOMPSON. In regard to the subscribers it makes no difference
because it is covered either way. It is a matter of absolutely no signifi-
cance to a person receiving the service.
Mr. COTTER. Are you a joint plant?
Mr. THOMPSON. We are one of the strange combinations of sepa-
rate boards, separate presidents, some employees working for one,
some for the others, some in between. There are a variety of models
around the country in that regard. There is-
Mr. COTTER. Is it one premium for both plans?
Mr. THOMPSON. That's correct, sir, and all of that is allocated.
PAGENO="0249"
245
Mr. COTTER. Take a State where you have separate entities, Bl~ie
Cross and Blue Shield. Is it considered a hospital service or doctor's
service?
Mr. THOMPSON. I don't think you can establish that as a rigid pat-
tern. I think it would be somewhat unusual to see it characterized in
any particular State that way and then exclude it from one of the
other contracts. At least it should not be.
Mr. COTTER. In other words, the subscribed would pay for one ser~-
ice twice.
Mr. THOMPSON. I can't imagine that happening because you have a
professional component in there that will be billed only once. It m~y
be included in your hospital bill or demonstrated by the receipt of a
bill from the anesthesiologist to use that example. But that prof~s-
sional service under no circumstance should arise twice.
Mr. COTTER. Take the State-
Mr. CORMAN. The gentleman's 5 minutes are almost up.
Mr. COTTER. All right.
Mr. THOMPSON. I will be pleased to send you a copy of that report.
It is the first one on the subject that I am aware of.
Mr. COTTER. Thank you.
Mr. CORMAN. If we could get back to talking about compulsory
private. Mr. Thompson and Mr. Cathles leaped toward compulsoi~y
private, but with the caveat it would require that the compulsion wou'd
be to every single person.
We will not solve the problem unless we exercise the police power
and compel every American to buy an insurance policy that is at least
some reasonable coverage that would have to be mandated in the
statute. Is that about where we come out?
I hope you understand that we only have 5 minutes. I do not want
to put words in your mouth but I want to figure out where we could go
particularly with those two.
Mr. CATHLES. I am bothered by mandated coverage because when
you mandate, you have to regulate. When you have to regulate, then
you have to set up some kind of bureaucracy.
Also, if you mandate, you lose some of the good effects of competi-
tion. So I am basically troubled by that kind of approach.
But, on the other hand, I am not so naive as to think that you would
achieve universal coverage short of mandating.
Mr. CORMAN. Should universal coverage be our objective or not?
Mr. CATHLES. Well, you know, I think that if you make coverage
available to everybody who has the means to pay for it, at a reasonable
price, under some kind of a system where you are assured that they are
going to get a fair shake and good treatment, and if you take c~re
through Government help for those who do not have the means to pay,
then I think you have done about as much as really ought to be done
under our kind of system in this country.
Mr. CORMAN. What do we do about adverse selection of the
individual?
Mr. CATHLES. Well, I think that a means can be found to offer
coverage at a fair price to every individual and to have the an~a-
selection, you get some of it but nobody knows exactly how much, but
have it underwirtten by the insurance industry. In effect that wo~ld
be the price which the thsurance industry pays for participating in the
PAGENO="0250"
246
overall program. That might be the cheapest way and the easiest way
to do it, you know.
Mr. CORMAN. But the industry does not underwrite anything. The
people who pay the premiums underwrite it. We are going to leave
ourselves in a situation where anyone could wait to buy this insurance
until he needs it and heap that cost on the other insureds.
Mr CATHLES Well, you have to have some rules You have to have
some waiting periods so that an individual couldn't wait until he knew
he was sick to join the plan, but you could set up a mechanism which
would be voluntary and which would provide good coverage at a fair
price so that everybody who had the money could obtain coverage
Then you would have a separate mechanism for providing coverage
for those who don't have the money.
Mr. CORMAN. That we will lay aside because we all concede that
there are some and it is hard to figure out what that area is. But there
are some who cannot afford it.
Mr. CATHLES. About 11 million people.
Mr. CORMAN. There are many people and they make optional deci-
sions in spending money I cannot imagine that they will pay insur
ance premiums voluntarily. We see the medical costs are high and that
premium will have to roughly fit that cost, of course.
I cannot see them making that decision to pay the premium
What would be the selling cost to reach that segment of the com-
munity?
Mr. CATHLES. Your expense rates run about 50 percent of the pre-
mium and that is largely made up of the distribution cost, the paying
of the commission to the individual agent, but it also includes the ad-
ministrative costs and also the costs of medical selection.
Mr. CORMAN. Did you want to add anything, Mr. Thompson?
Mr THOMPSON Ours naturally would be lower, running in the
neighborhood of about 22 percent to service the nongroup category
That would include all costs associated with the administration of that
category Obviously it is substantially higher than it is for the group
categories That is very apparent
I do not think anybody likes to deal with the philosophical issue of
mandating what individuals do in this country or any country, but
there are some examples of such a mandate as to individuals and the
best one I can think of is that practically every State in this union
mandates that if you wish to drive an automobile you are going to
have automobile insurance So the analogy is not that far off, it can
be done
Mr CORMAN I do not think any of the States do that What the
States say is "You have `t cert'un fin"ncial responsibility and if you
wish to meet that throuo~h huyine a policy, you may" But I am aware
of comnulsion on an individual basis to buy any kind of insurance
Mr. THOMPSON. I would suggest that the net effect in the State, my
own or any other. that you are mandated to buy insurance.
Mr. rORMAN. Well, you do have the option-
Mr. THOMPSON. It may be called otherwise, but the practical effect
j~ tlnit, von buy insurance.
Mr CORMAN The risks are such that he buys and it is not expensive
T1~p odds of gettinn sued `tre not ne'trlv as b'td as the odds of getting
sick.
PAGENO="0251"
247
Looking now at cost control, we all admit that the system now has
some cost controls. It always had cost controls. In the purest free ~n-
terprise system the cost control lies somewhere between the conscie~n~e
of the doctor and the patient to pay.
When we inject a third party such as an insurance company, there
are a variety of different cost mechanisms involved, Generally, a~ I
understand the system, that cost mechanism goes merely as to what
the insurance company will pay, not what the doctor or hospital ~an
charge.
Is that not correct?
Mr. THOMPsON. In my own State, sir; no. The payments that we
make under 89 percent of our policies would be characterized as p~ty-
ment in full. So there is not an additional charge.
Mr. CORMAN. That is a matter between you and the medical p~o-
fession. You have no police authority to require them to accept that
as full payment.
Mr. THOMPSON. Actually, it is quite unusual, in fact under enabling
statutes in our State we do have that power. The extent of the paym~nt
level, be it by formula or by fee, once having been voted upon by ~he
board of directors of the corporation and approved by the insura~ice
commissioner, is in fact binding on physicians if there is any paym~nt
at all under the policy.
Mr. CORMAN. But it is not true with the doctor, he may wish~ to
practice within your constraints. It is an arm's length negotiation
between you and the provider. It is not a matter of the governm~nt
stepping in and saying that the board work out the fees and the doc-
tors have to accept it. That is a matter of negotiation between the
profession and the system. Is that not right?
Mr. THOMPSON. No; that is not quite correct, Congressman. To ~he
extent that a provider in our State, and this is unique to the State of
Massachusetts, to the extent that a provider decides he does not w~sh
to participate with us, that decision means that any Blue Shield s~ib-
scriber in the entire State will not go to him for services because t~ey
get no benefits.
So coming back the other way, it is binding.
Mr. ROSTENKOWSKI. Mr. Duncan will inquire.
Mr. DUNCAN. Thank you, Mr. Chairman.
Professor Somers. in the pnst you have indic~.ted in talking abbut
National Health Insurance, which we have talked about a lot thro~gh
the years. that actually it slows down the important reforms that are
needed in health care delivery.
Is that still your opinion?
Mr. SOMERS. I think the situation has changed.
Mr. DuNCAN. We talk more during election years than in the off
years.
Mr. SOMERS. That is true.
I have said that in the. past, yes. I think it was true. in the earlier
stage when people were really anticipating, for reasons that are a little
obscure to me, that you people were about to pass a national health in-
surance law. I found throughout the industry that hospitals ~nd
doctors, whenever some question of innovation or change would arise,
they would say, we better not do anything, Congress is about to liass
a mw; we do not know what it will say and we want to fit in so let's
wait.
PAGENO="0252"
248
However, I think that is no longer the case because people, at least
sophisticated people, are not expecting that they are going to get a
national health insurance this year or next year and that when they
do get something, it is more likely to be a phasing-in type of minimal
program rather than an ultimate program. So I think we have re-
turned to sort of a normal process, in fact, a little better than normal
process.
I think now the view is we better do a good many things to solve
our problems whatever the potential NHI law would be.
Mr. DUNCAN. Do you think our thrust would be better directed
toward a piece-meal phase-in, as you describe it?
Mr. SOMERS. Yes; I do.
Mr. DUNCAN. Or take whatever we can get?
Mr. SOMERS. I think that phasing-in is a very desirable approach.
First, the point that is made very frequently by opponents of NHI
is that available resources in terms of number of physicians, hospital
beds, et cetera, are not adequate for the anticipated additional demand.
I do not know if that is true or not. At any rate, since it is likely that
there would be some increase in the demand, it is better to allow the
system to absorb it gradually.
Second, none of us know enough about how such a system should
ultimately work that we can affort to go into it full scale at this stage. I
think we learn as we go along. So we have to move along experi-
mentally.
Mr. DUNCAN. Yes, sir.
Mr. SOMERS. Third, we have the matter of costs which as has been
pointed out, undoubtedly are enormous, it i~ more acceptable if one
approaches that on a gradual basis. So I think phasing-in is desirable
so long as that phasing-in is done with a view toward how it would fit
into an ultimate scheme so we do not get a complete inconsistency or
phase into something that becomes an albatross around our neck.
Mr. DUNCAN. I read one of your fine articles last night from 1973
and if I remember correctly, you said then that the Kennedy-Griffith
bill went too far. It tried too much at one time.
Is that still your opinion of that bill?
Mr. SOMERS. Oh, yes, I entirely agree with what Mr. Stark said in
his earlier remarks, that the national health insurance bill should be
concerned with financing and access. The attempt to put into one pack-
age the reform of delivery systems with the financing would, I think:
one, obviously hold back our getting national health insurance at all or
in reasonable time. The more things you put in, obviously the more re-
sistance you create.
And, two, the matters are very different. Financing is relatively a
simple problem as compared to changing the delivery system. The
delivery system ought to be dealt with very cautiously. Insofar as Con-
gress may wish to manipulate the delivery system, it obviously can do
so in other packages, but it olight not to be the same package.
Mr. DUNCAN. Dr. England, you stated in your statement that in
legislating medicare-medicaid Congress failed to control costs, and I
think you said this resulted in inevitable damage to the patient-
physician relationship and to the economy. Granting that to be true,
how would you resolve the problem of controlling cost and weeding
out the unscrupulous among your profession, and also at the time in-
PAGENO="0253"
249
sure access to medical care for all who might need it, regardless of
how poor they might be?
Outside of doing nothing, how would you approach that? How
would you handle the situation if we were to do something?
Dr. ENGLAND. I either misstated or was misunderstood, Congress-
man. I did not say that Congress failed to try to control costs. I thuik
that would be irresponsible in the extreme, frankly.
What I did was say that there is no way to predict the cost because
the demand cannot be predicted. That is what I said. At least that ~s
what I meant to say.
Mr. DUNCAN. You think that-
Dr. ENGLAND. There have been additional cost control things sin4~e
that time, yes.
Mr. DUNCAN. Mr. Cathles, you indicated in your statement I think
that, in going down one of the important problems in utilizing private
insurance carriers was the difficulty that the carriers have in exerting
evective control on the provider charges, and I think that is true, bpt
what mechanism coul you suggest that might be incorporated in tl~e
national health insurance program to minimize such difficulties?
Mr. CATHLES. I think one of the problems right now is the inabi1il~y
of the insurance mechanism and the providers-I should say physi-
cians-to work closely enough together. I think that you could get
an effective cost control mechanism if you had a complete cooperation
between the insurers and the doctors. Insurers cannot do it by ther~-
selves. I do not think the doctors can either.
I think insurers have a lot to offer. They have some understanding
of medical treatment, they have actuarial and statistical expertise ar~d
they have extensive computer facilities. If you could encourage
through legislation the cooperative effort of those two bodies, yiu
would have the most effective control of physicians' charges that yqu
could have. Nobody wants to put a straitjacket on doctors. Ever~r-
body wants to see that they are compensated fairly for the servicç~s
but, you know, with doctors like lawyers, like insurance people, theje
are always a few that need to be policed a little bit. Those two are the
most knowledgeable entities to cope with the problem.
Mr. DUNCAN. Does any member of the panel disagree with Professor
Somers that we should phase in the program of national health insu~-
ance, not try it all in one full burst?
Mr. CATHLES. I would support that statement very much.
Dr. ENGLAND. I must say, I have to make an objection. [Laughter~]
Mr. DUNCAN. If we are going to have any, Dr. England, do you
think it should be phased in?
Dr. ENGLAND. I want to point out-
Mr. DUNCAN. I am sure you do not want any.
Dr. ENGLAND. I just want to point out from a historical point of
view what the example is we are using.
In England the drive for socialized medicine was conceived in t1~e
mind of a group of people who were identified in England as the
Fabian Socialists. They contended as a first item they wanted to social-
ize England. They picked upon the medical profession as that area to
begin. Medical care. They described their method which goes under
the euphemism of the inevitability of Fabianism and it is exactly tl~e
method that is being described now, the gradual phasing in.
PAGENO="0254"
250
When do you phase out? Is there going to be a free economy at all?
Are we going to go the rest of the way?
Mr. DUNcAN. What about you, Mr. Thompson, would you care to
comment ~
Mr THOMPSON I would agree with Mr Somers
As an aside on the last comment, I believe the figure is up to 22 pei
cent of the English population now who purchase independent piiv'tte
health insurance
Mr DUNCAN They are moving away from the other ~
Mr. TnoMrsoN. By voluntary choice.
Mr. STARK~ I certainly do not disagree, but I hope when we talk
about phasing in ~ e do not mean backing in I think that is what has
been happening, We have been doing this in a very fragmented way
without a plan and I am afraid we may run into the same kmd of
chaos that we find our whole system in from time to time when we
try to get availability and accessibility of cai e for more of oui people
I would-the thought occurred to me as ~ e were talking about one
other mattei, and I ~s anted to respond to it Now I have ±oi gottcn
what it is though
Mr. DTJNCAN. Ihave that problem myself.
Dr. ENGLAND. I have something I have not forgotten in respect to
something you were saying before.
Mr. DUNCAN. My time is really about up. Perhaps when the
chairman-
Mr. STARK. Oh, yes, I remember. It had to do with medicare. As was
Professor Somers, I was concerned with the initial Health Insurance
Benefits Advisoi y Committee I think the intent of Congress was not
to control anything and they did a vei y good job of not controlling it
In fact, in the act it specifically says nothing shall be done to change
the practice of medicine as it `was being practiced prior to the law
going into effect
I can tell that, that any number of times where the committee,
HIBAC Committee attempted to put some regulation into controlling
costs, we were told that this is not the intent of Congress and, there-
fore, you cannot do so.
Mr. DUNCAN. Dr. England, I have 1 minute left. If you would like
to take that up with your comment, you may proceed.
Dr ENGL ~ND It was not clear to me when ~ ou talked about com
phcations of insurance forms and all that, and people in buying what
they need `tnd all, whether you ~ ere t'ilking ibout a mattei of educa
tion of the public or fraud on the pirt of the insurance companies
Maybe the chairman was talking about that.
Mr. DUNCAN. Maybe it was.
Dr. ENGLAND. Which was it? People do not understand what they
are buying, or the insurance companies are trying to defraud?
Mr DUNCAN I think what I was talking about was all the health
providers
Thank you, Mr Chairman
Mr ROSTENKOWSKI Dr England, `is you may know, the American
Surgical Association of the Amei ic tn College of Physicians under
took in 1970 an in depth study of surgery in the United States The
results of this study are just now being released The study on surgical
services for the United States is ~ hat it is One of the conclusions
PAGENO="0255"
25i
seems to be that about a third of all surgery is performed by physicia~'is
who are not fully trained; that is, those who are not board-certificated
in surgery.
One of the conclusions seems to be that the surgery performed ~y
non-board-certificated surgeons is of lower quality than that p~r-
formed by board-certificated surgeons.
Would you like to comment on that'?
Dr. ENGLAND. I do not believe that there is anything with regard
to board certification that guarantees quality. I have seen this thi~ig
work both ways.
The American College of Surgeons and the American Board of
Surgery seems to be having an economic problem really. This is do~ie
under the guise of uplifting the quality of surgery done.
In an article that I saw a short time ago, the heading said son~ie-
thing about increasingly stringent rules for surgery. The idea was tl~at
a lot of surgery is done unnecessarily. As you read the article yOu
understand they have found too many trained surgeons without a pl~ce
to go. `fhiey are more interested at this point in time iii controlli~ig
competition than anything else, frankly.
Mr. ROSTENKOWSKI. Would any other panelists like to comment on
that?
Mr. Thompson?
Mr. Somers?
Mr. SOMERS. There is a question of quality as well as quantity. T~ie
two are related. Unnecessary surgery I think could be called bad
quality, even if it is done very well.
There are hearings being held, I understand, this morning on tMs
very subject elsewhere, but the issue, of course, is if there is a surp'us
of surgeons, as Dr. England has implied, being worried about compe-
tition, the inevitable consequence is that you will have more surge~y.
The only way the surgeon makes a living is to do surgery.
It is impossible to say by any objective definition how much is unn~c-
essary, but we do perform per capita more surgery than almost a~y
other country known, roughly about 50 percent more, for example,
than Great Britain. Of course, some people might say they do r~ot
do enough. I do not know how you measure that. But the fact is ~e
have twice as many surgeons per capita. This would have to be ca1l4~d,
if an excess does occur. a form of poor quality, dangerously poor
quality.
In the profession I am told that unnecessary tonsillectomies atid
hysterectomies have become colloquially known as remunerectomies.
This probably explains a good deal.
Mr. Ros~r1~NKowsKI. Mr. Thompson?
Mr. THOMPSON. Professor Somers' comment in regard to co~n-
parisons between this country and England as to the number of
surgeons and incidents of surgery, I am not going to make the point
but I would suggest some people would say that is the access we ~re
trying to provide people, which is reflected in the dilemma we all
have in trying to know what is the right amount that has to be ~ut
into the system.
`ro comment on an earlier question, I think it is troublesome to
distinguish the qualitative talents of a particular individual as to
whether he is or is not board certificated. Certainly the profess~on
can speak more definitely on that point than I can, but in our experi-
PAGENO="0256"
252
ence in dealing with some 13,000 physicians in Massachusetts, I really
do not think that you can make that distinction. You certainly cannot
as to individuals.
Mr. ROSTENKOWSKI. Well, if, as you have stated, Dr. Somers, there
are abuses and we have some testimony in other committees that will
back that up, that there is unnecessary hospitalization, there is unnec-
essary surgery, what do we do about it? What can we do about it?
Mr. SOMERS. I think you obviously cannot do much without the
cooperation of the profession itself. I think incentives have to be
created for a good deal more seif-polici ng by the profession over the
behavior of its members. I would advise that for their own sake as well,
because it is obviously better for them that it be done by them than
to have it imposed by the Government.
Theoretically, hospitals are supposed to do that. You have in every
hospital utilization review committees, and various other committees
of the medical staff which are supposed to sort of determine whether
the members of that staff are behaving in a proper way. But there
are counterpressures.
Hospitals are in trouble unless the beds are reasonably filled. During
certain periods of the recession, for example, as utilization ran down
and the average occupancy rate in hospitals got to the low seventies,
you found the administrators informing the utilization review com-
mittees that this hospital simply cannot survive financially with empty
beds, which is true.
There are places where you found on bulletin boards figures show-
ing we have an occupancy rate of 60 percent or whatever, and we ran
a deficit of so much and if it continues indefinitely, we have to close
this hospital. That is a message.
A great many forces are at work here.. That is one of the reasons,
of course, that I am a great believer in cutting down on the number
of hospital beds in this country, and I have a lot of company on that.
It is not too bad to have a waiting ]ist. Nothing terrible happens
if elective surgery is delayed.
Primarily, we ought to be able to depend on hospitals, but with these
countervailing pressures, with the reluctance of the medical societies
to be effective disciplinarians of the profession, I expect Government
may have to mandate that they do so.
Mr. R0STENKOWSKI. Mr. Stark?
Mr. STARK. I think that other-
Mr. Rosl'ENKowsKI. I would like for you to keep it to a minimum.
I would like to recognize Mrs. Keys.
Mr. STARK. All right.
The medical care system I characterize as being functionally open
ended. In other words, the financial gains are greater rather than less
when the cost of care is greater.
Hospitals are usually paid if they overrun on their proposed budgets.
Once it is known that insurance is in the picture, neither the providers
nor consumers are going to worry very much about the costs of their
medical care.
I would urge very strongly, regardless of what kind of a system we
finally come up with, that we build into incentives, not oniy for the
providers but for the consumers.
Mr. ROSTENKOWSKI. Dr. England?
PAGENO="0257"
253
Dr. ENGLAND. The.question of unnecessary surgery of course relat~s
to unnecessary to whom?
There are a multitude of human ills which can be treated surgically,
but if not treated do not result in death or catastrophe. An unsight'y
wart is not something that will kill anybody, but to that person, `haviijg
it removed is necessary.
The matter of keeping beds filled is an interesting one, with *aith~g
lists and all. It is true there is some pressure I understand on the pa
of some hospital administrators to keep the beds filled.
In our particular locality, we have not experienced `that proble~ri.
But 1 do know that the areawide health planning council, which is
something t'hat was structured from legislation here, has a rule that a
hospital that is consistently below 10 percent shall be closed. So th y
are really between a rock and a hard place in that community. B t
again, it is not because of w'hat is happening with the medical prof s-
sion particularly, it is because of the legislative response to a suppos d
problem.
Mr. RosTENE0w5IU. Mrs. Keys will inquire.
Mrs. Ki~ys. Thank you. It looks like I have the last word so I inte d
to squeeze the last drop of expert opinion from you gentlemen befo e
2 o'clock.
One area that is especially important to me has not been touched ~n
much.
Mr. Stark, you stated that you did not see as any primary objecti~re
of national health insurance modifying or changing the present heal~i
care system. Yet all of you in your testimony, I believe, in one way or
another `have recognized that `the prepaid health care of the health
insurance system that we have now has certainly militated towa~d
overuse.
Second, it seems to me that the present system has militated towa d
undereffective use of facilities in the area of preventive care. 0 ir
health insurance system now, it seems to me, really does not emphasize
attempts to get into the very necessary area of preventive care, and it
seems to me this is very important in terms of cost control, in additi n
to being important in terms of accepting our responsibility for deliv r-
ing important health care.
I would like any comments you have on this as to whether you f el
that moving our insurance system so that we can deliver, encoura e,
and give equitable access for preventive care is important, for o e
thin,o~ for cost control; and if you feel we can do that or if you f el
may~e my statement is wrong, maybe you would state your disagr e-
ment.
Mr. STARK. No; I might disagree with you in saying that the prep Id
system has created more `health care delivery problems. I would thi k
this would be an incentive t'o provide less unnecessary care `than mig t
ot'herwise be the case.
The incentive is that the opportunity to keep one out of the hospi al
is certainly going to reduce the cost of that care to the benefit of t e
provider.
The fact that preventive medicine, whatever that term means, cou d
be practiced more effectively with the added incentive of keeping t e
person out of the hospital; the factor of health maintenance, educati n
In proper health care, all of these things I think stand a better cha ce
actually of being provided under a prepaid insurance program thin
otherwise.
57-677-75-17
PAGENO="0258"
254'
Mrs.' K~s. Now, `Mr. Stark, when I say prepaid care, I am not
talking about the. lIMO,, which is a tremendous asset,, but I mean the
itisuranc~e `system we,'have, or have had in the past which I feel has'not
encouraged the kind of preventive care.
Mr~ STARK. If you are just talking about payn'ien't .f insurance
premi~, yes, I think that has rather encouraged it and because of the
way this has been tempered, the ins,urance policy covers one when he
goes into a hospital, the most expensive modality of care.
.1 think the other which is now coming into the fore was given first
impetus by advent of medicare, which is the outpatient services, the
clinical services which are almost nonexistent in terms of the total
health care picture in being provided by, insurance.
Alternatives to the inhospit.al care, if they could be `provided by `ii~-
surance in a more wide useful way would tend then to reduce the'
overall costs and do all of those things which you are hoping for under~
a good system of preventive care.
Mrs. KEYs. Do you think that conld be the objective of Nh?
Mr. STARK. I think definitely it should be `a strong part of an Nh
program.
Mr. THo1~rrsoN. I would like to comment on that, too, Mrs. Keys
I think the matching of the concept of very broad care, preventive
care, eveh though everybody in the room would differ as to the defini-,
tion of preventive care, but the broad-based preventive care, in seeing
that in terms of cold cost `effectiveness fly in conflict with each other.
There are certain maladies. that afflict us in society where annual
physicals and other procedures have some real advantages. I would'
suggest to you that the concept that we can economically-and I am.
separating that from the human side-but economically somehow save
sub~t'antial sums within society by reason of repetitive physicals, what-
ever you might wish, I really think is an illusion.
I give you a small example, the argument made to me frequently that
insurers should cover genetic counseling and that we should provide
that as a benefit to get the public to go through that process since the
birth of an abnormal child is not only costly, but of course dramati-,
cally affects a family from an emotional standpoint.
In the cold hard sense-I hate to put it this way-but in the cold hard
sense of analyzing whether that makes sense or not, most of the studies,
definitive studies will show, not dissimilar from we in society, that
even high risk couples identified by reason of a child having been born.
that was abnormal, or by something within their genetic `history that
demonstrates that, about 50 percent of the people having been advised,
of the risk ignore it.
I am a typical example of that to the extent of having twice had
ulcers, but I, like half the persons in this room, refuse to change per-
sonal habits to properly respond to the issue of preventive care.
I do not think we in society are prepared to do that, unfortunately.
So I am troubled by matching those two concepts and assuming they
will work together.
Mrs. KEYs. I am not talking about cybernetics, I am talking about
the mother having the freedom to take her children to the doctor in
early years by knowing that she can afford to do that and that they can
have the proper health habits, proper health education, proper immuni-
zations, and treatment necessary in preventing, costly medical prob-
PAGENO="0259"
255
lems they may have later in life if they do not have access. That is mjy
concern. I
I am concerned that the system we have now does not encourage it
or does not give equitable access for that purpose.
Dr. ENGLAND. If I may comment from the point of view of person4l
experience on the idea of early child care, and immunizations. This ~s
somethiDg that in my particular community we have gone out of our
way to indicate "Don't stay away from these immunizations," becaus~
it has cost; if you cannot pay there is no charge. This we have done fo~
20 years.
Getting a mother to complete the immunizations of her child i.s on~e
of the most difficult things I have to do. They will come in and g~t
one shot and you will not see them for a year. You tell them when to~
come back, and all the rest, and you have to keep the records of what.
the kid is immunized against because you cannot depend upon paren1~s;
to do it. I do not see why I should love the child more than its parent~s~
do, but in this area apparently I do. These changes in human behavior
that you alluded to, and finding a legislative response to them, it
turbs me to have you legislate in respect to it.
Fortunately we have not found a way to legislate behavior conr
pletely, because when you legislate on these matters you legislate con~-
stitutional liberty out the window.
Mrs. KEYS. Dr~ England, perhaps health education should apply t
all ages, patient as well as children.
The other thing, I am thrilled to hear about the altruism of your
town. I wish all Americans could live there.
Dr. ENGLAND. I do not think we are unique.
Mr. SOMERS. I would like to say, I think the point you make, Mr.
Keys, fits very well with the questions Congressman Duncan was asi -
ing earlier about phasing in. If you people do decide that phasing i
is the approach, it seems to me children are a very good place to star
I think a "kiddie-care" program would well supplement the rned~-
care program because that is where the hea1t1i~f the Nation will b
determined, at the young age.
Mrs. KEYS. Thank you very much.
Mr. RO5TENK0WSKI. The time of the gentlewoman has expired. All
time has expired.
I want to thank the panelists for participating in this discussion~,
It has been most enlightening~ We know that you have a busy schethil~,
and we appreciate the time you have taken out to be with us thi~
morning.
Thank you very much. Good day.
The committee will adjourn to July 24 in this committee room whe
the subject will be the problems involved in health care organizution,
and financing.
[Whereupon, at 2:01 p.m., the subcommittee adjourned,tG reconven
at 8 a.m., Thursday, July 24, 1975.]
PAGENO="0260"
PAGENO="0261"
* NATIONAL HEALTH INSURANCE
(Problems and Issues in Health Care Organization, Deliver
and Financing)
THURSDAY, JULY 24, 1975
U.S. HoUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON HEALTH,
COMMITTEE o~ WAYS AND MEANS,
Wa$hington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in the comm~t-
tee hearing room, Longworth House Office Building, Hon. Dan Rc~s-
tenkowski (chairman of the subcommittee) presiding.
Mr. ROSTENKOWSKI. Good morning, gentlemen.
If our witnesses would kindly take their chairs we will get underway.
We welcome you to the Subcommittee on Health of the Ways a~id
Means Committee. I would like to explain what we expect to do thus
morning.
it is our intention to hold this panel discussion at least until 12:30
when the full committee will have to meet on another matter. II
have not concluded the discussion and the questions on the part of t~e
members of the subcommittee, we will return at 2 o'clock.
I would like to explain that you have the privilege of submitt~ng.
your whole statement for the record if you so desire, and now you c~an~
summarize it. Immediately after all the panelists have concluded th~ir
statement we expect an interchange in various areas where there might
be some disagreement.
We are looking forward, gentlemen, to a lively discussion. W'e
hope that you will gain as much as we have gained from the otliier
panelists who have participated in these discussions.
I would ask you each, when you make your statement beginning.w~th
Professor Feldstein, to introduce yourselves.
A PANEL CONSISTING OF MARTIN S. PELDSTEIN, PROFESSOR OP
ECONOMICS, HARVARD UNIVERSITY; HEBWERT Z. KLARM4N,
PROFESSOR OF ECONOMICS, NEW YORK UNIVERSITY; WILBU* ;r.
COHEN, DEAN, SCHOOL OP EDUCATION, UNIVERSITY OP 1VIIC~II~
GAN; CHARLES A. SLE~GPRIED, MADISON, N.L; AND AVEDIS DO*A~
BEDIAN, M.D., PROFESSOR OP MEDICAL CARE ORGANIZATIbN,
UNIVERSITY OF MICHIGAN
Mr. FELDSTEIN. I am Martin Feldstein, professor of economic at
Harvard University. I am very pleased to have this opportunit~ to
talk with all of you this morning. I understand that the subcommi~tee
wants to concentrate today's discussion on the basic problems of our
health care system and not get into details about alternative nati.~nal
(257)
PAGENO="0262"
258
health insurance proposals. I would like to focus, therefore, on the
single problem that I believe is responsible for the widespread interest
~an national health insurance: The rapid explosion of health care costs.
This inflation of health costs is important because it reflects a serious
~misalIocation of resources and a failure of the health-care system to
reflect individual preferences. Moreover, high medical care costs are
the primary source of inequity in our health system, creating financial
thardship and imposing a barrier to adequate medical care.
II think the basic facts of health cost inflation are well known to the
committee. I summarized them on the sheet I handed out this morning.
They indicate in the period from 1950 to 1974 prices as a whole in the
overall Consumer Price Index went up about 114 percent. During the
same period medical care costs rose more rapidly, 193 percent. But the
cost of hospital care was much more dramatic in its upsurge. Average
cost per patient-day was only $16 in 1950. It was about $125 in 1974,
an increase of more than 650 percent.
While prices in general have doubled, health care costs have gone
up triple and hospital costs seven and a half times. These increases in
hospital costs have really dominated the rise in health care costs. By
comparison the prescription and drug charges hardly changed over
that period and physician fees have only gone up at the same rate as
all other services in our economy. I will, therefore, limit my attention
to the problem of hospital costs.
I think everyone is aware that hospital costs have risen rapidly, but
there is little understanding of why this happened or why hospital cost
inflation is very different from the other types of inflation that cur-
rently trouble our economy. Let me begin by giving you my own view
of the nature and cause of this problem.
The two key ideas in my explanation are: First, the changing nature
of the hospital product; and, second, the impact of insurance.
Consider first the importance of product change. The most obvious
thing about hospital care today is that it is very different from the care
given in hospitals 25 years ago. Today's care is more complex, more
sophisticated and, hopefully, more effective.
The rapid rise in hospital costs really reflects a rapidly changing
product, a rapid change in quality or style of care. It is, therefore, un-
wise to compare the rate of hospital cost inflation to the rate of infla-
tion of most other goods in the Consumer Price Index. The cost of
inflation of hospital care is not that consumers are paying so much
morse for the same old product that they bou~ht before, but that they
are buying a different and much more expensive product today.
Therefore, hospital cost inflation is quite different from other types
of inflation in our economy. It is nevertheless a serious problem. To
understand the nature of this problem, we have to ask why hospital cost
inflation has occurred, why the style of care has become much more
sophisticated and, therefore, much more expensive.
Higher incomes and greater education have, no doubt, played some
role in increasing the demand for sophisticated hospital care and
scientific discoveries have obviously changed the technological possi-
bilities in hospitals. But the major reason I believe, for the hospital cost
inflation has been the very rapid growth in insurance.
Let me explain why. In addition to providing protection against u~i-
predictable medical expenses, health iisurance substantially lowers
PAGENO="0263"
259
the net price of care that the patient pay~ out o~ pocket at th~ l4me h~
consumer serviccs~
There is now subst~nt~al evideiice that consuthers are responsiv~ to
price differences, that is, that patients, guided by their doctors, dema~nd
more services and more expensive services when a large part of tJ.~eir
costs are offset by insurance.
Some simple but striking nnmbers, which I have noted on the sl~eet
I have passed out, will illustrate my point. In 1950 when average post
per patient-day was $16, private insurance paid 37 percent of hosp~tal
bills. That means on the average the net cost to a private patient *as
$10. By 1974 average cost per patient-day had jumped to about $1~25,
but private insurance was paying 77 percent of the private hosp~tal
bill, leaving a net cost to the patient of $28.50. Thus, cost per day was up
from $10 to $28.50, but $28.50 in 1974 really onlybrought $13 wortl~ of
goods and services in 1950 prices,
So in real terms the net cost to the patient at the time he consuñies
care had hardly changed at all during the 25-year period, hav~ng
risen only $3. Consumer demand has, therefore, encouraged and &up-
ported the growth of more sophisticated and expensive care and qon-
sumer demand has done this primarily because of the growth of in~ur-
ance.
Looked at somewhat differently, with 77 percent of private hospital
bills now paid by insurance, an extra $10 of expensive care only cpsts
the patient $2 out-of-pocket. It is not surprising, therefore, that pa-
tients and their doctors continue to encourage the growing sophist~ca-
tion and expense of hospital care.
The same process has been occurring during the 8 years since m~di-
care was introduced. In 1966 hospital cost per patient-day was ~nly
$-18. The 1974 figure of $125 thus represents a 160-percent increa~e in
only 8 years. But because private insurance also grew rapidly, th~ net
cost to the patient in 1966 prices remained essentially unchanged.
I think this is the essence of the hospital cost inflation prob~em:
Iiicreased insurance has induced hospitals to change their product and
provide much more expensive and sophisticated care.
Before I talk about the implications of this explanation, let me qon-
trast this with the usual reasons offered for the rise in hospital c~sts.
These traditionally boil down to four ideas: (1) Hospitals are ii~effi-
cient; (2) labor costs have risen particularly rapidly; (3) hospitals had
a low rate of technical progress; and (4) supply has not kept up ~vith
increasing demand.
I think each of these ideas is basically incorrect as a. diagnosis of
hospital cost inflation and misleading as a basis for polh~y in this ~rea.
Let me explain why.
Perhaps the most frequently heard explanation of rising hos ital
costs is that hospitals are technologically and mangerially ineffic ent,
that they get less output for input than ordinary business firms. Ev n if
there are reasons for criticizino' the inefficiency of hospitals, there s no
reason to believe that this inef~ciency has been rapidly increasing In-
efficiency could not account for a 650-percent increase in hospital costs.
If hospitals are less efficient, their costs are higher than they shoul~t be,
but not necessarily rising, let alone at such rapid rates.
Rising labor costs are also cited as the primary cause of hospit~l in-
flation. It is true that wages and salaries constitute a large sha e of
PAGENO="0264"
260
h~spithI costs and wages have risen there more rapidly than wages in
the general economy. Nevertheless, this does not begin to account for
the rise in hospital costs. From 1955 to 1973 labor costs rose 350 per-
cent. But as a fraction of the total hospital bill labor costs actually de-
creased frOm 62 percent of total costs in 1955 to 56 percent in 1974.
In other words, nonlabor costs have risen faster than labor costs.
Moreover, about a fifth of the increase in labor costs reflects a rise in
the number of personnel per patient today. Only a third of the increase
in total costs can be attributed to wage increases perse. Moreover, since
hospital wages rose 188 percent while wages in the economy rose about
130 percent during this period, the excess rise in hospital wages-the
difference between the 188 percent and 130 percent increase-can only
account for a small part of the total increase in hospital costs, probably
on the order of 14 percent.
The third explanation is that hospital cost inflation is due to a low
rate of technical progress. I think this is clearly and obviously false.
Hospitals have been the scene of extremely rapid technical change. But
the character of these changes has been different from that in other in-
dustries. It has not been cost-reducing. Technological progress in hos-
pitals does not involve making the old product more cheaply, but mak-
.ing a new range of products that are more expensive.
Why have hospitals moved toward increasingly expensive ways of
doing things rather than providing old products more cheaply? Al-
though some of this reflects the path of basic scientific progress, it is
our method of financing health services that primarily determines the
pattern of technical change.
The final traditional explanation is that hospital costs have risen be-
cause suppiy has not kept up with demand. I have already pointed to
the reasons for increasing demand, higher incomes, greater education,
and especially a rise in insurance. Usually economic analysis of ordi-
nary markets shows that prices rise because supply does not increase
as rapidly as demand. But in the case of hospitals, I think the opposite
is true.
It is precisely because supply has kept pace with demand that hos-
pital costs have gone up. Hospitals have responded to the increased
demand and willingness to pay for sophisticated services by providing
those services and costs have gone up accordingly. The increase in
demand has induced a rapid increase in the supply of a more expensive
type of hospital care.
This brings me back to my original contention that the rise in hos-
pital costs reflects a change in product induced largely by the growth in
insurance. But this explanation of the rise in hospital costs raises an
awkward question. Implicit in every discussion of hospital cost infla~
tion is the assumption that the rise in cost has been excessive and should
not be allowed to continue at the same rate in the future. But if this
rise reflects a change in product rather than an increase in inefficiency
or a low rate of technological progress, why is it reaJ]y a problem?
The answer in brief is that the current type of costly medical care
does not really correspond to what consumers or their physicians
would regard as being appropriate if their choices were not distorted
by insurance. The effect of prepaying health care through insurance,
both private and public, is to encourage hospitals to provide a more
expensive product than the consumers actually with to purchase.
PAGENO="0265"
2~.i
Although the consumer pays for the expensive care through hig er
insurance premiums, at the time of illness the patient's demand or
service reflects the net cost of the care. Because this net out-of-poe et
cost appears so modest, the patient is willing to buy more expensive c~re
than he would if he were not insured. In this way our current metl~od
of financing hospital care denies patients the opportunity to cho~se
effectively between higher cost and lower cost hospital care~
If insurance is responsible for such an inappropriate expansionj in
the demand for expensive care, why has insurance grown so rapid4y?
In part the growth of insurance reflects a family's rational demand for
protection against unexpected illness. It is unfortunate, but inevitable,
that this process is self-reinforcing. The high cost of care induces ~he
patient to buy more complete insurance and the growth of insura~ice
induces the hospital to produce more expensive care.
But this demand for protection cannot explain the comprehensive
first dollar insurance that now exists. Current insurance is often in-
adequate in protecting the family against the substantial bills that ~an
cause real hardship. Why then have American families bought s~ich
complete coverage for relatively small bills? Why have they b~en
willing to pay for insurance that often provides little real protect~on,
but induces them to buy more expensive and sophisticated care than
they really want?
As you know, most insurance is now group insurance and, n~ore
specifically, insurance bought for employee groups. The decisions on the
scope of coverage on co-insurance rates and deductibles are gene$lly
made in collective bargaining agreements by e~xpert representat~ves
of labor and management.
Why should such experts forego higher wages in order to obtain
excessive, shallow insurance? The answer, I believe, lies in the ~ax
treatment of premiums. Federal policies encourage insurance by a ~ax
deduction and exclusion that now costs the Treasury more than~ $4
billion ayear.
As you all know, individuals can deduct about half of the p~emiiims
they pay for health insurance. More important, employee payments for
insurance are excluded from the taxable income of the employee as tell
as the employer. These premiums are not subject to social security t~xes
or State income taxes.
Even for a relatively low-income family the inducement to buy in~ur-
ance can be quite substantial. Because of the income and payroll ta*es,
a married man with two children earning $8,000 a year will take h~me
an additional $70 for each $100 the employer adds to his income~ If
the employer buys health insurance instead, the full $100 can be ap~
plied against the premium and there is no tax to be paid.
In this case the dollar buys nearly 50 percent more health care s~rv~
ices if it is paid through an insurance premium than if paid in wages
and left to the individual to buy the care directly. For worker~ in
higher tax brackets, the incentive is stronger. In the aggregate the
Government tax subsidy exceeds the total profits and administra1~ive
costs of the insurance industry by a substantial margin.
I believe the subsidy is strongenough to induce employees and unions
to opt for higher insurance instead of higher wages. The primary eftect
of this insurance is to distort the pattern of care and exacerbate the
rising cost of hospital care. This tax subsidy costs the Gover ent
PAGENO="0266"
262
several billion dollars a year. Its benefits are regressive; the benefits~
are greatest for high-income employees in high-wage industries.
In short, the current tax treatment of insurance premiums, particu-
larly the exclusion of employer payments from taxable incomes, is a
costly, regressive `and inefficient aspect ofour tax system.
Let me summarize my remarks about cost inflation. I have empha-
sized three basic points:
First, the current tax treatment of health insurance premiums sub-
stantially increases the demand for shallow insurance and for the
comprehensive coverage of small medical bills. This is coverage that
individuals would not otherwise want.
Second, such excessive insurance coverage distorts the demand for
health care, encouraging expensive procedures that cost more than
the patients and the doctors think they are really worth.
Third, the growth of insurance has thus induced hospitals to change
the natui~e of their product. It is this change in the product or the
quality or the style or care that has been responsible for the rapid
increase in health costs during th~ last 20 years.
These points have important implications for national health in-
surance. Whatever form of insurance you propose, you. must face
squarely the problem of controlling the evolution of the quality and
~tyle of, medical care.
``It is crucial to recognize the nature of this problem. The long-run
problem is not to reduce or to limit the growth of medical spending~
but to achieve the correct rate of growth of that spending. This must
ultimately come down to balancing additional spending on medical
care against the alternative uses to which households might put those
resources. And this requires comparing the expected gaIns from addi-
tional medical care-gains that are psychological as well as phys.ical-
with the satisfaction that households would enjoy from the alterna-
tive spending on food, housing, or recreation.
It is clear that controlling the quality of medical care is not a
technical issue that can be solved by `bureaucrats. Nor can it be
assigned to the process of physician peer review. Although peer
review can try to assure the `application of accepted standards of care,.
it cannot `be used to establish what those standards should be.
Deciding on the correct quality and style of medical care requires
involving the individual household in the decision of how much they
want to spend for medical care and how much they want to spend
for other things.
Although this direct involvement of households is not possible in
determining our Nation's spending on defense or on medical research,
it is possible for personal health care services. The form of national
health insurance should assure that individual consumers play this
crucial role in guiding the growth and form of their health services.
It is important that you develop an approach to national health
insurance that is appropriate to the advanced technology of today's
medical care and the ever-increasing affluence of the American peopk.
Too much of the current debate relies on `the ideas about the delivery
of medical care that have been inherited from a period with quite
different `technological and economic conditions.
The challenge to public policy is to find new methods of organiza-
tion and financing that protect families from the risk of finan~iaI
PAGENO="0267"
hardship, while also making th~ future deve1Opm~nt of hea1t~
more responsive to the preferences of the people.
Thank you, Mr. Chairman.
[Supplemental material follows:]
SUPPLEMENTARY DATA FOR THE STATEMENT OF MARTIN FELDSTEIN BEFORE THE SUBCOMMITTEE ON
HEAL~~
1. Hospital costs inflation, 1950-74: Percent~
All prices~(CPl)(up)
All health care prices (up)
Average hospital cost per day (up) 650
1950 1966 1~74
2. Impact of insurance on hospital net cost to patients:
Average cost per day $16 $48
Percentage of private cost paid by insurance 37 67
Net average cost to patient $10 $16
Net average cost to patient, 1950 prices $10 $12
$25
77
29
13
5. Hospital labor costs, 1955-73: Perc~r1t
Labor cost per hospital day (up) 50
Labor cost as fraction of total hospital costs:
1955 62
1973
Increase in hospital wage rates, 1955-73 (up) 88
Increase in all private-wage rates, 1955-73 (up) 131)
`Excess" increase in hospital wages 58
"Excess" wage increase as percent of total increase in average cost per day 14
Mr. ROSTENKOWSKI. Professor Kiarman.
STATEMENT OP HERBERT E. KLARMAN
Mr. KLARMAN. I am Herbert E. Kiarman professor of economics
the Graduate Sdhool of Public Administration, New York tTniversit~y.
I feel highly privileged to appear here today. This is a splendid o~-
portunity for me, a longtime observer and student of the health ca~-e
scene in this country, to participate in the mutual exchange that ch~r-
acterizes a congressional hearing and to try to convey to this committee
what I think about some of the major issues, problems, and possll~le
solutions in the health care field.
Following staff instructions, I have made my statement brief, The~e
is a good deal that has been left out, which may be developed in t~ie
question period I look forward to.
At the outset, let me confess to certain biases or assumptions that
should be made explicit. One, in my judgment there is no health ca~e
crisi~ in this country today, though we have many serious problen'~s,
including those of cost, access, quality, and so on.
Two, some of our present problems reflect, in part past successes, not
only failures.
Three, concerning some of the problems facing us, firm empirical
knowledge is lacking. More research and close attention to emergi~ig
tendencies are, therefore, indicated. This will include the monitoring of
the effects of programs, some of which effects are bound to je
unexpected.
This statement consists of three parts. The first' part has to do with
the criteria for national health insurance. The second part has to 4o
with problems that call for early attention with or without natior~al
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health insurance, and the third part has to do with the elaboration of
certain issues, whatever the clay that national health insurance is
enacted.
Part 1 deals, then, with national health insurance, which once again
is on this Nation's active political agenda. It belongs there, because
the combination of voluntary health insurance, medicare, and medicaid
has been largely successful, yet defective in certain respects and made-
cjuate for some individuals and families.
That health care is a so-called right for all is not a new, 1960's no-
tion. It represented a wide consensus across the political spectrum as
long ago as 1940, as Edwin Witte reported. What is controversial is
how suth a right might be implemented.
In a public lecture I delivered in the spring of 1974 at the University
of Western Michigan, in Kalamazoo, Mich., I proposed five criteria for
a national health insurance program. The fir~t criterion is universal en-
roilmerit, not merely the opportunity to enroll. The second one is a
broad and deep package of related benefits, in order to encompass the
possible range of substitute services and to cover large expenses. The
third criterion is adequate attention to establishing reimbursement
mechanisms and formulas for paying the providers 9f services:.
The fourth criterion is ease of compliance by consumers, so that they
may be assured of getting what the law promises in print.
The fifth criterion is that of aiming at a single level of health serv-
ices for all, at least as a longer term target.
This list of criteria is very short, much shorter than usual. Why?
Jor two different reasons.
The first reason is that I view national health insurance narrowly as
a financing instrument though with broad consequences, and therefore,
~as only one of the available instruments for allocating resources to the
health care sector and for distributing the use of these resources.
The second reason is that a large number of criteria can only be con-
fusing in any attempt to weigh one criterion against another.
In this same lecture, I suggested that several potential elements of a
national health insurance program, such as the question of costsharing
or the question of the responsibilities assigned to fiscal intermediaries,
might best be left to a process of cumulative factfinding. Moreover, the
~econd item is suitable for political negotiation and accommodation.
Nevertheless, it is none too soon to start exploring the future role of
facilities owned and operated by government, including Veterans' Ad-
:ininistration hospitals and municipal institutions.
To my mind, the absence of a health care crisis does not permit us
to defer indefinitely the enactment of a national health insurance pro-
gram. Certain urgenit problems, such as the financing of outpatient
care in hospitals, may not be attended to because everybody expects
national health insurance to take care of them.
Part II of this statement deals with problems calling for early at-
tention. Certain problems in health care are so serious that they would
demand early action without waiting for national health insurance, if
enough were kno*n about suitable remedies, it seems to me that two
problems, both on the supply side of the equation, meet the criteria of
seriousness and knowledge. I refer to the supply of short-term hospital
beds and to methods of reimbursing hospitals.
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With or without national health insurance, it makes sense to begin 1~o
move toward limiting and curtailing the supply of general hospital
beds. Hospital care is the largest and most expensive item of expend~-
ture for health care; under conditions of prepayment, the number ~f
hospital beds used is equal, by and large, to the number in operatio4;
and there is no evidence to suggest that more hospital care improv~s
health status.
Limiting and curtailing the supply of hosipital beds is a sound poli4y
to be applied promptly by health planning agencies at local and re-
gional levels. My reason for advocating this policy is not that the o~-
cupancy rate of hospitals is low, nor that some patients occupy hospit~i
beds without medical need, but, rather, that a policy of lower hospital
bed use will do no individuai harm and can achieve substantial savings.
As low a bed saving as 10 percent would yield a reduction in expen4i~
tures of $3 billion a year. .
Whether the proposed policy can be carried out successfully will c~e-
pend, in my opinion, largely on the provisions of suitable hospital staff
appointments for the physicians who are directly affected by a decisi~m
to build fewer beds or not to build at all.
As for hospital reimbursement, it is widely recognized that payi~iig
individual hospitals at cost determined on a retroactive basis is co~n-
ducive to rising cost. Moreover, although cost reimbursement is t~e
general method of payment, the formulas that are applied differ amopg
the three major sources of direct payment-Blue Oross plans, me~Ii-
care, medicaid. By itself no single source of payment has enough influ-.
ence to offset the disincentive effects of retroactive cost reimburseme~t.
Accordingly, as suggested earlier in my list of criteria, it is necessa~ry
to establish mechanisms for paying individual hospitals in behalf of
all major third-party payers. Such an agency, with jurisdiction o~er
a local or regional area, would have to negotiate rates! on a prospect~ve
basis, since automatic formulas linked to index numbers have i~ot
worked out in the past. Such negotiations can take a hospital's propo~ed
budget for the coming year as the point of departure.
Both of these steps, limiting the number of beds and establishi~g
effective reimbursement mechanisms, are indicated because, with or
without national health insurance, the post-World War II movem~nt
toward third-party payment cannot-and should not--be reversed.
Part III of the statement deals with other important issues. H~re
I should like to invite the committee's attention to three problem areas:
long-term care, health plimning, and certain aspects of regulation.
All pending bills on national health insurance agree in neglect'ng
or excluding long-term care. I believe that long-term care should be
included under a national health insurance program. Why? Such c~re
is usually health related. It is costly, often paid for by medicaid; and
its inclusion would permit consideration of alternative modes of caere,
not oniy institutional care.
At present the entire field of long-term care is covered by a noxi~us
fog of scandal. The data base is skimpy and analytical studies are~
Notwithstanding, some things are known,
Nursing home care is different from hospital care in that a ph~si-
cian is not directly involved in placing the patient. The patient or 4e1-.
ative or friend is able to judge the quality of nursing home care, un'ike
hospital care. Therefore, it is not necessary to pay nursing home~ a1~
individual rates, the way hospitals are paid.
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It is also apparent that prolonged institutionalization is essentially
irreversible. It follows institutional care must be timely in order to be
effective. Information, referral, and followup networks are required in
every local area.
For all these services in behalf of long-term patients financing is
necessary, but it is not sufficient. It is also necessary to organize and
operate such services. Where experienced organizations exist, they can
take the lead; elsewhere it will be necessary to experiment and evaluate
performance.
With respect to health planning, the new law esMblishes ,numerOu~
area and State-wide agencies and consolidates old grant and loan
programs to help pay for construction. The act is long and detailed.
In a public lecture I delivered at the TJniversity of Missouri in
~January 1975 I suggested that the primary reason for health planning
* are the numerous instances in which the interests of the individual
health care institution and those of the community may diverge, as in
* the case of hospital staff appointments for physicians. I noted, too,*
±liat it is much more difficult technically to plan for health services
at the local level than nationally. Yet, since health services are mostly
provided at the local health level, health planning must be geared to the
local situation, that is, to solving concrete local problems. However,
the local agency could advantageously make use of outside, Federal
~iS5istance.
In the past decade local health planning has been hampered by the
unreliability and instability of Federal funding through project
grants. The absence of national policies and guidelines for health
planning has led to a constant search for innovative ideas and periodic
fads. The requirement of consumer representation, in the absence of
substantive concerns, has led to a preoccupation with the mechanism
and process of planning and to the neglect of real health care problems.
What is required, in addition to more steady funding, is a fostering
of institutional capabilities for health planning. Such organizations
at the local or regional level will require a good many full counts from
the U.S. Census. They can use the example of leadership from the Fed-
eral Government in working on susbtantive problems. They will require
a good deal of technical assistance in the form of concrete ideas on
ways to enhance the flexibility and versatility of health facilities and
personnel; monitoring natural experiments and learning their lessons;
and elucidating for the intelligent public the policy implications of
empirical research findings and even of pertinent theoretical propo-
sitions. In certain circumstances the Federal Government is also ex-
pected to serve as the superseding decisionmaker.
Reflecting on this lecture, delivered only 6 months ago, I should like
to emphasize three points.
1. To be useful, health planning must deal with substantive problems
and abandon the preoccupation with mechanism and process.
* 2. Problems are usually specific to a local area. These are likely to
differ among areas.
3. A need has been created for educating and training large numbers
of health planning staff. It is not evident who will perform this task
and how.
Let me conclude with a comment on one, perhaps unusual aspect of
Government regulation in health care. Although process is no substi-
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tute for substance, process is important. One's participation in arri~ing
at a decision is likely to render it much more acceptable to a per~son
who may not approve of the decision.
More important, however, is the threat and burden that a reguiatJory
agency can impose on an organization under its jurisdiction, as i1~us-
trated by my own experience as a board member of a Blue Shield plan
in New York. There is the further danger I have witnessed that the
flow of financial and statistical information will be blocked unila~er-
ally, thereby limiting empirical analysis and the free debate of is~ues
that such analysis makes possible.
Finally, it is incumbent upon all of us as the trend toward regttla-
lation rises to try to arrest the tendency for so many transaetion~ in
the health field to take on the character of adversary legal proceedthgs.
Thank you very much.
Mr. ROSTENKOWSKI. Thank you very much.
Mr. Cohen~
STATEMENT OF WILI3UR L COHEN
Mr. `CoHEN. Mr. Chairman, it is always a pleasure for me tç~ be
back in this room where I have spent a large portion of m~ life. I w~uld
like to state my biases first.
First, I do not favor enactment of any of the health insurance hills
now pending before this committee. I feel that the bill that ultimately
is to he enacted has not yet been introduced.
While there are various provisions of various bills that have n~erit,
it will be a long and continuing process to find the accommod~tion
between legislative objectives and administrative reality, which~ has
to be achieved to formulate an effective national health insurance bill.
Second, I think that providers and consumers must be fully con-
suited in the development of a bill and I don't think you can do that
solely through the legislative process. I think that must be doi~e in
large part by the executive branch and the executive branch is not tom-
petent at the present time to do so. Its recent history of handling this
subject is one of tragic incompetence, and I think, therefore, you ~iave
to wait until at least another secretary has demonstrated his al~ility
to put together the administrative and technical competence by which
this accommodation process can be achieved.
I think, therefore, this is not the year in which the Ways and Means
Committee ought to enact national health insurance legislation. ~E[ow
long that should be postponed will depend upon a number of faptors
which I cannot quite foresee, but I think it will be much longer than
most people expect.
A comprehensive public information and health education program
is vitally necessary to* obtain public support for any legislation~ that
you enact, for an understanding of the key issues and to avoid exc~ssive
demands on a medical care system when you inaugurate it. Ther~fore,
in any such program you must provide a public information and h~alth
information program substantially before any new, significant benefits
begin and no bill pending before your committee does that, an~ that
is a key deficiency of all of them.
Important new benefits, whatever they are, should begin preferably
between April and October in order to avoid paying for services during
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high morbidity periods which are November through March, which
Will involve handling a larger volume of claims than during lo~ mor-
bidity months, April through October.
The reason we were so, successful in inaugurating the medicare
program among the many mistakes we made was we did not start it
in November or December. We started it on July 1, just before the
July 4 weekend. Physicians take vacations at that time. Hospital oc-
cupancy is at the lowest ebb.
We inaugurated the medicare system under the most auspicious
conditions. ~Iorbidity rates decline very rapidly when physicians are
riot at work. Therefore, we were able to start the system without having
t~ r~giment' anybody, and I would suggest when you start any new
behefit, don't start it in December or November when all the sickness
conditions exist. Start it at the time when the situation is at the low-
est level so you start with the best foot forward.
Benefits under any national health insurarjce system should be
phased into operation by a predetermined schedule in the law. None
of the bills that are pending do that. That is another fatal defect.
In determining that schedule you should take into account the
progress made under the recently enacted Federal health resources'
law and any Federal manpower legislation. I will present to you my
idea of the sequence of events which should be put into a law for a
schedule that will take into account administrative reality.
The Federal administrative authority for the program should be
taken away from the Department of Health, Education, and Welfare
and be vested in a board of three to five persons similar to the Social
Security Board, which developed the original social security program.
The policies and implementation of the program shotild not be in
the hands of a single administrator no matter how competent, no mat-
ter what his or her professional background should be. The program of
health insurance involves so many sensitive, complex political, emo-
tional, financial aspects that it should be in the hands of a board.'
The Federal board should be in operation a number of months before
any new major benefits or policies are put into effect.,
A separate health appropriations bill should be processed by the
Congress to insure that all health legis]ation is considered in relation
to every aspect of health and medical care. I would not pass a national
health insurance bill until Congress has remedied this defect until
they have brought together all health programs in one appropriation
bill.
You are not going to be able to coordinate the Federal Government's
responsibilities until those aspects of the Veterans' Administration,,
the Defense Department and other departments are brought together
in one appropriation bill so Congress exercises its policymaking au-
thority at one point in the legislative process.
I can tell you this is an almost insuperable thing I am asking you to
do. But if you don't put your own house in order, Mr. Chairman, you
cannot then complain that nobody else in society in the health care is
putting its house in order.
The Health Insurance Benefits Advisory Council should make a
report with any recommendations each year on the operation of the
plan. I believe that the operation of the Health Insurance Benefits
Advisory Council, which has been downgraded by the present admin-
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istration, has been a great mistake. The successful implementation *o~
the medicare program in the' earlier years was done because of th~
close coordination we had with the Health Insurance Benefits Advisors
Council.
At no stage did we implement any regulation without consuiltatio~
with key providers and consumers. The playing down of the Hea1tI~
Insurance Benefits Advisory Council in the past 8 years has been ~
tra°'ic mistake and you should not implement a new ~aealth insuranc~
pro~dem without broadening that Council, giving it key importanc~
arid asking it to play a significant role in the implementation of polic~.
Mr. Chairman, if you will turn to my testimony, I would like to g~
over with you my conception of the problems that are involved ii~
implementing any national health insurance law.
I should like to start with table No. 1 first, Mr. Chairman, if yo
would like to handle that first.
[The table follows:]
TABLE 1.-&,hedule of possible congressional consideration of comprehensive
national health insurance legislation
Months
1. Beginning of House subcommittee consideration of specific legislation_ ~Y
2. Report of House subcommittee
3. Action by full House committee
4. Action by Rules Committee
5. Action by I-louse of Representatives
6. Hearings by Senate Finance Committee -
7. Action by Senate Finance Committee 8
8. Action by Senate
9. Conference committee action
10. Presidential action
Mr. COHEN. Based upon my experience with this committee, I est~-
mate, first, that it will take you at least 10 months from the time you~
subcommittee considers or reports out any health insurance legislatio~i
to Presidential enactment.
I think there has been a failure on the part of many people througltf
out the country to recognize past experience about the period of time
it takes for proper legislative consideration. I am sure many may we'l
disagree with me, Mr. Chairman, and members of the committee, but 1
have outlined here a table which gives my idea of the time a majo~r
national health insurance bill would require for processing by the
Congress and while you may be able to shorten it up, I don't think yo~i
will be able to shorten it much. After your subcommittee has reporte
it out, I have assumed the full action of the House committee woul
take about a couple of months and another month for the Rules Con~-
mittee. Action by the House of Representatives would be somewhat ii~
the nature of 5 to 6 months after you have reported it out, and the~i
at least 2 to 3 months by the Senate Finance Committee, the Senate, ~t
month or so by the conference committee, and even if you reported
bill out today by this subcommittee, it would be somewhere betwee
6 and 10 months before that bill would be signed by the President.
Let me say this : The longer you take, the better.
National health insurance is such a monumental undertaking th~t
unless you allow a lot of time for the potential administrators, tI~e
country, the providers, and the consumers to take into account wh~t
57-677-75-18
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270
the new relationship is going to be, you will be making a very tragic
mistake in the ultimate implementation.
Let me turn now to table 2.
[The table follows:]
TABLE 2.-Outline of a possibie step-by-step development of major provisions
of national health insuranoe legislation with due regard to administra,tiVe
feasibility
Number of
months from
Provision enactment
Congressional deliberations from time of reporting bill out by the House
committee -10
1. Enactment of the national health insurancO law 0
2. Selection and appointment of members of the National Health Insur-
ance Board, Senate hearings, confirmation 1-3
3. New board members assume office; appropriation requests, congres-
sional hearings, and action on appropriations - 4
4. Broaden membership on Health Insurance' Benefits Advisory Council;
consultation with it on major policy matters
5. Broaden medicare coverage; use of State or regional fee schedules for
payments to physicians; prospective reimbursement for institutio~ial
providers; and strengthening of State agencies for a more effec-
tive role
6. Begin health education program 7
7. Extension of home health services and outpatient services to en-
tire population
8. Coverage of major maintenance-prescription drugs for medicare;
reduce medicare age to 60 12
9. First annual report to Congress; congressional review 17-22
10. Coverage of physicians services for entire population; no coinsurance
or deductibles for maternity and children 18
11. Coverage of hospital services for entire population 21
12. Implementation of experimental arrangements for long-term care, in-
cluding skilled nursing care, Intermediate care, and family home
care 27
13. Second annual report to Congress; congressional review-_~ 29-34
14. Conversion of medicaid to a federally administered low-income
program 30
15. Coverage of dental care for children under age 6 32
16. Extension of major maintenance-prescription drugs to entire popula-
tion 36
17. Revision of long-term care programs with adoption of new approacbes_ 40
18. Third annual report to Congress; congressional review 41-46
19. Coverage of dental care for children under age 18 42
20. Coverage of dental care for adults 48
Mr. COHEN. On the date of enactment of the national health insur-
ance law, we will call that the zero date. That is the date when the
President has signed the bill.
The next step is the selection and appointment of members of the
National Health Insurance Board, the Senate hearings, and confirma-.
tion. I have assumed that would take 1 to 3 months-for the new mem~-
bers to take office and make the necessary appropriation requests, have
the appropriation of congressional hearings, and on action appropri-
ations, 4 months. I think that is overoptimistic. My experience with
Congress has been it just does not act that fast on appropriations.
I am not being critical. I think that is good. I think Congress sl~ould
exercise its scrutiny over the. appropriations but to assume on the date
of the enactment of the act you can get going within 4 or 5 months is,
in my opinion, extremely optimistic.
My fourth step is broaden the membership on the Health Insurance
Benefits Advisory Council and let them meet and constantly consult
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with the new Board for about 2 to 3 months' before any action is tak~it
on the implementation of any benefits in the new health insurance laiw..
Then, Mr. Chairman and members of the' committee, I would r~ot
proceed to implement the benefits all at once. That can `only bring gr~at
tragedy and catastrophe to the whole health delivery system of o~ir'
country. I suggest, therefore, that you take a step-by-step broadening of
the program which builds upon tried and tested experience and i~ot
some preconceived notion of what is the best benefit that ought to be
provided. You have to take reality into account. Human fallibility is
involved in making a benefit program apply to 220 million people in
50 States and 3,000 counties and 50 wards in the city of Chicago.
So, I would say, let's take a look now at how we can make t~iis
system successful, taking into account administrative reality.
My first step would be, broaden the medicare coverage. This is a tr~ed
Sand tested system. It is working. You have administrators who ~re
~responsible for that; broaden the medicare coverage first to cover all of
the scope of benefits that we have been talking about for the ag~d,
`rnclude hearing aids, eyeglasses, examinations, any of the items tl~a~t
you think are meritorious that you are going to include in the gene~al
system. Broaden the medicare coverage first. Start out on somethi~ig
that is going to be successful. Don't start on something that is l~he
hardest, most difficult, untried part of the program.
At the same time, I would begin to use State or regional fee sdhedu~es
for payment to physicians. You know if you have a general system ~ou
are going to have to change the reasonable and customary cost forn4la
in the present law. My suggestion, which others may differ with, is to ~go
to fee schedules, negotiated fee schedules on a State or regional ba~is~
That is going to take you time. You are going to have to negotiate w~th
the medical profession in 50 States or 3,000 èounties'. You cannot do
that in a week. You can't do it in a month. It will take at least 3 t~ ~
`months to do it. The longer you take the better, because what you want
lo get is agreement between the administrators and the providers o~i a
satisfactory. formula. You are going to have to do some collect~ve
bargaining, you are going to have to have some arbitrators, so~ne
negotiators.
The second aspect to put into effect is prospective reimbursement ~or
institutional providers; that is, to get to a budgetary system of h~n-
dling the payments to hospitals and to nursing homes as against ~he
reasonable. cost concept which is imbedded in the present law. To m~ke
that work is going to take at least a year or a year and a half. ~ou
can't do it overnight. It is too big a job. There are some 7,000 bospi1~als*
in the United States, with boards of people in the ~arious communit~es,
They want to know `how it is going to be applied. It will take a li~t1e
time to get it into operation so it is successful. And so will the strength-
ening of the State agencies for a more effective role which is now being
carried out under the health resources planning program.
Then, Mr. Chairman, I would `begin a comprehensive health edt~ca-
tion program before I did any other thing. I would enlist the total
community into those kinds of problen~is about benefits in the hea~Ith
system which were overused or underutilized.
Following up the ~tatements made by the previous two witness~s I
would identify in every locality those health benefits which wer~ in
short supply and over supply. I would enlist the people in the c m-
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272
wu~iity intO attempting to put this system into effect in a rational way
without abuse or overuse but to utilize those facilities that they had and~
to build slowly toward changing the health delivery system which can-
not be done overnight.
Then, the next thing I would put into effect is the extension of home
health services and outpatient services to the entire population. I would
not start with either physician services or with hospital services. If
you start with both of them all you do is increase the volume of such
services being provided. But put into place the home health services
and outpatient services to the entire population that will give you some
working chance-I don't think there is much but whatever little there is
you ought to take advantage of it-to see that people get their health
services in their chome or in ou\tpatient care of a hospital or a clinic
rather than continuing to press for institutionalized services and serv-
ices in the doctors' offices.
Our experience in recent years has been that there is really no limit
to the volume of health services that people will want or get in `a
practical sense. Of course, there is, but the fact that utilization has
been climbing `and will continue to climb in the indefinite future should
make us more careful in the way we implement new benefits.
Therefore, I suggest we don't start with physicians' services, we
don't start with hospital services, we don't start with nursing home
services. Start with some kind of service that will help you prevent
these high-cost services of the individual physician and the individual
hospital.
Implementing home health services and out-patient services for the
entire Nation is a gigantic effort equal to General Eisenhower's landing
in France on P-day, so don't minimize it as a consequential impact
upon the health delivery system.
I think it is extremely important and if you could make that kind
of priority work it would be the most significant thing you could do
about the health delivery system of the United States.
Then I would struggle with that for about 3 months which is an
inadequate period of time. Then I would go next into my sequence of
adding maintenance prescription drugs for medicare and possibly
reduce the medicare age from 65, to 62 or `to 60.
Now, why do I suggest beginning with maintenaiice prescription
di~ugs only for medicare? That is a tremendously difficult enterprise,
to pay for prescription drugs. I would not do it for the whole popula-
tion at once. It is a big enough job to do it for the 25 million people
who are 65 and over but to do it for all 20 million people at once
involves us in so much bookkeeping with the 55,000 drugstores of the
country and the 5- or 6,000 hospitals and the 800,000 physicians that
my theory is that you ought to start it on a narrower basis, work out
the difficulties and once you hiave worked out the difficulties which
will take you at least 2 or 3 years, then apply it to the whole population.
As you will see, I then suggest that at a later date apply it to the
whole population. But for goodness sake, don't make `any kind of even
maintenance prescription drugs available to everybody in the popula~
tion on 1 day. It would be a flop. It is predetermined to failure if
you do it `because of the vast difficulty.
Then of course, what I would do when I reached stage 9,1 would have
an annual report by the National Health Insurance Board made to
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273
Congress. I would have a -full congressional review by this c~mmitt~e
over what happened in that year before any gigantic new hospital, ~r
physicians' benefits wen~t into effect. You ought to take another look
the situation after you enacted the law within 1 year to see if you ma1Ie
any mistakes. I can tell you right now you are going to make mis~ak~s.
It is not possible in this whole health field to design ahead of tirn~ a
program that takes into account every kind of way that a physic4n,
or hospital, or nursing home, or any patient, or provider can abuse it.
The ingenuity of the American public is such that they are able to
circumvent any kind of law passed by the House Ways and Me~ns
Committee.
Therefore, I would say review it after a year or 18 months. See if y~u
-are on the right track. See where you need to modify anything in the
way the Board and its staff have handled the three or four big thir~gs
that have been undertaken. Then, when you have done that, exte~d
`the coverage of physician's service for the entire population by wh~t-
ever program you are going to have. But I would say this, Mr. Chair~
man, for maternity and children, do not have any coinsurance or
deductible. If you are going to `have a deductible or coinsurance ~or
adults, it is an arguable point and some of my friends are agains1~ it
and some of my friends are for it, and as you gentlemen on this co~n-
mittee know you always stay with your friends. But as far as matern ty
~and children are concerned, I see no reason why the argument ab ut
overutiliaztion or abuse need to apply. I would think that ev ry
kind of service that can reasonably be given to a mother or to a child
could hardly be classed as overutilization or abuse.
Therefore, I would urge you to have physician's services apply w~th
no coinsurance, no deductibles for m:aternity insurance and possi~ly
to be conservative for children up to 6. Concentrate on what you $n
-do best, what will be a success, what people won't be criticizing C~n-
gressrnen for.
Then, after that, maybe 6 months or a year later and only at t~iat
time would I extend the coverage to hospital services because no matter
how much preparation you are go'ing to have, as these ot'her gentlen~en
said, hospital costs are going to continue to rise. Utilization will cpn-
tinue to rise. Costs will continue to rise in the `system. There is no
~earthly way you ladies and gentlemen of the Congress can keep those
costs from rising except to some modest proportion, simply beca~se
`the pressure of demand against the supply in the short run and for
the labor-intensive elements in the system will constantly push pr~ces
up `at least to the regular cost-of-living increase and possibly 25 to 30
percent more. -
So, I would be very careful about the hospital service extension. I
`would only put that into effect after I had had a sufficient period of
preparation for it. No matter when you put it iflto effect, some peQple
-are going to wait for elective surgery to utilize their insurance. ~ou
cannot avoid that unless you mysteriously are going to declare the
effective dateS minutes before it happens so nobody knows when it ~vill
go into effect. Once you tell any physician, any consumer 6 mor~ths
from now hospital services `are going to go into effect without `any pay-
ment of x or y costs, elective surgery during that period is going to
be postponed for nearly everybody who does not have complete in~ur-
ance coverage. ,
PAGENO="0278"
274
As I said before, Mr. Chairman, put that into effect around July 1st~
when all the doctors are going to go on vacation, and your amount of
elective surgery will not be as high immediately as it otherwise would.
Then I would go on and put provisions for experimental arrange~
ments for long-term care including skilled nursing home care, inter-
mediate care and home care into effect.
My review of the literature on long term care is that nobody has
yet produced a viable, workable system for long4erm care. Certainly,
the abuses that have been shown in New York and other States in the
nursing home area would lead me to believe you should be very, very
careful about what you do about long-term care. I believe long-term
care is vitally necessary in a comprehensive program. I think it is of,
great importance. I think it will grow. I think that there are twice
as many people in nursing homes that ought to be in nursing homes
because of the failure to have other kinds of adequate at-home facili-
ties, but I see no solution to that problem as long as, we don't have th~
home health services and other housing arrangements that make it
feasible.
So, if you start a long term care program into national health in-
surance, you will put more people into nursing homes at a cost that
will be phenomenal. Be careful; be cautious `~ work out some experi-
mental conditions along the line that Mr. Conable proposed in his
version of the bill and see whether that can be workable.
Then, in my seqnence of events I would have a second annual review
by the Congress of whether the physician's and hospital services had'
worked. I would study that and I would see if any changes would be'
necessary. After that, I would then convert the medicaid program into'
a federally administered low income program. I would take the States
completely out øf the financing of medicaid, turn it over to a low*
income determined program, somewhat along the lines of what wasP
in the Long-Ribicoff-Waggonner bill, but also somewhat along the lines
of Mr. Schneebeli's bill of a couple of years ago-an income deter-
mined program fused directly into the total program, the Federal
Government paying the costs and getting that cost off the back of
the States.
Then I would go and start on dental care for children, starting with
children under the age of 6. Three years after the initial law is passed'
I would extend the prescription of maintenance drugs to the entire'
population. Then I would revise the long term care programs with
the adoption of any approaches that had been brought about by the'
experimental provisions, have a third year-review and then continue"
improvement of the dental care.
As you can see, members of the committee, it seems to me to have a
comprehensive program you must go anywhere from 24 to 48 months'
of step-by-step implementation of any benefits.
On the basis of my own experience as the administrator of the medi-
care and medicaid program, I urge you very strongly' to consider some
method of sequential development of the `benefit structure rather than
putting these into effect entirely.
I have tried to outline some of the~e considerations much more sub-
stantially in my full statement which will go in the record and I wouicl~
be pleased to expound on any of those points in the discussion.
PAGENO="0279"
27~
[The statement follows:]
CRITICAL P0L1CT ISSUES IN ~LANNING FOR NATIONAL ~1EALTH INSURANCE
(By Wilbur J. Cohen)
INTRODUCflON
Although pt~blic discussion of health insurance on a state-by-state basis bega~i
to develop in ~be United States during the period 1910-1920, it was not until
about the early 1940s that the first significant national health insurance bi I
was introduced into the Congress (the Wagner~Murray-Dingell Bill, 1943).
From 1945-65, with the stimulation rising from the political threat of federa~
legislative action on health insurance ~in the prior period, 1935-45, and the
economic impact of wage and salary controls in World War II and the Korea~
War (1950-1), private and commercial health insurance plans (Blue Cros~
Blue Shield, and commercial) began to expand their coverage.
The Qnantnm Leap. rrhe first presidential message on health was issued i~i
November 1945 by President Harry S Truman. During the post-war period whic~
followed, government action occurred at the national level in various beaIt~
and medical areas (Full-Burton hospital construction, 1946; public welfai~e
medical assistance, 1950-65, especially the Kerr-Mills medical assistance bill fØr
the aged, 1960; and disability insurance, 1956. These diverse developments cut-
minateti in the enactment by Congress of Medicare and Medicaid and the coverai~e
of physicians under social security in 1965; the Professional Standards Eevie~v
Organization legislation in 1971, and the National Health Planning and Resourc~s
Development Act in 1975.
The Medicare legislation of 1965 altered the entire nature of the public poli~y
discussion with respect to the financing, organization, delivery, and reimburs~-
inent of medical services. An ideological "Rubicon" was crossed in a quantu~ii
leap which precipitated nationwide acceptance not only of the general idea pf
national health insurance but also of proposals for the reorganization of tl~e
health delivery system and changes in the methods of insurance reimbursemetit
for physicians and hospitals.
Discarding the Extremes. Although the detailed outlines of the health insuranèe
plan that is likely to develop in the future still remains shrouded in mystery ~s
this analysis is written, it is very probable that public policy in the immediate
years ahead will discard two specific approaches. The first is exclusive reliance ~m
the private voluntary insurance mechanism for an adequate handling of ~ll
responsibilities related to costs, controls, and the availability and effective ~e-
livery of care. The other is complete reliance on a public medical service
approach-such as Great Britain, the Soviet Union, and several other countries
employ-in which the costs are financed wholly or largely out of general revenues
and reimbursement of physicials is not on a fee-for-service basis.
A I~[tcoed System. The provisions of the various health insurance propos~ls
introduced in Congress in recent years not only tend to support this "dual dis-
card" contention but also indicate that in the United States some kind of a "mix~c1i
system" will very likely evolve, at least initially, utilizing both the public a4iid
private sectors. Probably the evolution will proceed on some kind of disjointed
incremental basis, with due regard for pragmatic considerations because of t~ie
diversity of the economic, political and social forces at work In connection wi~th'
the American medical care system Thus, while the experience of other countries
is of interest, It is most likely that the United States will diverge from t~ie
patterns of other countries.
The allocation Of public and private responsibilities in any new arid broa~er
national health insurance legislation could take the form incorporated in ~he
Medicare program: public financing through payroll contributions and general
revenues, but with use of private agencies as "payment" agencies, nofas financial
"insuring" mechanisms. In other words, the federal government would perfo~m
the "insuring" function; the private agencies would perform the payment fu~ic-
tion under the conditions specified by Congress in the federal law. This woi~ild'
be the most efficient and- effective approach utilizing a tried-and-tested model.
Incremental Coverage. The incremental evolution of future Amerlcan~ hea th
and medical care coverage seems less clear in view of the many possible ways of
handling key policy and management problems. One incremental step which as
been suggested is the initial coverage of catastrophic medical care costs along be.
PAGENO="0280"
276
lines of major medical insurance coverage (such as the Long-Ribicoff bill)
another is the comprehensive coverage of all maternity costs, and the coverage
of a1~l children (up to age 6, 12, or 18). These two elemefit~ could be joined into
various combinations of coverage and costs, including reduction of the age for
Medicare from 65 to 62 or 60. The major point, however, is that there are various
means of arriving at comprehensive coverage over a period of time~
sources of Financing. The financing of medical costs will continue to be an
issue on which there will also be considerable difference of opinion, although
there appears to be widespread acceptance that the employer should pay for his
employees a major portion of the cost as a wage supplement. The acceptance oi
this principle represents a significant change in both employer and public opinion
over the past 30 years. Employers were originally of the opinion that they should
finance only a small portion of the total cost of health protection for their
employees and families, but as a result of collective bargaining this attitude has
changed. It is now widely accepted that employers should contribute two~thirds
to three-fourths of the cost of comprehensive medical care coverage since among
other factors they can deduct all such costs as a business expense while an
individual cannot do so. The AFL-CIO endorses the principle that employees
should contribute a small portion of the eost of national health insurance to
assure their earned right to benefits without a test of need. Nearly all the major
proposals introduced in Congress indicate that substantial general revenues will
be needed to assure coverage for low-income persons; it is thus possible-and even
probably-that the eventual plan will utilize multiple sources of financing but
in what combination remains an open question.
Every major national health insurance so far proposed `assumes that the
financing of the plan would come from four sources: employer and employee
contributions, federal general revenues, and some state (and possibly local)
revenues. This financial design raises two major policy questions:
1. How much of the total costs should be assessed on each of the these four
sources of funds? for what purpose? and on what rationale?
2. rIo what extent, if any, would the employer and employee contributions
be collected by nongovernmental agencies and by state and/or federal public
agencies? What implications would result from the various alternatives?
Costs and Ewpenditures of National Health Insurance. Most people recognlze
that any national health insurance plan will involve some additional expendi-
tures and costs. But there is substantial difference of opinion among them on
both the short-run and long-run cost-expenditure effects of various proposals.
Experience with Blue `Cross, Blue Shield, Medicare, Medicaid, and other vol-
untary or governmental health insurance plans especially during a period of ris-
ing prices, has made legislators and others wary of the validity of estimates of
future medical care costs, irrespective of *the source of the estimates. Many
employers and taxpayers fear that costs will rise far more than estimates indi-
cate. I share this belief. Many physicians, however, believe that any national
health insurance plan will tend to hold down expenditures through effective con-
trol of physicians' fees and hospital reimbursements. I doubt that this will hap-
pen. `Some health professionals say that a much better distribution of services
could be achieved within the totals and monies presently being expended if there
were changes in the health delivery system. There is some evidence for all these
views. But my guess is `that medical expenditures will rise' from the present 7.5
percent of the gross national product to beyond 8 percent by `the 1980s and 9
percent by the 1990s.
One of the key issues to be decided by Congress is whether the reimbursement-
control features of the plan which will be enacted will `be handled by (a) federal
legislation and policy directly with providers, as in Medicare (with or without
Intermediaries acting as fiscal agents of the federal government) ; or (b) the
federal legislation will allot funds to the `states so that the `states will have `the
Tesponsibility of keeping reimbursements and control of costs within bounds; or
(c) private insurance carriers. Each approach or variation thereof will produce
substantially different results. It is not clear at `this time which of the three
approaches to reimbursement control will be `favored by consumers, federal, state,
or local agencies, professional associations, and `Congressional policy makers.
It would be possible to include `all three variations in the plan subject to choices
by consumers, states, and providers.
The additional cost of various national health insurance proposals was esti-
mated in 1974 by the `Social Security Administration (SSA). Utilizing 1975 as
a base year, the S'SA estimated that the existing health care system resulted in
PAGENO="0281"
277
a total personal health expenditure of $103 billion. The additional cost range
from $4 billion for the proposal introduced by Senator Fannin to $1~ billion fo
the Kennedy, proposal; the increase was 3.9 percent for the former and 12.6 per~
cent for the latter. The bill then supported by `the American Medical Assoeiatior~
(AMA) was estimated to involve an increase of $9.8 billion, and the Ullman~
American Hospital Association (AHA) sponsored bill was estimated to increas
costs by $11 billion. Table 1 shows the estimates of both increased and `transfe
costs of the iJilman-AHA `bill.)
The differences of opinion over the cost of any national health insurance plas~
focus largely on the impact of the particular provisions of the plan on the elas~
ticity of demand for medical services and the methods for reimbursing providers~
Any plan which provides medical services to persons not now receiving them i~
reasonably certain to increase costs. Critics of the public-sector approach usually
claim that any plan which relies solely or substantially on governmenta
responsibility will weaken personal responsibility fOr conservative financia
administration.
TABLE 1-TRANSFER AND INCREASE OF COSTS UNDER THE 1974 NATIONAL HEALTH iNSURANCE PROPOSA
SPONSORED BY REPRESENTATIVE IJLLMAN
[In billions of dollarsj
increase (+
1975 1975 or decreas
expenditures expenditures (-) in 197
Source of funds without bill with bill expenditure
Total 116.4 127.4 +11.0
1. Private 63. 8 64. 2
(a) Out of pocket 30.1 16. 1 -14.
(b) Employer contributions 19. 9 35. 4 +15.
(C) Employee contributions 6. 7 9. 1 +2.
(d) Other plans 7. 1 3. 6 3.
2. Public plans 39.2 49.8 +10
3. Nonpersonal 13. 4 13. 4 1
Source: "National Health Insurance," hearings before the House Committee on Ways and Means, 1974, vol. 2, p. 673
Data submitted by Department of Health, Education, and Welfare, 1974, pp. 631-707, "Estimated Health Expenditure
Under Selected National Health Insurance Bills."
There are thus substantial reasons to believe that any national hei~tlth insur
ance plan will increase costs-the question is the amount of the increase. Ther
are those, on the other band, however, who believe that a national health insur
ance plan with the appropriate provisions could serve to constrain cost increases
These people argue for limitations on fees, restraints on hospital utilization
budgeting of institutional costs, salary payments instead of fees, group-practic
plans instead of solo practice, and other changes in the delivery of services.
But irrespective of what various groups think should be done to change th
health delivery system, we would be prudent to plan for some increase in expend
itures under any national health insuranCe plan that may be enacted. By phas
ing-in the scope and coverage of services offered, it might be possible and desirabl
to keep the net increase to about $5. billion a year (at 1975 prices) for each o
three years-to total about $15 billion-foi' a very comprehensive plan. A les
compehensive plan might involve a `smaller increase.
Different Approaches ~Satrnmarized. The formulation and administration of
national health insurance plan raises `a host of complex issues. Some are so per
sonal or diffuse that it Is not possible to isolate all the forces and factors Involved
We must realize, `however, `that health care is a service and not a commodity; I
is not only a sensitive service bu't the most important rendered by an lndlvidua
to `or `for another individual. It cannot `be compared in importance with any othe
service, `but its evaluation by the health professional, patient, economist, tax
payer, or `legislator may vary, depending on the weight given `the different factor~;
involved-which is why physicians and others have divergent views on innumer~
able aspects of the health insurance issue and find it difficult `to comprehend the'
logic or conclusions `of those who differ strongly on key matters of policy.
PAGENO="0282"
278
Despite their numerous variations, the many national health insurance plans
which have been proposed over the past 40 years can be classified under the fol-
lowing eight general models,1 those which
1. Utilize federal tax credits and federal subsidies to encourage universal
acceptance of coverage on a voluntary basis;
2. Utilize the social security system to collect contributions from employers
and employees and to pay benefits, with federal general revenues covering the
remainder of the population to provide universal coverttge;
3. Mandate employers to cover employees and their families under private
plans, with federal general revenues covering the remainder of the population to
provide universal coverage;
4. E~tend Medicare to cover employees and the self-employe~I under the social
security system for major medical insurance coverage (catastrophic) and to pro-
vide a federally finttnced system of medical care coverage for low-income persons,
with the residual coverage handled through the voluntary system;
5. Utilize federal-subsidy, financial incentives and requirements so that indi-
viduals and employers will choose among a limited number of federally approved
private (and public) health insurance plans;
6. Utilize federal tax and subsidy arrangements to require each state to pro-
vide health insurance coverage to its citizens, with a variety of options to states
and individuals;
7. Broaden the coverage of Medicare on a population-age basis by reducing the
uge and/or extending coverage to mothers and children and other age groups;
8. Allow individuals and employers voluntarily to be covered under a broadened
Medicare plan.
In any of these plans, the following features can be Incorporated, separately
or in some. combination:
1. Private plans (Blue Cross, Blue Shield, and commercial) utilized as fiscal
intermediaries of the federal or state government to provide for the payment of
1~enefits on a managerial-fee basis.
2. State agencies utilized as insurance carriers or fiscal intermediaries.
3. Health-maintenance organizations utilized by choice of the employer,
lemployee, or through collective bargaining.
4. Reimbursement of physicians through a variety of methods, such as fee-
for-service, capitation, salary, per session (time), or some combination of these
methods.
5. Establishment of one or more public health insurance plans as a benchmark
-or standard for comparison.
Roles of the Public and Private Bectors in a Plan
Proposals for national health insurance invariably generate from all parts
of society extended and critical remarks on the volatile Issue of the respective
advantages and disadvantages of public and private responsibilities. The issue
has been persistent and controversial in mttny questions of social policy through-
out. American history. In countless discussions of national health insurance
proposals, the problem of public versus private obligations has raised special and
often emotional and ideological arguments.
Although political and idealogical factors are frequently discussed in general
terms relating to power, authority, and responsibility, many other issues come
into play in discussions of national health insurance, such as the merits and
demerits of centralization versus decentralization, pluralism, and their implica-
tions for financial costs, managerial effectiveness and economy, and adaptability
to local circumstances and attitudes.
The basic view of the American Medical Association with respect to national
health insurance may be simply stated as being anti-governmental, .that is, in
favor of as little governmental participation in the program as is feasible. Most
physicians-as independent professional-business, self-employed individuals-
have strongly indicated their belief in the general philosophic contention that
"government is best which governs least." They also firmly believe, as do others
1 For summary of various types of national health insurance proposals introduced .frofli
1939-1961 see The Health Care of the 4ged: Background Pacts Relating to the Financ-
ing Problem, Appendix D. pp. 188-159, U.S. Dept. HEW., SSA. Division of Program
Research, 1962', pp. 159. For a summary of more recent proposals see National Health
fnsurance Proposals compiled by Saul Waidman, Provisions of Bills Introduced in the
93rd Congress as of February 1974, U.S Dept. HEW., SSA, Office of Research and
Statistics, D.H.E.W. Pub. No. (SSA) 11920, 1974,
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.270
in other fields, that government is generally more wasteful, inefficient, and x-
pensive than private enterprise. Morëo~er, they claim that the regulatory funct'on
exercised by government results in rules which are rigid and inapp 0-
priate in relation to varying and special circumstances. These same views re
~generally shared by insurance companies, pharmaceutical manufacturing corn-
panics, and, to a large extent, by proprietary hospitals and nursing homes. Wl~ile
these views may not be supported by incontrovertible facts pertinent to medi~al
care, they are usually strongly held and have emotional and ideological overtoi~ies
which find their way Into political campaigns, election literature, and are wid~ly
accepted as "conventional Wisdom" not requiring documentation.
Efjtcievwy and Equity. The proponents of public-sector responsibility in~ a
national health insurance plan believe, on the other hand, that only throt~gh
the public sector can equity to all participating individuals be assured. Equity
in this context means assurance of similar treatment of individuals in simi'ar
crcunl'stances with respect to financing costs, access to the delivery syst~m,
adjudication of grievances, and similar matters. Private plans cannot meet this
objective.
To simplify the issue, we can say that there is a significant difference In
approach and in values between those who emphasize efficiency and those s~ho
emphasize equity . in the implementation of a national health insurance pl~tn.
Neither group excludes the consideration of the other's values, but there is an
important difference in the weight each group gives to the two concepts of
efficiency and equity.
Recourse to history, an examination of foreign experience and domestic p~o-
grams, reference to "human nature,' and the implications these have for ~he
future-all are open to various interpretation and thus make objective eValuat~on
of the two concepts imprecise. Moreover, since personal values are so mucl~ a
part of this and any evaluation, it is difficult to avoid emotional discussion~ of
the respective merits of the various elements in any national health insurai~ce
proposal. Efficiency and equity mean different things to different people. Neitl~er
concept, however, is pushed by its adherents to an ultimate conclusion. Sta1~ed
differently, there appears to be limitations or exceptions which the adherents of
each concept make with respect to the given elements in a proposal.
Thus, those who may strongly support a national health insurance' propo~al
* which they argue will cost less because it will be handled by nongovernmen~a1
agencies do not carry their argument to its logical conclusion by advocatin~ a
single agency for the collection of premiums in order to save millions of doll~trs
`in administrative costs. Nor do those who believe that a governmental p~an
should insure equitable treatment of patients or contributors necessarily acc~pt
the providers' conception of equity as applied to them. Do uniform or differential
payments to providers, for instance, meet the test of equity?
M~nayerial Tasks. Irrespective of the overall role of government itt ~ny
national health insurance plan, there are separately identifiable managei~ial
tasks which could be handled by nongovernmental agencies under any plan, ~or
~example:
1. Check writing and mailing.
2. Initial handling of complaints.
3. Computerisation of data.
4. Auditing services.
5. Actuarial services,
6. Management analysis.
`7. Program evaluation.
8. Outside legal services.
9. BuildIng-maintenance services.
10. Preparation of annual reports.
.11. Fraud investigations.
12. Maintenance of fee profiles of physicians.
~3. Employment of temporary employees.
The Phased-In Schedule in Implementing a Plan. My own experiences in
implementing health, education, and welfare programs, especially during he
1960's has led me to the strong conviction that efforts to put into effect a lar~e-
scale program in one fell swoop can lead to major administrative difficulties ~nd
extensive disappointment.: Unforeseen problems develop; errors of judgm~nt
occur; personnel and facilities, do not work out as intended; unforeseen del~iys
occur; costs rise; and local, state, and individual problems develop which req4re
time for solution, It is therefore more effective and realistic to plan for a step-
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280
by-step implementation which takes into account the realities of human limita-
tions. Table 2 presents an outline of one possible step-by-step method of imple-
menting a comprehensive national health insurance program under existing
conditions. A shorter or longer period is possible to defend, and different steps
are possible in different sequence. Table 2A presents the probable sequence of
events in Congressional co~nsideration of a major national health insurance
plan.
TABLE 2.-Outline of a possible step-by-step development of major provisions of
national health insurance lcgislation with due regard to administrative
feasibility
Number of
months from
Provision enactment
Congressional deliberations from time of reporting bill out by the House
committee - -1&
1. Enactment of the National Health Insurance Law 0
2. Selection and appointment of members of the National H~aItb Insurance
Boara, Senate hearings, confirmation :1-3
3. New board members assume office; appropriation requests, congressional
hearings, and action on appropriations 4
4. Broaden membership on Health Insurance Benefits Advisory Council;
consultation with it on major policy matters 5-8
5. Broaden medicare coverage; use of State or regional fee schedules for
payments to physicians; prospective reimbursement for institutional
providers; and strengthening of State agencies far a more effective
role -
6. Begin health education program 6
7. Extension of home health services and outpatient services to entire
population ___
8. Coverage of major maintenance-prescription drugs for medicare; reduce
me~iicare age to &~ 12
0. First annual report to Congress; congressional review 17-22
10. Cove~rage of physicians' services for entire population; no coinsurance
or deductibles for maternity and children 18
11. Coverage of hospital services for entire population 24
12. Implementation of experimental arrangements for long-term care, in-
cluding skilled nursing care, intermediate care, and family home care-- 27
13. Second annual report to Congress; congressional review 29-34
14. Conversion of medicaid to a federally administered low-income
program 30
IS. Coverage of dental care for children under age 6 32
16. Extension of major maintenance-prescription drugs to entire
population - 36
17. Revision of long-term care programs with adoption of new approaches.. 40
18. Third annual report to Congress; congressional review 41-46
19. Coverage of dental care for children under age 18 42
20. Coverage of dental care for adults 48
Essential elements in an effective national health program
There are four broad lines which medical care In the United States may take~
First, there is a continuation of the present system as it is; next, there is the
transformation of the present system into a full-time salaried service with
practitioners becoming employees of a governmental enterprise- a system
usually called "socialized medicine." The third approach is one of "mandated"
private plans with government regulation, such as the proposal advocated by the
AMA and other provider and insuring groups.
I do not favor any of these three approaches. I favor a fourth approach-
one that is pragmatic because it builds upon the last forty years of experience
in the United States with social security, Medicare, and the best aspects of
private plans. Within the next five years, the establishment of a national
health insurance plan is probably inevitable during the next few years. The plan
I propose would cover everyone in the nation from birth to death: the rich and'
the poor; the young and the old; the middle-income earner and the middle-
aged; the black and the white; everyone living or working in the United States-
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281
in urban aud rural areas; whether at home or working in large corporatiofl~ or
small businesses; whether in domestic service or migratory labor. The cover~ge
should be universal and to the extent feasible should eliminate costly eUgibil ty
determinations and delay in providing services.
TABLE 2A.-~chedUle of possible congressional consideration of con pre1ien8~t'6
national health insuranoe legislation
Months
0
2
4
5
6
7
8
9
10
10
1. Beginning of House subcommittee consideration of specific iegislation~~
2. Report of House subcommittee
& Action by full House ~
4. Action by Rules Committee
5. Action by House of Representatives----
4~. Hearings by Senate Finance Committee
7. Action by Senate Finance Committee
8. Action by Senate
9. Conference committee actiOn_
10. Presidential action
The National Health Insurance Plan which I propose, and which I belies!
both responsible and responsive, would be based upon the ~~olloWing gen
principles:
1. ~Break the barrier between paying for health care and ehgnbthty f or 8er~U3e,
One of the key purposes of a national health plan is, as far as possible, to arrt~nge
the prepayment of health costs when an individual is working ISO that bpic
financial considerations would not be a major problem during illness. No ~om-
plicated procedures would be necessary during unemployment or nonemployin~nt.
2. Require the employee and the self.en~ployed to pay part of the posts. ~bis
requirement would assure the individual of a statutory and political right to
benefits without a means test. By having large numbers of people pay 4iall
amounts over a long period of time, all individuals could be assured of cove1~age
for comprehensive medical care protection. Such a plan would, as Sir Wiu~ton
Churchill said, "bring the magic of the averages to the rescue of the milIio~is."
A national health insurance plan should involve the employee and the pal~ien~
in the financing and administration of the plan.
3. Require the e'inployer to pay a substantial part of the costs so that~ the
immediate financial burden for the individual is not too great. The emplo$r's
contributions are deductible from federal and state taxes as a business exp~nse,
while the employee's contributions are only partially deductible. The employer
can and should, therefore, pay substantially more than the employee. ]~ore~
over, the employer should be involved in the planning of community health
services and be concerned about adequate access to health services for his em~
ployees and their families and for health services at the employing unit.
4. Require the g*ernment to contribute a significant part of the cost in order
that individuals without Incomes or with low income would receive E~qual
access to health services on the same basis as those with more adequate in&~mes.
The stigma of proverty and welfare would thus be removed from the medical
care system. Medicaid could at the same time be substantially reduced and
eventually eliminated.
5. Require that employee and employer contributions to the plan be haG~dled
as part of soical security contributions. Such a requirement would greatly r~duce
the cost of collecting contributions (collection now takes place through hun4reds
of separate `and costly administrative arrangements). A single federal s~stem
of collecting contributions through social security would be more econoi~iical
than the present system, and it would reduce the administrative costs of
universal coverage by about one billion dollars a year. The use of private, ftisur-
ance agencies to collect contributions is unnecessary, costly, inefficient~ and
wasteful.
6. Provide for universal coverage and eligibility to services by federa~ law
solely and simply by ~virtue of legal residence in the United $tates. tInii~ersal
coverage would simplify the eligibility process, reduce accounting, and keep
administrative costs to a minimum. One eligibility card and one reimbursement
form for physicians and other providers would be both feasible and desi4~able.
No individual would lose eligibility by virtue of any change in employment or by
unemployment or nonemployment.
7. Assure that access to service for all persons throughout the nation woi~ld be
d.eterm/ined by nationwide rules. Uniform, nationwide contributions to the ljealtb
security system should be accompanied by uniform, nationwide standards of
access to services. Interpretation of these standards could be delegat d to
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` 282
state, I~ca1, federal or health agency personnel but an individual wo~i1d be.~
assured of a fair hearing on matters in dispute before a federal agency and of
an appeal fc~r judicial review on matters of law by federal courts. Due process
and equal treatment would be guaranteed to every individual, irrespective of
his color, ag~ sex~ e,~lucation, or baekground~
8. Provide for a broç~d range of medical services wit1s~ specific arrangements
for ea~tending services over a reasonable period of time. Although comprehensive
nnd complete medical service is a desirable objective, the immediate attainment
of that goal as part of eligibility under a national health program is simply not
~easibl~. 4ny national health program should therefore include specific provi-
sions for a step-by-step expansion of such services as ou1~-of-hospital prescrip- -
tion drugs, nursing-home care, dental services, and other similar services which
require planning and organization for their universal availability. Such planning.
must, of course, be coordinated with plans for training health personnel, building
appropriate facilities, recruiting and redeploying personnel and developing
health-maintenance organizations.
9. Provide for new, innovative, economical and efficient methods of organizin9
and delivering me~ical care. Financial incentives should be provided for the
expansion of ambulatory and outpatien~~ care, improved emergency services,
heal-th~majntenance' organizations, salary and eapitation payments, multiphasic
screening, periodic examinations, and community-sponsored, coordinated plans.
~or health education, fathily planning,' nutrition, and environmental concerns.
Nurses and' Other health personnel should `be encouraged to take a more effective
leadership role in community health'educafion programs.
10. Encoe~ragee and accelerate plans to increase personnel in the health fields.
Financial incentives should be provided for expanding training facilities to.
preduce more ph~tsic1ans, nurses, dentists, and other health personnel, including
physicians' assistants, aides, technicians, and allied health workers. Particular
attention should be given to training more black persons and those from othor
minority groups for employment in the health fields and to provide more women
the opportunity to participate in the health care. system. Medical, nursing, and
other health schools which train health personnel must establish incentives and
arrangements to assist in the more rational distribution of personnel and services.
11. Provide opportunities for the consnmer as tawpayer and patient to play a-'
significant role in policy formulation aind administration of the health system.
Health' care is too importaht a service to be the sole province of any one pro--.
fessional `or bureaucratic group, no.' matter how well trained or well intentioned
that group `may be. Many questions i~elat1ng to his health care are of critical con-
cern to the consumer: bow effe~tively is the money he contributes to health
service being spent? Is the administration of health care efficient? Is be as-
sured dignity and privacy by those who provide his care? How are prlorities
determined ?-and a host of other questions besides those relating to the diagnosis
~nd treatment of disease or disability. A more effective partnership among the
professional, the Consumer, and the bureaucrat must be developed so that the
public can receive the quality of medical care it needs and deserves.
12. - A,~ure health personnel reasonable compensation and opportunities for
professihital practice, advancement, crud' the ewereise of humanitarian and social
ses~wnsibiljty. The various components in a national health program should he
designed so as to' provide the highest quality of medical care, with individual and
group responsibility for using initiative, working for professional advancement,
and dispensing health care with a creative sense of social responsibility. mdi- --
viduals who provide services should receive fair and reasonable compensation in
relation to their ability, responsibility, and productivity, and they should be able-
to choose the method of their remuneration; compensation ot them should be
adjusted periodically in relation to change's in costs and productivity. Various
incentives should be provided those who offer medical care to encourage the--
establishment of such groups as health-maintenance organizations.
13. Encourage effective professional participation in the fornwlation, of guide-
lines, standards, rules, regulations, form, procedures, and oryapization,. There
should he widespread participation by all health personnel in the formulation of'
policy, at the highest levels and at every rapk of administration. A sense of co-
operative participation among personnel ~hould be fostered to overcome hierarchal -
considerations and -invidious distinction's based on income, education, or prestige.
The nursing profession should be encouraged to take a leadership role in relating
health services to individual family and community needs.
14. Require state and area health agencies to take affirmative leadership in
?)rov~d-ing for effective delivery of medical services. A nationwide health plan
should utilize state and area health agencies to stimulate `the avahl~bility and"
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2S3
coo~rdination of services, set standards for personnel atid services, and handle
con~plaints, grievances, and other local problems.
15. Foster a pluralistic a~ut ftee~ible system of adnvinistrdtion. Widely divergent
ideas about how medical care can best be administered exist in the various parts
of the United States and among health care personnel and the public-at-large.
We should certainly not decide upon any one method as necessarily best for
everyone or for all time. As science and technology continue to develop new
methods of diagnosis and treatment, new drugs, and new systems of delivery, we
should be willing and able to adapt our arrangements to respond to new needs
and styles.
SUMMARY
A national health security plan is not a panacea which will solve all th
problems of medical care in the United States. The continuing increase in demanc~
for medical services while the supply remains inelastic will certainly creat~
rising price and cost pressures intQ the foreseeable future. Changes in organiza4
tion, delivery, and access to services to meet the increasing demand will not occu~
overnight. Responsive changes in medical school curricula, admissions, an
orientation, however, are now underway, but they will take time to complete.
Health education and preventive health care must meanwhile be expanded sc~
that the available medical personnel and facilities will be able to handle acut~
and chronic sickness dud disability. We must also make an effective effort
distribute medical services in a manner more rational and socially conscious thar~
that at present. Through a national health security plan we could focus ou'
planning and our priorities for a more intelligent and equitable distribution o
the miracles of medical science to the people of this nation.
QONCLUDING OB5ERVATIOT~S
1. The national health insurance bill which eventually will be enacted by Con~
gress has not yet been introduced at the time this statement is being writter~.
~udgthg by past experience, the Congress is likely to include some important and
unexpected elements in any final piece of legislation that takes into account the
forces of influence and compromise which mold the legislative process. Admii -
istrators of the eventual plan must be ready to implement the unexpected.
2. Providers and consumers should be fully co~isulted during both the legisl -
five and administrative process to assure successful and acceptable administr -
tion of the entire program.
3. A comprehensive public-information and health-education program is vital!
necessary to obtain public support for the legislation and understanding of th
key issues and to avoid excessive demands on the medical care system. Such
program should start substantially before any new significant benefits begin.
4~ Important, new benefits should begin preferable between April and Octob~r
in ~~der to avoid paying initially for services during high-morbidity perioc~s'
(November-March) which will involve handling of a larger volume of claifl4s
than during low morbidity months (April-October).
5. Benefits under national health insurance should be phased into operation
by a predetermined schedule which takes into account the progress made und4r
the Health Resources Law and any federal manpower legislation.
6. The federal administrative authority for the program should be in a boa~d
of three to five persons rather than in a single administrator. The federal boaiM
should `be in operation a number of months before `any major new benefits ~r
policies are put into effect. A board will avoid the implications of rule by `~a
czar" of medicine.
7. A separate health appropriations bill should be procesed by the Congre~s
to ensure that all health legislation is considered in relation' to every aspect ~f
health and medical care. This would mean including the medical budget for tl~e
Defense Departme~it and the Veterans Administration.
8. The Health Insurance Benefits Advisory Council should make a report with
any recommendations each year on the operation of the plan. Each five years m~u
independent advisory council should review the program and make its report to
the President and the Congress with its recommendations. The membership of
the council should follow that provided by law for the Advisory Council 4n
Social security.
Mr. CORMAN. Thankyou.
Mr. Siegfried?
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284
STATEMENT OF CHARLES A. SIEGFRIED
Mr. SIEGFRIED. My name is Charles Siegfried. I think I should in-
~clude some biographical background at the outset. Prior to retire~
ment in 1973, I was employed by Metropolitan Life Insurance Co.
for over 43 years. I served as chief actuary and president, and in the
years prior to ~retirement was vice-chairman of the board and chair-
man of the Executive Committee. During a long period of my career
with Metropolitan I was associated with health insurance matters.
I participated in many intercompany activities, and in 1966 was
president of the Health Insurance Association of America. In 1972,
I was a member of the President's Committee on Health Education.
For a number of years, I was a member of an advisory council of the
Department of Labor having to do with the Welfare and Pension
Plans Disclosure Act and was a member of the 1971 Advisory Council
on Social Security. Because I am surrounded by members of the aca-
lemic profession I call attention to the fact that I am chairman of
the Board of Trustees of Franklin and Marshall College, but par-
ticularly I want to call attention to the fact that at the present time
I have no association with the insurance business nor with any other
business.
I think it is helpful in discussing matters of this kind to always
be aware of the enormous complexities associated with the subject
of health insurance. Other fields of insurance seem simple by com-
parison. I think it is also helpful at the outset to remind ourselves
that the picture overall is by no means bleak; many aspects of what
we refer to as problems stem from great successes in medical science
and technology or are the result of economic and social conditions
beyond the control of medical practitioners or health insurers. Past
accomplishments encourage the hope and belief that we have the
`ability to cope successfully with these problems and that even more
will be done if we act carefully and wisely in the period ahead.
Following are major factors which contribute significantly to com-
plicate the problems and issues in health care organization, delivery
and financing:
One, the great expansion in medical science and technology, which
is still continuing and which, in a labor-intensive system, seems to
raise costs rather than reduce them.
Two, the historical development which has led to heavy reliance
on hospitals and in-hospital treatment, with the result that in many
cases treatment is provided where less expensive alternative modes of
care would probably suffice.
Three, wide diversities in the social condition and outlook of the
American people stemming from differences among rural, town and
urban situations and ethnic backgrounds. Differences in economic
status further complicate the others.
Four, a conscious striving for good health does not appeal to large
numbers `of people. Ignorance, indifference, other priorities and the
normal hazards of modern life all seem to contribute to more illness
and demand for a greater quantity of medical services than seems~
necessary.
Five, special considerations affect children, the aged and the age
groups in between. These may cause variations in programs for dif-
PAGENO="0289"
285
ferent age groups as we. move ahead. I think Mr. Cohen had that in
mind in a comment he made.
Six, the fact that the scope, variety and volume of possible heal~h
:and medical services seem to have no natural or foreseeable limi~s.
Mr. Cohen referred to that also.
Seven, the uncertainty that exists as to the efficacy or consequer~ce
of many forms of medical treatment.
The above factors complicate our situation. One factor, thoucth,
which I regard as especially favorable, is the existence of a v~st
mechanism of insurance and prepayment whereby a very high pi~o~
portion of the population is already coping in a satisfactory way with
the costs of medical care. I am not aware that a comparable situation
exists or ha~ existed anywhere else in the world.
This brief recital is barely adequate for present purposes. I min-
tioned our heavy reliance on hospitals. This suggests that inadequate
emphasis has been given over the years to alternative systems for t~ie
delivery of medical care and to meaningful experimentation which
would shed light on the true value and significance of various alt~r-
natives. Regarding insurance and prepayment plans, too little atten-
tion has been given to the consequences of the emphasis on first-doljar
coverage which has been so strongly advocated over the years by sor~ie.
This brief recital should make clear that there are many underlyi~ig
matters that need to be brought into focus before there can be meanir~g-
ful exchanges of thinking-and certainly before legislative decisidn~
can appropriately be made.
I have tried always to think in terms of action: What is it 1 wodid
favor as a way of improving our current situation?
I believe it is necessary to have a careful regard for all the major
factors I have mentioned previously. Hence, I believe it is desira1~le
to moye,on a number of di~erent fronts in a coordinated way. Al~o,
I believe it~ii~i~mportant to ~dopt an evolutionary type of approach.
~I favor moving construetiv~ly from where wearein such a way tl~at
we can take advantage of experience and not be set back painfully by
unexpected surprises. I think Mr. Cohen was trying to avoid just that.
I favor moving in ways which enlist the cooperation and suppOrt
of as many people and institutions as reasonably possible.
There are bills before the Congress which would do this. Tijey
represent a. distinct current advance and provide a solid ,base fr~m
which change can be made readily if experience truly indicates its
desirability. I like particularly reliance on voluntary action by that
large part of the population that is capable of financing its hea'th
care through non-governmental means. I like also the constructive
and humane approach on behalf of the poor and the near-poor in so~ne
of these bills. I believe much more attention deserves to be directed
at this important aspect of the total problem.
If we need more government action, I believe the evolutionary ~p-
* proach will provide a good 1?asi~ from which to form a judgment as
to what it should be. We have i~nuch to learn before we will be rea~dy
for the next step. But this approach can provide the necessary exp~ri-
ence quite quickly. It is not a stalling tactic by any means. Its desir-
able qualities emerge even more strongly when one considers the c~sts
and risks inherent in alternative programs.
57-677-75-19
PAGENO="0290"
286
I have heard it said that a national health insurance plan is in-
evitable and that the plan finally adopted will be made up of elements
of the various plans that are being advanced. This may be a natural
political process, and compromise of that sort may be required. How-
ever, the serious dangers in any such process should be recognized and
strong efforts should be made to avoid major disasters. I believe that
can be accomplished most surely by building on current strengths'
and arranging a program that can evolve and can adjust to changes
which are shown to be desirable by the accumulating experience.
While it is perhaps understandable that so much interest is directed
at the concept of natiofial health insurance-a program for spreading
the costs of medical care through premium payments and taxation so
~that the burdens of medical' care costs fall less painfully and, one
hopes, more equitably. Even though that is good, I believe more
attention should be directed at steps that will help keep the aggregate
burden more bearable.
I suggest there are three major possibilities that deserve investiga-
tion:
First, greater utilization of research in health maintenance and
medical care delivery. We have had a considerabls~ amount but I be-
lieve we need much more.
Second, a variety of activities" related to health education and
motivating individuals to meet their personal responsibilities to maih-
ta'in acceptable standards of health and well-being.
Third, a program for utili~ing vast untapped human resources in
dealing with the needs of the ill and the elderly.
I will very briefly try to indicate ~more clearly what I have in mind
ou these three points. Maiiy people' `think we already have mountains
of ~tatis~ics, and any suggestion that we' meed' more' to `b~ a stalling
tactic. There is, in fact, a serious lack of information o'f the kind
needed to deal with `national health insurance issues. The ~easons for
this lack are well known~~-the' process is `costly and' the need has not
`been.giveu a high priority. The tax laws `contribute to the uiifortunat~
end result. In. the world of,manufacture and of `most business~ researuh
is~ supported on a~ wide scale.. ` Expenditures. for resea'rch are a de-
ductible business expense~ for tax purposes. The same `is not generally
tri~e' as far a~ many insurance eornpanies, prepaywent. plans, `or médi-
cal care institutions and.hospitals ~are concerned. Research and statis-
tics can,,of course, be a luxury and can be wasteful because' they s~rve
no truly u~eful purpose. This must be guarded against. On the othe'r
hand, it' seems reckless to accept the financial `and-. other consequences
of ever-growing costs of medical care. We need better methods' than we
now have for learning where added costs exceed tIre benefits obtained.
Concerning health education and motivation: Commeilthng in the
fail of 1971, a group of distinguished persons drawn from `a i~ariety
of. fields of interest and expertise devoted a great deal of thought
and effort to the subject of health education. In a report submitted
to the President in 1973, the following statement is ~made:
The recent and continuing debate over national health insuranee has uncovered
a great deal of concern about the delivery and financing of health care. `That
concern is felt by the public as well as by Government aud private institutions
both inside and outside of the health field. `
However, after more than a year of intensive study and research, we are
c~nvinced that results of any changes or improvements in `the `delivery and
PAGENO="0291"
287.
financing of health care will be virtually nullified unless there is, at the sam
time, an improvement in health education-which means not just supplyin
information about health to people, but motivating them to accept the inform -~
tion and put it to work in their daily lives.
Unfortunately, the important, and often crucial role the Individual can play i
maintaining his own health has rarely been clearly explained or adequatel -
dramatized.
Our findings regarding the ignorance or apathy-or both-of American inst
tutions and organizations, indeed, the public at large, toward health educatio
are chronicled in the body of our report.
While there were differences of view as to how such irnprovemei~t
should be attempted, there was no disagreement with the view e~
pressed I have just quoted.
Concerning untapped resources for dealing with the ill and eideriy-~-
medical care is a service-oriented activity. While some cost savings /
might be effected by use of mechanisms in place of human labor, ~t
does not seem that substantial reductions in total costs can be achieved
by that means. To deal with the total problem of human sickness an~1
disability, the need is for many more human hands rather than fewer.
The hands seem to be in being and are by no means already fulFy
employed. It may sound far out at this stage, but a plan for involving
the youth of our Nation, as wejl as older persons, in a plan of nation~1
service devoted to the ill, the disabled and elderly, is conceivable and
seems to have exciting possibilities.
In earliei~ times, untold services of this kind were rendered by men~-
bers of religious organizations. Many f~aternai associations had a~-
rangements under which their membership rendered personal assis4~
ance of this sort. While the substitution of paid-for services throug~i
insurance and related plans has seemed preferable, I believe we a~e
witnessing limitations on that approach.
This development has its counterpart.in the moves that. were mad~
to treat sick persons in hospitals rather than in, their homes. I believe
we have learned, or are learning, that there are limitations on the
accepta~bility of institutional treatment under, many circumstance~,
and more pief~able altèrns~tives must be sought. The conditions .exis1~
ing in many, nursing homes suggest the best, right answors may not
yet have been found. ` S S , , 5
A program of national service utilizing, young people in.large meas~
ure ~ould not only improve our national effort. at dealing with the, prob-
lems of illness and disability and old age,5 but could be a powerf~i
instrument in health educ,ation. `, 5 5
In summary, the subject under consideration* is' one of awe~o'rn
complexity and magnitude. We should be wary of the c~nnotation~
of the expression "national health insurance" because the issues invoTv~e
so much mOre than those normally associated with insurance and th~
financing of medical care cOsts. In seeking to improve on the curreth
situation, it is important to recognize the many strengths that no~y
exist and to seek a basis for sound evolutionary development. Th~
subject calls for much more sound experimentation and statistica[!
analysis than has heretofore been employed. We have much to learn a~
well as much to do. The true goal of our endeavors is a healthier an~l
sturdier and happier citizenry.
Thank you~
Mr. RosTENKowsKI. Thank you, Mr. Siegfried. S
Professor?
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288
STATEMENT OF AVEDIS DONABEDIAN, M.D.
Dr. DONAB1~DIAN. I am Avedis Donahedian. I teach medical care
organization at the University of Michigan at Ann Arbor.
The contribution I would like to make to the deliberations of the sub-
committee has to do with the quality of medical care. This is an
important subject because we are all committed to providing the best
possible care. Moreover, quantity and quality are intertwined, and both
are related to cost.
It is obvious that we cannot have quality unless, as a first step, care
is made available to those who need it, in the quantities that are re-
quired to meet their needs. Therefore, by simply making care more
equitably available, we improve the quality of the system. But this
may not `be enough. People should receive the right kind of care, and
neither too little nor too much. The wrong kind of care can be either
ineffective, or harmful, or both. Too much care is always wasteful, and
frequently harmful as well. This means that as we make care more
available to people, they are exposed not only to its benefits but also
to its dangers. If we want the most in benefits with the least in dangers,
we have to pay attention to quality as a distinct issue.
The relationship between quality and~ cost is also complicated. More
and better care is, obviously, costlier. But there are two kinds of sav-
ings. First, we reduce direct costs by cutting out inappropriate and
unnecessary care. Second, we have the benefits of better health. Un-
fortunately, the benefits of better health are, in a sense, temporary.
This is because people live longer with an existing disease, or develop
new diseases that we caimot cure, but which require large amounts of
care.
As I see them, the policy implications of the complex relationship
between qtiaJity and costs can be~ siate~l in general terms as follows:
1. As a nait~ion~ the ~aveizg~ leveL of quality that we can bay for a
given amount of money can~v*r,y grea~iy~, There~are w~ays~ of getth~g
more for our rno~y'~ However, in my opinion, we don't know enough
to s~e y t is tl~eJ~st~way.
2. Still further improvements in quality will almost certainly mean
more expenditures for care.
3. Beyond a certain point, further improvements in quality will
yield smaller and smaller additional benefits. Unfortunately, the cost-
benefit relationship is so poorly understood that we have no way of
saying at which point additional improvements in quality are simply
not worth the additional expense.
So far, we have spoken about quality as if we know what it meant
and were agreed upon the meaning; and to a certain degree, this is so.
But there are also differences of emphasis. Physicians and other health
profes~i'oi~als tend to stress the full appliQation of the technical pro-
cedures of medical science. Given the opportunity, their tendency is
to spare no expense and no effort on behalf of each patient as long as
some benefit can be expected from the care given.
A s a result, the standards of care formulated by professionals tend
to envisage more care, more complex care~ more costly care. Consumers
are poor judges of the technical quality of care. They accept the health
professional's formulation of that, but they add a special emphasis
of their own, which is the emphasis on the interpersonal relationship.
PAGENO="0293"
289
Consumers look for personal interest and commitment, mutual respec,
information `about their condition and a share in the decisions th~t
affect their lives.
It follows that the quality of care that we seek as policymakei~s
should include both of these viewpoints: The professionaJs' and t e
consumers'. Moreover, we should not hesitate to challenge the profe
sional to show us to what extent his standards are based on a demo -
strated relationship between the technical procednreshe~wants do e
and the kinds of outcomes that consumers find worthwhile. If we o
so, we can expect wholehearted support from enlightened profession 1
opinion.
The public `and the health professions have always shared a concei~n
for the quality of care. Accordingly, our society has developed many
mechanisms to safeguard quality. These include standards of medic~d
education and training; licensure and specialty certification of health
professionals; licensure `and ~ of hospitals; controls l~y
hospitals on who may join their staffs and under what condition~;
and, more recently, mechanisms for monitoring the performance ~f
professional personnel, especially in hospitals and other organiz4d
health care settings.
We can be justly proud of what we have done and what we hai~e
achieved in safeguarding quality. However, we also need to ask whether
we need to do more and, if so, what? Both of these questions are not
easy to answer.
One way of deciding whether we need to do more is to compare o~r
national record of mortality and longevity with industrial natio~is
that are similar to our own. It is true that we do not do well in su~h
comparisons, which should be a m.atter of deep concern to us. How-
ever, it is also true that we `do not know h~w much of our reiative~y
poor showing is due to deficiencies in medical care, an'd ho~ much d~ie
to other social factors. Similar differences by social class are to be se~n
within the United States itself; and, again, it is difficult to say how
much of these differences in mortality and disability is due to differ-
ences in medical care. We believe that medical care plays a role, b~it
we do not know how large it is.
We have no national surveys of the extent to which care conforms
to professional standards. However, we have the reuslts of many local
studies spanning several decades. From these we can conclude that
whenever the quality of care has been examined, a significant propqr-
tion of cases have fallen short of reasonable professional standar~Js.
Thsdoes~not mean that health professionats are particularly prone
error due to ignorance or carelessness; only that their ~work has p~r-
haps been more closely scrutinized, and that there is less tolerance for
error in these professions than others. And this is as it should be.
In order to remedy the situation, we need to understand what factors
encourage or discourage good performance. As one reviews a succ~s~
sion of studies two factors stand out: One is training and speciaii~a-
tion, and the second is the influence of an organized setting such a~ a
hospital or group practice. It appears that general practitioners w~io
have had more training after completing medical school perform b~t-
ter than those who have had less training, and that physic~tans w~o
have h~tdenoughtrahdng to qualify as sj~etia1ists~do better than th~*e
who have not, provided the specialists confine their practice to th~ir
specialty.
PAGENO="0294"
290
The type of hospital is `also important. Hospitals that are `affiliated
with medical schools tend to. stand out as distinctly superior in quality.
There are additional, but smaller, distinctions which favor hospitals
that are, larger, that have some training function and that are non-
profit.
The characteristics of the hospital and the characteristics of the
physician reinforce each other for good and for bad. The best care is
~provided by highly qualified physicians in well organized hospitals,
and the worst care is provided by poorly qualified physicians in poorly
organized hospitals.
Our knowledge of the effects of group practice is not as extensive,
and the fihdings not as clear-cut. My interpretation of'the evidence is
that a well organized group practice `has the capacity to improve the
quality of care. however, just as all hospitals are not similar, not all
group practices are alike in having a good influence on the quality of
care.
An additional important feattire of the setting in which physicians
work is the fee-for-service method of' payment. The fee-for-service
incentive encourages the provision of service, which i's good. However,
fee-for-service, especially when `coupled with health insurance, also
encourages the performance of unnecessary, costly, and sometimes
harmful procedures. Thus, we have a mixture of good `and bad effects.
Before we go on to draw conclusions as to public policy, we should
emphasize some limitations in the findings we have described. First,
`our meastires of quality are still quite rough. Second, very few of these
measures pay `attention to the attributes of the interpersonal relation-
ship. Third, all the findings refer to averages; and there are always
exceptions to the rule. In fact, there are so many exceptions that the
differences in quality that remain unexplained are probably larger
than the differences that one can attribute to known factors.
All these findings lead to the commonsense conclusion that the best
levels of care are obtained when we have highly qualified physicians
working in the best settings.
But what makes the setting, whether a hospital or a group practice,,
good? We do not know for certain. It appears that the teaching and
training function is important, perhaps because it provides a constant
intellectual challenge and opportunities for continuing education. Also
important are selectivity in recruiting staff, matching their practice to
their areas of competence, continuing to obtain information about the
quality of their work, rewarding good performance and taking steps to
correct poor performance.
Does this mean that,' ideally, every physician must be a `highly trained
specialist and every `hospital a university-affiliated teaching and re-
search center? If people are to be free to see any ph'ysician they wish,
a'nd every physician is to be free to undertake whatever he' believes he
is qualified to do, the answer would tend to be, "Yes." `
In other words, the goal would be'to make `every physician and every
hospital competentto deal with a very high proportion of cases that
present' themselves for care. Obviously, this is very costly.
`An `alternative, and less `costly solution, is to recognize that some
medical care `tasks' can be performed just as well, if not better, `by
less trained people and in less highly developed institutions. This
means that' professionals and hospitals are organized in' suoh a way
PAGENO="0295"
291
that. each medical care problem is `treated by the person or persons `with
the' appropriate qualifications in the appropriate institution. But to
accomplish this will `require a move even further away from a fi~ee
medical care market. Because there is a great deal of resistance to such
a move, we are now searching' for compromise solutions.
The PSRO's can be regarded as one such compromise measure. T~he
PSRO scheme takes the medical care marketplace as it exists, but
imposes upon it a formal system of monitoring. As a further conc4s-
*sion, it delegates the implementation of the monitoring system to t~e
physicians themselves, with some degree of external control.
In my opinion, monitoring, both internal and. external, is a necessary
part of any medical care organization, because it is the only means of
obtaining continuing systematic information about how the medi$1
care organization works and the degree to which it attains its own 4b-
jectives. However, I believe that major reliance on a monitoring meth-
anism to police the marketplace is only a temporary phase, and tl~at
fundamental solutions will involve reorganizing the medical care s~rs-
tern itself.
In the interim, the PSRO's pose two kinds of dangers: One is t$at
they will not be implemented or that they will be implemented `ha~f-
heartedly; the other is that they will be implemented using the `wro~ig
kinds of standards, so that their effect will be to encourage a great
outpouring of routinized medical care' procedures with proportiQn-
ately little benefit to health. Possibly both eventualities will occui~-~
that the PSRO's will be implemented haif-heartedly using the wro~g
standards and methods, so that `they will produce neither much hatm
nor much good, except that they will become a large and expensi~re,
bureaucratic fixture.
If I had to make a bet, this is the course of events that I would pre-
dict. But, to be fair, one should recognize that the PSRO's also h~ve
much potential for good. To achieve this potential, the PSRO's shoidd
be regarded as a great social experiment to achieve quality assura~ice
in a pluralistic and still largely private medical care system. As st4ch
they should attract the best thinking in medicine and medical c~re
organization; they should be implemented in stages, with careful study
of their effects; they should encourage variability in methods i~at}Jier
than uniformity; and they should reduce the emphasis on policing and
punishment, and increase the emphasis on self-examination, learning
and. appropriate reform in the medical care system.
In closing, let me return to the question implicit in my opening ~e-
marks: To what extent should all this be the concern of the subcom~
mittee, and why? To begin with, a change in the method of fin'anc~ng
`the purchase of medical care will almost certainly bring about changes
in what care consumers willseëk,~nd health professionals provide. `~As
we said, this will bring about changes in' the quality of care and th~se,
in turn, will have an impact on cost. What I am `saying is that, a~ a
minimum, the subcommittee should assume responsibility for the c~n-
sequences of its ,own recommendations. More broadly, the design otf `a
national health program presents many opportunities to strengtl~ien
those tendencies in the medical care system that serve the public inter-
est, and to weaken those that are harmful to it. I have no doubt t~iat
the subcommittee, in everything it recommends, will remain watchful
over the quality of medical care, and, in so doing, willearn our respect
and gratitude. ` .`
PAGENO="0296"
292
Mr. ROSTENKOWSKI. Thank you, Professor. We will afford the panel-
ists an opportunity for interchange. If any member of the panel would:
like to question another member of the panel about any statement that
was made, we so encourage that.
Mr. FELDSTEIN. I noticed as I listened to the others, one theme that
kept coming up over and over again and it comes back to what I said
earlier.
Mr. Cohen said there is no limit to the amount that individuals will
want or use of health care or rather the only limit is the limit in~iposeci
by supply. A similar statement was made by others. Dr. Donabedian
said doctors are all committed to `providing the highest quality of care.
While I was quite interested in the schedule and scenario that Wilbur'
Cohen presented to you, nowhere did I get a sense of how the funda-
mental question of the level, the style, the quality of care would be'
determined. I want to emphasize the nature of that problem.
If you consider the kind of care that you would expect to get if you
became ill, seriously ill, the kind of hospital services that would be'
available to you as a Congressman, is that the kind of care that ought
to be extended to the entire population? Is that the level that would
be appropriate under national health insurance?
If that cost $50 billion would that be the best use of $50 billion of
additional tax revenue?
Think about the kind of care that might be available 10 years from
now-better than today. We could speed it up. Would that be a good'
use of resources?
I am afraid all of the discussion and all of the bills presented do not
squarely face the problem of how the quality of care would be deter-
mined. The term ~`prospective reimbursement" came up a number of"
times. I think a look at the Canadian experience causes one to be skep-
tical about how effective that is in controling costs. Even if one could,~
and that is ultimately a political consideration, at what level would you
control them? Prospective reimbursement might give you a lever but it
would not yield the appropriate level or a mechanism for deciding'
what the appropriate level is.
I think whether costs continue in the future to go up at the astro-
nomical rates we have observed, 600 percent in two decades will de-
pend upon whether you find an alternative financing mechanism which
makes the cost of hospital care a reflection of the actual preferences
of patients and their physicians. What we would really like to be
aiming at is a financing and insurance mechanism with deductihles~
and co-insurance that reflects the tradeoff between the desire to pro-
tect ourselves against unexpected bills on the one hand and the desire
on the other hand not to have a distorted care package.
For the vast majority the opportunity to buy insurance through
employee groups affords a way of making that tradeoff, of deciding
how much additional care, how much additional protection one wants
against the. extra costs. Unfortunately, as I indicated in my statement,.
taxes distort that choice and distort it very substantially-a subsidy
of some $4 billion.
I think what you want to be aimi~ngat `in national health insnranc&
is either a restructuring of the private insurance system so it cor-
sponds more to what is actually desired or the provision of nationar
health insurance with the deductibles and coin~urance that corresponds
to what individuals would want if they were buying it directly, allow~
PAGENO="0297"
2~3
big individuals to supplement that privately if they want but not
`subsidizing them through the tax system to buy health insurance
which is really not worth the cost to them.
Mr. ROSTEN~OWSKL Professor Kiarman ~
Mr. KLARMAN. May I make several points ~
One, Professor Feldstein has raised a basic question, namely, how ~Io
you go about determining the appropriate level of health ~are
penditures. He tells us that we ought to look to the consumer fpr
guidance.
But he hj~self has taught us that often it is not the consumer w~o
~thkes td~e ~decisi~n ;, it is~the physiei~u who makes it, presumably a~t-
ing on behalf ofthe consuther.
Two, it is enlightening to ask why and how we got into health in-
surance. Whether or not it is properly prepayment, father than ~n-
surance, we g~t into it for a very good reason: The unexpected a~id
high costs of medical care. These can be very threatening to an
`dividual or a family and, indeed, there is no reason to believe tI~at
an `individual or a family can always accumulate enough funds to
pay for a parti~u1ar episode of illness.
It turns out that as prepayment or jnsurance relieved some of ~he
financial burden of illness, it has also produced other consequen~es
that are not so positive. Thus, there is the tendency for people to i~ise
more health care services than they would use in the absence of ins~ir-
ance. In particular, we have observed the phenomenon characterized as
Roemer's law (named after Professor Milton Roemer of
under conditions of prepayment, if a hospital bed is built, it will be
`used. Clearly this tendency is linked with the presence of insurance or
prepayment, and I can see no way to avoid it.
Three, still on the point of what would be the appropriate level~ of
expenditures, I am not in a position to report to this committee that
economists are now able to prepare usable cost-benefit analyses,~ in
which the marginal benefits and marginal costs of health care ~re
;equalized.
Given these considerations, what is the next best strategy to ado$?
it seems to me that the next best strategy is to curtail expenditures
where we can without doing harm. That is w~y I have recommenc~ed
~the policy of limiting and curtailing the number of short-term l~os-
pital beds.
I have also suggested that we move promptly toward changing the
`reimbursement of hospitals from retroactive costs to some other pro-
speetive basis and linked to a hospitaPs own budget.
May I add that this conntry's experience with respect to health c~re
~expenditures has not been as bad as we thonght it was going to be.
The figure on the percentage of such expenditures to the GNP re-
~inained stable at 7.7 percent for a period of 4 years, 1971 to 1q74.
In fiscal year 1975 it ba~ gone up some, to approximately 8 perc~nt.
I would be less~tlaa~n `candid if I did not add that if some of ~he
things I suggested in long-term care were adopted, some expcnditi4res
would go up. Presumably, for this purpose we should be willing t'~
pay the bill.
In summary, several other factors `are at play, in addition to con-
`sumer preferences, and there are some instruments available td us
`that we can employ to reduce expenditures where little harm wouM be
done.
PAGENO="0298"
24
Mr. SIEt~run~n." I may have misunderstood some~of `the statethents
but I was pIeas~nt1y"struck by the large areas of agreement among
the various panelists this morning. ~ think we `have come a long way
and we see many of the problems confronting, us in the same way. I
was shook up a little more by the statement of Professor Feldstëin,
but it brought back to mind the problems we had in tl~e early `days of
developing inSurance plans where those of us whe favored'deductibles
and coinsurance were treated scornfully and the emphasis seemed to
be No. 1 on hospital care and paying hospital care in full from the
first dat. Thdse of us who favored emphasis on catastrophic coverage
were troubled' by this. For reasons I understand in part and don't
understand in part, the consumer, when he had a chance to express a
choice, seemed always th prefer first dollar coverage t~ catastrophic
coverage and it ~has been an uphill struggle to turn that around. I
think it is worth commenting `on at this; time because I think it is still'
one of the major issues that confront us as we design a national health
insurance plan `because many of the proposals, I think, include a
greater degree of emphasis on first dollar coverage than would be
desirable~ so I think some further exploration of the ideas that were
advanced by Professor Feldstein are appropriate and in order.
Mr. Ros~reN1~owsKL Mr. Cohen.
Mr. COHEN. I think eventually you are going to cover all first dollar
costs in some national health insurance system at some time. That is
the consumer' and voter attitude' and ultimately ift the American sys-
tern the consumer and the voter decides, not the economists and not
anybody else.
But I don't believe we ought to start that way. I would start with
Mr. `Waggonner's bill on catastrophic costs and proceed by the basis
of experience. This whole issue of deductibles and coinsurance is a
highly theoretical issue in which people who are insurancb-minded
and economists have a lot of considerations which the average man
in the Street does not believe in and does not a'dhere to.
I would think that, therefore, the best way to start is to have' co-
insurance and deductibles. Why? Because then you get experience
and if you want to lower them, you can lower them; you can get to
first dollar costs if that is what the taxpayer wants' to pay.
If you start with first-dollar costs, putting coinsurance and dé-
ductibles in is a tremendous political difficulty. Anybody who has
tried to put a deductible or coinsurance `feature in after you hate had
first-dollar costs as they had in the previous system will have diffi-
culties. Therefore, start the other way around. Start with the coin-
surance and deductible along the lines of Mr. Waggonner'~ bill' and
then when you see what happens and what the taxpayer and con~
sumer want, you can always make an adjustment.
I think that there is no real good ~nswer to this deductible coinsur-
ance issue. In the first place, taking the' points Dr. ~Cldstein men-
tioned, the rational use of resources-nobody but the economists really
care about that issue. The consumer does not care about rational use
of the resources. When a baby is sick at 2 o'clock in the morning and
the mother wants a doctor, does she ask, is this a rational use of avail-
able resources? Of course not. it does not do much for the baby when
she calls the doctor and he says take two St. Joseph's' aspirins, which
the mother has probably already done. It is for the mental health of
PAGENO="0299"
2~5
the mother. Do you put that into quality of care ?~ it is virtually ii~
possible. You know there is going to be inefficient use of' resourc~s.
When amother calls a doctor at 2 o'clock in the morning or any tupe
she calls him, is that a ~valid component of quality of care? From t e
mother's standpoint that is what she sees, just like Dr. Don~bedi n
said.
What does she want? She wants a psychological personal relatio -
ship of a doctor reaffirming what shQ knows what he is going to 0
anyway. It is very important and she wants to pay for it and t e
husband wants to pay for it and the union he belongs to wants to
pay for it.
Mr. FELDs~n~IN. It is a good use of resources.
Mr; COHEN. That is right, but she determines that, not the ecor~o-
mists. There is no way to determine that except in the free market-
place by mama.
My view on this matter is as Mr. Siegfried said. You have to a~p-
proach this in an evolutionary way. You can't get to the millenium by
enacting it on one given date. You have to go through a system of
difficulties and torture and distress in the evolution of whatever thi~
committee is going to enact. But out of that will come experience.
Out of that will come the taxpayer indicating what he wants to spend
his money for. Out of that will come whether various people think it is
a good system.
Another reason why I think this matter of the deductible ~o-
insurance is not really an important issue is no matter what this co~ii-
mittee does, if it includes a deductible and co-insurance in the public
plan, the private insurance companies will sell a policy to take up t~he
difference. So, you will end up with a first-dollar system anyway~ if
you put the public system and private system together. If you lc~ok
at the total use of the resource of the economy, you have to look~ at
both of them. Therefore, I come to the conclusion by a different ro~ite
with the same conclusion of Dr. Feistein, to start with the co-insura~ice
in the public sector and then see what happens by the combination~ of
public and private and then you can always change it later on if you.
want to or have to.
Mr. RosTENKowsia. Dr. Donabedian.
Dr. DONABEDIAN. I want to present my biases and prejudices. I th~nl~
a problem we ought to remember as we think about co-insurance, cle-
ductible, and so on, is this: When a person is ill or a child in the fan~ily
is ill, as Dean Cohen mentioned, we often don~t know what is wrong ~ncl
we don't know what is needed and we don't know how much is needed
and, therefore, we can't really make good decisions partly because we
don't know and partly because we are so upset and worried. So, I wo~ild
not like to see anything in a health insurance scheme that prevents~ or
discourages people from seeking advice about what they need to do,
going to a doctor or getting some medical advice.
The problem is what happens once you go to the doctor and what
does he do for you when you are ill. That is where the issue of quality
comes which is partly quality, partly quantity, and partly, of cou~s~,
cost. Does the physician do the things that are necessary and avbid
doing unnecessary things? Does he do harmful things? Is he car~ful
about the relationship between costs and benefits and harm due to ~he
procedures he recommends?
PAGENO="0300"
2%
I wouid like to see a great deal of our attention in, terms o& OOSt'COflr
trol focused at thia point, at what is the kind of gpod care which is
not excessw~ly c~o~tly, rather than at encouraging' a persor who does
not know what i~ wrong with him make the `decision on the basis of
how much, it is going to cost him if he goes to the doctor.
Mr. EOSTENKOWSKI. Professor i~eldstein?
1~fr. FEt~os~r~xN. I think Wilbur aud I aetua~Uy agree on a lot.~'We
ag1~e~a~at what is a good use of res~rn~ces is detern ed by the cçni-
sum&r. ~t~ere are som~ areas:like iAilit~ry~ sp~nding or ~n `th~aJ~ re-
search where the consumer really `cannot get into that action. For
personal health services, Wilbur and I agree that that mother at ~ in
the morning is the right person to determine it.
Of course, if you make the call to the doctor free, then she does not
have to think about the cost of the resources at all but if, as he said, it
depends on a `bit out of pocket `and what the labor union decides,
basically the costs are brought home to roost. Then, what economists
call the right allocation of resources occur. We really agree and I am
delighted we do. I am also delighted we agree about co-insurance and
deductibles.
I think that co-insurance and deductibles