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Full text of "Health care reform : hearings before the Subcommittee on Health of the Committee on Ways and Means, House of Representatives, One Hundred Third Congress, first session"

HEALTH CA RE REFORM 

Y 4. W 36:103-92 

Health Care Reforn, Serial No. 103-. . . ^^Q-g 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



VOLUME XIII 

Issues Relating to Inner-City and Rural 
Communities 

FEBRUARY 7, 1994 

H.R. 1200, American Health Security Act of 1993; 
H.R. 2610, MediPlan Act of 1993; and Other Sin- 
gle-Payer Options 

FEBRUARY 9, 1994 

Alternative Health Reform Proposals Including 
H.R. 3080, H.R. 3704, H.R. 3652, H.R 3222, and 
H.R. 3698 

FEBRUARY 10, 1994 



Serial 103-92 



Printed for the use of the Committee on Ways and Means 



f^B 8 /QQ 




-^<Wif*£j^i^- 



HEALTH CARE REFORM 



HEARINGS 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON WAYS AND MEANS 
HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 



VOLUME XIII 

Issues Relating to Inner-City and Rural 
Communities 

FEBRUARY 7, 1994 

H.R. 1200, American Health Security Act of 1993; 
H.R. 2610, MediPlan Act of 1993; and Other Sin- 
gle-Payer Options 

FEBRUARY 9, 1994 

Alternative Health Reform Proposals Including 
H.R. 3080, H.R. 3704, H.R. 3652, H.R 3222, and 
H.R. 3698 

FEBRUARY 10, 1994 



Serial 103-92 



Printed for the use of the Committee on Ways and Means 




U.S. GOVERNMENT PRINTING OFFICE 
81-665 CC WASHINGTON : 1994 

For sale by the U.S. Government Printing Office 
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 
ISBN 0-16-046315-7 



COMMITTEE ON WAYS AND MEANS 
DAN ROSTENKOWSKI, Illinois, Chairman 



SAM M. GIBBONS, Florida 
J.J. PICKLE, Texas 
CHARLES B. RANGEL, New York 
FORTNEY PETE STARK, California 
ANDY JACOBS, Jr., Indiana 
HAROLD E. FORD, Tennessee 
ROBERT T. MATSUl, California 
BARBARA B. KENNELLY, Connecticut 
WILLIAM J. COYNE, Pennsylvania 
MICHAEL A. ANDREWS, Texas 
SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
JIM MCDERMOTT, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS, Georgia 
L.F. PAYNE, Virginia 
RICHARD E. NEAL, Massachusetts 
PETER HOAGLAND, Nebraska 
MICHAEL R. MCNULTY, New York 
MIKE KOPETSKI, Oregon 
WILLIAM J. JEFFERSON, Louisiana 
BILL K. BREWSTER, Oklahoma 
MEL REYNOLDS. Illinois 



BILL ARCHER. Texas 
PHILIP M. CRANE, Illinois 
BILL THOMAS, California 
E. CLAY SHAW, JK., Florida 
DON SUNDQUIST. Tennessee 
NANCY L. JOHNSON, Connecticut 
JIM BUNNING, Kentucky 
FRED GRANDY, Iowa 
AMO HOUGHTON. New York 
WALLY HERGER. California 
JIM MCCRERY. Louisiana 
MEL HANCOCK, Missouri 
RICK SANTORUM, Pennsylvania 
DAVE CAMP. Michigan 



Janice Mays, Chief Counsel and Staff Director 
Charles M. Brain, Assistant Staff Director 
Phillip D. Moseley, Minority Chief of Staff 



Subcommittee on Health 

FORTNEY PETE STARK. California, Chairman 



SANDER M. LEVIN, Michigan 
BENJAMIN L. CARDIN, Maryland 
MICHAEL A. ANDREWS, Texas 
JIM McDERMOTT, Washington 
GERALD D. KLECZKA, Wisconsin 
JOHN LEWIS. Georgia 



BILL THOMAS. California 
NANCY L. JOHNSON, Connecticut 
FRED GRANDY, Iowa 
JIM McCRERY, Louisiana 



(It) 



CONTENTS 



ISSUES RELATING TO INNER-CITY AND RURAL COMMUNITIES- 
FEBRUARY 7, 1994 

Page 
Press release of Friday, January 21, 1994, announcing the hearing 2 

WITNESSES 

U.S. Department of Health and Human Services, Hon. Philip R. Lee, M.D., 

Assistant Secretary for Health 28 

Albert Einstein Medical Center, Martin Goldsmith '. 126 

California Children's Hospital Association, Barbara Staggers, M.D., and 

Susan Maddox 120 

Center for Health Policy Research, George Washington University, Sara 

Rosenbaum 51 

Children's Hospital Oakland, Barbara Staggers, M.D 120 

Children's Hospital of Wiconsin, Jen E. Vice 109 

Family Health Care Centers, John M. Silva 77 

Moody, Hon. Jim, Medical College of Wisconsin 99 

National Association of Children's Hospitals and Related Institutions, Inc., 

Jon E. Vice 109 

National Association of Community Health Centers, John M. Silva 77 

National Association of Public Hospitals, Larry S. Gage 66 

National Association of Urban Critical Access Hospitals, Martin Goldsmith .... 126 
National Rural Health Association, James D. Bernstein, and North Carolina 

Office of Rural Health 61 

Roberts, Hon. Pat, a Representative in Congress from the State of Kansas, 

and Cochair, House Rural Health Care Coalition 10 

Stenholm, Hon. Charles, a Representative in Congress from the State of 

Texas, and Cochair, House Rural Health Care Coalition 5 

Thomas, Hon. Craig, a Representative in Congress from the State of Wyo 

ming, and Member, House Rural Health Care Coalition 16 

Wayne County, Mich., Hon. Edward H. McNamara, County Executive 136 

SUBMISSIONS FOR THE RECORD 

Evergreen Legal Services, Yakima, Wash., and Native American Program, 
M. Helen Spencer; Spokane Legal Services, Spokane, Wash., Thomas N. 
Termaine; and Native American Rights Fund Support Center, Boulder, 

Colo., Steven C. Moore, joint letter 143 

Geisinger Foundation, Danville, Pa., statement and attachment 148 

National Association for Medical Equipment Services, statement 170 

National Congress of American Indians, Gaiashkibos, statement 175 

National Grange of the Order of Patrons of Husbandry, Robert E. Barrow, 

statement 182 

(111) 



IV 

H.R. 1200, AMERICAN HEALTH SECURITY ACT OF 1993; HJL 2610, 
MEDIPLAN ACT OF 1993; AND OTHER SINGLE-PAYER OPTIONS- 
FEBRUARY 9, 1994 

Page 

Press release of Thursday, January 27, 1994, announcing the hearing 186 

WITNESSES 

Anderson, Gerard, Johns Hopkins University, Baltimore, Md 218 

Conyers, Hon. John, a Representative in Congress from the State of Michi- 
gan 193 

MacKillop, William J., M.D., Queens University, Kingston, Ontario, Canada .. 287 
McDermott, Hon. Jim, a Representative in Congress from the State of Wash- 
ington 190 

Miller, Hon. George, a Representative in Congress from the State of Califor- 
nia 198 

National Council of Senior Citizens, Lawrence T. Smedley 265 

Priest, Lisa, Toronto (Canada) Star 236 

Public Citizen's Congress Watch, Sara S. Nichols 254 

Save Our Security Coalition, Hon. Arthur S. Flemming 248 

Walker, Michael A., Fraser Institute, Vancouver, Canada 271 

SUBMISSIONS FOR THE RECORD 

Amalgamated Clothing & Textile Workers Union, Jack Sheinkman, state- 
ment 318 

American Health Care Association, statement 324 

Dans, Peter E., M.D., Hunt Valley, Md., statement 231 

Hsiao, William C, M.D., Harvard University School of Public Health, Cam- 
bridge, Mass., statement 228 

Shriners Hospitals for Crippled Children, Tampa, Fla., Gene Bracewell, state- 
ment 326 



ALTERNATIVE HEALTH REFORM PROPOSALS INCLUDING HJl. 3080, 
H.R. 3704, H.R. 3652, H.R. 3222, AND HJl. 3698 

Press release of Tuesday, February 1, 1994, announcing the hearing 328 

WITNESSES 

Blue Cross of California, Ivconard 1). Schaeffer 496 

Chafee, Hon. John H., a U.S. Senator from the State of Rhode Island 358 

CONSAD Research Corp., Wilbur A. Steger 449 

Consumers Union, Gail Shearer 521 

ERISA Industry Committee, Anthony J. Knettel 544 

Grams, Hon. Rod, a Representative in Congress from the State of Minnesota . 418 

Grandy, Hon. Fred, a Representative in Congress from the State of Iowa 374 

Healthcare Equity Action Ijcague, Dirk Van Dongen 557 

Healthcare Leadership Council, Pamela G. Bailey 537 

Helms, Robert B., American Enterprise Institute for Public Policy Research ... 474 
Johnson, Hon. Nancy L., a Representative in Congress from the State of 

Connecticut 386 

Lott, Hon, Trent, a U.S. Senator from the State of Mississippi 341 

Lott, John R., Jr., University of Pennsylvania, Wharton School 465 

Manhattan Institute, Elizabeth P. McCaughey 481 

McCrery, Hon. Jim, a Representative in Congress from the State of Louisi- 
ana 420 

Michel, Hon. Robert H., Republican I^eader, U.S. House of Representatives, 

and a Representative in Congress from the State of Illinois 334 

National Association of Wholesaler-Distributors, Dirk Van Dongen 557 

National Ijeadership Coalition for Health Care Reform, Henry E. Simmons, 

M.D., and Mark Goldberg 513 



V 

Page 

Payne, Hon. L.F., a Pcpresentative in Congress from the State of Virginia 382 

Rice, Thomas, University of California-Los Angeles 437 

Rose, Hon. Charlie, a Representative in Congress from the State of North 

Carolina 435 

Steams, Hon. ClifT, a Representative in Congress from the State of Florida .... 389 

Thomas, Hon. Bill, a Representative in Congress from the State of California . 366 

SUBMISSIONS FOR THE RECORD 

Hall, Mark A., Wake Forest University School of Law, Winston-Salem, N.C., 

statement 577 

Hubbard, R. Glenn, Columbia University, New York, N.Y., statement 587 

Institute of Interactive Management (INTERACT), Bala Cynwyd, Pa., Russell 

L. Ackoff, letter and attachment 595 

Nickles, Hon. Don, a U.S. Senator from the State of Oklahoma, statement 

and attachment 403 

Opticians Association of America, Paul Houghland, Jr., statement 600 

Ramstad, Hon. Jim, a Representative in Congress from the State of Min- 
nesota, statement 417 



ISSUES RELATING TO INNER-CITY AND 
RURAL COMMUNITIES 



MONDAY, FEBRUARY 7, 1994 

House of Representatives, 
Committee on Ways and Means, 

Subcommittee on Health, 

Washington, D.C. 
The subcommittee met, pursuant to call, at 1:30 p.m., in room 
1100, Longworth House Office Building, Hon. Fortney Pete Stark 
(chairman of the subcommittee) presiding. 

[The press release announcing the hearing follows:! 



(1) 



FOR IMMEDIATE RELEASE 
FRIDAY, JANUARY 21, 1994 



PRESS RELEASE #25 
SUBCOMMITTEE ON HEALTH 
COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDO. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-7785 



THE HONORABLE PETE STARK (D., CALIF.), CHAIRMAN, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCES A HEARING 

ON 

HEALTH CARE REFORM: 

ISSUES RELATING TO INNER-CITY AND RURAL COMMUNITIES 



The Honorable Pete Stark (D. , Calif.) » Chairman, Subcommittee on 
Health, Committee on Ways and Means, U.S. House of Representatives, 
announced today that the Subcommittee will hold a hearing on issues 
relating to health care service delivery in inner-city and rural 
communities, as discussed in the President's health care reform 
proposals. This hearing will be held on Monday, February 7, 1994, 
beginning at 1:30 p.m., in the main Committee hearing room, 
1100 liOngworth House Office Building. 

In announcing the hearing. Chairman Stark said, "As we move to 
enact universal health care coverage, we need to take steps to ensure 
that residents of inner-city and rural areas have access to the 
health care they need. Lack of insurance is only one part of the 
problem in these communities, which for too long have suffered from a 
shortage of physicians and health care facilities." 

Oral testimony will be heard from invited witnesses only . 
However, any individual or organization may submit a written 
statement for consideration by the Subcommittee and for inclusion in 
the printed record of the hearing. 

BACKGROUND: 



The Administration estimates that 72 million Americans live in 
inner-city and rural areas where there are insufficient numbers of 
providers or inadequate facilities to provide health care services. 

While access to health insurance is a problem for many residents 
of inner-city and rural communities, ensuring the infrastructure 
needed to deliver services will require more than a guarantee of 
universal coverage. Health care reform proposals that rely on 
competing health plans to provide access to services need to be 
adapted for communities which currently suffer a shortage of 
providers. Assuring that health plans provide accessible health 
services to inner-city and rural residents is essential to the 
success of the Administration's strategy. 

The Administration's health care reform legislation includes 
provisions intended to address the concerns of underserved 
communities c These provisions include those designed to assist 
"essential community providers" and those designed to provide support 
for the creation of health networks in underserved areas. However, 
the Administration proposal also would substantially reduce 
Medicare's disproportionate share adjustment and indirect medical 
education adjustment which currently provide assistance to inner-city 
hospitals serving the indigent. Witnesses are asked to comment on 
the implications for inner-city and rural communities of the 
Administration's health reform proposal in general and these 
proposals in particular. 



DETAILS FOR SOBMIS8ION OF WRITTEN COMMENTS ; 

Persons submitting written statements for the printed record of 
the hearing should submit at least six (6) copies of their statements 
by the close of business on the last day of the hearings, to 
Janice Mays, Chief Counsel and Staff Director, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. An additional supply of statements 
may be furnished for distribution to the press and public if supplied 
to the Subcommittee office, room 1114 Longworth House Office 
Building, before the final hearing begins. 

FORMATTING REODIREMEHT8 ; 

Each statement presented for printing to the Committee by a wrtness, any written statement or exhibit submitted for 
the printed record, or any written comments in response to a request for written comments must conform to the guidelines 
listed below Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in 
the Committee files for review and use by the Committee. 

1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and 
may not exceed a total of 10 pages. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing Instead, exhibit 
material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications 
will be maintained in the Committee files for review and use by the Committee 

3. Statements must contain the name and capacity in which the witness will appear or, for written comments, the 
name and capacity of the person submitting the statement, as well as any clients or persons, or any organization 
for whom the witness appears or for whom the statement is submitted. 

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where 
the witness or the designated representative may be reached and a topical outline or summary of the comments 
and recommendations in the full statement This supplemental sheet will not l>e included in the printed record. 



Chairman Stark. Good afternoon. 

The subcommittee will continue hearings on health reform with 
a discussion of issues affecting inner-city and rural communities. 

Because they include a disproportionate share of the uninsured, 
guaranteeing universal coverage is a critical step in insuring access 
to health services for residents of inner-city and rural communities. 
Twenty-five percent of the residents under age 65 here in the Dis- 
trict of Columbia, for example, are uninsured. Agricultural workers 
in our rural communities are uninsured at substantially higher 
rates than other Americans. 

Insurance coverage is not enough, however, to address the 
unique access problems faced in these areas. These communities 
lack the health care infrastructure, hospitals, physicians and other 
providers needed to deliver health care. For example, 28 States 
have at least one county without a physician. 

The capital needs of safety net hospitals are chronically under- 
funded. Many of these facilities are struggling to continue to serve 
as the only provider for many costly, specialized services such as 
trauma care, neonatal, intensive care and emergency psychiatric 
treatment. 

Last year, H.R. 2294, the Essential Health Facilities Investment 
Act, which the Chair introduced, offered to expand the essential ac- 
cess community hospital program for rural health networks to all 
50 States, and established a similar program of assistance for net- 
works of urban essential community providers to provide Federal 
loans and grants for meeting the capital needs of safety net provid- 
ers. 

The shortage of providers and lack of infrastructure is aggra- 
vated by the greater need for services in both these communities. 
Violence, drug abuse and homelessness plague our inner cities and 
put immense stress on the health care system. Residents of rural 
areas are older, sicker, poorer, and have higher rates of unemploy- 
ment and chronic illness than other Americans. 

The subcommittee has been concerned about the problems of 
inner-city and rural areas. As the committee of jurisdiction over the 
Medicare program, we have worked to protect access for Medicare 
beneficiaries in these communities through the disproportionate 
share adjustment, the Equal Access Community Hospital program, 
and other targeted assistance. 

As recently as last June, the subcommittee held a hearing to dis- 
cuss approaches we might consider to address needs of inner-city 
and rural areas as we undertake health care reform legislation. 

Since then, we have received the administration's Health Secu- 
rity Act which includes provisions intended to target assistance to 
the special needs of rural and inner-city communities. These in- 
clude authorizations for a number of public health service initia- 
tives for underserved populations, capital funding for community 
health plans and practice networks, and authorization for a new 
program of financial assistance for capital development of commu- 
nity health plans and practice networks. 

Our witnesses today have been asked to discuss the overall im- 
pact of the administration's proposal on rural and inner-city areas. 
We welcome their assistance. 

Mr. Thomas. 



Mr. Thomas of California. Thank you, Mr. Chairman. 

As we have seen with the testimony, the inner-city and rural 
communities have far more in common than a lot of people realize 
in terms of trying to get their health care needs met. We are deal- 
ing with somewhat unique problems, but I think you will find that 
the testimony from our colleagues, both from the rural and inner 
city, will show there is a lot more in common than most people re- 
alize. 

There are unique instances; for example, the gentleman from 
Wyoming, my namesake, has an enormous population that comes 
into their States on periodic months visiting national parks. I have 
the Sierra Nevadas behind me that is the playground for millions 
from Los Angeles County, and when they fall down and break their 
leg, it is my hospitals that they get airlifted to. 

There are unique situations, but by and large what you are going 
to find is that as we debate the question of insuring all Americans, 
my colleagues are here to help us understand better who and 
where the phrase, "all Americans" encompass. 

I look forward to their testimony. 

Chairman Stark. Mr. McCrery. 

Our first panel is comprised of the distinguished cochairs of the 
Rural Health Care Coalition joined by one of their principal mem- 
bers: Hon. Craig Thomas from Wyoming, is backstopping Hon. 
Charles Stenholm of Texas and Hon. Pat Roberts of Kansas. Thank 
you for coming. We are glad you would take the time to be with 
us. 

If you have presented written statements, they will appear, with- 
out objection, in the record in their entirety. In any event, we wel- 
come your addressing us. Are you the leadoff, Charlie? Please do. 

STATEMENT OF HON. CHARLES W. STENHOLM, A REPRESEN- 
TATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND 
COCHAIRMAN, HOUSE RURAL HEALTH CARE COALITION 

Mr. Stenholm. We appreciate very much the opportunity to tes- 
tify before your committee today. We appreciate your remarks and 
I want to associate myself particularly with Mr. Thomas' remarks 
that there is a lot more in common between inner city and rural 
than might meet the common eye. 

As you know, Pat Roberts and I cochair the Rural Health Care 
Coalition in the House of Representatives and have been working 
with this coalition over the past several years to see that the poten- 
tial health system reforms do in fact affect rural areas in a very 
fair and efficient way. 

Today I would concentrate my remarks in three areas: First, in 
the area of work force; Second, in the area of integrated delivery 
systems; and finally, the small business aspects since rural Amer- 
ica has many, many small businesses. 

As I am sure you understand, the shortage of health care profes- 
sionals in rural areas has historically been and continues to be the 
central barrier to access to health care services in many rural com- 
munities. There are approximately 2,000 health professional short- 
age areas in the United States and over half of those are in rural 
areas. 



In the State of Texas, approximately one-half of the 254 counties 
are designated shortage areas. Of those, 88 percent are rural. As 
you know, the measure of physician-to-population ratio is com- 
monly used as an indicator of underserved populations. In rural 
Texas, there are 71.1 physicians per 100,000 people. In urban parts 
of the State, the physician-to-population ratio is more than double 
the rural figure. In the Nation as a whole, the average is 248 phy- 
sicians per 100,000 people. The figures for nurses and other provid- 
ers in Texas add to the picture of underservice in our rural areas. 

Rural counties in general rely on nurses with less training than 
the nurses who practice in urban areas. The majority of nurses 
practicing in rural Texas are licensed vocational nurses. While we 
are enormously grateful for their services, rural communities are in 
need of nurses with more advanced training. 

If attempts to improve access to quality care in rural areas 
through organizing and building rural health care delivery systems 
are going to be successful, we first need an adequate supply of 
health care providers practicing in rural areas. 

The President's bill contains a number of tax incentives to en- 
courage primary care providers to locate in rural areas. These 
types of incentives are supported by many rural health advocates. 
However, it is important to note that financial incentives alone are 
not likely to be sufficient to significantly increase the number of 
providers locating in rural areas. 

I personally am very interested in some of the new and innova- 
tive things that are being tried in my State and elsewhere in which 
in rural communities that we in fact need to do something to help 
ourselves. An example is the areas where they are starting locally 
funded scholarship programs, such as the community scholars pro- 
gram in Texas. I think community-based incentives to attract men 
and women to doctoring and nursing, matched with State funds 
and also perhaps, Federal matching funds, makes a lot of sense. 

Moving on to the integrated delivery systems, in looking at tax 
incentives for rural and underserved areas, I also encourage the 
committee to place a priority on incentives to build these integrated 
health care delivery and communication systems. This is something 
again where it is going to require a tremendous amount of coopera- 
tion between local. State and Federal efforts if we are in fact going 
to meet the needs of rural areas. 

Finally, I would point out, in the area of small business, a major 
area of concern for the coalition is the effect of systemwide reforms 
on small businesses which make up a significant percentage of the 
employers in rural America. We encourage the committee to care- 
fully explore the issue of employer mandates before making a deci- 
sion which would negatively impact job growth and availability in 
the already fragile rural economy. 

While the coalition has not officially taken a position in support 
or opposition to the issue of employer mandates, there are many 
of us who have grave reservations about these mandates and we 
are united in our concern about how mandates could impact upon 
small business employment in our rural communities. 

IThe prepared statement follows:] 



Testimony of 

CONGRESSMAN CHARLES W. STENHOLM 

CO-CHAIRMAN OF THE HOUSE RURAL HEALTH CARE COALITION 

before the 

Committee on Ways and Means, Subcommittee on Health 

February 7, 1994 

Mr. Chairman, I appreciate this opportunity to testify before your Committee 
regarding the impact of health system reform on rural America. As you know, I, 
along with Representative Pat Roberts of Kansas, co-chair the Rural Health Care 
Coalition in the House of Representatives. The Coalition has been working on 
determining the effects of potential health reforms on rural areas for the past year 
and we are pleased to be able to share some of our findings and concerns with you 
today. 

WORKFORCE 

As I am sure you understand, the shortage of health care professionals in rural areas 
has historically been and continues to be the central barrier to the access of health 
care services in many rural communities. There are approximately 2,000 health 
professional shortage areas in the United States and over half of those are rural 
areas. In the state of Texas, approximately one half of the 254 counties are 
designated shortage areas; of those, 88% are rural. As you know, the measure of 
physician to population ratio is commonly used as an indicator of underserved 
populations. In rural Texas, there are 71.1 physicians per 100,00 people. In urban 
parts of the state the physician to population ration is more than double the rural 
figure. In the nation as a whole, the average is 248 physicians per 100,000 people. 
The figures for nurses and other providers in Texas add to the picture of underservice 
in our rural counties. Rural counties, in general, rely on nurses with less training 
than the nurses who practice in urban areas. The majority of nurses practicing in 
rural Texas are Licensed Vocational Nurses (LVNs). While we are enormously 
grateful for the services of our LVNs, rural communities are in great need of nurses 
with more advanced training. 



If attempts to improve access to quality health care in rural areas through organizing 
and building rural health delivery systems are going to be successful, we first need an 
adequate supply of health care providers practicing in rural areas. The Coalition 
places a priority on assuring that any health reform plan that is passed contains 
effective measures to encourage providers, especially primary care physicians, nurse 
practitioners, physician assistants and certified nurse midwives, to practice in 
underserved areas. 

H.R. 3600 contains a number of tax incentives aimed at encouraging primary care 
providers to locate in rural areas. These types of incentives are supported by many 
rural health advocates though it is important to note that financial incentives alone 
are not likely to be sufficient to significantly increase the number of providers locating 
in rural areas. Some rural states and facilities, particularly health centers and rural 
health clinics currently are using iimovative training programs to encourage providers 
to practice in rural areas. I hope that workforce provisions included in health reform 
will encourage and provide incentives for these community facilities to continue to be 
involved through direct funding for their educational efforts. 

I trust that the Committee will work to direct the dollars spent on health reform and 
provider incentives in such a maimer as to achieve the most effective results possible. 
There are several questions I would encourage the Members of the Committee to 
investigate further: Can the funds and tax incentives available to providers reasonably 
be expected to alleviate provider shortages in underserved areas? Will the new 
structure of Graduate Medical Education financing and other medical education 
reforms significantly improve the number of primary care providers practicing in rural 
America? Do provisions in the bill, including licensing requirements, adequately and 
appropriately expand the utilization of mid-level practitioners? 

INTEGRATED DELIVERY SYSTEMS 

In looking at tax incentives for rural and underserved areas I also encourage the 
Committee to place a priority on incentives to build integrated health care delivery 
and communications systems. These measures can help to alleviate some of the non- 
financial concerns of isolated rural practitioners such as the heavy workload and the 



absence of professional consultation and support services. 

Community-based initiatives to coordinate services and build network systems are a 
necessary component of improving access to quality care in rural areas. I encourage 
the Committee to consider options to help communities in the plarming and 
implementation of delivery networks including technical and Hnancial assistance for: 
information and telecommunications systems; enabling services such as transportation 
and translation; the recruitment and retention of providers; and assistance in meeting 
capital and solvency requirements for health plans. 

Another concern of the Coalition is the effect of system-wide reforms on small 
businesses, which make up a significant percentage of the employers in rural America. 
We encourage the Committee to carefully explore the issue of employer mandates 
before making a decision which could negatively impact job growth and availabUity in 
the already fragile rural economy. While the Coalition has not officially taken a 
position in support or opposition to the issue of employer mandates, there are many 
of us who have grave reservations about these mandates and we are united in our 
concern about how mandates could impact small business employment in our rural 
communities. 

Thank you for this opportunity to testify on these matters of great importance to me 
and a number of our colleagues. I am pleased to turn over the floor to my Co- 
Chair, Representative Pat Roberts, who will discuss several other concerns of the 
Coalition. 



10 

Chairman Stark. Mr. Roberts. 

STATEMENT OF HON. PAT ROBERTS, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF KANSAS, AND COCHAIR- 
MAN, HOUSE RURAL HEALTH CARE COALITION 

Mr. Roberts. Thank you, Mr. Chairman. 

Usually the Stenholm-Roberts posse rides in the sometimes pow- 
erful House Agriculture Committee and we are usually on time. 
However, I note with the green, amber and red light, I may go over 
about 1 or 2 minutes and I beg the subcommittee's indulgence. 

Chairman Stark. That is just habit. We tend to, as a matter of 
comity, ignore it. 

Mr. Thomas ok California. I would urge the gentleman from 
Kansas not to abide directly by the light, but to use it as a guide. 

Mr. Roberts. Sort of a guiding light. Bill. 

Thank you for the opportunity to discuss the aspects of the rural 
health care problem. As of today, we have 151 members who are 
privileged to serve in a rural area and we got a little tired of bang- 
ing our knuckles raw on the door of HCFA or HHS or any one of 
the alphabet soup acronyms, so we joined together and have 151 
of us, and it is bipartisan. 

I would like to address some of the concerns that I have with 
President Clinton's health care reform plan and its impact on infra- 
structure development, on governance and control of health care. 
We sent a letter, Mr. Stenholm and Mr. Slattery, who is also a 
member of the Coalition and Mr. Gunderson and myself to the 
American Hospital Association, the American Nurses Association, 
the AMA, American Association of Medical Colleges, the National 
Rural Health Association, the American Academy of Family Physi- 
cians, the National Association of Community Health Centers, the 
Rural Policy Research Institute, the National Alliance of Nurse 
Practitioners, and the National Rural Health Network, and we are 
getting a lot of letters back. 

We asked about the President's plan with regard to work force, 
infrastructure, reimbursement issues and governance, information 
systems, and small business. These are the concerns that we are 
hearing back from these groups. 

I think everybody knows the Nation's rural hospitals are experi- 
encing financial shortfalls and shoestring budgets. In general, rural 
hospitals serve a higher population with regard to Medicare and a 
lower level of insured patients. So this provides less opportunity for 
our hospitals to subsidize losses on both the Medicare and the Med- 
icaid patients from any private pay patient. 

In Kansas as in Texas, we have 60 Medicare-dependent hos- 
pitals, and Medicare reimburses rural hospitals about 90 cents on 
the dollar. I am deeply concerned about the proposal to cut an ad- 
ditional $124 billion from the Medicare budget in order to pay for 
alleged health reform. Unless additional funding sources are in- 
cluded, these cuts will really cripple the small rural hospital; many 
could close their doors. 

Most of the hospitals with 50 beds or less are in my 66-county 
district, so it would be a real problem. The Health Security Act 
does take several steps to invest in expansion of primary care serv- 
ices in underserved areas, and I support such efforts. 



11 

However, under the President's plan, a large portion of these 
funds would be administered under something called the qualified 
community health plans and practice networks program which 
would give the greatest preference to facilities such as health main- 
tenance organizations that are generally utilized in large urban 
areas. 

Publicly funded providers who band together are given a lower 
preference for receiving support, and that is not good news. There 
are similar concerns in the funding of educational and prevention 
programs. 

I support the plan's real initiative to educate our youth in 
healthy activities, but in establishing the criteria for local edu- 
cation agencies to receive the planning grants for educational pro- 
grams, the President's plan limits such grants to agencies that en- 
roll a minimum of 25,000 students. No school district in 85 rural 
counties in Kansas would qualify for such a grant. 

State and local governments must have the flexibility to struc- 
ture the health care delivery system and take into account these 
special circumstances. Under the President's plan, regional health 
alliances function under control of the National Health Board. This 
board is responsible for determining a global budget as well as set- 
ting caps on insurance premium spending for each regional alli- 
ance. 

I am concerned that these regional alliance premium caps will be 
developed on what we call historical data. Since payments to rural 
providers are lower than those to our urban counterparts, this will 
lock in lower payments to the rural provider. 

Mr. Stenholm, myself and Mr. Thomas and all of us on the 
Health Care Coalition have been working to get those Medicare re- 
imbursements at least back up to cost. If we base payments on his- 
torical data, again we are going to have a lot of problems. 

Another concern for rural areas is the global budget concept. 
This is basically in my opinion a zero-sum game. If one alliance 
spends more, then another will have to spend less. Rural alliances 
made up of farmers and ranchers who are engaged in hazardous 
occupations could be forced to exceed their budget. 

If the regional health alliance runs out of money, individuals and 
employers in the region must make up the shortfall. That is taxes 
up and down Main Street. But if the amount of money that can be 
spent in the region is capped, how else can the shortfall be made 
up without some form of rationing. Due to a lack of services and 
providers, our rural citizens are already experiencing rationed 
health care. 

The Federal Government holds broad regulatory powers by being 
the sole designator of underserved areas that link our local commu- 
nities to important Federal funding. This could be remedied, and 
I would make a suggestion to the subcommittee, Mr. Chairman, by 
utilizing the Health Professional Shortage Area, or what we call a 
HPSA, instead of the medically underserved population. 

HPSA designations allow for more State control to target the 
areas for Federal funding. In addition, the Clinton plan in my opin- 
ion fails to adequately address the important issue of the rural 
health delivery systems that cross State lines. 



12 

In western Kansas and in my neighbor's county, we have facili- 
ties in Cheyenne County, Kans. and Dundee County, Nebr. Many 
rely on facilities in Denver, Colo. So rural residents should not be 
forced to travel any greater distances to seek care in their own 
States when a closer facility simply could be utilized in a neighbor- 
ing State. 

I have some information with regard to the electronic informa- 
tion system. We are going to need additional grants to get up and 
running because rural hospitals fall short in terms of funding. 

Mr. Chairman, I am simply going to say I look forward to work- 
ing with this committee to develop workable health care reform. 
There are many similarities, I think, between the Health Security 
Act and some alternative health reform bills, that is, the Presi- 
dent's plan, in the Congress. 

I think most of us on the Coalition would agree that we must re- 
form the insurance market. We must implement administrative 
simplification measures. We must increase the deductibility to the 
self-employed. We must reform the malpractice laws and remove 
what we call the antitrust barriers. 

Medical savings accounts have also been proposed as an alter- 
native method to control the skyrocketing costs. I just make the ob- 
servation if we did all that, it would be a landmark policy change. 
The idea that somehow these recommendations represent only in- 
cremental reform and not substantive reform is, I think, false. 

Thank you. 

Chairman Stark. Thank you. 

[The prepared statement follows:] 



13 



TESTIMOhfY BY THE HONORABLE PAT ROBERTS (R-KS) 
HEARING BEFXDRE THE WAYS AND MEANS SUBCOMMITTEE ON HEALTH 

FEBRUARY 7, 1994 

1:30 P.M. 

1100 LONGWORTH BUILDING 

Mr. Chairman, thank you for the opportunity to discuss njral health care with you today. 
I serve as co-chairman of the House Rural Health Care Coalition, a group of 151 Members 
concerned about health care in rural areas. Rural Americans face unique health delivery 
problems that stem from a shortage of health providers, services and facilities, as well as 
geographic barriers. Today, I would like to specifically address concerns with President 
Clinton's health care reform plan and its impact on infrastructure development, governance and 
control of rural health care. 
Infrastructure 

Our nation's rural hospitals are experiencing financial shortfalls and shoestring budgets. 
In general, rural hospitals provide health care services to a higher Medicare population and a 
lower level of insured patients. This provides less opportunity for our hospitals to subsidize 
losses on Medicare and Medicaid patients from private pay patients. In Kansas, we have 60 
Medicare Dq)endent Hospitals. Medicare reimburses rural hospitals about 90 cents on the 
dollar. I am deeply concerned about the proposal to cut an additional $124 billion out of the 
Medicare budget in order to pay for health care reform. Unless additional funding sources are 
included, these cuts will cripple small rural hospitals. Many will close their doors. 

The Health Security Act takes several steps to invest in the expansion of primary care 
services in underserved areas and I support such efforts. However, under President Clinton's 
plan, a large portion of these funds would be adraijiistered under the Qualified Community 
Health Plans and Practice Networks Program, which would give greatest preference to facilities 
such as Health Maintenance Organizations, that are generally utilized in large, uiban areas. 
Publicly-fiinded providers who band together are given a lower preference for receiving support. 

There are similar concerns in the funding of educational and prevention programs. I 
support the plan's initiative to educate our youth in healthy activities. But in establishing criteria 
for local education agencies to receive planning grants for educational programs, the Health 
Security Act limits such grants to agencies that enroll a minimum of 25,000 students. No school 
district in any of the 85 niral counties in Kansas would qualify for a grant. 



14 



Each rural community has its unique set of service delivery problems, resources, and 
priorities. State and local governments must have the flexibility to structure health delivery 
systems that take into account these special circumstances. 

Under the President's plan, regional health alliances function under control of the 
National Health Board. This Board is responsible for determining a global budget, as well 
setting caps on insurance premium spending for each regional alliance. I am concerned that 
these regional alliance premium caps will be developed based on historical data. Since payments 
to rural providers are lower than those to their urban counterparts, this will lock in lower 
payments to rural providers. 

Another concern for rural areas is the global budget concept. This is basically a zero- 
sum game. If one alliance spends more, another will have to spend less. Rural alliances, made 
up of farmers and ranchers who are engaged in hazardous occupations, could be forced to 
exceed budgets. If the regional health alliances run out of money, individuals and employers 
in the region must make up for the shortfall, most likely by increasing taxes up and down main 
street. But if the amount of money that can be spent in the region is capped, how else can the 
shortfall be made up without some form of rationing? Due to a lack of services and providers, 
rural Americans are already experiencing rationed health care. 

The federal government holds broad regulatory powers by being the sole designator of 
underserved areas that link local communities to important federal funding and by retaining 
discretion for funding the development of networks. This could be remedied by utilizing the 
Health Professional Shortage Area, or HPSA, instead of the Medically Underserved Population. 
HPSA designations allow for more state control to correctly target areas for federal funding. 

The Clinton plan fails to adequately address the important issue of rural health delivery 
systems that cross state lines. In western Kansas, residents have formed the State Line Health 
Network, which includes facilities in Cheyenne County, Kansas, and Dundy County, Nebraska. 
Denver, Colorado, has become a regional health center for rural residents of several surrounding 
states. Rural residents should not be forced to travel greater distances to seek care in their own 
states when closer facilities are already being utilized in neighboring states. 
Information Systems 

Electronic information systems arc important to rural health and I support the 
administrative's initiative to move toward electronic billing and standardized forms. However, 
these information systems are expensive and small rural hospitals may struggle to come up with 
the financing needed. The Implementation process must be phased in so that rural communities 
will have adequate time to build funds. 



15 



Telcmedicine is particularly important to rural health delivery systems. It assures less 
professional isolation for rural physicians, a critical component needed to recruit more health 
providers to rural areas. However, without the assurance of payment for telemedicine services, 
the full potential of telemedical technology will never be realized. Currently, HCFA provides 
reimbursement for certain radiology and pathology services, but does not recognize medical 
consultations performed via telecommunications links. This administrative roadblock prevents 
the development and expansion of these systems in rural America. The Rural Health Care 
Coalition has met with HCFA officials about this but is awaiting a response. 

Mr. Chairman, I look forward to working with this committee to develop workable health 
care reform. There are many similarities between the Health Security Act and alternative health 
reform bills in Congress. Everyone agrees that we must reform the insurance market, 
implement administrative simplification measures, increase deductibility to the self-employed, 
reform malpractice laws, and remove anti-trust barriers. Medical savings accounts have been 
proposed as an alternative method to control skyrocketing costs. I support measures to 
implement these reforms. 

Mr. Chairman, thank you for this opportunity. I urge the Committee to take a serious 
look at our recommendations and consider the impact any comprehensive health care reform 
initiative will have on rural and underserved areas. 



16 



Chairman Stark. Craig. 



STATEMENT OF HON. CRAIG THOMAS, A REPRESENTATIVE IN 
CONGRESS FROM THE STATE OF WYOMING AND CHAIRMAN, 
TASK FORCE ON HOSPITALS AND CLINICS, HOUSE RURAL 
HEALTH CARE COALITION 

Mr. Thomas of Wyoming. Thank you very much, Mr. Chairman. 
I appreciate the opportunity of visiting with you a bit about rural 
health care. 

There are several points I would like to make during the brief 
comments. One is that a "one fits all" program doesn't work in this 
country. We have great diversity. 

Another is that the available facilities in rural areas are quite 
different than they are where there is a larger population, and I 
think we have to deal with that. 

Another is the need for antitrust reform and redefining hospitals 
so that we can reimburse them on a different basis. I am sure we 
agree that rural people need to be on an equal footing when we 
talk about reforming health care. 

A nationalized system simply won't fit the whole country, wheth- 
er it be managed competition, or nationalized alliances, both of 
which are in the President's plan. These proposals don't fit the di- 
versity that we have. The notion of putting together a large group 
of buyers with leverage to select among buyers is not a new idea; 
agriculture has been doing it for years, but it doesn't work well in 
a place like Wyoming. 

We have 460,000 people, nearly 100,000 square miles. The New 
England Journal of Medicine said that it takes approximately 
180,000 people to put together a managed care unit. The largest 
town is something less than 60,000 in Wyoming. So it makes it 
quite a different situation. 

We talk about goals, but all of us generally agree we need to in- 
crease access, do something about decreasing costs and maintain- 
ing quality, but access in a rural area means something quite dif- 
ferent. 

In urban areas generally if you have the financial support, you 
have access. In Wyoming, you may not have access despite having 
the financial backing to do that. We need to work with nurse prac- 
titioners and physician's assistants. In Sublette County, Wyo., the 
largest town is Pinedale, of about 3,000. There is one physician in 
the countv. It is 100 miles to the closest hospital, and Dr. Johnson 
works well there. 

Your daughter knows a lot about this kind of thing, Mr. Chair- 
man. All rural areas are not the same. I noticed with some interest 
in Arkansas they had 89 hospitals generally serving an area of 580 
square miles. Wyoming has 25 hospital serving an average area of 
about 3,700 square miles, so it is quite a different matter. 

The administration refers in their bill to rural areas being served 
by things such as migrant and community health centers, rural 
health clinics, federally qualified health centers, family planning 
clinics, school-based clinics, and calls them essential community 
providers. We have such facilities in my State, two migrant cen- 
ters, some 400 miles apart. So this sort of an approach will not deal 
with our problems. 



17 

My friend has already mentioned the reduction in Medicare. Our 
South Big Horn Hospital, devoted 80 percent of their patient care 
to Medicare patients. So not being reimbursed or being 
underreimbursed for Medicare is an element of great concern. 

I too think that there are some fundamental changes that could 
be made without trying to replace the whole system; if we could do 
something about fundamental insurance reform so that people 
aren't denied coverage, and if we could do something about anti- 
trust reform. We finally put together two hospitals in Cheyenne 
last year and it will be a more effective approach. Telemedical serv- 
ices are also something that is very meaningful to us. 

I suppose we have a unique situation, but I think if we are not 
careful all the tertiary care in Wyoming will go to the border areas: 
Salt Lake City; Billings, Mont.; Rapid City, S. Dak.; Denver, Colo.; 
and we will be left with nothing, but very basic care. 

So to a State where there is as many miles, I think that would 
be a bad situation. 

My main plea is that we follow H.R. 3078, which we put in the 
Rural Health Care Coalition, which redefines hospitals. South Big 
Horn ended up with a 4 percent occupancy, over 80 percent Medi- 
care. They couldn't function with the regulations. If we could rede- 
fine those, and we have done that in Montana with a special appro- 
priation, if we could do nothing more than keep a 24-hour emer- 
gency room, these folks need a facility. 

They can't support a full-service hospital facility — if we could re- 
define that so there could be Medicare/Medicaid, the payments 
made to something less than what we define as a full-service hos- 
pital, we think that would be particularly useful. 

That provision exists in the Chafee bill and the Cooper proposal 
as well as Mr. Michel's proposal. It does not exist nor does it fit 
apparently in the administration bill. 

Mr. Chairman, we appreciate your interest in the uniqueness of 
rural areas and hope to work witn you as we to something that will 
be workable for all of us. 

Thank you. 

Chairman Stark. We thank all of you. 

[The prepared statement follows:] 



18 



€ongvtii of tf)e Winitth ^tatti 

^ouit of ^epreiientatibeK 

JHagfjinffton, M<L 20515-5001 

TESTIMONY BY THE HONORABLE CRAIG THOMAS (AL-WY) 

HEARING BEFORE THE WAYS AND MEANS SUBCOMMITTEE ON HEALTH 

HEALTH CARE SERVICE DELIVERY INFRASTRUCTURE 
IN INNER-CITY AND RURAL COMMUNITIES 

FEBRUARY 7, 1994 

1:30 P.M. 

1100 LONGWORTH BUILDING 



Mr. Chairman, thank you for the opportunity to testify before your subcommittee. I 
appreciate you holding this hearing as Congress moves forward on health care reform. One 
thing is certain, no matter what plan is adopted, rural people must be on equal footing as 
those who live in urban areas. 

Some policy experts advocate a nationalized system of health care as the solution, 
while others advocate a "managed competition" approach. In the administration's case, it 
recommends both. However, without real state flexibility neither system is adaptable to the 
circumstances confronted daily by rural people. 

A study published in the New England Journal of Medicine found that areas need 
at least 180,000 people to support the most basic managed care program. The largest town 
in Wyoming is less than 60,000. We do not have one urban area. So when you are talking 
about health care reform, you need to include workable answers for people in a state of 
435,000 rural residents. 

My state faces a severe health professional shortage. We also encounter difficult 
weather conditions that can change without a moment's notice, geographic boundaries that 
add an extra 100 miles to the drive for the nearest hospital and virtually no public 
transportation. These are the types of access problems common of rural areas -- often a 
greater hindrance to quality care than cost itself. 

President Clinton's "Health Security Act" imposes a one-size, fits-all program. It 
relies heavily on managed care and government controls. But as you can see from the 
description of my communities, we do not fit in the administration's plan. 

As the Chairman for the Rural Health Care Coalition Task Force on Hospitals and 
Qinics, I am deeply concerned about the president's complex health alliance structure. 
These alliances would be required to pool consumers, bargain with providers and collect 



19 



premiums. However, they disregard the most important component rural areas need -- 
flexibility. It is difficult to bargain with providers in a rural areas when there are not any. 

Not all rural areas are alike. Wyoming has 25 sole community hospitals that on 
average service approximately 3,700 square miles. By contrast, Arkansas has approximately 
89 hospitals servicing an average of 580 square miles. While Arkansas is also considered 
rural, Wyoming is twice the size, with one fifth of the population. What might work for 
Arkansas people will not work for Wyoming people. 

The administration claims states like Wyoming will not have a problem with its 
health alliance structure because the number of providers, allowed to participate, would be 
expanded. For instance, the alliances would automatically approve migrant and community 
health centers, rural health clinics, federally-qualified health centers, family planning clinics 
and school-based clinics as "essential-community providers." All other providers, wishing 
to participate, would have to apply to the Secretary. 

Despite the expanded provider provision, rural areas will still be affected. The 
"essential community provider" definition does not include the most common facilities in 
rural areas - sole community hospitals (SCHs) or Medicare Dependent hospitals. Out of 
all the categories listed for expansion, Wyoming has two migrant health centers in Worland 
and Guernsey, which are eight hours apart. What happens to the folks in between? Or the 
residents located in the rest of the Northeastern and Southwestern parts of the state? 
Where will they go to receive care? How are these alliances an answer? 

The president's plan will also make it difficult for rural areas by slashing $124 billion 
from Medicare reimbursement. After all the time and energy the Rural Health Care 
Coalition has spent in improving the level of reimbursement to rural areas, this cut puts us 
back to square one. The administration claims all the "new-paying patients" with insurance 
policies will offset the cut. But the fact is, so-called charity care is not a major problem in 
rural areas. Medicare and Medicaid reimbursement is the bulk of our facilities. For 
example, during 1993 one hospital in Wyoming received $6.9 million in Medicare 
reimbursement. It wrote off $1 milUon for charity care. As you can see, Wyoming's 
facilities depend much more on federal reimbursement programs, and any additional cuts 
will force our providers to shut their doors. And who would lose? Wyoming's rural 
residents. 

Health care reform is suppose to improve the delivery of care to both urban and 
rural people. It is not suppose to risk the limited number of providers that rural areas so 
desperately depend on. 

I suggest Congress focus on measures that can be enacted today. Changes like 
fundamental insurance reform, anti-trust reform, reimbursement for telemedicine services, 
tort reform, and improving health professional recruitment programs. These are the steps 
that will improve the rural health care delivery system. States like mine need flexibility to 



20 



reform their health care delivery system, yet the president's plan only provides two 
choices ~ health alliances or single-payer plans. Frankly, neither will work in Wyoming. 

If the administration's plan, or any other health care reform measure, wants to foster 
integration among facilities and providers, the plan must include flexible measures. I have 
one specific suggestion, my bill, H.R. 3078, the "Rural Emergency Access Care Hospital 
Act." It complements any comprehensive health care reform plan. Many rural communities 
resist closing an underutilized facility, for fear of losing the emergency room. My bill, 
however, helps reduce excess capacity. It also helps create a network of satellite clinics and 
full-service hospitals in rural areas. 

Currently, if a facility has a difficult time staying open due to high regulatory costs 
and low in-patient stays, it is prohibited from downsizing to an emergency medical center. 
Medicare will not recognize a facility that does not meet all the conditions of participation. 
As a result, a facility wishing to downsize will lose its Medicare Part A reimbursement. My 
bill makes this regulation more flexible by creating a new limited service category. Small 
rural hospitals could convert to "Rural Emergency Access Care Hospitals" (REACH), 
provided they meet the following qualifications: 1) obtain approval from the Secretary 
certifying that access to critical services would be severely limited to residents in the 
commuiiity if the rural hospital were to close; 2) be able to transfer patients to a nearby 
full-service hospital; 3) keep a practitioner, who is certified in advanced cardiac life support 
by the State, on-site 24-hours a day; and 4) have a physician on-call on a 24-hour basis. 
Hospital administrators view this as a solid solution to improve the rural health care delivery 
system. 

H.R. 3078 has been folded into Sen. John Chafee's "Health Equity and Access 
Reform Today Act," Rep. Jim Cooper's, "Managed Competition Act," and Rep. Bob 
Michel's, "Affordable Health Care Now Act." I suggest it also be included in President 
Clinton's, "Health Security Act." As well as other measures to add real flexibility for rural 
health care reform. But there are many more needed. I have a list of those as additions 
to my testimony I will submit for the record. 

Mr. Chairman, I hope solutions like the REACH bill and changes to the 
administration's "essential-community provider" definition, will be given serious consideration 
by the subcommittee. I also hope it focuses on reforms that can be put in place today. 

Congress cannot afford to implement a national health care program that 
discriminates against rural people. Rural folks deserve access to quality health care just as 
much as those living in iimer cities. And any comprehensive reform plan must take that into 
account. 

Again, thank you for holding this hearing. I appreciate your interest in rural areas 
and look forward to exchanging other recommendations to improve our nation's health care 
delivery system. 



21 

Chairman Stark. Charlie, just to pick up on your question about 
the similarities. You mentioned 71 physicians per 100,000 and in- 
terestingly enough, here in the Anacostia region of the District of 
Columbia, we have about 200,000 people and we only have 117 pri- 
mary care physicians. 

Now I know about the trip from Laramie to Cheyenne which is 
one trip in the summer and another in the winter, but if you think 
about getting on a Metro bus from way out Pennsylvania Avenue 
to Greorgetown, a couple of transfers with a couple of kids, there is 
indeed the question of providing access to populations who for one 
reason or another have their services limited. 

I know that we have worked on this with the Coalition, Charlie, 
that you and Congressman Roberts cochair, trying to work out a 
way that we can expand access and provide the quality of care. In 
other words, it is an article of faith that you can operate a 10-bed 
hospital and support an MRI. 

The question is how do you get folks in that area to a tertiary 
center or even a bigger hospital? Those are all problems, and they 
are not necessarily just related to any one solution to the unin- 
sured. 

I gather, Craig, that you are saying that we don't need any one 
of these particular plans, but you have 14 percent in Wyoming of 
your under-65 population uninsured. 

Mr. Thomas of Wyoming. Yes. 

Chairman Stark. Somehow or other it seems to me if we don't 
insure them, everybody else in Wyoming is going to be picking up 
the costs of their care, and that is a proolem we are going to have 
to deal within addition to seeing that the resources are there once 
they get insurance. 

Mr. Thomas of Wyoming. I agree with that, Mr. Chairman, but 
I think my point is we have to do it in a way that will work. The 
legislature put together some movement on small group insurance. 
We think we can make a fundamental change where people are not 
denied or cancelled insurance. 

I have to confess that in my bill, I require insurance. I do it with 
a voucher. I, too, would like to see everybody insured to stop cost- 
shifting. My main point is that something that fits in Baltimore 
probably won't fit in Basin, Wyo. 

Chairman Stark. The gentleman is correct. There is an imme- 
diate member of the Stark family who keeps reminding me of the 
problem since she is a care provider in vour State. I am kept well 
aware of the problems of providing healtn care. 

Mr. Thomas. 

Mr. Thomas of Calif^ornia. Back to the point that you made be- 
cause people say yes, but you can't carry the analogy between the 
urban and the rural too far. I think it is amazing how far you can 
carry it, not just in terms of distances; 10 blocks is sometimes 
equal to 100 miles in the rural areas, but type of facilities that are 
available and the fact the debates tend to stem on the question of 
coverage, and there are very strong and eloquent statements made 
about the fact that we just don't want access; we want coverage. 

Frankly, there are a lot of areas of the United States that would 
settle for access because coverage would follow and the distances, 
both mental and physical, are such that they are denied it. 



22 

We have real problems. There are a number of bills that have 
the economic incentives in there. My bill is $1,000 a month tax 
credit for providers who move to frontier and rural areas. 

That is not the only problem. Craig mentioned the telemedical. 
Technology today, I think, will provide not only greater resources 
so that you don't need as much of a facility there than you would 
have 10 years ago to provide really cutting-edge quality, but we are 
finding more and more that one of the problems is that profes- 
sionals who go out into inner-city and rural areas don't get the pro- 
fessional reinforcement, the kind of in-service training. 

This can be done more and more with modem technology. So my 
big concern — it says California on my name tag, but I represent a 
rural area and there are a lot of rural areas within urban States — 
is that we are in some way going to get our needs met. 

My concern is that as we set up — if it is an employer mandate — 
with employer mandate, you get what in terms of access and cov- 
erage in rural areas? It is very easy to set up a structure, not even 
a one-size-fits-all, but a belief that a basic structure will enable 
unique areas to resolve their own problems and that is not the 
case. 

My biggest concern as we go forward is to make sure that in both 
the urban and the rural area, there is enough flexibility in the sys- 
tem, not iust at the State level, but also at the local and Federal 
levels, to be able to come up with a package that works. 

If you are going to give universal coverage, you would like to 
have it actually there and working. We fought HCFA in terms of 
the rural formulas. We don't want to fight whatever the new agen- 
cy is in making sure that what is on paper can be actually be deliv- 
ered to areas. 

We will work with you. We will screen it through you, and are 
looking forward to your input from your folks who clearly want to 
solve the problem for all Americans and make sure they are in- 
cluded because it is easy to set up a system that looks good on 
paper, but doesn't deliver the kind of health care you guys are con- 
cerned about. 

I appreciate your testimony. 

Chairman Stark. Mr. McDermott. 

Mr. McDermott. Thank you, Mr. Chairman. 

I want to tell you a story. Early on in the discussions that the 
single-payer people had with Mrs. Clinton, I said to her. Managed 
competition will work in urban areas, particularly in the suburbs, 
but it doesn't work in the inner-city or rural areas. 

Thirty-five percent of the American people live either in rural 
areas or in the inner cities. I had just driven across the country 
from Seattle to Washington, D.C., and had been impressed again 
with how rural the West is. I said, "Take the State of Nebraska. 
You can have all the managed competition you want in the world 
in Lincoln and Omaha, but tne other 500 miles of Nebraska is sand 
hills and cattle ranchers and Native Americans, and you are lucky 
if you have a doctor in every thousand square miles when you get 
around Valentine and some of those places and you are never going 
to find managed competition working." 

She had a nealth care meeting in Omaha and told me about the 
discussion she had with the Republican Governor of Nebraska who 



23 

said managed competition may make sense in Omaha and Lincoln, 
but we are going to have single payer across the rest of the State. 

What tends to happen, what will happen, what happened in our 
State of Washington, is rural people are always fighting to get cov- 
ered because we always take care of the big cities, and that is the 
history of the west. 

You, I think, will in the end be much better off with a single- 
payer system and I would remind you of the history of Canada, al- 
though I am not pushing Canada. The original province to start the 
whole business was Saskatchewan, which is about as rural a prov- 
ince as there is. 

The farmers there decided that a single-payer system made 
sense. They put it together in their legislature back in 1946. So the 
idea of a single payer is that you collect the money and provide the 
same care to everybody, then it becomes a matter of deciding how 
to do it. 

I think if we are going to avoid dividing ourselves into rural and 
inner-city people on the one hand and suburban people on the 
other. The strongest position for you is the single payer. 

Chairman Stark. There is some good free advice. 

Mr. McCrery. 

Mr. McCrery. Thank you, Mr. Chairman. I thank my colleagues 
for coming before the committee today to share your concerns about 
rural health care. 

I represent north Louisiana and it is not just the metropolises of 
Shreveport and Monroe, but also a vast rural area. So I share your 
concerns about our rural health care system. I would say to my tal- 
ented friend from Washington that if I am not mistaken, the Med- 
icaid and the Medicare systems are single-payer systems and that 
is what has caused much of the problem in our rural areas today. 

Is there dependence on those government-funded systems and in- 
adequate reimbursement schedules that we have had for rural hos- 
pitals and providers? So I am not sure that is the total answer, but 
we will debate that later. 

I hope that whatever this committee comes out with will pay spe- 
cial attention to our rural areas, our rural providers, because if we 
don't, I suspect that the folks in north Louisiana will have to find 
a way to Shreveport or Monroe to get health care. 

I appreciate your coming before the committee today and look 
forward to working with you on this topic. 

Thank you, Mr. Chairman. 

Chairman Stark. Mr. Lewis. 

Mr. Lewis. Thank you, Mr. Chairman. 

Let me say to my colleagues I want to thank you for being here 
today and for testifying before this committee. I may represent 
urban Atlanta here, but many of you may not know that I grew up 
in rural Alabama, about 50 miles from Montgomery outside of a lit- 
tle place called Troy. My father had been a sharecropper, a tenant 
farmer, and in 1944 when I was 4 years old, he saved $300 and 
bought 110 acres of land. 

That was a good investment. My mother still lives on this farm, 
and I know what it is to g^ow up in a community where there is 
not a health facility, where there is not a doctor. So I share some 
of your concerns. 



24 

Whatever system, whatever plan that we are able to devise, we 
must have one where no one, whether they be in rural or urban 
America, will be left out or left behind, and I am very mindful of 
your concerns. 

Thank you, Mr. Chairman. 

Mr. Roberts. Could I make one final point? 

Chairman Stark. Please. 

Mr. Roberts. I know you made the point that there are 14 per- 
cent that are uninsured in Wyoming. I think that is because of the 
snowdrifts there. In Kansas, a poll has been recently taken, and we 
have 9 percent uninsured and furthermore, they asked them whv 
and 38 percent of those were satisfied that they were uninsured, 
didn't want insurance, apparently. 

What happens to the 62 percent is the problem with regard to 
the cost-shifting that goes on and if we do get reimbursed by Medi- 
care 90 cents on the dollar, every one of my county seats in the 66 
counties that I represent, 57,000 square miles that I represent has 
had to pass a bond issue. 

I asked the First Lady when she came out to Kansas City and 
then out to Garden City, America, for the various summit meetings 
about the HIPCs — that is when they were HIPCs, not alliances. 

I said "Well, we have a lot of deer and antelope that play out in 
my country, but I am not too sure about HIPCs." Why couldn't we 
have a hign plains HIPCs; several States. 

As regard to the single-payer system, and this was in reference 
to what you said Jim, we do have a little situation from Saskatche- 
wan where we are very happy for their single-payer system be- 
cause we are getting a lot of primary care doctors leaving Canada 
and coming to Kansas to take part in a system they feel is a little 
better. 

One doctor from Liberal, Kans. that took part in the Garden City 
hearing had just come from Canada. His partner was supposed to 
come, but his partner died of a heart attack, and he was waiting 
for a bypass operation. 

I only mention that in that there are some downside effects with 
regard to the serious illnesses that we would like to see some serv- 
ice out there as well. I am not trying to pick any kind of a discus- 
sion here, but I did want to mention that. 

By the way. Liberal, Kans. is not an oxymoron. 

Mr. Stenholm. Mr. Chairman, one observation. Right now we 
have a very exciting experiment going on in one of the communities 
in my district in which they are creating a health clinic in an 
underinsured, underserved area of a city. It is small by comparison 
with Washington, D.C., standards, but the theory still makes good 
sense. 

We have to bring the care to where the people are. It can be 
done. It is being done now on an experimental basis in a little kind 
of a trade-off or side bar from what we all know is to be clinic and 
migrant health concepts. This is something that we hope within a 
short period of time is going to show positive results in one commu- 
nity in attempting to deal with the underserved. 

Mr. Thomas of Wyoming. We are doing some of the same 
things. In Douglas, Wyo., they have reduced the number of acute 
care beds. They have long-term care beds to take care of the over- 



25 

head. They have brought the physicians into the building so that 
they have gotten away from duplication of expensive equipment 
and are helping them some with their administrative costs. They 
bring specialists around from the larger towns. 

So there is a lot being done now to devise this distribution sys- 
tem of health care on our own and we are pretty pleased with that. 

Chairman Stark. Pat, you touched on this and I don't want to 
let you all go — you represent not only rural constituents, but quite 
often independent constituents, and you suggested, Pat, that 
maybe some of the folks in Kansas just don't want insurance. 
Texas has darn near 25 percent uninsured. 

My question is can we, with the exception of perhaps the occa- 
sional religious community, can we really let people go without in- 
surance if we are going to have a universal plan? 

I suggest that that may mostly be youngsters in their early 
twenties who think they are healthy, but they don't wear their mo- 
torcycle helmet, and they could get just as sick or they can get dia- 
betes, and then without insurance, they become a cost to the com- 
munity and haven't paid their fair share for insurance. 

If we could agree on a plan, whatever it is, could we also agree 
that everybody has to be in it? You don't let people say, "To hell 
with it. I am going my own way." 

Mr. ROBKUTS. In Dodge City, that is sort of our motto. Let me 
take a stab, if I might, with regard to the health care summit or 
conference we had with Senators Dole and Kassebaum and admin- 
istration witnesses and myself. Craig was supposed to be there, but 
he had another meeting as well, a similar meeting. 

In the first place, there is no one in a rural area that is not re- 
ceiving care. You have a small community caring, if I can refer to 
it in that way, that means that they are getting care. With only 
9 percent uninsured, that is one of the lowest in the country. If you 
say 38 percent prefer not to be insured, I am not too sure that you 
want to mandate that those folks simply join a plan they can't af- 
ford. 

There is cost sharing, but it is more due not because of that, but 
because that hospital only gets 90 cents on the dollar and we can't 
even pay our professionals what we have to pay them to attract 
people to come there; so the criteria already used in the current 
programs is at the wrong end of the telescope. Then the community 
has to pass a bond issue. 

There is a revolution going on in the rural health care delivery 
system. We are doing everything we can just to hang on. I guess 
I would answer your question by saying this: We heard a lot of ad- 
ministration witnesses at that summit meeting. We had about 650 
farmers and ranchers — no, make that 450 — I had a politician's 
count — and they were sitting pretty quiet as we were going through 
all the ramifications of the President's plan. 

Finally, Roberts stood up and said "I am not sure that the Amer- 
ican dream is that everybody be level with everybody else," that 
this is an actual mandate. You get into the ideological argument 
whether this is an entitlement, a right and a mandate. 

You are right; in our country, we like people to do what grand- 
mother said to do, drink less, stay out of the smart juice, smoke 



26 

less, exercise, get into preventive medicine and wellness — ^you have 
that individual responsibility. I got a standing ovation. 

I am not sure it made too many happy that were testifying, but 
we got some notice of it. I know where you are headed, but I don't 
know how you devise a mandatory system that is not going to be 
more regulatory, more costly, more paperwork and more red tape. 

Chairman Stai^k. I am not sure I do either. I am just suggesting 
that you raise a question. 

Mr. Roberts. It is a good question. 

Chairman Stark. If 25 percent of the people in Texas stayed out 
of the plan, we would be in trouble. 

Mr. Stenholm. I would comment, if we have to mandate it, it 
ought to be mandated on the individual's opinion and then you get 
into choices that come with individual choice. 

The biggest fear is for us to create the system and then mandate 
it and have somebody else pay for it. That gets us in big trouble. 
If there is any one message coming through loud and clear to me 
and all members from local governments, unfunded mandates, we 
have had enough of it. 

We in Congress decide what is good for everybody, telling the 
States or businesses "You have to provide this and meet these cri- 
teria that sound good and are good," but then the cost associated 
with it becomes another third-party pay syndrome and that is what 
has gotten us into trouble with Medicare and Medicaid right now. 

That is the challenge we are going to have. 

Chairman Stark. In these hallowed halls, we put a big slash be- 
tween Medicare and Medicaid. That is some other building over 
there that has Medicaid, Charley. We try to keep those separate. 

Mr. STE^fHOLM. Pardon me, Mr. Chairman. 

Mr. McDermott. Let me come back to an issue — when I was in 
the State legislature, the biggest budget was the road budget. We 
used to argue, we raise all the taxes and where do we put the 
roads, in the rural areas. Boys from the rural areas always argued 
that is the way it has to be, you have to bring the farm goods in 
and put them out through the port. 

We never raised the issue, in fact they never raised the issue 
that it was an individual responsibility to put roads in front of your 
farm because if we had done that, they would still be on gravel out 
there and we would have them made out of enamel in the cities 
because we raised all the tax itself But it is clear that in a society 
if you are going to deal with an issue like transportation, you have 
to put it in the pot and those people who need it get their share 
out of it when they need it. 

It seems to me that in health care, we are increasingly moving 
in that direction. That is the problem I have with the individual 
responsibility. Not that it isn't a good idea, but it was impossible 
to do in roads and in sewers and a lot of other things, and when 
you come to the issue of providing that costly, very technical health 
care we have in this country, it is impossible for individuals to do 
it for themselves. 

So we have to join together some way. That is why it is not tak- 
ing away the individual's responsibility, but some people in the 
rural areas, if they have a bad crop year, they are not going to be 
able to buy that premium. 



27 

What are you going to say to them when they show up at the 
hospital? I am sorry, you don't have a card. You are out. 

I am not going to do that. Maybe you would do that to your 
people 

Mr. Thomas of Wyoming. We don't do that now. 

Mr. McDermott. Of course you don't. That is why it seems to 
me that those who can pay can 

Mr. Thomas of Wyoming. It is a pretty big leap to go from tak- 
ing care of those who have had an unfortunate thing to turning it 
into a public utility, and it seems to me that roads are one thing 
that governments have normally done. Health care 

Mr. McDermott. It wasn't in the old days. 

Mr. Thomas of Wyoming. Why don't we do it for groceries as 
well, or housing, or automobiles? They are very important. We 
ought to make sure that everybody has one. 

I think that is a great leap of faith to go from highways to health 
care in terms of being a socialized program. 

Mr. Roberts. Most of the road systems in my 66 counties are 
maintained by the county, and then State and then Federal as best 
we can, although I at least have 5 bills in to designate Federal 
highways throughout my district. That is not entirely true, but 

Mr. McDermott. That is called cost-shifting. 

Mr. Roberts. If you want to continue to pay about 10 cents out 
of your disposable income dollar for the food and fiber market bas- 
ket of food in this country, we are doing something right with re- 
gard to agriculture and our contributions and the belabored farm 
program. 

One example, and this goes back to HEW and Secretary Califano 
who was worried about quality and cost containment. We came up 
with something called utilization review back in the 1970s with my 
predecessor and Keith Sebelius, who was here prior to me. All of 
a sudden, HEW popped out of the woodwork and said, "You are not 
going to have any Medicare payment being honored unless a team 
of three doctors reviews admissions to the rural hospital every 24 
hours." 

We looked at that and we said "By golly, we are for it," and the 
hospitals said, "You can't be for that. We can't do that." 

We said if they can find us the three doctors, we will get a lot 
of primary physicians. That was ludicrous and it took 6 months to 
1 year to get rid of that. That is the kind of thing in terms of an 
unfunded mandate that Mr. Stenholm, Mr. Thomas and Mr. Rob- 
erts are worried about with the heavy hands of the Clinton plan — 
that is my words, pardon me, the Health Security Act. 

Chairman Stark. I want to thank the panel. Whatever we end 
up doing, we have over the 8 years I guess that I have chaired this 
subcommittee had great good rapport with the rural caucus, in our 
little area of Medicare. Each year we have done a little bit better 
and a little bit more. 

Whenever we get through this major undertaking that we are in 
now, I pledge to you we are going to get back to that system again, 
because I can't believe that whatever we do this year will be the 
final word for the next 10 years. 

So I look forward to continuing to get the bipartisan input and 
support that we have had in the past for a lot of tough Medicare 



28 

cuts where we have been able to protect both the rural providers 
and beneficiaries. I appreciate the input that the caucus has given 
us and look forward to your continued assistance. 

Mr. Stenholm. We appreciate the past and future support, Mr. 
Chairman. 

Chairman Stark. Thank you. 

The next witness — we don't seem to get enough of each other, Dr. 
Philip Lee, Assistant Secretary for Health, Department of Health 
and Human Services back again for his weekly visit. We still have 
some of the pills left from the last time. Dr. Lee, but we will get 
your new prescription today and we look forward to hearing your 
comments on access to health care in inner cities and rural areas 
under the administration's health care reform. 

STATEMENT OF PHILIP R. LEE, M.D., ASSISTANT SECRETARY 
FOR HEALTH, U.S. DEPARTMENT OF HEALTH AND HUMAN 
SERVICES 

Dr. Lee. Mr. Chairman and members of the subcommittee, I wel- 
come the chance to testify. I just want to review briefly what is in 
the statement submitted for the record and then be prepared to re- 
spond to your questions. 

Without a doubt, the current crisis in health care is more severe 
in inner-city and rural areas than it is in other areas of the coun- 
try. I think it epitomizes the problem of health insecurity, and that 
is the fundamental problem that the Health Security Act proposes 
to deal with. 

In the testimony, I describe the health care problems in rural 
and inner-city areas, and I won't repeat those for members of this 
committee because you are very familiar with them. 

The lack of insurance, the lack of available providers, and the 
other barriers to access have contributed to the poor health status 
of many residents in rural and inner-city areas. Those are not the 
only problems, but they contribute significantly. 

Under the Health Security Act, under the basic elements in the 
reform, first and foremost, everyone is covered, there is a com- 
prehensive benefit package, and clinical preventive services are 
provided without copayments and deductibles. The alliances pro- 
vide consumers with purchasing power which many lack today. 

Indigent populations will receive subsidies to cover part or all of 
the costs of their premiums, cost sharing and in some cases, wrap- 
around services. 

Self-employed, including farm families throughout the Nation, 
will be able to deduct 100 percent of the cost of health insurance 
premiums instead of the current 25 percent. Small businesses will 
be eligible for premium discounts, further stretching their health 
care dollars. Providers will no longer receive lower payments when 
they care for low-income patients. 

Medicare bonus payments for physicians practicing in under- 
served areas will be doubled for primary care and continued for 
specialty services. Practitioners in underserved areas will be eligi- 
ble for tax credits. They will also get allowable depreciation ex- 
penses for medical equipment, and there will be safeguards to pre- 
vent discrimination based on race, ethnicity or gender. 



29 

The access initiative, which is a major element in title III of the 
Health Security Act, includes six interrelated approaches to over- 
coming existing barriers to care. These programs will help assure 
that all Americans, including those living in inner-city and rural 
areas, not only have access to the full range of services, including 
the comprehensive benefit package, but also will have an adequate 
choice of culturally sensitive providers and health plans. 

Those six interrelated approaches include the continued funding 
and indeed increased funding for current safety net programs, such 
as Ryan White, migrant health centers, community health centers, 
homeless, family planning programs, changes in practitioner sup- 
ply, particularly expansion of the National Health Service Corps, 
changes in graduate medical education, which would increase the 
number of generalists, and increased funding for primary care 
training for nurse practitioners, for physician assistants and others 
who could work in the rural areas. 

Capacity expansion is, I think, critically important both for rural 
and inner-city areas; this would provide both loans, grants and 
loan guarantees to create practice networks in rural areas or inner- 
city areas. 

Outreach and enabling services, things like transportation, trans- 
lation, child care and outreach, would be expanded both through 
the community health center program and the other safety net pro- 
grams and as an additional initiative, because they are areas that 
are not usually provided by health plans. 

Increased support for mental health and substance abuse in the 
public health service programs along with the expanded mental 
health benefits in the benefit package would assure that individ- 
uals would have access to those services. Social supports and out- 
reach would be necessary to help plans integrate those benefits and 
individuals to receive those benefits. 

And then there are two programs for school age youth; one in an 
education program, and the second is school-related health serv- 
ices. These are particularly directed toward adolescents because 
they often, even when they are in health plans, don't utilize the 
traditional providers. One of the services that would be included 
would be psychosocial support and counseling services, which have 
been identified as a major need. 

Finally, there are the core public health programs. We believe 
that as everyone is insured and the plans can relieve local govern- 
ments of the financial obligations of providing care for uninsured 
individuals, that the local health departments and the State health 
departments can return to their basic public health function of pro- 
tecting the health of the whole population. This is even more im- 
portant for low-income individuals because they are more at risk 
to things like tuberculosis, communicable diseases, waterborne dis- 
eases, and other public health problems that would be dealt with 
through these core public health programs. 

These programs include surveillance for communicable and 
chronic diseases that would help us define the magnitude and the 
source, for example, of a tuberculosis epidemic or, let's say, a 
chronic disease problem in the community so that the resources 
can be directed at dealing specifically with those problems, pro- 
grams to control communicable diseases and injuries, environ- 



30 

mental protection, public education and community mobilization, 
accountability and quality assurance. 

Here the State health departments and indeed the local health 
departments can help assure plan performance in terms of achiev- 
ing public health objectives. Public health laboratories would also 
be an essential part of this, as would training and education of 
public health professionals. 

And finally, true research areas, prevention research at NIH and 
outcomes effectiveness research and health services research at the 
Agency for Health Care Policy and Research. These are all inter- 
related initiatives that we think would strengthen the capacity of 
the system which, without a real attention to the infrastructure 
and organizational issues, really with just the health security card, 
will not meet the needs of rural and inner-city areas. 

Let me just close then, Mr. Chairman, by emphasizing that the 
President's Health Security Act is designed to provide all Ameri- 
cans, including those living in inner-city and rural neighborhoods, 
with real health security at an affordable cost. To this end, the 
public health initiatives in title HI are not separate from, but rath- 
er integral to the success of health care reform. 

Thank you for the opportunity to be with you and I am pleased 
to respond to any questions. 

[The prepared statement follows:] 



31 



STATEMENT OF PHILIP R. LEE, M.D., 
DEPARTMENT OF HEALTH AND HUMAN SERVICES 



Good morning, Mr. Chairman and members of the Subcommittee. I welcome this 
opportunity to discuss how the President's Health Security Act will meet the health needs of 
rural and inner city Americans. 

Mr. Chairman, you and others in the Congress have been eloquent in speaking out 
about the health crisis facing our inner cities and rural communities. Indeed, these areas 
epitomize the problems and consequences of health insecurity. Compared with other parts 
of the country, rural areas and inner cities have a greater proportion of uninsured people; 
fewer, and often poorly qualified health care providers; inadequate outpatient and inpatient 
facilities; and a paucity of economic resources to create effective networks of care. Although 
the need for health services is great in these communities, many residents face substantial 
geographic and cultural barriers to obtaining care. In addition, they suffer from a 
disproportionately high burden of preventable disease and injury. The costs of these health 
problems have been staggering, both economically and in terms of human suffering. 

The President's plan provides the means — for the first time — to make health security 
a reality for all Americans, including those living in rural areas and inner cities. It does so 
not only by assuring all Americans comprehensive insurance coverage, but also by building 
up the capability of rural and inner city communities to overcome barriers to care and to 
protect and improve the health of their residents. 



THE HEALTH CARE PROBLEM IN RURAL AREAS AND INNER CITIES 

Obtaining affordable health insurance is one of the most glaring problems for inner 
city and rural Americans. In the District of Columbia, for example, one in four residents 
under age 65 does not have health insurance. More than 8 million rural Americans have no 
health insurance, including 18 percent of all farm families. Because they generally lack the 
benefit of being part of a large business or purchasing group, rural Americans often pay 
more for health insurance than those living in other parts of the country. Some can purchase 
coverage through small employers or a rural cooperative, but many rural families have no 
choice but to purchase separate coverage at high market rates. 

Even when rural and inner city residents are fortunate enough to have health 
insurance, many barriers still stand in the way of receiving proper medical care. In rural 
communities, barriers such as geography and lack of transportation present real challenges to 
health care delivery. With a relatively small population spread over a large area and health 
care professionals in short supply, patients often must travel long distances to see a 
physician. 

Far removed from the support of their peers and the sophisticated equipment of their 
training facilities, fewer and fewer physicians are choosing to set up rural practices. Without 
enough doctors, nurses, and facilities, building networks of care becomes more difficult, as 
does the task of attracting or establishing enough health plans to foster choice and 
competition. 

In inner cities, the challenges to obtaining access to care are different, though no less 
problematic. Crime, poverty, overcrowding, unemployment, and violence make the inner 
city an unattractive environment for health professionals. Ironically, many inner city 
neighborhoods are located only a few blocks away from some of the worid's most remowned 
academic health centers, yet the number of physicians willing to practice in these areas has 
dwindled in recent years. One study by the Community Service Society of New York found 
only 28 properly qualified physicians serving a population of 1.7 million people in low- 
income neighborhoods in Harlem, north central Brooklyn and the South Bronx. 



32 



In addition to the scarcity of providers, the quality and accessibility of care is also a 
serious problem for inner city patients. Of the 701 generalist physicians practicing in 
Harlem, Brooklyn and the South Bronx, only 28 or 3.9% were found to meet minimum 
standards for providing adequate primary care. Many refused to accept patients on 
Medicaid, were open for less than 20 hours a week, and did not offer emergency after hours 
care or have admitting with any hospital. 

Practitioners in inner cities are also frequently ill-prepared to meet the cultural and 
linguistic needs of their diverse patient population. Rarely do these environments produce 
physicians from their own communities. Consequently, patients and providers generally 
come from vastly different backgrounds. 

The lack of health insurance and other barriers to care have contributed to the poor 
health status of many residents of rural and inner city communities. Let me give you just a 
few examples of the disproportionate share of preventable illness and injury these populations 
bear and the costs of these problems to the health care system. 

• Cancer is diagnosed at much later stages in inner-city populations, often when 
it is no longer treatable. In Harlem, for instance, only five percent of women 
with breast cancer are diagnosed at an early stage as compared with 42% of 
African American women and 52% of Caucasian women nationwide. The 
Centers for Disease Control estimates that the direct medical costs of treating 
breast cancer rise from $25,000 to $84,000 per individual when detected late 
instead of early. 

• From 1985 through 1992, while the tuberculosis case rate declined from 6.7 to 
6.5 cases per 100,000 in non-urban areas of the United States, it increased 
from 17.1 to 22 cases per 100,000 in urban areas. Currently, New York City 
accounts for 14 percent of all cases of tuberculosis in the country. In Harlem, 
the prevalence of tuberculosis is 200 cases per 100,000, four times higher 
than the New York City average. The Centers for Disease Control estimates 
that $480 million per year will be required to curtail the emerging tuberculosis 
epidemic. 

• HIV/AIDS is a serious problem in inner cities, but it is also becoming more 
prevalent in rural areas. In North Carolina, for example, HIV infection has 
increased at an alarming rate, with 75 percent of new infections occuring 
among low-income minorities in rural as well as urban areas of the state. The 
cumulative cost of treating all persons with HIV is forecast to be $15.2 billion 
in 1995. Yet each case of AIDS that can be prevented can save approximately 
$102,000 in health care costs. 

• Rural areas have an inordinately high rate of serious accidents due to the risks 
of farm, mining, and other occupations. Over a three year period in Iowa, 
CDC's National Center for Injury Control reported 7,797 farm injuries, 
resulting in 1,263 hospitalizations, and 236 deaths. The Center for 
Agriculture Disease and Injury Research, Education, and Prevention at the 
University of Iowa estimates that preventing the 140,000 disabilities caused by 
farm accidents each year in the United States would save $3.6 billion. 



33 



BENEFITS OF THE HEALTH SECURITY ACT TO RURAL AND INNER CITY 
AREAS 

This morning, I would like to go over those aspects of tlie President's plan that will 
provide inner city and rural Americans with real health security. After reviewing some of 
the basic elements of the reform, I will concentrate on the public health initiatives contained 
•in Title III of the Health Security Act that are designed to assure all Americans - including 
those living in underserved areas ~ access to medically necessary and appropriate care when 
they need it, and to enhance the ability of all communities to protect, preserve, and promote 
the health of their residents. These programs, which are integral to achieving the goals of 
health care reform, will ultimately determine how well we improve the poor health status of 
many inner city and rural Americans and the extent to which we will be able to contain our 
nation's escalating health care costs. 

Basic Elements of Reform 

I need not review in detail with this committee the basic elements of the President's 
plan that will improve access to care for all Americans. However, considering the special 
problems of inner cities and rural regions of the country, several points are worth 
emphasizing: 

• Under reform, all Americans will be covered for a comprehensive range of 
benefits, including expanded mental health and substance abuse services. In 
addition, preventive services will be available without deductibles or 
copayments. 

• Health care alliances will provide consumers with the purchasing power many 
currently lack to bargain for lower premiums. 

• Indigent populations will receive subsidies to cover part or all of the costs of 
premiums, cost sharing, and, in some cases, wraparound services. 

• The self-employed, including farm families throughout the nation, will be able 
to deduct 100 percent of the cost of their health insurance premiums instead of 
the current 25 jiercent. 

• Small businesses will be eligible for premium discounts, further stretching 
their health care dollars. 

• Providers no longer will receive lower payments when they care for low- 
income patients. Medicare's bonus payment for physicians practicing in 
underserved areas will be doubled for primary care physicians and continued 
for specialists. Hospitals serving a high proportion of low-income and 
undocumented persons will receive additional payments through a federal 
Vulnerable Population Adjustment. 

• Practitioners providing care in underserved areas will be eligible for tax credits 
of up to $500 per month for nonphysician providers and $1,000 per month for 
primary care physicians. The allowable depreciation expense for medical 
equipment also will be substantially increased for these providers. 

• Safeguards will be implemented to prevent discrimination based on race, 
ethnicity, age, or gender. These include prohibitions against cherry picking 
and redlining, enforcement of Title VI of the Civil Rights Act, requirements 
that alliances not subdivide metropolitan statistical areas, and the ability of 
States to require health plans to include inner-city or rural communities in their 
service areas. 



34 



Access Initiatives 

Congress, including members of this subcommittee, has demonstrated great concern 
about the ability of underserved populations to obtain access to personal health care services. 
You have also expressed concern about the ability of health care providers currently caring 
for underserved populations to participate successfully in the reformed system. The 
President recognizes, as you do, that a Health Security Card will not, in and of itself, 
guarantee that all Americans receive appropriate medical care. To achieve this goal, 
universal health insurance must be backed up by an adequate system of practitioners, 
facilities, education, outreach, and information. 

The Health Security Act uses six interrelated approaches to overcome existing barriers 
to care. These programs will assure that all Americans - including those living in inner-city 
and rural areas — not only have access to the full range of services included in the 
comprehensive benefits package, but also will have an adequate choice of culturally sensitive 
providers and health plans. 

• Current Safety-Net Programs. First, current safety-net programs such as 
community and migrant health centers, programs for the homeless, family planning, 
Ryan White, and maternal and child health will be maintained and strengthened under 
reform. 

Providers funded under these programs will receive automatic designation as essential 
communify providers for at least five years. This will guarantee them payment for 
covered services from all health plans. Equally important, it will assure that 
vulnerable populations have continuing access to practitioners with experience meeting 
their special needs, regardless of which health plan they choose to enroll in. 

• Practitioner Supply. The supply of practitioners in rural and urban underserved 
areas will be increased in several ways under reform. The National Health Service 
Corps will be expanded approximately five-fold from its current field strength of 
1,600. Residency training will be redirected to increase the ratio of primary care 
physicians to specialist physicians from about one-third to 55 percent. Support for 
training programs for primary care physicians, physician assistants, and advanced 
practice nurses will be doubled. 

Special programs to increase the representation of minorities among health 
professionals will help to overcome access barriers that stem from cultural gaps. 

• Capacity Expansion. Capacity expansion in inner-city and rural areas will be 
actively supported both by expanding the successful community and migrant health 
center program to provide services to an additional 2 million individuals and through 
a new competitive grant and loan program supporting the development of community- 
oriented practice networks and health plans. 

The new program is designed to integrate federally funded providers with other 
providers in underserved areas, bolstering their ability to coordinate care, negotiate 
effectively with health plans, and form their own health plans. It will increase the 
level of service available in underserved areas by creating new practice sites for 3,800 
additional practitioners and by renovating and converting existing practice sites, 
including public and rural hospitals. In addition, it will improve access to specialty 
care in urban and rural underserved areas — and improve coordination of care - by 
linking providers in practice networks with each other and with regional and academic 
medical centers through information systems and telecommunications. 
Grants and loans under the new program will be made to groups of providers working 



35 



in medically underserved areas or caring for underserved populations. In making 
awards, preference will be given to groups that include the maximum number of 
different types of federally funded providers and that link these providers with those 
not supported by public funds. All providers included in the community practice 
networks will receive automatic designation as essential conuiwnity providers. 

Outreach/Enabling Services. The Access Initiative also incorporates a new 
competitive grant program that will expand federal support tor enabling services, such 
as transportation, translation, child-care, and outreach. 

These grants will help 6 million isolated, culturally-diverse, hard-to-reach persons not 
served by other programs get the supplemental services they need to obtain access to 
medical care. They will also help individuals who have been denied access to the 
current medical care system shift their care patterns away from emergency rooms and 
receive earlier and more appropriate primary care services. 

Awards in this program will be made to community practice networks, community 
health plans, and other public and private not-for-profit organizations (such as 
community health centers) with experience and expertise in providing outreach and 
enabling services for underserved populations. These grants will supplement support 
for enabling services provided through existing Public Health Service programs. 

Mental Health and Substance Abuse Initiatives. The Health Security Act also 
includes new funds to assure that low-income, hard-to-reach individuals know about 
and take advantage of the expanded mental health and substance abuse treatment 
benefits included in the comprehensive benefits package. 

Working through the existing Community Mental Health Services and the Substance 
Abuse Prevention and Treatment formula grants, these funds will support enabling 
services - community and patient outreach, transportation, translation, education - 
for 2.5 million low-income individuals and other vulnerable groups (such as the 
homeless or the severely mentally ill). In addition, they will build up the currently 
inadequate infrastructure for delivering mental health and substance abuse services in 
communities and facilitate integrating these services within the broader health care 
system. 

School-Age Youth. Finally, the Access Initiative incorporates two new programs to 
reach out to one of our Nation's most vulnerable groups - school-age youth and 
adolescents. The Comprehensive School Health Education initiative will establish a 
national framework within which States can create school health education programs 
that improve the health and well being of students, grades K through 12, by 
addressing locally relevant priorities and reducing behavior patterns associated with 
preventable morbidity and mortality. This program will be targeted to areas with 
high needs, including poverty, births to adolescents, and sexually-transmitted diseases 
among school-aged youth. 

The School-Related Services program will support the provision of health services — 
including psychosocial services and counseling in disease prevention, health 
promotion, and individualized risk behavior - to up to 3.2 million children in over 
3,500 schools or school-linked sites. Grants will be made to states for the 
development and implementation of state-wide projects targeted at high-risk youth 
ages 10-19. In states that do not take this initiative, grants will be available to local 
community partnerships including public schools, experienced providers, and 
community organizations. 



36 



Core Public Health and Prevention Initiatives 

Most of the health care debate has focused on the personal health care system. But, 
without question, the burden of illness in inner cities and rural areas is directly related to our 
lack of support and attention to public health. In 1982, the Institute of Medicine estimated 
that only 10 percent of preventable early death is related to inadequate delivery of personal 
medical services, whereas 70 percent is related to environmental and lifestyle factors that can 
be addressed by public health. In recent years, however, as the health insurance system has 
failed more and more Americans, public health's energies and resources have increasingly 
been focused on providing personal health care services to the uninsured and underinsurei, to 
the detriment of its essential, population-based functions. 

To improve the health of inner city and rural residents we must define the particular 
groups for whom health problems are most common. We must identify effective 
interventions by learning why some communities are hard-hit by a problem while others 
somehow seem to escape. We must target public education and prevention interventions to 
populations at highest risk and populations with different cultural backgrounds. And we must 
create alliances between public health agencies, health plans, and providers as well as sectors 
outside health, such as public schools, law enforcement agencies, and social service agencies. 



By guaranteeing all Americans univeral coverage, the Health Security Act provides 
public health agencies with the opportunity to refocus their energies on protecting the health 
of the residents in their communities. Two programs included in Title 111 provide the public 
health system with vital support to achieve this goal. 

• Core Public Health Program. This competitive grant program will provide 

funds to State health agencies to strengthen the following essential public 
health functions at state and local levels: 

(1) surveillance of communicable and chronic diseases - essential to define the 
magnitude, source, and trends of health problems so that limited resources can 
be directed to populations at greatest risk. 

(2) control of communicable diseases and injuries - essential to ensure that 
new problems are identified early, that contact tracing and partner notification 
occur effectively, and that sources of infectious exposures are removed. 

(3) environmental protection — essential to safeguard the physical and social 
environment (e.g., water, food, workplace, housing) against causes of disease. 

(4) public education and community mobilization - essential to prevent major 
causes of premature death and disability that are behavioral and societal in 
nature. 

(5) accountability and quality assurance - essential to protect consumers from 
medical and health services that do more harm to health than good. 

(6) public laboratory services — essential in the diagnosis of major infectious 
and environmental threats to health. 

(7) training and education of public health professionals - essential to ensure a 
workforce capable of carrying out public health functions. 

The program fosters greater accountability to the federal government than has 
been realized previously for the definition and reporting of progress in 
achieving public health objectives. 



37 



• Preventable Priority Health Problems. A second competitive grant program 

will provide funds to public and private not-for-profit agencies to address 
health issues that affect local communities or specific populations within 
communities. Many of these problems do not affect the country uniformly and 
call for tailored, community-based interventions. For example, in some inner- 
city communities, diabetes or heart disease is a major problem; in others, 
priority may be accorded to programs that deal with cigarette smoking; while 
in still other areas, teen pregnancy is an issue of great concern. In cases 
where multiple factors contribute to a health problem, as with violence, grants 
will support approaches that cut across individual problems. 

Among the initial set of priorities, the program will target prevention of 
smoking by children and adolescents; violence prevention; and reductions in 
behavioral risks that contribute to the incidence of chronic diseases, including 
heart disease, cancer, stroke, and adult-onset diabetes. 

Prevention Research 

Expanding the knowledge base can also help residents of rural and inner city areas, 
by elucidating new ways to improve access to care, prevent illness and injury, and control 
health care costs. This is addressed by the final components of the Public Health Initiative, 
which support a prevention research initiative in the National Institutes of Health and a health 
services research initiative in the Department of Health and Human Services. 

Prevention research is the foundation for both clinical preventive services and the 
public health interventions included in the Health Security Act. Expanded prevention 
research will ensure the availability of effective preventive measures against existing diseases 
as well as new and emerging health threats. Progress in preventing disease will help to 
offset escalating acute health care costs and the disproportionate impact of disease and 
disability among women, minorities, and the elderly. 

Health services research will elucidate what works best in medical care and how to 
organize providers and institutions most effectively in the new health care system. This 
investment will build on the considerable expertise of the Agency for Health Care Policy and 
Research in investigating outcomes and quality research, identifying practice variations with 
unnecessarily high costs, and developing practice guidelines to improve the appropriateness 
and effectiveness of the treatment decisions made by health professionals. Further 
development of these methods will provide more accurate measures to evaluate the 
performance of alliances and health plans and to assess the extent to which reform is making 
health care available to all Americans. 



CONCLUSION 

In closing let me emphasize that the President's Health Security Act is designed to 
provide all Americans - including those living in inner-city and rural neighborhoods - with 
real health security at an affordable price. To this end, the Public Health initiatives in Title 
III are not separate from — but rather integral to — the success of health care reform. 

I appreciate this opportunity to appear before the Subcommittee and will be pleased at 
this time to answer any questions you may have. 



38 

Chairman Stark. Mr. Thomas. 

Mr. Thomas. Dr. Lee, as we look at the President's bill, indeed 
as we look at any comprehensive bill, there clearly are a number 
of areas of reform that need to be addressed. I guess my question 
to you would be, absent the mechanism for delivering universal 
coverage, let's set that aside. Let's just assume that it is done and 
not talk about how, OK? We have got universal coverage. 

You then have a number of provisions in your bill that are either 
paralleled or augmented within a number of other bills. Let's as- 
sume that those components are agreed upon and we move for- 
ward. 

In your estimation, how critical or essential is the concept of the 
alliance if we have got everyone covered and funded under a struc- 
ture and we have got all of these support restructurings going on 
in terms of a drive for more primary care, educational structure, 
and the moneys on the outreach. We are moving particular identi- 
fied populations under either managed-care concepts or other con- 
cepts. 

If you just didn't do the alliances, wouldn't you make a major, 
major change? Or turn it the other way. Since you are in defense 
of the administration's position, does none of that matter if you 
can't get your alliance structure, your forced redistribution struc- 
ture? 

For most Americans, these folks are people that are left out to 
a certain extent. Most of these programs are pickup programs to 
bring them into the structure. How critical, in vour estimation, are 
the alliances to delivering that changed servicer 

Dr. Lee. Well, I do support, obviously, as a spokesperson for the 
administration, the alliance concept, but I also personally happen 
to strongly support this idea for two reasons particularly. 

One, because it gives low — people who don't have access to the 
market the purchasing power. In other words, it is a purchasing co- 
operative on behalf of people who work for small employers or indi- 
vidually employed individuals, and when you see what some larger 
organizations can do to assure their employees the competitive ben- 
efits in terms of quality and price, that is a significant benefit. 

The other benefit to me 

Mr. Thomas. I think on that point, doctor, that makes some 
sense in urban areas. For example, in the area that I represent, 
frankly, no managed competition, no forced competition model is 
going to work. We are looking at some clinics and some other gov- 
ernment-involved structures to really flesh out the health care de- 
livery system. 

So although a lot of us either in voluntary purchasing coopera- 
tives in the Chafee-Thomas bill or the mandatory purchasing co- 
operatives, that concept makes some sense and that is the point 
that you just spoke to in terms of the alliance. But how does the 
concept of the alliance work in a county of 17,000 people like Inyo 
County, which is the second largest geographical county in the 
United States? I mean, it is not going to work there, right? 

Dr. Lee. I would say, to me, the second — and I will speak to that 
also. The second advantage of the alliance is that it focuses on a 
geographic area that contains a population, so it is population 
based. It then permits, within the alliance area, a focus on achiev- 



39 

ing public health objectives within the plans, as well as within 
health departments. 

For example, with the immunization or other of the provisions in 
the plan, it permits us to look at the population within that area 
to see how well we are achieving those objectives with whatever 
plan is in the area. 

Now, in underserved rural areas or sparsely populated areas, as 
the Sierra Counties in California, for example, it is my understand- 
ing currently, with the purchasing cooperative in the Mr. Mid pro- 
gram in California, that in those areas, they have basically a fee- 
for-service plan that is the plan that is available in those areas. 

And there does have to be in each alliance area, at least, a fee- 
for-service plan. With the augmentation of the access initiative, 
which would permit increased funding for resources with the 
changes in training programs, both nurse practitioners and physi- 
cians, hopefully we could get more physicians and more nurse prac- 
titioners into those areas with the development of practice net- 
works through the access initiative. 

We should be able to enhance the services that are available to 
individuals in Inyo County or some of the other sparsely populated 
counties. So I think it is a combination of things. The alliance is 
only one element in that. 

Mr. Thomas. But in the testimony before this committee from 
the administration on the purchasing cooperatives — on the alli- 
ances, I think the administration was shocked to find out that the 
voluntary purchasing cooperatives in California in terms of the re- 
gional units aren't even necessarily contiguous; that, in fact, they 
make up like components in different geographic areas of the State. 

Is there anything in the Clinton bill that would allow these serv- 
ices, as you have outlined them, within an alliance to cross State 
lines? 

Dr. Lee. Well, I think 

Mr. Thomas. For example, western Nevada, believe it or not, 
looks to the urban area of Inyo County, which is, we just outlined, 
a very difficult area to deal with, for their support. Does the Clin- 
ton bill envision these networks crossing State lines? 

Dr. Lee. The networks could cross State lines, and also, of 
course, the plans could cross State lines 

Mr. Thomas. The alliances could not? 

Dr. Lee. No, the alliances could not, but the plans absolutely 
could, and there are many situations similar to that. If you look at, 
say, North Dakota which serves a lot of patients from Minnesota, 
or if you look at Delaware, I think 40 percent of the patients there 
are not residents of the State. 

So the plans can cross State lines and integrated delivery sys- 
tems could certainly do that. They would obviously have to be li- 
censed in each State, and the insurance plans would have to be li- 
censed in those States. But as the insurance system now works, 
somebody living in Connecticut, for example, can go to New York 
to get their care, or somebody living in Nevada can go to California 
to get their care. 

This simply extends that insurance coverage to cover those who 
don't have insurance, and I don't see that it would limit that plans 
capacity to cross State lines if it chose to do so. 



40 

Chairman Stark. If a plan chose? 

Mr. Thomas. If it chose to do so, which is a statement that I 
think in terms of the way in which they are going to be structured, 
perhaps enormous ifs. This goes back to what I consider to be one 
of the fundamental flaws in the alliance structure, but my concern 
and direction is that I think a number of items that are contained 
in the President's bill clearly are good and worthy in terms of ex- 
panding health care needs to inner-city, urban and rural areas, but 
that they are also contained in a number of other provisions, and 
that all of these items probably need to be addressed more or less, 
regardless of either the funding or the delivery mechanism. 

They are long overdue, especially in the area of communicable 
diseases and some of the preventive things that we need to do, and 
I appreciate your testimony. 

Dr. Lee. Thank you very much. 

Chairman Stark. Mr. McDermott. 

Mr. McDermott. Thank you, Mr. Chairman. I want to follow up 
on the line that Mr. Thomas was exploring and that is the whole 
question of alliances and the outlines of them. Right now you have 
a great controversy on the front page of the Washington Post today 
about Tennessee Care and what is happening in rural areas and 
where do you have doctors and can you get somebody to sign up 
and so forth. 

And as I look at the alliances, one of the real problems for me 
is the whole question of the standard metropolitan statistical area. 
Everybody says you can't split them and I hear people walking 
around saying, well, I don't know, maybe you should be able to 
split them. And my concern is that if you could take a standard 
metropolitan statistical area and split it and drop out 4 or 5 ZIP 
Codes, you can probably make it a pretty profitable place, certainly 
could in Seattle. 

I could tell you which Zip Codes to drop and you would prob- 
ably — I could probably get six or seven insurance companies who 
want to come into Seattle. 

Where I used to live on the west side of Chicago in West Garfield 
Park, there isn't any insurance company on the face of the earth 
that is going to eagerly run in to take that part of the city. 

And my question to you is this: If the bill passes that has any 
kind of split in standard metropolitan statistical areas, would you 
recommend to the President that he veto the bill? 

Dr. Lee. Is that a total bottom line issue? The President has 
indicated 

Mr. McDermott. It is a bottom line issue to cities, because if you 
are going to allow cities to be fractured in any way so that anybody 
can leave out the tough parts and get the good parts, you are going 
to have the same cherrypicking — ^you are going to have redlining in 
health care. From a citizen who lives in a city, represents a city, 
it is a bottom line issue, because if they are going to split them, 
then we are back right where we are right now. We haven't gained 
an inch. 

Dr. Lee. Well, as you know, if the President has indicated cov- 
erage for everybody, comprehensive benefits, are the bottom line is- 
sues, my own view — again, you asked me would I recommend that 
he veto it. I would agree with you that this is a fundamental issue. 



41 

that everybody has to be assured access to medically necessary and 
appropriate care, and if you exclude geographic areas — one of the 
things we are trying to get away from, clearly, and one of the prob- 
lems today, is redlining. 

There are a number of other pernicious practices by the insur- 
ance industry that need to be eliminated. In this case, the alliances 
are required to include the SMSA in the alliance area. And my own 
view is that is the way it should be. 

I would say it would be a tough call whether it should be vetoed 
on that basis alone, but I think it is an issue that the President 
should take a very strong stand on. 

Mr. McDermott. Because I anticipate that an amendment 
slipped in at the end in the conference committee. That is where 
I think it will happen and I think it is one of the reasons why the 
single-payer system is the only way to go so that you then have ev- 
erybody in the same system. If you allow this system to be put to- 
gether and at the end, at the very end you slide in an amendment, 
as sometimes happens around here, you wind up perpetuating one 
of the major problems we have in our cities and that is the failure 
to deliver of health care to the real tough inner-city areas, and I 
think it is an issue that needs to be on the table, needs to be in 
the record, and it needs to be thought about very hard by all mem- 
bers. 

Dr. Lee. Of course, there is the option in the Health Security Act 
for single-payer. There is even an option for single payer in an 
urban area, so that you could do that in a particular urban area 
if that seemed to be the best solution. 

But I would also think with the chairman participating in the 
conference committee, we should be able to preclude that kind of 
language from being slipped in at the last minute. 

Chairman Stark. Thanks for the endorsement. 

Mr. Lewis. 

Mr. Lewis. Thank you, Mr. Chairman. 

Dr. Lee, I would like for you to explain the President's proposal 
to support essential community providers. I understand that essen- 
tial community providers will be covered automatically in all 
health plans for 5 years. I would like to know why the coverage 
ends in 5 years. 

What is the rationale for ending this coverage in 5 years? 

Dr. Lee. The essential community providers will be automati- 
cally continued for 5 years. It would then be reviewed at that point, 
and probably a year ahead of time, before any decision was made 
to terminate it. And if it was determined that there would be im- 
paired access if that requirement weren't continued, it would be 
continued. 

In other words, we would want to assess the access to care, the 
quality of care, the appropriateness of care through that mecha- 
nism. I would presume by that time we would see the development 
of the practice networks and the essential community providers 
would be integrated into either their own plans or broader based 
plans, and you would not need to continue that particular require- 
ment. But it would be required, as we are currently proposing it, 
to review that prior to any termination of the requirement. 



42 

Mr. Lewis. Let me just ask you about another area of great con- 
cern to me, Dr. Lee. How would the President's proposal provide 
mental health and substance abuse coverage for a low-income com- 
munity, especially those in the inner cities? 

Dr. Lee. The standard benefit package, of course, includes some 
benefits, significantly beyond what many plans currently include. 
We would also continue the funding through the Public Health 
Service through State and local governments for both the mental 
health and substance abuse provider network that is there cur- 
rently, requiring the States to develop a plan to integrate the pri- 
vate and public systems so that we would see how that could be 
achieved once full benefits were provided after the year 2001. 

There would also be in the interim an expansion of support. In- 
creased support is proposed in title HI of $250 million a vear to 
strengthen the outreach and enabling and support services for that 
population, because we recognize that for some of the chronically 
mentally ill, particularly those with dual diagnoses and those who 
are, for example, homeless, the kind of safety network we have 
needs to be continued, needs to be strengthened in order to assure 
the chronically mentally ill population, particularly, access to these 
services. 

Mr. Lewis. Dr. Lee, is it possible for the proposal to go the sec- 
ond mile and do something extraordinary, out of the ordinary in 
rural areas and inner-city areas where people have been left out 
and left behind so long when it comes to delivery of health care? 

Dr. Lee. Well, I would say many of those people, of course, are 
uninsured, so providing insurance for everybody is going to be fun- 
damentally important, and a comprehensive benefit package. But 
the capacity expansion and the other access initiatives, we think, 
will be a major element in assuring individuals real access to care 
in addition to just being covered with insurance. In addition, the 
development of practice networks in inner-city areas and more 
training of family physicians and nurse practitioners and physician 
assistants, the development of practice networks through the ac- 
cess initiative, and potential, at least in fee-for-service plans, in- 
creased payments. 

Certainly that is going to be true in Medicare, for primary care 
in underserved areas, and that would include rural areas, with the 
development of — in rural areas, particularly — telecommunications 
links, so that the professional isolation that is there would be di- 
minished, and the development of enabling services and outreach, 
things like transportation. 

In rural areas, a very significant percentage of elderly patients, 
for example, don't have access because they do not have an auto- 
mobile. I was just out in New Mexico visiting a number of Indian 
reservations, and one of the primary problems they described in 
terms of access to care was lack of transportation, particularly 
when the weather is bad. Poor roads, very rurally isolated. 

Transportation is an important element, so those outreach and 
enabling provisions in the Health Security Act would help to de- 
velop the capacity in those areas to help meet these needs in a very 
real way. 

Mr. Lewis. Thank you. Dr. Lee. 

Thank you, Mr. Chairman. 



43 

Chairman Stark. All right, Mr. McCrery. 

Mr. McCrery. Dr. Lee, I am sorry I missed your presentation in 
full, but I need to ask you a couple of questions. We currently have 
a system, the Medicare system, and to some extent the Medicaid 
system, that at least in some respects resembles what the Clinton 
administration is trying to do with the rest of the health care sys- 
tem. That is, in the Medicare system, we have budgetary con- 
straints and we, from time to time, adjust reimbursement levels 
and pretty well dictate what providers are reimbursed for services 
in that system. 

Is it not so that the Clinton plan would essentially impose that 
on the rest of the health care system through its global budgets, 
its premium caps, and the regional alliances' budgets? 

Dr. Lep:. I think that the proposal by the President differs signifi- 
cantly from the current Medicare and Medicaid programs. Medicare 
is largely fee-for-service, although there are some capitated, pre- 
paid plans, a relatively small percentage of the Medicare popu- 
lation. 

Medicaid, as well, has a relatively small percentage in managed 
care, although that number is increasing. 

What the President has proposed is the development of inte- 
grated delivery systems that would provide comprehensive care 
with a major emphasis on quality. We could look at the evolution 
of some of those systems in recent years, and I would use Kaiser 
Permanente in California as an example. 

In talking with David Lawrence, who is the CEO; he tells me 
that they are able to reduce the rate of increase in expenditures or 
reduce the premiums that they charge principally because of the 
improvements in the quality of their care, which was developed 
through a comprehensive, continuous quality improvement pro- 
gram over the last 5 years. So quality is a major component in 
these plans, and it is within the plan. 

Now, you will competition between the plans. Medicare is paying 
individual physicians or individual hospitals. It isn't competition, 
except for the HMOs which between plans. 

The premium cap is in a sense a fail-safe. In other words, if the 
competitive plans do not achieve reductions in rates of increase in 
expenditures, that is there as a fall back protection, and to ensure 
that we can achieve a long-term slowing in the rate of growth in 
medical care expenditures. So it is more in a sense of a backup, not 
as primary. 

The primary approach is plans competing on the basis of price 
and quality, and the premium cap and the global budget would be 
backup mechanisms. That really differs quite significantly from 
Medicare. The capacity wasn't there to have competition, so Medi- 
care instituted the DRGs in 1983 and passed physician payment 
reforms in 1989, which had significant effects on slowing the rate 
of increase. The President looked at that approach and did not 
favor that approach, but rather this managed competition ap- 
proach, which is really a different way of trying to achieve the 
same objective. 

Mr. McCrei^y. Explain to me how the subsidy caps would work 
in conjunction with the premium caps. 



44 

Dr. Lee. How would the — I just want to make clear what is 
your— 

Mr. McCrery. As you know, the Grovernment is going to sub- 
sidize businesses under the Clinton plan. 

Dr. Lee. You mean small, low-wage employers, which have a 3.5 
percent limit for the 

Mr. McCrery. Anything over those. The Government is going to 
subsidize, and the Government is going to cap those subsidies. So 
how does that fit into the premium caps? How do they work to- 
gether? 

Dr. Lee. The studies that have been estimated by the economists 
and the actuaries estimating what it will take in terms of a pre- 
mium, at what level of employment to achieve the necessary re- 
sources to fund the program. In other words, what is it going to 
take from individuals and from employers. We could certainly get 
from Ken Thorpe or Judy Feder the sort of methodology and all the 
figures to provide that in a more detailed way, but — we believe 
very strongly that managed competition will, in fact, slow the rate 
so that there would not need to be additional Government sub- 
sidies. 

I certainly believe that. I think we can bring down the rate of 
increase in expenditures. If we look at what has been happening 
recently, whether managed care has had a lot to do with that or 
not, we have seen a significant slowing of the rate of increase. We 
have certainly seen that in Medicare. So I believe we can bring 
those costs down, and I think that other people agree with that, as 
did the outside actuaries who looked at the soundness of the fi- 
nancing mechanisms, that the subsidies would be sufficient, and 
that we could achieve the kind of cost containment objectives that 
are outlined in the plan. 

Mr. McCrery. I appreciate that, but the fact is 

Dr. Lee. But there clearly is disagreement and other people 
don't 

Mr. McCrei^y. And I don't necessarily disagree, but clearly I 
don't know, nor, I would submit, does the administration. 

If they don't work, if those market forces don't work, then it is 
clear to me thi^t the Government is the ultimate arbiter of what 
eventually gets into the system, and we are here today to talk 
about rural health care, and, again, I would submit that one of the 
primary problems today with maintaining a base of rural health 
care infrastructure is the reimbursement system that has been im- 
posed on those providers through the Medicare and Medicaid sys- 
tems, and they are cost shifting. 

They are attempting to cost shift in rural areas to not much avail 
because most of their patient load is now Medicare or Medicaid. So 
if we are not doing very well providing services in the rural areas 
as a result of a current government program, I just question 
whether putting the rest of the system at the whim of the govern- 
ment in terms of reimbursement and total cost of the system is 
going to do much better for the rural areas of this country. 

Dr. Lee. Well, it is, I think. One of the problems in rural areas, 
of course, is the large number of people who are uninsured. In the 
Medicare program, it is intended to raise the payments for under- 



45 

served areas for primary care services, to increase the incentives. 
So there will be several policies in ternis of just the payment. 

We know that payment doesn't do it alone. There are a lot of 
other factors in rural practice and rural areas that result in physi- 
cians not wishing to settle in rural areas, not the least of which is 
the opportunity for their kids to go to school. So these 

Mr. McCrery. That is true, but in my area though, the primary 
problem with rural hospitals going out of business, shutting their 
doors, is not being able to pay for all the services that they have 
to provide, and that is primarily as a result of the reimbursement 
system with Medicare and Medicaid, and the heavy patient load 
with Medicare and Medicaid. 

Now, it may help to insure all the uninsured in the rural areas 
and then they would have more people to cost shift on, if they could 
depend on that cost shift. But under your plan, they would be look- 
ing at the same situation, then, with the private pay patients as 
they are with the Medicare and Medicaid. They would be looking 
ultimately at the reimbursement level being controlled by budg- 
etary considerations of the government. 

Dr. Lkk. Well, in the President's plan, the goal is to have that 
not controlled by the Government, although the premium cap is a 
backup, but rather to have quality be the principal thing that 
drives it, and with competition, hopefully achieving the cost con- 
tainment objectives that are outlined in the plan. 

Mr. McCrery. Thank you. 

Chairman Stark. Jim, you ever seen a shooting star late at night 
flash? Watch tomorrow evening, OK? 

Dr. Lee, I was interested in your exchange with Mr. Lewis and 
I was intending to talk with you about the sunsetting of the redlin- 
ing or essential community providers. So I assume from your an- 
swer is you said that you wouldn't want to see that happen and 
these communities be left, bang, at the end of 5 years without 
these essential community providers. 

Dr. Lkk. Absolutely. 

Chairman Stark. So I assume that the administration would 
therefore support our just making a little change and say, we will 
review it and at the end of 5 years and we won't have it automati- 
cally sunset, and then if you can convince us it is no longer nec- 
essary, we will eliminate it. Would you support that? 

Dr. Lee. I would say if Congress judges that is the best way to 
go, I would certainly not object to that at all. 

Chairman Stark. Great. Now, one other test. I would like to join 
in on this cost saving, but Mr. McCrery has done an excellent job 
on that. I am concerned, again, on this underserving the inner-city 
and rural areas. The Public Health Service insofar as they have 
been able, has done a very good job, but in the President's program, 
let us focus ahead and pretend that we are in 1998. Leon Panetta 
survives as budget director and we are all here and we have a zero 
sum budget game and we have a freeze on discretionary spending 
and the plan that you have outlined for having the Public Health 
Service requires something we are not used to in this committee. 

It requires an appropriation of exactly $48 billion. The first year 
it is only $1.1 billion. How would you recommend to us that we cut 
the President's budget, which is going to be presented to us tomor- 



46 

row, by $4 billion to fund the program that you are suggesting? 
What areas do you think we should cut in — just to give you the 
order of magnitude. This is a year. Where would we cut $4 billion 
out of discretionary nondefense, because we can't crossover into 
that arena. Where would you just guess that there is an extra $4 
billion to continue to provide the community and migrant health 
centers that are going to be necessary? 

Dr. Lp:p:. In 1995, Mr. Chairman, the $1.1 billion is mandatory 
spending outside the discretionary caps. Currently 

Chairman Stark. But it isn't in 1998 when it is $4 billion. 

Dr. Lp:e. I know, but the administration is committed to working 
with Congress to insure that the public health initiative is funded, 
so that I think the 1995 approach at least suggests this is one way 
to go. And we would work with Congress until that is identified 
and the assured funding is there. 

Chairman Stark. How about space? Want to cut the 
Supercollider? NASA? Roads? Mass transit? Education? Where are 
we going to get the $4 billion? I am just trying to figure this out. 

I want to show you what we are up against in 1998 when many 
of us hope to be back here. We still have the program that Mr. 
Lewis is concerned about, but in order for community health cen- 
ters and migrant health centers to continue in the central valley 
of California, they need $4 billion. We are not talking about $40 
million — $4 billion. Where are we going to get it? 

Dr. Lp:e. Well, the funding, this secure funding, which has been 
achieved in 1995, as employed in the Health Security Act, would 
be outside the budget caps, outside the discretionary spending caps, 
so that the Congress would not have to make those kinds of deci- 
sions. 

Chairman Stark. The first year. 

Dr. Lee. Well, no, even through the whole period. The adminis- 
tration is committed to working with Congress to identify that 
source of funding and to assure that it is there, and it is already 
there for the first year. 

Chairman Stark. We are committed to national security, to na- 
tional education, to clean air. We are overcommitted up here. I 
mean, we have commitments out there that we aren't going to be 
able to pay for for 100 years. 

Now, the point is that I am afraid what you are telling me is 
that we are going to have to compete with nonhealth discretionary 
programs and, in fact, other health programs for that $4 billion, 
are we not? There is no guaranteed funding in there for that any- 
more than you are guaranteeing educational grants or anymore 
than you are guaranteeing to pay for these thousands of cops you 
are going to put on the street. That is not guaranteed. That is 
going to have to come up against the appropriation process. 

Dr. Lee. But the administration would work with Congress to 
identify the secured source of funding that would be not under the 
discretionary cap, so it would not have to compete with education 
or other health programs or Head Start or things of that sort that 
would be under the discretionary cap. 

Chairman Stark. Where might that be? I don't know any 



47 

Dr. Lek. If you look at the budget and the financing for the 
Health Security Act, there are several areas where that might 
come from. 

Chairman Stark. Like what? 

Dr. Lkk. Well, if you look at the total budget, you have got to- 
bacco tax in there. You have got various savings potentially. 

Chairman SiAitK. You want me to take it out of all — remember, 
this is 1998. You have already had me take $154 billion out of 
Medicare. 

Dr. Lee. I am not talking about Medicare because that money is 
specifically to benefit the elderly. You are not going to do that. 

Chainnan Stark. No, it isn't specifically for the elderly and you 
know that. Come on. 

Dr. Lee. I think the intention is that the Medicare savings are 
going to be used to produce benefits for the elderly. 

Chairman Stark. That is not the case. There is nowhere near 
that much additional benefits for the elderly in this program. De- 
fine for me 154 billion dollars' worth of additional Medicare bene- 
fits in this program. I mean, it is nowhere near that. It all goes 
to pay for the poor. You are cutting the benefits for the elderly to 
pay for the poor and to subsidize low-income workers. 

Dr. Lee. You are not cutting the benefits for the elderly. You are 
slowing the increase in expenditures to providers. 

Chairman Stark. Not your plan, not with $154 billion. Remem- 
ber, we had the discussion, you can't get Medicare until Carol gets 
it. I can't get it until I am 101. You don't think that is cutting my 
Medicare benefit? Of course it is. 

Dr. Lee. We are still assured comprehensive coverage. 

Chairman Stark. But not at the cost. I have already paid for my 
Medicare, just about. I don't have many years to go, and I want it. 
And you guys are trying to postpone it for a time beyond which I 
am not certain that I am willing or able to wait. 

Well, I just wanted to point out to you that when you depend on 
appropriations, as you do, there is no guarantee that those provi- 
sions will be there, and it does concern us. 

I think that Mr. McCrery was kind enough to let you off the 
hook, but if these States run short on providing for what has basi- 
cally been a Medicaid responsibility, they have got to come back 
here for an appropriation if they run out of money halfway through 
the year, and that is not to suggest that Congress might not do 
that, but our record hasn't been too good and I am concerned. 

The only other issue is the question that your alma mater asked 
me to raise because they are worried. You basically knock the dis- 
proportionate share, you reduce it by about 75 percent. Stanford 
wants to know how you expect them to survive when they have 
told me recently they have been underfunded for providing care to 
the poor and — how are we going to fund these tertiary care centers, 
whether it is in San Francisco or Palo Alto, Oakland, if you are 
going to knock them in the head 75 percent the first year? 

Dr. Lee. Well, I would say, first of all, you need to take a very 
careful look at, let's say, an individual institution and see if they 
will provide you with the data on what their revenues, in fact, have 
been and rather than accepting their assertion, to really look at the 
data from those institutions. Because I think that what we want 



48 

to do is to provide the Congress with the most accurate information 
on which to make these judgments. 

On the disproportionate share, the Medicare disproportionate 
share, about 78 percent that they are estimating is related to unin- 
sured, and 22 percent is related to low income. 

Chairman Stakk. Right. 

Dr. Lee. And that, as I understand it 

Chairman Stark. That is the 78 percent you are going to cut. 

Dr. Lee. Right, right, right. Now, Stanford presumably would 
then have all these uninsured, that they are presumably taking 
care of, covered. 

Chairman Stark. Let me try this. Because I don't believe you. 

Dr. Lee. Plus we have the academic health center fund that 
would provide additional funds for them. 

Chairman Stark. That isn't enough. Let's take the District of Co- 
lumbia and you are going to put 200,000 people, new, into some 
managed-care plan, managed care meaning that some guy is going 
to make a profit because you anticipate that these will be profit- 
making entities by holding down the cost of care, and let's even as- 
sume it is Kaiser, but in this neck of the woods. Kaiser doesn't 
have knocks on salary and it doesn't own its own hospital hos- 
pitals, so it is contracting, OK? 

It is contracting with providers in the district and it is contract- 
ing with hospitals and they got a case that should go to Johns Hop- 
kins. They are not going to do it. They would lose the revenue and 
the minute the patient goes to Johns Hopkins, Johns Hopkins is 
the gatekeeper and Johns Hopkins is going to do all the x rays over 
again and they are going to want their own MRI study and their 
own blood workup and their own physicians to do the primary 
workup, and Kaiser knows that so Kaiser is going to say, no, we 
are going to keep those people here with our providers, and Johns 
Hopkins, as does Stanford, as does Mayos, is going to get cut off 
from a substantial part of the referral business they now get be- 
cause the managed-care people will not spend the money. 

I don't care whether they have been paying 1 percent of their 
premiums as a tax to support them. That is just lost money to 
them. They still have to pay the entire freight to Johns Hopkins 
if they refer a patient there and you have got to make a case why 
somebody who is holding out to themselves for their own profes- 
sional comfort, that they have adequate staff and specialists and 
adequate staff of primary care and an adequate staff of hospital 
service, why are they going to refer anybody? 

They would admit to themselves that they are no good? You and 
I know that isn't going to happen. So I am submitting to you that 
not only while you may get these disproportionate share of people 
paid for, they are going to be paid for to a plan that we recognize 
today is not as good as these specialty centers and they are going 
to wither on the vine. That is their worry and I share the worry. 

Dr. Lee. Well, there are several things in the plan; I would say 
two things. One, we need to look at what is going to happen if the 
plan isn't passed past and people aren't insured and we have a con- 
tinued deterioration in the system 

Chairman Stark. In what regard? 



49 

Dr. Lee. If the present trends continue, more people would be 
uninsured, fewer people able to access care, so that those centers 
which are taking care of more and more uninsured have greater 
and greater difficulty doing that. 

Chairman Stark. That wouldn't happen if we put people under 
Medicare though, would it? 

Dr. Lee. If you have everybody insured. 

Chairman Stark. Under Medicare. 

Dr. Lee. Through whatever mechanism, it wouldn't happen, 
whether it is the President's plan or single payer. 

Chairman Stark. If you put them all in Humana, they are never 
going to see Hopkins or Stanford or Mayos or any of the other med- 
ical centers because Humana, you and I know, won't spend the 
money. 

Dr. Lee. I won't speak about Humana, but let's just speak 
about — you mentioned Kaiser. In California certainly 

Chairman Stark. That is different. At Kaiser they own the hos- 
pital. They have got the doctors on salary and they might on occa- 
sion refer out. But here they don't have that luxury and they are 
going to have to use whatever hospitals that can remain nameless 
in the district and their staff here. 

Dr. Lee. But they can — let's say there are two types of referrals 
to Hopkins. One is the physician in the plan deciding a patient 
needs to be referred for some highly specialized procedure. 

Chairman Stark. That physician is on a risk contract and the 
first $10,000 comes out of his pocket. 

Dr. Lee. Well, there are two things. One is that if the physician 
chooses to refer the patient, the plan pays for it. And there is in 
the academic health center fund, the additional funding that would 
permit that academic health center not to charge the additional 
costs related to teaching and clinical research. 

Chairman Stai^k. Now, that works and a plan doesn't come down 
hard on those doctors for referring out, which I suspected — there 
is no protection to stop them. 

Dr. Lee. But the fact is that they are competing on the basis of 
quality. Now, you mentioned Stanford. Stanford is significantly 

Chairman Stark. They don't compete on quality. You and I know 
that. People who sign up for the plans, 99 percent of them are 
healthy. They have no idea what they are getting into. It is only 
after they get sick that they figure out the plan isn't any good and 
then they get out. Or they hear about it from their cousin or their 
brother-in-law or their mother and dad who are in the plan, but 
people don't sign up for plans. They don't have any idea what the 
quality is until they get going on it. 

They don't take a test appendectomy to see how it feels and then 
take a test appendectomy at another place. You only go through 
that drill once. 

Dr. Lee. That is part of the reason for the quality report card 
and the mechanisms to evaluate plan performance. 

Chairman Stark. Let me ask you this. Are you willing to evalu- 
ate the staff — the faculty at the University or California Hospital 
and rank on a scale of 60 as failing and 100 is superb, your col- 
leagues in the medical profession and make public your ranking of 
how you rate them. 



50 

Are you willing to do that or do you know any physician who 
would? 

Dr. Lee. Well, plans are doing that now. They are doing profiles 
on physicians. Kaiser has issued a report card for the public which 
compares it with other delivery systems, and- 



Chairman Stark. That they wrote. That is like 

Mr. Lee. Pardon me? 

Chairman Stark. That they wrote. That is like the current ad- 
ministration. Your administration is going to give us a great press 
release about their plan. I mean, it is going to sound good, I know 
it. 

Dr. Lee. Well, because you look at what that report card said. 
One of the things it said was that they conducted surveys of their 
beneficiaries, and one of the problems they found was wait times 
in the doctor's office. There was a fairly low level of satisfaction 
with that. They also had, infant mortality. They had surgical mor- 
tality, they had other measures, but included was consumer satis- 
faction. So that would be another mechanism. 

The final one to assure this individual option is the point of serv- 
ice option that will be included in each of the plans. In other words, 
even the group practice and staff model HMOs have to provide in 
the plan a point of service option. 

Chairman Stark. At higher cost. 

Dr. Lee. At higher cost, but that would permit the individual to 
then self-refer. ~^ 

Chairman Stark. If he could afford it. 

Dr. Lee. That is coirect. But that choice is there 

Chairman Stark. And if they can afford it, the bottom line is 
that the institutions are concerned that they will not continue to 
see the cases that reasonably are referred to them today, and there 
is a concern. This has been a concern that has been expressed to 
the committee by these hospitals and doctors, not by me. I couldn't 
find half of them on a map. So it isn't us that is dreaming this up 
and it isn't the Republicans who are coming to me with this. 

This is Johns Hopkins and Stanford and Mayos and the teaching 
hospitals are concerned, and you can confuse me, but you have to 
answer to them, and they are still concerned. And I hope that you 
can address those concerns, because I don't think they are willing 
to take the idea that just because suddenly you are turning the 
Medicaid population over to Humana, that they are not going to 
have a disproportionate share problem and that it is going to be 
resolved out of the goodness of the hearts of Humana or Pruden- 
tial. 

I think they think that those may be the problems. I think it was 
Senator Rockefeller who wanted to characterize Prudential as hav- 
ing a spot in a warmer climate reserved for it, or at least its chief 
executive officer, and I think that there are others who are begin- 
ning to catch on as we get further into this bill. 

Dr. Lee. Well, we are working with those academic medical cen- 
ters. We have met with them on a number of occasions. We are 
looking to provide this committee and the other committees of the 
Congress dealing with this issue as much factual information as 
possible about this issue, about the referral issue, about having 
those institutions not supporting a maintenance of inefficient oper- 



51 

ation, but to assure that the essential functions are maintained in 
those teaching institutions. And I think one of the reasons that the 
President's plan puts some of these issues very explicitly on the 
table is because we are concerned about it. 

We think the approaches we have proposed will deal with it, but 
we certainly want to do everything we can to provide you with the 
information before you have to make a final decision on this ques- 
tion about whether the amounts of funds are sufficient or whether 
some of the other policies we have proposed are not adequate. 

The whole competitive system, of course, is moving very rapidly 
in many parts of the country, including California. 

Chairman Stark. Did you get a chance to read that Florida thing 
about the competitive system down there with HMOs that I handed 
out? I am going to give that to you, make sure you read that care- 
fully. It is one thing to encourage the industry, on the other hand, 
how do we control this monster after we let it out of the box? Inter- 
esting. 

Mr. Thomas. No, I will pass. 

Chairman Stark. Thank you. Thank you very much, Phil. 

Mr. Lee. Mr. Chairman, just a final point. For the record, I 
would like to elaborate on my response to Congressman Lewis' 
question the other day about providers in inner cities, minority 
physicians and others. We developed a little more detailed re- 
sponse, and I would just like to submit that for the record to really 
clarify it. 

Chairman Stark. If you have a copy, would you give it to Mr. 
Lewis first and I will have him see that it gets in the record of the 
hearing on February 2, 1994, relating to managed care. 

Mr. Lewis. Thank you very much. 

Chairman Stark. Thank you very much. We are now joined by 
a panel of experts on the problems associated with providing health 
care to residents of inner-city and rural communities. Sara Rosen- 
baum, who is the senior research staff scientist at the Center for 
Health Policy and Research at the George Washington University; 
James Bernstein, who is the president-elect of the National Rural 
Health Association; Larry Gage, who is president of the National 
Association of Public Hospitals; and John Silva, president of the 
National Association of Community Health Centers, Inc. 

We will suspend for 30 seconds. 

Chairman Stark. I thank my distinguished ranking member's 
indulgence and the indulgence of the witnesses. 

Ms. Rosenbaum. 

STATEMENT OF SARA ROSENBAUM, SENIOR STAFF SCIENTIST, 
GEORGE WASHINGTON UNIVERSITY, CENTER FOR HEALTH 
POLICY RESEARCH 

Ms. Rosenbaum. Thank you very much for having me here 
today. I would like to spend my time with you on those issues that 
underserved, inner-city and rural populations need you to address 
that go beyond health insurance. 

A number of the questions today concerned these issues, which 
are probably somewhat less familiar on the Ways and Means Com- 
mittee's work plates than health insurance, where you are the 
experts. 



52 

A couple of things need to be said about underserved urban and 
rural communities. First all, about three-quarters of all under- 
served Americans are in inner cities, but three-quarters of the un- 
derserved geographic areas of the United States are rural. That is 
because of the difference in the way underservice is measured. 

In rural areas, underservice is more commonly a function of ab- 
solute shortage of health care providers. In inner-city areas, 
underservice is more a reflection of very poor health status meas- 
ures, particularly with respect to preventable diseases and deaths. 

The second point that I think is worth noting is that you have 
two different problems must be addressed here. The first is the 
issue of specific underserved populations with very specific, identi- 
fiable needs. These populations live everywhere in the United 
States, in suburbia, in urban and rural areas. Addressing their 
needs, I think, is a function of the requirements placed on the pri- 
vate health care system that everybody uses in those areas, supple- 
mented by certain kinds of services that go beyond basic medical 
care. 

The second serious problem, which is different to tackle, is what 
happens when many underserved people live in concentrated areas. 
That is the problem that brings remote rural areas and inner-city 
areas very close together. The people may be further apart, but the 
bottom line is the same. There are too many poor people with too 
many health problems comprising too big a percentage of the serv- 
ice area. 

In the testimony that I submitted, I tried to give you a sense of 
how much health care spending happens today and is going to con- 
tinue to happen on an out-of-pocket basis. Even under a broad 
health insurance reform bill, people need money to buy health care 
and related services. Poor communities, whether urban or rural, do 
not have the financial wherewithal to support a health care infra- 
structure. 

Only a portion of health care spending goes into health insur- 
ance, and therefore to build a health care system in very, very un- 
derserved areas requires public investment beyond insurance. 
These investments also should be financed on a mandatory basis. 

The one bill that does that right now is the bill sponsored by 
Representative McDermott and Senator Wellstone. That bill builds 
funding for these services directly into what essentially is the 
health insurance premium payment. 

I think that this approach represents a very equitable way to do 
it because the cost of underservice is a cost that society has 
brought on itself through decades of discrimination and segrega- 
tion. The cost of building services through facilities development, 
through health professions training programs, through enabling 
services and other kinds of services mentioned in my testimony and 
that of my colleagues is something that is a social obligation, just 
as insuring people is. 

So I urge you to look at the Wellstone-McDermott bill as a model 
for tackling the problem of how to finance this care. Beyond the 
issue of the financing is the issue of the civil rights requirements 
and the regulatory requirements that you choose to impose on 
health plans. 



53 

We face two kinds of problems, one being no services at all and 
the other being a deluge of underservice bv health plans. We are 
not going to correct the later problem without clear, measurable 
standards on the performance of health plans. Health plans under 
civil rights laws have escaped regulation and have done so because 
there is no recognition of poverty as a civil rights issue. That is the 
place where the performance standards you impose will have a lot 
to do in how they reach underserved populations. 

Chairman Stark. Thank you very much. 

[The prepared statement follows:] 



54 



TESTIMONY OF SARA ROSENBAUM, 
GEORGE WASHINGTON UNIVERSITY 



Mr. Chairman and Members of the Subcommittee: 

Thank you for this opportunity to appear before you today to testify on inner city and 
rural populations and national health reform. How these populations fare in health reform 
should be viewed as a matter of extreme importance because the health needs of inner city 
and rural residents are so urgent and because there are substantial economic and social 
consequences if national reform fails to effectively address these needs. This testimony 
examines the special issues that inner city and rural populations present in health reform and 
the policy reforms that should be included in order to make health reform effective for them. 

1. What special issues do inner city and rural populations present in health reform? 

In reviewing the special health reform issues presented by inner city and rural 
populations, two separate matters must be considered. First, policy makers must identify 
various types of urban and rural populations who can be considered vulnerable because of 
their special health needs or the conditions under which they live, or both. The second is to 
consider the additional problems that are created (and the additional solutions that are 
required) when the concentration of vulnerable individuals is so great that an entire urban or 
rural community can itself be considered "vulnerable". 

The overall numbers: Over 43 million persons can be classified as medically 
underserved.' Underserved persons span all ages and live everywhere but are most heavily 
concentrated in inner city and rural areas. Seventy percent of all U.S. counties can be 
classified as wholly or partially medically underserved based on their depressed health 
statistics, the shortage of health care providers or both.^ Of the more than 43 million 
underserved persons, 14.2 million are under age 18, 5.7 million are under age 5, and 9.1 
million are women of childbearing age. 

The populations in question : The causes of medical underservice extend beyond the 
absence of health insurance. Persons at risk for medical underservice include: 

► Insured low income persons: 60 percent of all medically underserved Americans 
have some form of health coverage.' 

►■ Residents of inner cities: More than 78 percent of all medically underserved persons 

are residents of metropolitan areas; within MSAs, the underserved tend to be 
concentrated in central city areas. In the case of the urban poor, underservice is more 
frequently a function of depressed health status measures. This indicates a lack of 
accessible primary health care services. 

► Residents of rural areas: While rural residents comprise only slightly more than 21 
percent of all medically underserved persons, rural counties constitute 74 percent of 
all medically underserved counties. Among rural populations, absolute provider 
shortages are a more common cause of medical underservice. 

*■ Members of racial and ethnic minority groups: Racial and ethnic minority 

populations comprise a disproportionate percentage of the medically underserved. 
This disproportionate level of underservice among minority Americans can be seen in 
the disproportionate reliance on publicly funded health clinics by members of minority 
groups. 

► Homeless persons: An estimated 2 million persons are homeless. Approximately 
one-third are believed to have an alcohol or substance abuse problem while 25 percent 
have a mental illness. 



Daniel Hawkins and Sara Rosenbaum, lives in the Balance National Association t)f Community Health Centers, Washington, 
D.C.I993 (1993). 

Hawkins and Rosenbaum. t)P. cit 

' Ibid. 



55 



► Migrant farmworkers and their families: Over 4 million migrant farmworkers and 

their families travti throughout rural areas of the nation each year. Their mobility 
makes effective health coverage particularly difficult, and their health risks are 
especially great. 

*■ Persons with HIV and other communicable diseases: Persons with or at risk for 

communicable disease are at particularly high need of comprehensive health services. 
But persons with high health risks are found in especially concentrated numbers in 
underserved communities. While 70 percent of all U.S. counties are medically 
underserved, underserved urban and rural counties account for 90 percent of the 
nation's hepatitis cases, 93 percent of all cases of tuberculosis, and virtually all cases 
of vaccine preventable disease.'' 

»■ Persons with serious physical, developmental and mental illness, disorders and 

and disabilities: Persons with serious physical, developmental and mental health 
problems live in all communities. But medically underserved urban and rural 
communities account for a disproportionate percentage of health conditions such as 
infant low birthweight which are associated with certain types of lifelong disabilities 
such as retardation, cerebral palsy, and developmental disabilities. 

►■ Persons who speak limited or no English: Medically underserved persons 

disproportionately speak limited or no English. Seventeen percent of all rural health 
center patients and 13 percent of all urban patients speak limited or no English. 

►■ Persons who are undocumented: Estimates of undocumented persons living in the 

U.S. range from a low of about 3 million to a high of more than 10 million. 
Undocumented pc-sons are among the most vulnerable of all persons at risk because 
of the deep impoverishment and substandard conditions under which they live. They 
disproportionately are concentrated in central city and rural communities. 

While many factors related to geography and personal characteristics can make 
populations vulnerable to underservice, the common thread is poverty. Underserved inner 
city and rural populations are disproportionately poor. Poverty has major consequences for 
both health status and access to health care, and the greater poverty of inner city and rural 
communities must be taken into account in fashioning health reform. 

Access barriers faced bv underserved populations : Universal health insurance 
coverage represents the critical first step in assuring access to health care for all Americans. 
But the causes of medical underservice are complex, and studies indicate that underservice 
exists even in the face of reasonably adequate health coverage. Even when insured, 
vulnerable individuals receive less primary health care and less specialized care. The race 
and ethnicity of patients has a measurable, and limiting, effect on the amount of health care 
they receive, and the settinp,s in which thev receive it, even when other factors are controlled 
for.' 

In fashioning a health reform plan that works for underserved inner city and rural 



Hawkins and Rosenbaum. 



Numerous studies indicate racial and ethnic health rare utilization disparities m care David KindiR, etal "Physician Supply 
in Rural Areas with Large Minority Populations" Health Affairs (Summer 19931 p 177-184; Alan Cillelsnhn, et al. "Income, Race and 
Suraery in Maryland" American lournal of Public Health Nov 1991, Vol 81. No 11 p 1435-1441; Rodney Hayward, el. al. 
"Inequities in Health Services amon); Insured Americans" The New England lournal off Medicine Vol 318, No, 23. p 1507-1512, 
Sandra Blakeslee "Studies Find Unequal Access to Kidney Transplants" The New York Times |an. 24. 1 989; Robert Blendon, et al. 
"Access to Medical Care lor Blj( k and VVh te Ameru ans" JAMA Ian 13.1989 Vol 261, No. 2 p 278-281. Mark Wenneker and 
Arnold Epstein "Racial Inequalities in the Use of Pn)cedures for Patients with Ischemii Hfan Disease in Massachusetts" JAMA Ian. 13, 
1989. Vol, 261, No. 2; Kenneth ColdberR, el al "Racial and Communily Far tors Influencing Coronary Artery Bypass Craft Surgery 
Rates ffnr all 1986 Medicare Patients" |AM/' Mai< h 18,1992. Vol 267. No 11 |onalhan lavitl, I't al, "UndertreatmenI of Glaucoma 
among Black Americans" The New England lournal of Medii me Nov 14,1991 P 1418-1422, Bertram Kasiske. et al "Ihi^ Effec l of 
Race on Access and Outcome in Transplanlalion" The New England lournal of Medic me Ian 31,1991 p 302-307, Alfred Sommer, 
et. al "Racial Differences in the Cause-Specific Prevalence of Blindness in East Baltimore" The New England lournal of Medicine Nov, 
14,1991 p 1412-1417; Suezanne Orr, el dl "Diflerences in Use of Health Si-rvic es by Children Ac c ceding to Race" Medical Care 
September 1984 Vol 22, No 9 p 848-85 1 



56 



Americans, Congress must consider two separate types of situations. The first involves 
communities in which vulnerable individuals are dispersed in relatively small numbers 
throughout the general population. Adaptation of existing health care financing and service 
delivery arrangements accompanied by the development of certain types of supplemental 
services, may prove quitt effective in communities with relatively small numbers of 
vulnerable persons; furthermore, the potentially higher cost of treating such persons can be 
spread throughout the community. 

But decades of residential segregation and deep poverty have led to the 
concentration of large numbers of especially vulnerable persons inner city communities 
fraught with high health risks. Similarly, many rural communities face deep 
impoverishment, not merely pockets of poverty. In urban and rural communities comprised 
largely of low income and vulnerable populations the health reform challenges grow, because 
as a whole, these communities simply are too poor and high risk to attract and sustain a 
decent and functioning health care system without additional direct aid. Health care 
financing interventions must be broader than health insurance alone if the overall community 
ecology is to be able to support a viable health care system. 

The limits of health insurance as a health care financing tool for vulnerable persons 
and communities : Many people believe that health insurance coverage alone can achieve a 
redistribution of health reso-jrces by improving the market purchasing providers of low 
income persons and communities. In areas of the country in which the poor are widely 
dispersed, there are clear signs that insurance coverage has a measurable and positive effect 
on "mainstreaming. "' 

But in urban and rural communities with high concentrations of low income, 
vulnerable and underserved persons, health insurance alone is not the only necessary 
solution. Many factors such as the race and personal characteristics of patients' and the 
quality of the practice environment affect practitioner location. As important may be the fact 
that the overall economic environment of underserved communities is too weak to support 
health care systems even with improvements in health insurance coverage. 

In a country that depends on private health insurance to finance a sizable proportion 
of medical care, extending coverage is the obvious first step toward assuring financial access 
to health services. But health insurance is only one of the ways that Americans pay for 
health care. In addition to health insurance, the nation relies heavily on out-of-pocket 
spending to pay medical bills; it is this out-of-pocket spending capability that is virtually 
missing in poor and near-poor communities. 

According to the Health Care Financing Administration, in 1991 out-of-pocket 
payments amounted to $144 billion, 22 percent of all spending for personal health services. 
Out-of-pocket spending Wus highest for ambulatory care and services, as shown on Table 1 . 



lamp^ F.)5\p|l, |r)hn Pi'lprvin, Mdry l?inR, "Public Smtiir Primjry Cdri' drill Mcdii did; Irddmn Ai ( psMbilily lot Mdinslci'dming." 
lournal ill Hpdilh Pdlitin. Pplicv dnd 1 dw , 14:2 ISummiT 1989) pp. 309-125 

David KindiR dnd Gun Van, "Phy.i< ijri Supply in Rutdl Ari'd'. wilh IjrRc Miniinly l'o(iuljli(ins ' Hpdilh Alljirs ISummpr, 1993) 
pp. 17S-184. 



57 



Table 1 
Out-of-Pocket Spending* as a Proportion of Total Personal Health Spending 



Service 


Proportion Paid Out-of-Pocket 


All personal health services 


22% 


Hospital care 


3% 


Physician services 


18% 


Dental services 


54% 


Drugs and other non-durables 


73% 


Vision products and other medical non- 
durables 


62% 



* Excludes premiums 

Source: Letsch, Lazenby Ixvit and Cowan, Health Care Financing Review 14:2 (Winter, 

1992) 

Out-of-pocket health expenditures cover a variety of things, including uncovered 
health services (for both medically necessary and purely elective care), deductibles, and 
coinsurance. It does not include items and services essential to good health such as food, 
shelter and other health-related services. 

In setting insurance premium rates, actuaries assume the availability of out-of-pocket 
expenditures. These assumptions are reflected in overt limits on coverage (such as 
psychiatric visit limits) as well as in deductibles, coinsurance, and annual and lifetime 
maximum coverage limits. Moreover, out-of-pocket expenditures are covertly built into 
health coverage schemes as well, through administrative techniques such as appointment 
scheduling delays or long waits for prior approval that are designed to discourage the use of 
insured services and encourage out-of-plan service utilization." 

Given the limits of health insurance as a health care financing mechanism, health 
providers derive a sizable proportion of their annual revenues from aut-of-pocket payments. 
Furthermore, it is probably safe to assume that whatever health reform plan finally emerges 
will continue to depend on sizable out-of-pocket spending by insured persons, simply because 
the plan will not be financed in a manner that avoids the need for supplemental personal 
spending on medical and health related services. 

Constrained premium rates, dependence on out-of-pocket payments for uncovered 
health services, the desire to avoid high medical risks will mean that many health plans will 
continue to avoid communities with high concentrations of poor persons. These communities 
also will remain at a major disadvantage in attracting and retaining sufficient numbers of 
primary and specialized health care providers. Even with health insurance, poor communities 
as a whole are incapable of making the types of out-of-pocket medical and health-related 
expenditures on which a privately financed health system depends. 

Over time, poor broader insurance coverage and an increased emphasis on primary 
health care training may have a redistributive effect on health care providers. But this 
evolution will be slow in coming, given the overall shortage of primary health care providers 
(the shortage of primary care physicians is estimated to stand at between 50,000 and 70,000) 
and the plentiful opportunities to practice in more affluent communities. Even if health 
insurance payment rates are increased to compensate for the lack of out-of-pocket spending. 



Milton Roemer and William Shonik (1973) "HMO Pertormant e; The Rpcenr tvidenrf" Milbdnk Mpmoridl Qudrterlv pp. 271- 
317 (Summer). 



58 



the continued presence of uninsured, sporadically insured, and underinsured persons (such as 
undocumented persons, migrant farm workers and homeless persons) will detract providers. 

At the same time that many poor communities may continue to experience a shortage 
of health personnel, other poor communities may experience "mirror-image" type of 
problem: the movement into the community of underfinanced prepaid health plans that 
depend on an excessive reduction in health care service utilization to show a profit. There is 
already ample evidence from the past and recent history of managed care under the Medicaid 
program of the impact of under-financed managed care on vulnerable patients and 
communities.' Indeed, some health plan executives report that, far from representing a loss, 
Medicaid managed care may yield high profits (at least in the short term) because the poor 
are such low users of care and are easily deterred from seeking services. 

Thus, even with health insurance reform, the urban and rural poor remain vulnerable 
to two basic health care access problems. The first is a complete lack of services in 
communities that cannot afford to attract and maintain health care providers of good quality. 
The second is the burgeoning number of underfinanced prepaid health plans that require 
providers (however fragile) to organize into prepaid networks that place far too high a level 
of financial risk on individual practitioners and institutions, and that ultimately are forced to 
depend on systemic under-service for economic survival. 



2. What do vulnerable urban and rural populations need in health reform ? 

Over the past 25 years, countless studies have analyzed what makes a health system — 
both health insurance and health care services - responsive to the needs of vulnerable 
populations and communities. From these studies, three basic points emerge. First, 
responsive health systems take special steps to make insurance coverage itself accessible, 
affordable and of good quality Second, responsive systems ensure that health care providers 
serving vulnerable populations have access to additional direct financing in the form of 
capital development and operational support. These added direct supports are provided in 
recognition of the fact that health insurance alone does not offer providers for the 
underserved a sufficiently adequate financial base. Third, a responsive system emphasizes 
provider practice adaptations to fit the health needs of their patients. Adaptation examples 
include location, hours, languages spoken, the mix of health and social services offered, and 
other community-responsive services. 

a. Making insurance affordable, accessible and of good quality: To be appropriate 
for vulnerable populations insurance reforms should include the following provisions: 

• Premiums must be kept nominal: Poor patients cannot afford premiums, and near- 
poor patients should bear premium burdens that are in keeping with their limited 
ability to pay health care costs (3 percent of annual income or lower). 

• Cost sharing must be nominal: A large number of studies underscore that premiums 
that exceed nominal amounts limit access to necessary health care, particularly in the 
case of preventive and primary health care. 

• Benefits should adequate: Benefits should be broad enough to cover primary and 
acute care needs as well as services for persons with chronic illness and disability. 

• Enrollment must be simple and accessible: Enrollment sites should be located 
throughout a community and available in the evenings and on weekends. Enrollment 
assistance should be made available for persons with limited English-speaking ability 
and for persons with special needs for assistance in enrolling in a health plan. 



See Mudii'S by r.AO .iiiH diHit.. i hoc in Medirjid and Managi'd Cjri-: A Lileralure Rhvii-w (((itlhiciminn, Kan 
I Ihp Future of Medicaid. Wa<.hingn>,i, L/C , 19941. 



59 



Special provisions must be made for transient worker populations: Special provisions 
should be included for persons who travel for work, such as migrant farmworkers. In 
a state-based health reform system in which coverage depends on state residency, 
special reciprocal arrangements are needed to ensure that migrants' coverage is 
honored by providers in all states and that families are not required to reapply each 
time they enter a new state. Fee-for-service or point-of-service plans are of particular 
importance so that families are not limited in their use of insured out-of-area, 
medically necessary services during travel periods. 

Fee-for-service or point-of-service plans should be financially available to all persons 
regardless of income. Lower income families tend to have far less stable living 
arrangements and may move frequently. Closed-network provider plans are 
particularly unsuitable for these families, who may frequently find themselves out of 
the plan's service area. This is true in both inner city areas, where 30 city blocks 
may place a family "out-of-area", as well as rural communities where distances are 
great. 



b. Direct financing for the development and support of health providers in underserved areas: 

In communities with high concentrations of low income and vulnerable populations, a 
resource development strategy is absolutely essential. Without a systematic strategy, these 
communities will be unable to attract or sustain health services of adequate quality. 
Elements of a provider development and support strategy include: 

• Funds to develop primary health care services: Service development needs include 
funds to plan the development of new service sites and networks, and funds to acquire 
or refurbish facilities, purchase equipment, recruit and train medical, clinical and 
administrative staff, set up billing and management and information systems, and 
assume other costs associated with establishing a comprehensive medical practice. 

• Funds to establish risk reserves in the case of health providers participating in risk 
based plans. 

• Special reinsurance and stop-loss arrangements to cushion providers against the higher 
level of risk incurred in providing health care to sicker patients: Steps must be taken 
to limit the financial risks incurred by providers working in underserved areas, with 
special consideration given to primary health care services. This can be done through 
special payment rates for providers practicing in undeserved areas or special stop-loss 
rules designed to lower the financial risk of furnishing more intensive levels of 
primary health care. The Federally Qualified Health Centers and Rural Health Clinic 
Service programs created by this Committee both are excellent examples of special 
payment arrangements. Emerging data suggest that these payments have not only 
helped sustain provider practices in underserved urban and rural communities but 
have also aided in their growth and expansion. 

It is important to emphasize that risk adjusted payments to health plans alone are not 
enough. Additional payments to health plans will have little impact on the stability of 
individual providers or availability of primary health services if the plans do not 
adjust the level of financial risk borne by the providers. The history of prepayment 
under Medicaid reveals numerous instances in which plans whose risk capitation 
payments may have been reasonably adequate to begin with nonetheless failed to 
appropriately control the level of financial risk passed on to individual health 
providers and left communities at risk for underfinanced primary health services. 

• Grants to pay for health related and social services not covered by insurance: 
Health providers in underserved communities must be able to furnish more than 
traditional medical care if their services are to be appropriate, community-responsive, 
and effective. Of particular importance are case management, translation. 



fli-AR^ r\ — OA 



60 



transportation, social work, outreach and social support services. None of these 
services are financed by traditional forms of private insurance Providers who offer 
these services today normally do so through operating grants. 

Funds to cover the cost of uninsured and underinsured patients: In the event that 
health reform excludes insurance coverage for undocumented persons, health reform 
should provide for the direct support of health services. Funding is needed both for 
the overall health and safety of these individuals and the communities in which they 
reside and to avoid the continued need to shift the cost of care and services onto other 
payers. An adequately financed successor program to the existing Medicare and 
Medicaid disproportionate share program will be needed. Similarly, support is needed 
to cover unpaid deductibles and coinsurance, uncovered but necessary health care and 
services for persons with chronic illness and disability care for persons who 
temporarily lose their coverage, and services for patients who are unable to obtain the 
care they need from providers affiliated with their health plan networks. 

Rules to ensure that health plans allow full participation by providers to underserved 
populations and do not use exclusionary practices to limit their own financial risk 
exposure. This means minimum guaranteed contracting requirements on terms and 
conditions at least equal to those extended to other providers. 



c. Adaptation of health services to the needs of underserved and vulnerable populations and 
communities: 

In addition to supporting health providers that traditionally have served inner city and 
rural populations, health reform legislation should include provisions to measure the 
appropriateness and quality of health care to all patients. Health outcomes indicators are 
important but not sufficient by themselves. At a minimum, data must be collected by race, 
ethnicity and socio-economic status to assure that variations in health outcomes for vulnerable 
sub-populations are detectable from the norm. 

Process-of-care criteria also must be developed to assure that health plans and 
providers furnish services that do not readily lend themselves to immediate health outcomes 
measures but that are nonetheless essential to the overall health and well-being of patients. 
Examples are night-time and weekend hours, location of services, language accessibility, 
linkages to special community health programs, health education, and other services. 

Finally, a critical quality of care measure for vulnerable populations and communities 
is the community orientation of health plans and participating providers. Examples of 
community orientation include services such as assistance in enrolling in SSI, WIC, job 
training and social service programs, offering on-site patient support and community service 
programs, offering services located off-site and at accessible locations such as schools and 
community centers, participation in the development of special education services plans for 
children with educational disabilities, and other community-oriented practices. 

This nation has a long history of developing and supporting community-oriented 
health programs with federal, state and local funding. Examples can be found in the 
programs created under the Public Health Service Act and in the special community based 
ambulatory care and inpatient programs and providers developed and supported with state 
and local funding. The nation's health budget should include a base of funding for the 
maintenance and growth of these programs. In addition, the community-oriented practice 
arrangements which many of these programs have pioneered should be preserved and 
replicated — not diminished - by health reform. The practice modes which these providers 
have developed should be supported financially, and their essential elements incorporated into 
quality of care measures applicable to all health plans in all communities. 



61 

Chairman Stark. Mr. Bernstein. 

STATEMENT OF JAMES D. BERNSTEIN, PRESIDENT-ELECT, 
NATIONAL RURAL HEALTH ASSOCIATION, AND DIRECTOR, 
NORTH CAROLINA OFFICE OF RURAL HEALTH 

Mr. Bernstein. I am representing the National Rural Health As- 
sociation, whose membership is comprised of small rural hospitals, 
community and migrant health centers, rural health clinics, pri- 
mary care physicians, nonphysician providers, educators and other 
concerned rural citizens. 

NRHA urges serious consideration and passage of a health re- 
form plan that ensures universal access to health care for all popu- 
lations. NRHA distinguishes universal access to basic comprehen- 
sive primary health care services. In our estimation, providing a 
health care card and offering health care benefits does not go far 
enough to providing quality primary health care services. 

American citizens, particularly those in isolated rural and fron- 
tier communities, must have access to primary health care provid- 
ers as a way to enter the health care system. 

NRHA urges serious consideration and passage of a health re- 
form plan that ensures universal access to health care for all popu- 
lations. Three intertwined components of health reform are of a 
special concern for us. 

First is the work force issue. Unless this issue is addressed in 
a multifaceted way — I truly believe not only will rural communities 
not be able to replace existing providers, but many of them will 
move to urban and suburban communities. 

A managed competition reform strategy will create a feeding 
frenzy for primary care providers, the likes of which I do not be- 
lieve any of us can predict. If we do not prepare carefully and com- 
prehensively for this foreseeable outcome, rural Americans could 
find themselves seriously disenfi'anchised from the health care sys- 
tem. 

Therefore, we recommend significantly increasing funding for the 
programs that train primary care providers and encourage ambula- 
tory training in rural communities. For an off-campus program to 
be successful, the physicians doing this training need to be reim- 
bursed for their time. Not only will this make for a larger and bet- 
ter strategy, but it is fair. 

Other innovative incentives, both carrots and sticks, need to be 
explored for professional schools and students to encourage rural 
primary care practice. 

The second concern for us has to do with how reform will be fi- 
nanced. Rural health providers of Medicare part A and part B 
health services feel extremely threatened by the administration's 
proposal to finance part of health reform from cuts in the Medicare 
program. 

Rural America not only has a higher proportion of elderly citi- 
zens, but most rural providers are dependent on Medicare reim- 
bursements. 

Another financing concern relates to services for primary care. I 
never did understand how one reconciled the two policies — one of 
reimbursing rural providers less than urban providers; and two a 



62 

policy to encourage primary care providers to practice in rural and 
other urban underserved communities. 

If we want to recruit and retain primary care physicians to rural 
and inner-city areas, we probably will need to consider reimburse- 
ment at higher rates than the rest of the country. As far as essen- 
tial community providers are concerned, we will always need them 
to serve certain parts of rural America. 

The third major concern focuses on communitv-based health sys- 
tems development strategies. With all the talk about managed com- 
petition and integrated systems development, especially by the 
llarge insurance companies, HMOs, and tertiary care hospitals, we 
tend to forget who is providing care in rural America today — local 
private MDs, small hospitals, health departments, and other 
community -based organizations like community health centers and 
rural health clinics. 

We believe a successful health reform strategy will recognize this 
fact and attempt to build on the strengths of a community-based 
system combining them appropriately with integrated systems de- 
velopment. 

It is important to remember these big HMOs and hospitals, in- 
cluding teaching centers, have had relatively little success and in- 
terest in rural America over the past 25 years. 

The membership of the National Rural Health Association appre- 
ciates this opportunity to provide you with input to the national re- 
form development process. 

I would like to conclude by saying I am very concerned about the 
attack last week by various groups on what I believe are the very 
basic tenets of health reform and urge you not to compromise uni- 
versal access. 

Thank you. 

Chairman Stark. Thank you. 

[The prepared statement follows:] 



63 



STATEMENT OF THE NATIONAL RURAL HEALTH ASSOCIATION TO THE HOUSE 
WAYS AND MEANS COMMITTEE, SUBCOMMITTEE ON HEALTH, PRESENTED BY 
JAMES D. BERNSTEIN, PRESIDENT-ELECT, FEBRUARY 7, 1994 

Chairman Stark and Members of the Ways and Means Subcommittee on 
Health. My name is James Bernstein, President-elect of the 
National Rural Health Association and Director of the North 
Carolina Office of Rural Health. I am representing the National 
Rural Health Association whose membership is comprised of small, 
rural hospitals, community and migrant health centers, rural health 
clinics, primary care physicians, non-physician providers, 
educators and other rural health advocates. 

The National Rural Health Association appreciates the opportunity 
to testify on the implications of national health reform on rural 
communities. 

The National Rural Health Association urges serious consideration 
and passage of a health reform plan that ensures universal access 
to health care for all populations. NRHA distinguishes universal 
access from universal coverage by defining universal access as 
access to basic comprehensive primary health care services. In our 
estimation, providing a health care card and offering health care 
benefits does not go far enough to providing quality health care 
services. American citizens, particularly those in isolated rural 
and frontier communities must have access to primary health care 
providers. 

NRHA must insist that universal access includes the following 
elements: 

(1) Health Systems Work Force 

(2) Health Systems Financing 

(3) Community-Based Health Systems Development. 

HEALTH SYSTEMS WORK FORCE CONSIDERATIONS 

Any national health plan should provide policy direction and 
funding for the education and training of a sufficient number and 
mix of appropriate health care providers to meet the personnel 
needs that exist throughout rural America. Our specific 
recommendations include but are not limited to: 

* Significantly expand programs and increase funding for health 
care personnel training programs, scholarships and other 
subsidization and innovative programs to prepare and retain 
providers. 

* Adopt financing progriuns that encourage zunbulatory training 
experiences in rural areas and create incentives for training 
programs and rural delivery sites, including payments to providers 
in these settings who teach. 

HEALTH SYSTEMS FINANCING ISSUES 

There are two major issues in financing health systems reform that 
must be considered in implementing national health reform. These 
are: (1) how to finance the overall system and (2) how to pay for 
services as well as reimbursement focusing on the patient/provider 
relationship. 

NRHA recommends that reform of the health system cannot take place 
by reducing Medicare. Rural areas, with their disproportionate 
number of elderly, will suffer inordinately with any decrease in 
Medicare funding. 

COMMUNITY-BASED HEALTH SYSTEMS DEVELOPMENT STRATEGIES 

A major element of health care reform is the restructuring of the 
health care delivery systems. It is critical to rural citizens 
that there be access to at least basic health care services and 
ideally to a set of choices of comprehensive community-based health 
care services. 

It is equally as critical that there be a mechanism that recognizes 
and maintains the contributions of essential community providers — 
those community-based providers who have established themselves and 
demonstrated their ability to provide access for residents of rural 
underserved areas. There must be assurances that essential 
community providers participate and be protected in payment 



64 



agreements during the initial five year transition. Moreover, it 
is imperative that the underserved residents that essential 
community providers serve be given assurances that they will always 
have access to comprehensive primary care services. 

NRHA supports the development of strategies to retain rural 
community -based health care services, and incentives to encourage 
the development of stable systems of care that combine community 
development principles with integrated systems development. 

MEDICARE FINANCING/MEDICARE SAVINGS 

The President's plan to achieve $124 billion in savings over five 
years by reducing the rate of growth in Medicare spending would 
have the greatest impact on the rural elderly. Reflecting a 
population that is disproportionately older and poorer, rural 
providers are more dependent on Medicare and Medicaid programs. 
Thirteen percent of rural residents are 65 years of age or older 
compared to 10.7 percent of urban residents. 

Most rural hospitals under 49 beds receive over 50 percent to 70 
percent of their net income from acute Medicare patients and in 
excess of 66 percent of their patient days being Medicare. 
Statistically, HCFA reports much less than this, but they include 
referral centers and larger rural hospitals adjacent to urban 
facilities. 

In 1992, the Prospective Payment Assessment Commission (ProPAC) 
reported that nearly 28 percent of all rural hospitals had negative 
total operating margins, while 39 percent of rural hospitals of 
less than 50 beds had negative total margins. 

In the State of North Carolina, there are 126 PPS hospitals. 77 
hospitals or 61 percent are rural. Medicare reimbursement 
represents 47 percent of the revenue to all North Carolina 
hospitals. Medicare payments represent 54 percent of the income 
for rural hospitals versus 40 percent for the urbans. 

In 1991, the overall operating margin was 6 percent for all 
hospitals. For rural hospitals, the overall operating margin was 
5 percent. However, PPS margins on average for rural hospitals 
were a negative 10 percent. Of the 77 rural hospitals, 12 
hospitals or 16 percent of the rural hospitals had negative 
operating margins. We anticipate that upon review of the 1992 
data, we will see a trend toward higher negative PPS operating 
margins for rural hospitals. 

Preliminary estimates by the North Carolina Hospital Association 
anticipate that reductions in Medicare payments would total $1.9 
billion for the period of 1995-2000. 

with the implementation of Medicare Prospective Payment System, 
(PPS) , rural hospitals reduced inpatient capacity and increased 
capacity for outpatient services. Now, rural hospitals receive 
more than 50 percent of their Medicare reimbursement from 
outpatient services. 

The loss of rural Medicare Geographic reclassification status, 
coupled with the Medicare cuts imposed by OBRA 1993, (particularly 
the reductions in capital and outpatient spending) , will only 
exacerbate the problem of access for rural citizens to viable rural 
providers. 

Rural health care providers are only seeking assistance in leveling 
the playing field in access to capital. The definition of capital 
projects must be broadened. National health reform will require 
capital infrastructure development of community-based health care 
institutions. It will require expenditures for bricks and mortar, 
as well as systems transitions and acquisitions. 

The National Rural Health Association recommends continuing 
Medicaid disproportionate share hospital payments to those 
hospitals serving a disproportionate share of low-income patients 
during the five year transition period. 



65 



We also recommend not eliminating the Medicare adjustment for 
outpatient capital costs for rural and inner city health care 
facilities. 

Further, we recommend increasing access to capital, including 
projects of less than $300,000 for facility Improvement or 
development of rural community-based health care facilities. 

Moreover, we recommend that accessible and affordable funding 
should be available to rural institutions to fund planning and 
construction costs of converting existing facilities to other 
models when appropriate. 

REIMBURSEMENT RATES BASED ON HISTORICAL COSTS 

The National Rural Health Association recommends that historical 
costs not be used to determine the level of reimbursement for rural 
providers. Rural providers have, over the past two decades, 
suffered inequitable federal reimbursement. Particularly since the 
implementation of the Medicare Prospective Payment System, rural 
hospitals were placed at a distinct disadvantage to urban 
hospitals. Despite the fact that rural hospitals pay the same or 
higher prices for drugs and other supplies and the same or higher 
salaries for medical personnel. Medicare has, over the years, 
reimbursed rural facilities at rates up to 40 percent less than 
urban hospitals. 

Biases exist in the historical payment to rural primary care 
providers. The Medicare reimbursement for office visits are 
substantially lower than the cost of providing the services. 
Medicare fees simply do not begin to cover the time and material 
that it takes to serve rural elderly residents. 

The experiences of rural health clinics best illustrates the 
inherent biases in historical payments to rural providers. Rural 
health clinic reimbursement has been artificially suppressed as a 
result of the placement of caps that were not increased for many 
years. Any future payments based on historical experience will 
continue to place rural providers in an untenable financial 
position. 

The National Rural Health Association recommends that practice 
expense payments for primary care services should be Increased as 
advocated by the American Academy of Family Physicians. 

HEALTH SYSTEMS WORKFORCE 

Increases in incentives for primary care providing training for all 
disciplines is critical to rural areas. It is the hope of the 
rural constituency that greater emphasis on quality training at 
rural ambulatory, hospital and non-hospital sites will become a 
recruitment point for luring primary care physicians and non- 
physician providers to practice in rural communities. 

NRHA supports direct graduate medical education reimbursement to 
rural ambulatory, hospital and non-hospital sites and paying of 
local providers for their time to teach. 

The National Rural Health Association promotes a policy which 
adequately redirects graduate medical education payments to achieve 
a goal after a five year phase-in period of at least 50 percent of 
new physicians being trained in primary care rather than in 
specific specialty fields in which an excess supply currently 
exists. 

Mr. Chairman, the National Rural Health Association Is committed to 
working with the Congress and the President to ensure universal 
access through a national health reform plan this year. 



66 

Chairman Stark. Now Larry Gage is going to tell us that all 
these big-managed care providers and HMOs are just gobbling up 
more patients in the inner city which is why they don't have time 
to come out and see you in the rural communities. 

STATEMENT OF LARRY S. GAGE, PRESmENT, NATIONAL 
ASSOCL\.TION OF PUBLIC HOSPITALS 

Mr. Gage. I may tell you that later. We know they are gobbling 
up premiums. We are not sure they are gobbling up patients. 

I am Larry Gage, president of the National Association of Public 
Hospitals. NAPH has just 100 members, but these hospitals and 
health systems have combined budgets of over $16 billion and they 
provide 71 percent of their services to Medicaid and other low-in- 
come patients. I might add that in addition to systems like Ala- 
meda and Santa Clara County and Grady Memorial Hospital in At- 
lanta, we have rural systems like San Bernardino County, Kern 
County and Riverside County in California. 

The point I wanted to make to augment some of the things said 
today is that it is essential that you understand as you debate 
health reform that the importance of these hospitals and health 
systems extends services they provide to their entire communities 
and not just to the poor. For example, they often serve as the only 
provider of many costly specialized medical and public health serv- 
ices such as trauma care, burn neonatal intensive care et cetera. 

By way of example, let me refer to news stories that graphically 
illustrate this community-wide mission. I have some visual aids 
here. One of these dated Tuesday, January 18 was headlined, "A 
Tidal Wave of the Walking Wounded." 

It refers to the extraordinary services provided to thousands of 
California earthquake victims by the hospitals of the Los Angeles 
County health system, generally, and in this case, the county's 
Olive View Medical Center in particular. You can see row after row 
of emergency patients who being treated in the hospital parking 
lot. 

The second article dated January 7 headlined, "Girl Beats Odds 
After Devastating Ski Run Accident," describes Brooke Sebold who 
was a 12-year-old girl, the daughter of a Texas physician. Brooke 
was brought by air ambulance from Vale, Colo, to the State's only 
level 1 trauma center at Denver General Hospital with a severely 
lacerated liver, multiple injuries and a less than 5 percent chance 
of survival. 

Two weeks later, she walked out of Denver General after a re- 
markable team of 20 physicians and a brandnew trauma center 
saved her life. 

The point of these examples is that even if health insurance is 
available to pay for the specific care provided to Brooke Sebold and 
many California earthquake victims, health insurance alone will 
never adequately pay the substantial standby costs of these essen- 
tial systems and services. 

These services are available only because they are currently sup- 
ported by a fragile web of funding sources, including local taxpayer 
subsidies. Medicare and Medicaid disproportionate share and 
teaching adjustments, and a very limited amount of private sector 
cost shifting. 



67 

These stories are not isolated or unique. In just the last year or 
two, we have seen many other examples of the need to preserve 
such essential standby services, from Hurricane Andrew to the 
Midwest floods to the World Trade Center bombing to the Los An- 
geles riots, to the recent measles epidemic in Milwaukee in which 
two-thirds of the hundreds of unimmunized children hospitalized 
were already members of Medicaid-managed care plans. 

NAPH member hospitals have for many years served as the most 
essential providers in their respective urban communities, playing 
this role despite many fiscal and administrative obstacles which 
are documented in detail in my prepared testimony. 

We are concerned also about the statements made by a number 
of organizations last week and by the increasing polarization of the 
debate. For this reason, in conclusion, NAPH decided 2 weeks ago 
to endorse the major principles and key provisions of President 
Clinton's Health Security Act. 

It is not that we believe that the President's proposed bill is per- 
fect or that it cannot be improved. Indeed we are concerned that 
the untested concept of managed competition cannot in the foresee- 
able future meet all of the health and social needs of low-income 
residents of our Nation's inner cities. 

We are also concerned about the funding levels and continuation 
of many of the programs that you were discussing with Dr. Lee 
earlier today. However, we are convinced that the Health Security 
Act offers you a excellent and realistic foundation upon which to 
build a comprehensive universal mandatory health plan. 

We are unanimously committed to working with the President 
and the members of this committee to achieve enactment of univer- 
sal mandatory health coverage as swiftly as possible. 

Thank you very much. 

Chairman Stauk. Thank you. 

[The prepared statement follows:! 



68 

Statement of Larry S. Gage 
President 

National Association of Public Hospitals 

before the 

Subcommittee on Health 

Committee on Ways & Means 

U.S. House of Representatives 

Washington D.C. 

February 7, 1994 



Mr. Chairman, Members of the Subcommittee, I am Larry Gage, President of the 
National Association of Public Hospitals (NAPH). I am pleased to have this opportunity to 
testify before the Subcommittee on the importance of universal, mandatory national health 
reform to America's urban health safety net hospitals and health systems. 

NAPH's members include over 100 of those safety net institutions. With combined 
revenues of almost $16 billion, they provide over 71% of their services to Medicaid and low 
income uninsured and underinsured patients. In other words, these hospitals already serve as 
"national health insurance" by default in most of our nation's urban areas. At the same time, 
they train a substantial proportion of our nation's doctors, nurses, and other health 
professionals. 

As you begin to deliberate health reform, it is essential that you understand that the 
importance of urban safety net hospitals and health systems also extends to the services they 
provide to their entire communities, not just the poor. For example, they often serve as the 
only provider of many costly, specialized medical and public health services, such as trauma 
care, bum care, neo-natal intensive care, high risk pregnancy services, and emergency 
psychiatric care. By way of example, let me refer you to two recent news stories that 
graphically illustrate this essential community-wide mission. 

One of these, dated Tuesday, January 18, 1994, was headlined "A Tidal Wave of the 
Walking Wounded", refers to the extraordinary services provided to thousands of California 
earthquake victims by the hospitals of the Los Angeles County health system generally, and 
the County's Olive View Medical Center in particular. A photograph accompanying the 
article shows trauma physicians treating row after row of emergency patients spread out 
across the hospital's parking lot. 

The second article, dated January 7, is headlined "Girl Beats Odds After Devastating 
Ski Accident". It describes Brooke Sebold, a 12 year old girl, the daughter of a Texas 
physician, who was brought by air ambulance from Vail, Colorado to the state's only Level I 
trauma center at Denver General Hospital, with severely lacerated liver, other multiple 
injuries, and a less than 5% chance of survival. Two weeks later, Brooke walked out of 
Denver General, after a remarkable team of 20 physicians saved her life. 

The point of each of these cases is that even if health insurance is available to pay for 
the specific care provided to Brooke Sebold and many of the earthquake victims, we believe 
it is highly unlikely that the President's plan - or any of the other reforms being proposed — 
will adequately pay the substantial standby costs of making sure the essential systems and 
services are going to be available when they are needed. These services are available only 
because they are currently supported by a fragile web of funding sources, including local 
taxpayer subsidies, Medicare and Medicaid disproportionate share and teaching adjustments, 



69 



and a very limited amount of private sector cost shifting. And these cases are not isolated or 
unique. In just the last year or two we have seen many other examples of the need to 
preserve such standby services, from Hurricane Andrew to the Midwest floods to the World 
Trade Center bombing to the Los Angeles riots to the recent measles epidemic in Milwaukee, 
in which over two thirds of the hundreds of unimmunized children hospitalized were already 
members of Medicaid managed care plans. 

NAPH member hospitals have for many years served as the most "essential" 
providers in their respective urban communities, playing this role despite facing many fiscal 
and administrative obstacles. The situation of many of these urban safety net hospitals 
continues to worsen today, even as the significance of their community wide services 
continue to be emphasized by recent events. The nation's urban public hospitals continue to 
be burdened by multiple crises - including persistent state and local budget shortfalls — 
escalating federal and state curbs on Medicaid eligibility and spending -- continuing increases 
in the number of uninsured and under-insured -- and an increasing inability or unwillingness 
of many providers to shift uncompensated costs to privately insured patients. 

For all of these reasons, NAPH decided in late January to endorse the major 
principles and key provisions of President Clinton's Health Security Act. 

It is not that we believe that the President's proposed bill is perfect, or that it cannot 
be improved. Indeed, we are concerned that the untested concept of "managed competition" 
cannot in the foreseeable future meet all of the health and social needs of low income 
residents of our nation's inner cities. However, we are convinced that the Health Security 
Act offers you an excellent foundation upon which to build a comprehensive, universal, 
mandatory health plan. 

NAPH members believe that President Bill Clinton has offered Americans our best 
opportunity in over half a century to join the family of civilized nations that make adequate 
health care a basic right of citizenship. NAPH strongly supports President Clinton in this 
historic effort. NAPH members are unanimously committed to working with the President -- 
and with the members of this Committee -- to achieve enactment of universal, mandatory 
health coverage as swiftly as possible. We simply cannot afford to let this opportunity slip 
away, like so many others in the last 50 years. 

In the remainder of my testimony, Mr. Chairman, I have provided the Committee 
with new information quantifying the scope of the crisis facing urban safety net hospitals and 
health systems, and have also spelled out a number of concerns and possible amendments we 
would like you to consider as you move ahead to mark up health reform legislation. 

Less than two weeks ago, Mr. Chairman, NAPH released a new 170 page Special 
Report on the crisis facing urban safety net hospitals in America today. Let me illustrate the 
urgency of this crisis with a few facts from that new Report (copies of which have been 
provided for the members of the Subcommittee): 

Safety net hospitals today are bursting at the seams, with an extraordinary 
volume of inpatient and outpatient care. 60 NAPH member hospitals across the nation 
averaged over 270,000 emergency room and outpatient visits and 14,000 admissions, and 
totalled 17.3 million emergency and outpatient visits, in 1991. Despite overcapacity in many 
parts of the hospital industry, NAPH members averaged a 79% occupancy rate in 1991, 
almost 27% greater than the overall average for hospitals in the 100 largest cities for 1990. 

Between 1980 and 1990, low income patients were increasingly concentrated in 
just a small handful of inner city hospitals. Public general hospitals saw an increased 
Medicaid utilization during this period of 43.5%, and the increase in public university 
hospitals was over 39%, compared with reduced Medicaid utilization in private university 
hospitals of nearly 14%. The proportion of self pay patients also increased nearly 17% in 
urban public hospitals between 1980 and 1990, as compared with decreases of 16-41% in all 
other categories of hospitals. 



70 



In the largest 100 cities in the 1980s, the use of inner city hospital emergency 
rooms and outpatient departments increased by over 39% between 1980 and 1990, to 
nearly 100 million visits. Urban public hospitals represent just 7.4% of all hospitals but 
provided 18% of outpatient care and 19% of emergency care in 1990. 

Some of the largest urban public hospitals provide a staggering volume of 
emergency and outpatient care that could be provided in a more appropriate setting if 
one were available. For example, Atlanta's Grady Memorial Hospital provided nearly 
865,000 emergency and outpatient visits in 1990; Cook County Hospital, over 670,000; Los 
Angeles County+USC Medical Center nearly 645,000. Urban public hospitals in the 
northeast experienced the highest average volume of outpatient and emergency hospital care, 
with an average of 413,000 visits in 1990. 

Emergency and clinic patients are waiting longer to see doctors or be admitted. 

58% of NAPH hospitals reported periodic waits by emergency department patients of 12 
hours or more for admission, and half of all hospitals surveyed reported that some patients 
were forced to wait more than 24 hours. 

Safety net hospitals continue to concentrate their services on low income patients 
- serving as both hospital and family doctor for the uninsured. In 1991, 24% of all 
discharges and 20% of all inpatient days in NAPH member hospitals were not sponsored — 
even by Medicaid. 37% of all outpatient and emergency room visits were also by uninsured 
patients. 

Safety net hospitals also continue to be uniquely reliant on governmental funding 
sources. Just 12% of the gross revenues of safety net hospitals were derived from private 
insurance and 16% from Medicare in 1991, while 71% were attributable to Medicaid and 
"self pay" patients. Average gross revenues at NAPH member hospitals were $92 million for 
Medicaid patients and $78 million for self pay patients (who are typically uninsured and 
thus "financed" only by direct local governmental subsidies and other mechanisms such as 
Medicare and Medicaid disproportionate share hospital adjustments). 

In other words, carrying out their missions of serving the poor and providing 
essential community-wide services, NAPH member hospitals would have lost $3.2 billion 
dollars in 1991 without local taxpayer subsidies and Medicaid "disproportionate share 
hospital" (DSH) payments. Such payments enabled these hospitals to break even and 
keep their doors open; yet both sources of fmancing have come under pressure from 
federal, state, and local governments in recent years. 67 NAPH members surveyed had 
total revenues of $12.2 billion and total expenses of $12.4 billion. They would have 
experienced significant losses, however, if not for local taxpayer subsidies of $2.1 billion. 
In addition, we estimate that these hospitals received net Medicaid DSH payments totalling 
approximately $1.4 billion based on an analysis of 1992 DSH data. On average, surveyed 
hospitals relied on Medicaid DSH payments for 12 percent of their total revenue. 

As a result of this funding crisis, the many community- wide services provided by 
safety net hospitals are in danger of deterioration as well. Trauma centers, high risk 
obstetric units, emergency psychiatric units, emergency drug abuse treatment programs, bum 
centers, neonatal intensive care units - all are overflowing, at a time when state and local 
budget crises often require reductions, not increases, in funding. 

1 . WITH RESPECT TO THE CONCEPT OF "ESSENTIAL COMMUNITY 
PROVIDER", NAPH STRONGLY RECOMMENDS THAT HOSPITALS AS WELL AS 
CLINICS (AND OTHER FEDERAL GRANTEES) BE DESIGNATED ESSENTIAL 
COMMUNITY PROVIDERS, IN ORDER TO ENSURE CONTINUED ACCESS FOR 
LOW INCOME PATIENTS WHO RELY ON THESE PROVIDERS AND CONTINUED 
AVAILABILITY OF THEIR COMMUNITY-WIDE SERVICES. 

NAPH accepts the concept of managed competition in principal and believes it can be 
given an opportunity to work wherever feasible. However, based on our extensive 



71 



experience serving the urban uninsured, we are concerned that managed competition may 
prove ineffective for many years in meeting the needs of some areas, including inner cities 
and isolated rural areas. We believe this is true for several reasons, including the lack of a 
sufficient number and variety of plans and providers to guarantee access and choice even for 
individuals who have been issued their "card", and the checkered history of efforts to 
introduce competitive models to such areas (such as the California PHP scandals of the early 
1970s and the Florida scandals of the 1980s). 

It must be recognized, in implementing "managed competition", that the playing field 
is not currently level for either providers or patients in the inner cities and remote rural 
areas. To be equitable, and to guarantee access for patients in such areas to the broadest 
range of health and social services, a plan must ensure that all safety net providers (including 
public hospitals that currently serve a high volume of low income patients, as well as health 
centers and other federal grantees) are automatically determined to be ECPs and given the 
opportunity to participate in (and be paid by) all plans serving these patients. 

In that regard, the Administration includes in its plan the designation of certain 
providers as "essential community providers" (ECP), and provides additional support and 
assistance to the providers so designated (including the guarantee that they will be paid for 
services rendered to enrollees of all plans in underserved areas). While hospitals are eligible 
to apply to the Secretary to be designated ECPs, they are not granted the automatic 
designation granted to several other categories of providers. NAPH believes it is essential 
that any statutory definition of ECP provide for automatic designation of certain 
hospitals as well as health centers and other providers. For your information, I have 
attached to my testimony a copy of a position paper provided to the Administration early last 
year on this subject. Included in this paper are suggestions for a number of criteria that 
might be written into the statute in order to carefully target any automatic designation of 
hospitals as ECPs, including criteria already used in the past by this Committee in areas such 
as Medicaid drug pricing and the requirement under Section 1923(b) that all states designate, 
at a minimum, the highest volume providers of Medicaid and low income care as 
"disproportionate share hospitals". 



The remainder of my testimony will describe a number of other NAPH concerns and 
recommendations with respect to health reform generally, and the Clinton plan in particular. 

2. HEALTH REFORM MUST NOT BE FINANCED THROUGH 
ELIMINATION OR SUBSTANTIAL REDUCTION IN DISPROPORTIONATE SHARE 
HOSPITAL PAYMENTS UNLESS OTHER PROTECTIONS AND PAYMENTS ARE 
SUBSTITUTED FOR THE HIGHEST VOLUME PROVIDERS OF CARE TO OUR 
MOST VULNERABLE POPULATIONS. 

NAPH strongly supports a broad array of financing mechanisms for universal 
health coverage, including taxes on excess employee health coverage, so-called "sin taxes" 
on alcohol and tobacco, sliding scale cost sharing for higher income insured individuals, and 
increased Medicare cost sharing. We would also support a tax cap on the deductibility of 
premiums by both corporations and individuals. 

NAPH's most serious concern in the areas of financing has to do with the apparent 
proposal to finance a substantial part of health reform through Medicare and Medicaid 
reductions generally, and through elimination of the so-called "disproportionate share 
hospital" (DSH) adjustments in particular. The DSH adjustments - which this Committee 
has played a major role in enacting and improving over the years — have been of great 
importance in helping safety net hospitals provide the broad range of additional services 
needed by low income patients and urban (and remote rural) communities. 

With respect to Medicare, since the Medicare program will remain largely outside of 
health reform, we believe the Medicare DSH adjustment should remain intact. We further 
recommend that Medicare DSH payments be strengthened for the very highest volume DSH 



72 



providers (especially if there is an elimination or substantial reduction in Medicare graduate 
medical education funding, as is also proposed). 

With respect to Medicaid, NAPH acknowledges that there have been numerous 
instances where states have used DSH funds for other than their intended purpose, and that 
with the phase-in of universal coverage this adjustment is unlikely to be preserved in its 
current form. However, it is important to point out that there are also many states which 
have not treated Medicaid DSH adjustments as a scam or a new form of revenue sharing - 
which have used the adjustment as it was intended to be used, to fund substantial additional 
programs and services to Medicaid recipients and the uninsured poor. New data collected by 
NAPH and provided to Subcommittee staff shows, for example, that 100 of the highest 
volume providers of care to Medicaid patients and the uninsured collected over $2 billion in 
net Medicaid DSH payments in 1992. These payments were essential to their ability to keep 
their doors open and preserve access for both insured and uninsured patients in many 
underserved urban areas. 

NAPH therefore strongly recommends that Medicaid DSH be carefully phased 
out, not terminated abruptly, if universal mandatory coverage is enacted, with residual 
DSH payments targeted on the highest volume providers of care to the poor. Moreover, 
even if Medicaid DSH is carefully phased out, as noted in the previous section of my 
testimony, many residual community-wide public health and social services will continue to 
be needed even after most uninsured Americans have been given their "card". For these 
reasons, NAPH strongly supports the inclusion of the "vulnerable population" adjustment 
proposed in the Clinton plan, although our research and analysis indicate that this adjustment 
should be in the range of $3 billion nationally rather than the $800 million currently 
allocated. 

3. NAPH IS CONCERNED ABOUT THE PROVISION AND FUNDING OF SERVICES 
FOR MANY INDIVIDUALS WE CURRENTLY SERVE WHO MAY NOT BE 
ELIGIBLE -- OR WHO MAY FACE SIGNIFICANT BARRIERS TO ENROLLMENT - 
- UNDER THE PRESIDENT'S PLAN. 

One of NAPH's most important principles is that national health reform must be 
nothing less than universal and mandatory for all residents. While the President's plan 
has expressed the goal of universality, and appears to be mandatory for those who are 
eligible, NAPH is especially concerned that there are certain populations who will continue 
to fall through the cracks — either intentionally or unintentionally — and that there are other 
potential barriers to enrollment that, if not adequately understood and addressed, will have 
the same effect as being ineligible for coverage in the first place. 

Two populations likely to be excluded from coverage that have generated considerable 
discussion to date are illegal immigrants and prisoners. NAPH members and other urban 
public hospitals serve a very substantially disproportionate number of both populations and 
will be especially hard hit if they remain wholly outside the system. 

With respect to illegal immigrants, the vast majority of health care currently 
accessible to this population is in urban and rural safety net hospitals and clinics. This care 
is funded by a precarious patchwork of federal, state and local funding, augmented by cost 
shifting wherever possible. Recent federal programs such as SLIAG, which was targeted at 
legal (not illegal) immigrants, have in the past been able to pay for some of these services. 
However, most such funding has now been reduced or terminated, and House efforts this 
summer to add more money to the budget reconciliation bill failed. Unless either coverage 
or funding is made available in health reform, the potential exists for the situation of the 
population to become far worse. With the expressed goal of "converting" Medicaid and 
other current revenue sources into premium income for those populations who will receive 
coverage, it is likely that there will be far less ability in the future even than there is in 
already inadequately funded system today to pay for the care that will continue to be needed 
by this large population. We cannot make illegal immigrants — or their health needs — 



73 



simply disappear by refusing to cover them under health reform. We must make some sort 
of provision for their care if we are to have a truly unified system. 

With respect to prisoners, the issue is equally complex. Prisoners are today excluded 
from Medicaid coverage and denied many other rights. Their care is sometimes paid for by 
the criminal justice system that incarcerated them, sometimes by state or local governments 
through other means, and sometimes the cost of their care is simply absorbed by the public 
hospital that treats them. Because it is an unfortunate fact that many prisoners today come 
from segments of the population that had not previously been eligible for health coverage, 
the problem in the past has perhaps been less obvious and less troubling than it will be after 
health reform. In the future, however, all prisoners who are legal residents will theoretically 
have been eligible for coverage prior to their incarceration, and will again become eligible 
following their discharge. And while safety, security and the needs of the criminal justice 
system require simplicity in any health system, there is no logic to maintaining prisoners 
outside the new nationwide system if our goals are universality, cost containment through 
prevention and earlier treatment, and the broadest possible sharing of risk. While 
mainstreaming prisoners in alliances and plans may be impractical, clearly the entire system 
will benefit if targeted plans, perhaps backed by a nationwide risk pool, can be developed for 
prisoners. 

In addition to immigrants and prisoners, NAPH is also concerned about other 
populations that may fall through the gaps or be unable or unwilling to enroll under health 
reform even if eligible. These populations include the homeless and the deinstitutionalized 
mentally ill. 

As our experience with Medicaid demonstrates, there may be other significant barriers 
to enrollment even for many individuals who may otherwise be eligible — especially in inner 
cities and isolated rural areas. In fact, given the complexity of the system and the need for 
cost sharing by all but the poorest enrollees, it is virtually guaranteed that many people will 
simply not sign up for a health plan, even if it is considered mandatory. Rather, they will 
present themselves to providers in the future as they do today -- sick or injured, addicted or 
mentally ill, homeless, often unable to provide us with basic information about themselves. 
Our experience also tells us that some inner city residents will actually sign up for multiple 
plans, either inadvertently or intentionally, or may conceal their previous enrollment in order 
to obtain care at a more convenient or familiar location. For these reasons, it is therefore 
imperative that the eligibility process be kept as simple as possible, that the additional costs 
to providers of treating and enrolling certain populations be taken into account, that providers 
must be able to rely on the presumptive eligibility of any individual who shows up in their 
emergency room, that careful outreach and patient education be provided, and that new 
systems include maximum protections against patient misunderstanding or abuse. 

In addition, NAPH applauds the concept of a "risk adjusted" premium for plans to 
take into account the special needs of individuals with more serious illnesses, injuries, 
conditions, or personal situations (including income status). However, we are concerned that 
the development of such an adjustment may be complex and take longer than envisioned, and 
that many alliances and plans may well become fully operational well before such an 
adjustment is in place. In addition, we are concerned that the President appears to propose 
only that a risk adjustment factor be added to plan premiums, with no additional 
requirements or assurances that "risk-adjusted" payments also be made to those providers 
who will treat disproportionate numbers of those patients determined to be at risk of greater 
needs and higher costs. 

Also of concern is the possibility of adverse selection and "targeted marketing" by 
some plans - cream-skimming, if you will - that will leave the sickest and the poorest to 
enroll in "public plans". NAPH believes that there must be substantial safeguards, including 
mandatory open enrollment, limitations on advertising, and mandatory random assignment of 
"high risk" patients. Both tough rules and strict enforcement — including criminal penalties - 
- must be included. 



74 



4. THOUGH ADEQUATELY COMPREHENSIVE IN MOST RESPECTS, THE 
PROPOSED BENEnT PACKAGE WILL RESULT IN MANY UNCOVERED COSTS 
FOR SOME URBAN RESIDENTS WHO SUFFER FROM ALCOHOLISM, DRUG 
ABUSE OR MENTAL ILLNESS. 

NAPH is please that the basic benefit package provides an emphasis on (and in most 
cases, first dollar coverage for) primary and preventive care. We also agree that it 
appears generous and adequate in most cases. 

Our two major concerns with the contents of the benefit package are with the 
proposed limitations on mental health and substance abuse benefits. We are extremely 
concerned that, while these limitations may make good policy sense for healthy, educated, 
employed middle class Americans, they fail to address the much greater needs of many 
residents of our nations inner cities. For many individuals, these diseases are primary, not 
secondary, diagnoses, and substantial barriers to effective functioning. Left untreated, they 
have substantial implications for the quality of life of all urban residents, significantly 
increasing (for example) the likelihood of crime and violence in our nation's inner cities. 

NAPH is also concerned with reports that some categories among currently eligible 
Medicaid populations — and especially poor women and children who are eligible for 
Medicaid but not AFDC or SSI payments - may lose many of the additional benefits they 
now receive. 

5. IT IS ESSENTUL THAT ANY MAJOR SHIFT IN THE FUNDING OF 
MEDICAL EDUCATION TAKE INTO ACCOUNT THE SPECL^L NEEDS OF 
SAFETY NET HOSPITALS AND UNDERSERVED PATIENTS. 

NAPH strongly supports the need to develop more rational and broad-based funding 
mechanisms for medical education, and to shift our emphasis in medical education (as well as 
in patient care) away from specialization and towards primary care and prevention. 

Because most NAPH member hospitals are major teaching hospitals, and rely on their 
medical education programs for both education and patient care, we have several concerns 
with certain ambiguities in the President's proposal, as follows: 

• Major urban public teaching hospitals must be eligible to be designated academic 
health science centers or "affiliated hospitals" of such centers. 

• With the reduction in specialty residencies, the criteria for allocation of such 
residencies in the future must include a clear reference to the importance of patient 
care as well as educational needs. 

• In the shift away from specialty residencies, attention must be given to the fact that 
there are still many parts of the country — such as inner cities and remote rural areas 
-- where there remain severe shortages in many medical specialties. 

• Where a residency program encompasses several different and unrelated centers or 
hospitals, clear criteria must be spelled out for allocating the proposed medical 
education funding and ensuring an equitable apportionment among all major 
components of the program. 

• The impact of health reform on the training of allied health professionals and on 
the ability to improve the proportion of minorities in all health professions must also 
clearly be taken into account in any such sweeping reform of our medical education 
system. 

• The new system must also be carefully phased in over a period of time, and 
transitional funding must be available to affected hospitals and health centers whose 
teaching programs will be reduced or changed. 



75 



6. FINALLY, IN ORDER TO ASSURE ADEQUATE ACCESS AND A 
CAREFUL TRANSITION TO A NEW SYSTEM, SOME URBAN AND RURAL 
SAFETY NET PROVIDERS WILL REQUIRE ASSISTANCE IN GAINING ACCESS 
TO CAPITAL TO REBUILD THEIR INFRASTRUCTURE AND DEVELOP NEW 
NETWORKS AND PLANS. 

Many supporters of various national health reform proposals have suggested that, if 
reforms were enacted, there would no longer be a need for an institutional health safety net. 
We can only note that the same thing was said about the enactment of Medicare and 
Medicaid. Given the strong likelihood that future changes will continue to be incremental 
and piecemeal, NAPH believes that there will continue to be a strong need for the public 
health safety net in our nation's metropolitan areas. 

We must thus be extremely careful about dislodging any current institutional funding 
mechanisms for public health systems in general, and safety net hospitals in particular, unless 
we are certain that we have a workable and fully implemented system to take their place. 
Moreover, we must continue to press forward with more targeted programs and reforms that 
support "stand by" health and social services and safety net providers. 

For example, essential urban and rural safety net hospitals are likely to face a 
substantial need for assistance under health reform in obtaining adequate capital to rebuild 
and equip our nation's health infrastructure. A 1993 NAPH study estimates that there are at 
least $15 billion in unmet capital needs among these essential urban providers. Yet these 
hospitals also face significant barriers in obtaining access to capital, as well as in their ability 
to repay incurred debts entirely from patient care revenues. In order to meet these needs, a 
new Federal capital financing initiative is clearly needed. NAPH has assisted with the 
drafting of a major new urban/rural capital financing initiative that was first introduced in 
1992, and was reintroduced last year in both the House and the Senate. While its cost to the 
federal government would be only $1 billion per year, this bill would create federal-state- 
local and public-private partnerships to finance up to $15 billion in capital improvements for 
safety net hospitals, through loan guarantees, interest rate subsidies and grants to meet both 
general and specific safety net capital needs. We strongly urge that this bill be adopted as 
a separate new title of any health reform legislation. 

In addition to capital needs, there are other areas in which infrastructure and 
"enabling services" must be funded to ensure a smooth transition to universal coverage. For 
example, it is important that funding be made available to improve the ability of urban and 
rural safety net providers to develop and finance regional provider networks that include a 
full range of services, including ambulatory and preventive care in addition to acute inpatient 
care, and to participate as effectively as possible in managed care programs and initiatives. 
It is also essential that the many hesdth and social programs jmd services currently provided 
by public hospitals and public health departments be continued, and that the implementation 
of health reform not be permitted to diminish or reduce support for these progrjuns and 
services. 

In conclusion, for many reasons, even if national health insurance were adopted this 
year, America's safety net institutions will need continued support well into the future: 

• Any new health reform system is likely to be phased in over a long period of 
time. 

• Even with coverage, many of our current uninsured will be little better off 
than Medicaid patients, who today find their access restricted in many states to those 
"open door" hospitals and clinics who will serve them. 

• Many of the currently uninsured and underinsured also suffer from a variety of 
health and social problems very different from those of middle America. Conditions 
such as AIDS, substance abuse, tuberculosis, and teenage pregnancies are often 
augmented by homelessness, joblessness, and lack of education. While no health care 



76 



provider can fully cope with all of these problems, in many areas, our urban safety 
net hospitals are the only ones even trying to do so today. 

• In addition, many safety net hospitals are simply located in the geographic 
areas where most of our uninsured Americans reside — areas which, even if national 
health coverage were fully implemented, most other health care providers will 
continue to be unwilling or unable to serve. 

• Finally, with the dramatic cost containment efforts already being imposed by 
both public and private payers, we must recognize that many expensive and 
unprofitable community-wide "standby" services (such as bum care, and neonatal 
intensive care, and the emergency and trauma services provided by Denver General, 
Los Angeles County and many of their counterparts around the country) are already 
under pressure and in danger of being reduced or eliminated in some areas; unless 
they are taken into account in health reform, the result will be a significant reduction 
in the security and health status of all of our citizens, not just the uninsured poor. 

It is clear that there are many parts of our health system today that are not functioning 
properly, that need to be restructured or reformed. But it is essential to understand that we 
have relied heavily for many years on a fragile network of safety net institutions to fill in the 
huge gaps in our system, and this reliance will continue into the future even as we phase in 
universal health coverage. In other words, we have a network of unique hospitals in our 
nation today who have always been ready, willing and able to serve as "providers of last 
resort" -- to keep their doors open and their services accessible to all persons, regardless of 
race, creed, income, or insurance status. If the federal government generally, and this 
Committee in particular, are not willing to adequately support the existence of this "provider 
of last resort" capacity, it is clear that no one else will do so either, and this capacity will 
disappear. 

I would be pleased to answer any questions you may have at this time. 



77 

Chairman Stark. Mr. Silva. 

STATEMENT OF JOHN M. SILVA, PRESIDENT, NATIONAL 
ASSOCIATION OF COMMUNITY HEALTH CENTERS, AND 
EXECUTIVE DIRECTOR, FAMILY HEALTH CARE CENTERS, ST. 
LOUIS, MO. 

Mr. Silva. Thank you, Mr. Chairman and members of the com- 
mittee for the opportunity to testify before you. As the president of 
the National Association of Community Health Centers, I represent 
over 700 community, migrant and homeless health centers that are 
located in rural and inner-city communities throughout the coun- 
try. 

These are collectively known as federally qualified health cen- 
ters, a term which, as you know, Mr. Chairman, this subcommittee 
played a central role in establishing in law. 

I also serve as the CEO of Family Care Health Centers, located 
in St. Louis, Mo. I will attempt to bring some issues to your atten- 
tion, both from a national as well as a front line inner-city perspec- 
tive. I want to make three points for your consideration. 

My first point is that health reform must include guaranteed uni- 
versal coverage for a comprehensive benefits package defined in 
law, and that does not diminish the coverage the underserved now 
receive under Medicaid. We applaud the President and the Con- 
gress for getting down to the serious business of providing health 
care to all Americans. 

As front line providers to the underserved, we are counting on 
you to hold firm on the line in the sand on universal coverage. 

Moreover, that coverage must be affordable for everyone, at all 
income levels. I am deeply concerned that some of the proposals 
now under consideration would not provide affordable coverage, re- 
quiring some people to pay up to a sixth of their income for cov- 
erage. 

At my health center, as in all health centers across the country, 
we operate a sliding fee scale, based upon Federal poverty guide- 
lines, which assures that people who are uninsured and cannot af- 
ford to pay for services nevertheless have access to health care. 

Currently, over 40 percent of Family Care Health Center's 18,000 
patients participate in our sliding fee scale arrangement for their 
health care. Now imagine this population, which cannot currently 
afford the most basic necessities of life, having to pay 10 or 15 per- 
cent of their meager income for coverage, plus copayments for each 
service they seek. That would be devastating for the very poor, es- 
pecially mothers with sick children. 

The result is that rather than seek care as soon as health prob- 
lems arise, low-income people would be forced to delay care until 
health problems become emergencies, endangering their health and 
increasing their costs as well as society's. 

Further, if certain bare bones healtn plans offer particularly low 
out-of-pocket premiums, low-income people may have no choice but 
to enroll in them, reinforcing economic and racial segregation in 
the delivery of health are. That simply cannot be allowed to hap- 
pen. 

My next point deals with access to care or the underserved. As 
many in the Congress have already noted, for health care reform 



78 

to succeed — particularly the goal of cost containment — it must pro- 
vide universal access to primary and preventive health care serv- 
ices as well as universal coverage. 

As we know all too well from our experience over the years with 
Medicare and Medicaid, possession of a "health security card" will 
not necessarily guarantee access to health services. Nowhere is this 
more true than in America's inner-city and rural medically under- 
served communities. 

Who are the underserved? In simplest terms, they are people 
who can't get care when they need it, when it makes the most 
sense, when it can prevent the onset of illness or treat it early, be- 
cause of who they are, where they live or ironically because of their 
complex health and social conditions. 

A recent report by mv organization and the George Washington 
University found 43 million such people, living in urban and niral 
communities all across the country. These Americans need more 
than universal coverage and comprehensive benefits; they need a 
medical home that responds to their unique needs. 

Health reform must therefore include a substantial commitment 
of resources for primary and preventive care infrastructure devel- 
opment in underserved areas, on a guaranteed funding basis, as a 
central part of health reform. 

I am pleased to note that several of the bills under consideration 
including those sponsored by Mr. McDermott, Mr. Gephardt, Mr. 
Thomas, and Ms. Johnson all call for significant new funding to 
these very programs. 

I should add, however, that only Mr. McDermott's bill calls for 
guaranteed funding for this effort; and that his bill, as well as 
those by Mr. Thomas and Mr. Gephardt, call for roughly equivalent 
levels of support, which would meet much, but by no means all of 
the need out there. It is no secret that the health center programs 
have been uniquely successful over the last 30 years. 

It is also no secret that they continue to be horribly underfunded. 
America's health centers are currently reaching only 15 percent of 
the 43 million underserved and funding for the program has not 
kept up with the general inflation rate. If you and the Federal Gov- 
ernment are sincere in your interests to provide health care to all 
Americans, you must guarantee access to community-based, 
consumer-directed, affordable, quality, primary and preventive care 
to all, and especially to the underserved. The model is out there, 
it just has to be replicated. 

My health center will provide over 70,000 patient visits this year. 
It will provide the majority of those visits in a 12,000 square foot 
converted grocery store that maxed its capacity back in 1985 when 
the organization provided 24,000 patient visits annually. 

You can imagine how cramped we are as we continue to meet the 
demand for service. We simply do not have the physical capacity 
to be able to accommodate the demand for service, and not being 
a large hospital or HMO with a huge capital reserve, we can't sim- 
ply go out and expand or build a new facility. 

We have recently, however, opened a smaller satellite health cen- 
ter in another high-need and I might add, high-crime area of St. 
Louis, and literally before the doors have opened, we are at max 
capacity. 



79 

Any health care reform legislation that seeks to only reform the 
way health care is financed clearly and completely misses the 
point. For health reform to work in underserved areas, if the un- 
derserved are to have access to health services to stay healthy and 
hold down costs, it must build on what has worked in those com- 
munities and include a substantial infusion of capital into those 
high-need areas, not only to expand current primary care providers 
and develop new ones where needed, but to support the operational 
costs of caring for a very sick and hard-to-serve population. The un- 
derserved also need the assurance that their medical home will not 
be driven out of business due to excessive financial risk or inad- 
equate reimbursement, simply because they care for those who are 
sickest and hardest to reach. 

I think all of us here know that much of the managed care indus- 
try and "established" providers are not going to care for the inner- 
city and rural underserved, the poor, disadvantaged minorities and 
other vulnerable populations whether they have third-party cov- 
erage or not. 

The incentives in managed care are all wrong when it comes to 
the underserved. It is easier for the managed care industry to just 
avoid these people than it is to try to understand their needs and 
manage their care. This is the Achilles' heel of managed competi- 
tion, or any reform plan with roots in managed care: If underserved 
populations' primary and preventive care needs are not met, cost 
containment goes out the window. 

These are exactly the kinds of people who end up on emergency 
room doorsteps. In this context, health reform must also offer 
strengthened contracting rights and safeguards for federally quali- 
fied health centers and rural health clinics assuring the preserva- 
tion of the existing "safety net" in underserved communities and 
their full participation in the new health system. 

Currently, the President's bill and, to a lesser extent, Mr. Thom- 
as' bill, call for such safeguards, but they need to be strengthened 
even further. My health center colleagues from New York to Texas 
and California have been approached by the big health plans like 
Aetna and Cigna, who want them to take care of their sickest en- 
rollees, but are not willing to pay them a rate that recognizes the 
inherently higher costs of serving such a population. 

One closing thought: If my single health center, located in St. 
Louis, Mo. had access to capital dollars for infrastructure develop- 
ment, we estimate that last year alone instead of 18,000 patients 
we could have provided services to 30,000 patients, which would 
have represented not a little over 70,000 patient visits, but close 
to 125,000 patient visits to the medically needy, the medically un- 
derserved, the poor, and high-risk or special populations. 

Instead, those folks that can't get into centers like mine or have 
to wait, and instead become part of the crisis within emergency 
rooms and the health care system. Give us the tools and the re- 
sources; we have proven we can make it work. 

Thank you for the opportunity to appear before you today, Mr. 
Chairman. I will be glad to answer any questions you may have. 

[The prepared statement follows:] 



80 



STATEMENT OF 

THE NATIONAL ASSOCIATION OF COMMUNITY HEALTH CENTERS 

ON NATIONAL HEALTH CARE REFORM 

AND UNDERSERVED AMERICANS 



MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE, the National Association of 
Community Health Centers (NACHC) is the national membership organization of over 
700 community, migrant and homeless health centers providing comprehensive 
primary care services to over 7 million medically underserved Americans in 1400 sites 
across the countpy. 

NACHC and its member health centers are well av»/are of the failures of our health care 
system, in particular because we care for millions of Americans who have been 
forgotten or left behind - unserved, or poorly served at best - by the existing health 
care system. In this context, health centers strongly support the President's call for 
meaningful health care reform to provide universal coverage to all Americans that 
can't be taken away, and improve access to care - especially to preventive and 
primary care, and contain health care costs. 

The needs of the underserved in health care reform are clear, and attainable this 
session of Congress: 

• The underserved need a place to go for entry into the health system — a 
medical "home" that responds to their unioue needs , that is geographically and 
physically accessible, culturally and linguistically competent, and available 
during evening and weekend periods; and that offers comprehensive primary 
care and "enabling" services, like transportation, translation and outreach. 
Universal coverage, though essential, is not enough, as health insurance alone 
will not necessarily guarantee access to needed health care services; 

• The underserved need an adequate supply of physicians and health 
professionals who are trained to understand and respond to their unique needs 
and health care problems; and - 

• They need the assurance of knowing that the essential community providers 
which have historically served them will be able to continue doing so. through 
initiatives that provide adequate reimbursement (taking into account the 
inherently higher costs of caring for them) and risk contracting safeguards 
designed to protect their fiscal solvency. 

Clearly, we now have the best opportunity in over half a century to extend access to 
affordable, quality health care to every American. We want to work with the 
President and Congress to capitalize on this golden opportunity -- let's make health 
care reform work for all Americans. As presented, the President's plan makes several 
vital contributions toward improving access to health care and ensuring health security 
by: 

• extending comprehensive coverage to millions of people who are currently 
uninsured or inadequately insured, with benefits equal to or better than those 
offered by many of the largest companies; 

• eliminating the most brutal current health insurance industry practices of 
denying or discontinuing private insurance coverage because of previous or 
current health conditions, or due to a change or loss of job; 

• proposing to substantially reorient our health care system -- including the 
training of physicians and other providers - to focus more on low-cost, high- 
payoff preventive and primary care, including coverage of important preventive 
services; 



81 



• proposing to expand and improve preventive and primary health services in 
underserved rural and inner-city areas; 

• recognizing and safeguarding the key role of health centers and other "essential 
community providers" in caring for low income and underserved communities. 

With the inclusion of these elements, President Clinton's proposal lays a solid 
foundation for achieving effective national health reform, and for ensuring that every 
American - no matter what their circumstances - has access to affordable, quality 
health care. Many of these elements are shared by the single-payer proposal 
introduced by Representatives McDermott and Conyers, and to lesser extent, the 
Senate Republican proposal written by Senator John Chafee. However, with the 
notable exception of the single-payer plan, many of the other proposals for health care 
reform - particularly the "managed competition" approaches, which have received so 
much attention of late - contain elements that raise concerns about how well or 
poorly the system will meet the needs of the underserved. 

The proposals, most notably the Health Security Act and the Managed Competition 
Act sponsored by Representative Jim Cooper, rely heavily on a system of managed 
competition, under which several health plans - most of the managed care type - will 
compete for Health Alliance enrollees, ostensibly on the basis of price and quality of 
care. This focus on managed competition could work to assure care and at the same 
time contain costs for most Americans. Yet while managed care has been cited 
frequently for its successes in effectively organizing available local health resources 
to hold down the cost of care, there is no evidence that the presence of managed care 
in a community has successfully increased the level of available resources there, a 
critical factor in improving the health of underserved communities. 

Moreover, most manaoed care entities and HMOs have historically avoided the 
underserved because of their unique needs and inherently higher costs. In a market- 
based, competitive health system with a foundation in managed care, the most 
expensive patients -- the underserved and those in greatest need of health care -- 
could encounter significant discrimination and barriers to obtaining health care 
services. For some areas and populations - in particular low income, rural and inner- 
city minorities, and other at-risk Americans - this approach may not improve access 
to care, and could even prove detrimental. What is absolutely clear to us is that a 
safety net will still be needed in a reformed system under a managed competition 
approach -- a "front door" into the health care system that is significantly influenced 
by the medically underserved themselves. 

Our concerns are further heightened by the limited nature of proposed federal cost- 
sharing assistance for low income persons and families in the various proposals for 
health reform. In this respect, the President's plan is among the most generous; other 
bills have severe limits. Nearly all bills would limit subsidies to the premium charges 
by plans that are at or below the weighted-average premium. This limitation could 
effectively restrict the choice of poor persons to only low cost plans, thus running the 
risk of creating a de facto two-tier system. Similarly, even the poorest Americans will 
face some cost sharing, including copayments for doctor visits and prescription 
changes. This burden will have its most telling effect on pregnant and postpartum 
women, infants, and those with chronic or complicated illnesses, because they will 
need frequent care and multiple medications. 

Some of the many potentially serious problems that could be faced by low income 
Americans and the working poor in a managed competition-based system include - 

• Severely Restricted Choice of Plans or Providers : Because of the restricted 
subsidies under the managed competition proposals, individuals with family 
incomes below 150% of the Federal poverty level are unlikely to be able to 
afford the premium surcharges for higher-cost plans. By this standard, 60 



82 



million people -- 25% of the entire population -- will be able to choose only 
among the lowest-cost plans, and will be subject to the discrimination and poor 
quality often associated with the Medicaid program. It is unclear whether or 
to what extent low-income and other medically vulnerable populations will be 
assisted to enroll in plans, select a plan that works best for them, and to obtain 
the care and services they need, which in many cases go beyond the care and 
services included in the required package and furnished by traditional plans. 

• Lack of Plan Capacity : Those who can afford only a low-cost plan may find 
there are not enough such plans available with enough capacity. Few plans will 
be willing to market coverage at the premium charged by low-cost plans, and 
will instead target employer-insured families. 

• Increased Discrimination and 'Redlining' : If the new systems is inadequately 
financed, health plans will have every incentive to avoid areas with high 
numbers of low-income people. Fly-by-night or "lowball" plans may well be the 
only providers bidding for coverage in these low income-areas -- resulting in 
diminished access and lower quality services for aM enrollees there. Depending 
on how Alliance and plan service areas are delineated, major redlining could 
occur, with low-income, racial/ethnic minority, and high-risk populations 
gerrymandered into segregated Alliance and plan service areas and subject to 
less oversight and poor quality care. The experience with redlining under 
Federal voting rights and credit lending laws suggests that no duty not to 
redline can counteract wide discretion in drawing identifiable service areas. 

• Obstacles to Soecialtv Care : Lower-cost plans are more likely to require stricter 
utilization review and place more obstacles between low-Income patients and 
specialty care. In particular, persons with chronic illnesses or disabilities may 
be adversely affected if plans are permitted to severely restrict out-of-plan 
referrals or payment for specialized care and services. Also, plans will 
presumably be required to cover out-of-area services (at least for 
emergency/urgent care needs). However, it is not clear yet how this will work 
under the President's or Representative Cooper's plan. This is a critically 
important issue for migrant farm workers, transportation employees and others 
whose work requires frequent and extensive travel, and involves multiple 
employers. 

• Inadecuate Monitoring of Quality and Access : Based on the experience with 
fVledicaid, states and Alliances may not be able to adequately monitor quality 
and access in low-cost plans, especially when faced with the pressing need to 
hold down the cost of care. 

Simply put, underserved Americans are in the health care predicament they are In 
because they have been rejected by the private market. The community and migrant 
health center programs were enacted by the Federal Government in response to the 
failure of market forces to meet the needs of underserved and vulnerable populations. 
Thus, if market forces work for health care like they have worked in other sectors of 
the economy, underserved people and communities run the risk of being red-lined, 
short-changed and, in the end, getting far less care than they need or deserve. 

Finally, undocumented persons will be ineligible for coverage under virtually all major 
proposals, and are barred from receiving public subsidies or employer-subsidized 
benefits under the managed competition approaches (thus disqualifying millions from 
the employer coverage they now have). All hospitals presumably would still be 
required to furnish emergency care to undocumented persons under Federal anti- 
dumping law, but potentially hundreds of millions - if not billions -- of dollars in 
uncompensated care would remain, with as yet no clearly identified funding source 
to cover the cost. 



83 



These concerns underscore the critical need for a substantial. Federally-administered 
"safety net" for millions of disadvantaged and underserved Americans, even after 
reform is implemented. The Health Security Act acknowledges this principle, but its 
response falls seriously short on some key elements. For example: 

• Access to Care: The Health Security Act's Access Initiative calls for a vital 
investment of about $4.5 billion over 6 years in the expansion of primary care 
services in underserved areas, in assisting in the formation of service delivery 
networks, and in furnishing key 'enabling services,' such as transportation and 
translation services, to those living there. Similar efforts are proposed in many 
of the other bills, as well. We sfongly support the basic purpose of this 
Initiative and believe that the levels proposed by the President are minimally 
adequate to meet the need for such efforts (greater efforts are called for in the 
single-payer bill, at $4.8 billion over 6 years, and in the Chafee bill, at $5.6 
billion over 5 years). However, nearly all of the President's funds would be 
administered under a totally new, discretionary program, which would give 
greatest preference to entities, including non-publicly assisted HMOs, private 
doctors and other institutions, with little or no community involvement or 
accountability; publicly-funded providers who band together are given a lower 
preference for receiving support. 

What's more, we see it as a vote of no-confidence on the ability of 
disadvantaged and minority communities to positively influence the structure 
and character of their community's health care system. In our view, this 
represents a significant change of heart by the Administration on its early 
guarantees that health reform would help empower medically underserved 
communities. 

Further, the discretionary nature of this new program (which is also found in 
other health reform proposals, with the exception of H.R. 1200) raises the 
distinct possibility that existing programs, such as the health centers, Family 
Planning, MCH, and Ryan White, which will continue to fill vitally important 
purposes even after reform is implemented, will be pitted against proposed new 
programs for scarce federal resources. Senators Fritz Hollings and Tom Harkin 
and Congressmen Dave Obey and Lou Stokes have fought as hard or harder 
than most other IVlembers of this institution for funding for these programs, yet 
have been unable to keep their funding on par with general inflation, much less 
health inflation. A discretionary funding construct for a health reform access 
initiative raises the distinct probability that funding levels for these programs 
will never be adequate. The Managed Competition Act contains exceedingly 
limited resources, none of which could be used to expand capacity in 
underserved areas. The Chafee and House Republican bills do contain 
resources for this purpose, but as put forth, could not be used for the formation 
of community-based networks and plans. Only the single-payer bill guarantees 
funding for these purposes. Given what is at stake, we feel that mandatory 
funding is the only viable approach. 

• Essential Community Providers: We applaud the Health Security Act for its 
unique and vital provisions that would recognize those who currently care for 
the underserved (such as community, migrant and homeless health centers, 
family planning clinics, and Maternal and Child Health clinics) as "essential 
community providers" (ECPs), and extend certain rights, such as contracting 
and payment requirements, for the first five years after reform begins. These 
protections are found in only one other legislative proposal - that of Senator 
Chafee, where they would apply only to providers serving the Medicaid 
population, or about 15% of all eligible Americans. 

Under the President's bill, all health plans are required to contract with ECPs In 
their service area. ECPs that elect to contract on an "in-plan" basis (most 



84 



health centers are likely to do this) will be paid no less than other providers for 
the sanne services by the Plan. ECPs that contract on an "out-of-plan" basis 
(most likely, school-based clinics, health care for the homeless, etc.) will be 
paid based on the Alliance-developed fee schedule or the most closely 
applicable Medicare methodology (for a health center, FQHC cost-based 
reimbursement), at the ECP's choice. 

While these safeguards are critically important, we fear they do not offer 
adequate protections for ECPs. Most importantly, ECPs get precious few 
safeouards from risk-based contracting by health plans. Risk adjustments and 
reinsurance are required only for the health plans; there are no provisions 
requiring that they be shared with contracting providers - not even the ECPs 
who, more than any other, will face the inherently higher costs of caring for 
sicker and harder-to-serve patients. A possible scenario, even with the Health 
Security Act's safeguards: a health plan agrees to contract with the ECP, but 
on a risk basis; the health plan assigns the ECP the sickest patients, and pays 
the ECP no less - but no more - than other providers for the same services, 
with the ECP at risk for any costs in excess of the health plan's capitated 
payment. The ECP is out of business in 2-3 years. 

NACHC believes that one overriding policy should govern the construct of an 
Essential Community Provider initiative: those providing comprehensive primary 
care services to the underserved should be paid an adequate rate, and should 
be exposed to minimal risk . Ensuring the continued function of essential 
providers will be absolutely critical if we are to encourage more caregivers to 
provide primary care, especially where it is most needed, and ensure that more 
of the underserved receive primary care and preventive services. 

Health Professions Education and Placement: The Health Security Act, as well 
as most of the other major reform bills, calls for substantial reform of the 
nation's health professions education and training efforts, and restructures its 
financing. However, it leaves the lion's share of the resources in the hands of 
the nation's medical schools and teaching hospitals -- which have played no 
small role in the current oversupply of specialists and our critical shortage of 
primary care physicians. 

None of the legislative proposals effectively involve health centers in the 
training and education of health professional, again with the exception of H.R. 
1200. Community health centers affiliated with teaching programs have 
produced hundreds of family physicians, general internists and general 
pediatricians - exactly the kinds of doctors our health system desperately 
needs - yet they get nothing in the way of direct funding to continue or expand 
their educational efforts . Currently health centers with teaching programs are 
required to affiliate with a sponsoring medical school or teaching hospital. 
Payment for the costs of the health center's educational program is made on 
a "pass-through" basis with the sponsoring institution. The result is that many 
"teaching health centers" end up eating a substantial portion of the costs of 
their educational efforts. Further, the availability of residency opportunities in 
community and migrant health centers is directly linked to the availability of 
teaching hospitals willing to engage in educational partnerships with them. 

We'd like to have direct access to medical education funds so we can provide 
practice opportunities for medical residents and expose more medical students 
to the benefits of providing primary care in an underserved area. The available 
literature shows that where medical residents and other health professions 
students are exposed to primary care training in a community-based setting, 
significant numbers enter primary care as a practice. For the reformed health 
system to function successfully, it will have to generate significant numbers of 
new primary caregivers. Community and migrant health centers anxiously 



85 



await the opportunity to participate in those professionals' education. 



Making Health Reform Work for Underserved Americans 

We believe that, if health reform is to work for underserved Americans, it must 
empower medically underserved communities to develop workable, permanent, 
responsive community health care systems, through steps to provide: 

• a substantial investment of guaranteed resources for the formation of 
community-based, consumer-directed health plans and networks, and to 
increase access to primary and preventive care in underserved areas: throuoh 
support for key programs that now support vital services to disadvantaged and 
underserved populations (including the health center programs. Family Planning, 
and others). 

• strengthened safeguards for Essential Community Providers that assure 
preservation of the existing safety net in underserved communities, and their 
full participation in the new health care system, including safeguards against 
excessive risk in contracting with health plans and payment of rates that 
acknowledge the inherently higher costs of serving underserved populations; 

• direct funding for community-based training programs for primary care health 
professionals in order to assure adequate primary care educational opportunities 
for students in the most appropriate settings - where they are needed most. 

NACHC is in the process of developing perfecting amendments to the various health 
reform proposals to meet these critical objectives. 

The most pressing need of - and the most rational response to -- the medically 
underserved under any health care reform approach is increased availability of 
community-responsive, consumer-directed, comprehensive primary health care 
services, particularly under a market-driven approach to reform where the bottom line 
will take absolute precedence. Yet more can and should be done than just investing 
in service development: the lesson of the health center programs is that, although it 
may not be possible to empower communities to take control of the entire new health 
system, it is possible to empower them to own and operate their own entry points 
into it . Health centers were founded with a vision of community and consumer 
empowerment, and their experience over the past 30 years provides an object lesson 
on how consumer involvement and community empowerment can succeed where 
other models have failed. In this sense, health centers may be the last, best hope for 
communities in shaping their health care system and making it responsive to their 
needs. For obvious reasons, we strongly believe that any access initiative worthy of 
the name should retain and significantly expand upon the health center model 
because: 

o it is a proven model of getting Federal funds to improve the health of hard-to- 

reach populations to the areas that need them most; 

o health centers represent a multibillion dollar investment by the Federal 

government in primary care infrastructure in underserved communities over the 
last 30 years, and attracting and retaining health professionals in shortage 
areas; 

have proven their effectiveness, cost efficiency and quality, and success in; 

o it is a proven model of empowering underserved communities to manage their 

own points of access into the health system, and to tailor the services provided 
by the center to the unique needs of the community; 



86 



o the centers' are accountable for efficient utilization of Federal funds and quality 

of services provided, and are subject to strict monitoring and oversight by 
Federal agencies, unparalleled in the private sector. 

Policymakers should look hard at what has worked and why, and what has not 
worked for the underserved : 

o Who has provided culturally competent care and ACCESS to these 

communities? Who has not? 

o Who has seen all regardless of the ability to pay? Who has not? 

o Who has kept costs in check while developing Innovative approaches to 

meeting the health needs of these communities? Who has not? 

o Who has attracted, trained and kept physicians and qualified health 

professionals in underserved communities? Who has not? 

o Who has genuinely empowered communities to develop long-range solutions 

to their health care needs? Who has not? 

Members of Congress can and must make sure that health care reform "stays on 
track" and works for our Communities. Congress knows what works and should 
renew its commitment to Community Health Care. This is not about a program, but 
rather an approach to empower communities to develop and direct long range 
solutions that will work for them - in keeping with the President's principle of 
responsibility, which we all support. 

In summary: 

• President Clinton made a commitment to equality of access to health care. We 
fully support that pledge, and believe that health reform must work for all 
Americans, and especially for the medically underserved. 

• There is much to admire and support in the President's proposed plan and those 
of other Members; at the same time, some elements cause considerable 
concern about how well these plans will address the most pressing needs of 
underserved Americans. 

• Health care costs will never be controlled unless high-risk, underserved 
populations have access to primary and preventive care. Health insurance 
while essential, will not alone guarantee access to needed health services. 

• Health reform should build on what has worked: the community, migrant and 
homeless health center programs. Nothing else has our uniquely successful, 
30-year track record of controlling costs, providing access to quality care, 
retaining health professionals where they're most needed, or empowering 
communities to develop long-range solutions to their health needs. Health 
reform should invest in such successes. 

• We are committed to support and work with the President and the Congress 
to ensure the earliest possible passage and enactment of an effective, 
comprehensive national health reform plan this year. 

Thank you. 



87 

Chairman Stark. Mr. Thomas. 

Mr. Thomas ok California. We have looked at all these statis- 
tics, but the thing that keeps coming home, when you say that 21 
percent of the folk are rural, the answer I get from my people is 
I may be 21 percent to you, but I am 100 percent to me. That is 
even more so of the three-quarters of the folk who are urban. 

I understand where you are coming from in terms of supporting 
the single payer. My only question is what is the price tag? 

Ms. RosENBAUM. If you take just the community health center's 
program it would probably take several billion dollars to both build 
the number of facilities that are needed and provide them with the 
operating subsidies that they require above and beyond the insur- 
ance payments they would receive. That is they would need sub- 
sidies in order to provide uncovered services, to provide the ena- 
bling services to protect themselves against undue financial loss. 

I am sure John has better statistics than I do. I would guess that 
the cost shows up not even a measurable fraction of a percentage 
of the Federal health care budget. Now whether or not Congress 
chooses to adopt a single-payer insurance system, the strength of 
the Wellstone-McDermott bill on this particular issue is that the 
payment for the capital and grant moneys needed to develop serv- 
ices and keep them going in poor communities, underserved com- 
munities, is built into the payment structure. It is certainly plau- 
sible to imagine taking that kind of a model and using it in a pri- 
vate insurance system just as the President's bill does for academic 
health centers. 

Mr. Thomas of California. That was why I was pleased that 
Mr. Silva was knowledgeable enough to indicate that most of the 
comprehensive plans, even if they don't endorse either single-payer 
structure, or a government-run system or even the President's 
mandatory structure, that we are all concerned about the area and 
that we are all putting money in the area and sometimes holding 
your own or treading water is ahead of the game if other areas are 
slipping. My concern is that this area under any plan will not get 
the kind of attention that is necessary. 

Mr. Silva, my question to you goes to testimony that that we had 
several days ago. Frankly, I was a little bit excited about it. In my 
area there are some programs that appear to be making some 
headway. Both my counties are part of the pilot program for man- 
aged care under the Medicaid shift. But in terms of clinics, testi- 
mony from Boston, which is now extended to the entire State of 
Massachusetts, testimony in the Chula Vista area of San Diego and 
the entire State of Arizona has indicated that there seems to be 
some folk out there who are making the current system work and 
work in a very positive way. 

Have you seen some creative approaches to dealing with this 
question in terms of the underserved area? In other words is it 
really structure — it is always structure to a certain extent? I was 
struck by these people who didn't let the structure get in the way 
and they didn't complain about the fact that there wasn't any 
money. In fact, they have gone out and organized it in such a way 
that other affluent groups are trying to attach themselves to them. 

Are these anomalies and did we wind up with an efficient staff 
finding a couple of folk who could present a bright picture that isn't 



88 

going on out there? With all the changes at the State level, isn't 
there some innovation going on that we might point to as models 
that don't necessarily take just more money but take creativity and 
an understanding of what works? 

Mr. SiLVA. I think that you could look at the community migrant 
health center program in toto and go into almost any community, 
even a rural area where there is a community or migrant health 
center and basically say the same thing. To give you an example 
of that, there are so many entrepreneurial and innovative 
approaches that are being taken by community-based programs 
that it is literally staggering, but I need to stress that they are 
community-based and consumer driven, and a lot of times they 
have had to survive without mainstream medical support, without 
mainstream financial support, without any type of State or admin- 
istrative support. 

Mr. Thomas of California. Are you saying that sometimes, 
maybe, that is the reason they are succeeding? 

Mr. SiLVA. No, I think they are succeeding despite it. I some- 
times am awed by the thought that, if there was ever a time when 
there would be administration and establishment support for these 
types of grass roots organizations, what kind of constructive things 
that they could do. If there were additional resources that were 
available based on their track record of entrepreneurial develop- 
ment and services, how many more people they could provide serv- 
ices to. 

Mr. Thomas of California. That is one of the reasons that we 
put the component that you were kind enough to mention in my 
bill, because in my rural central valley California district the mi- 
gratory health centers are one of the bright spots. Not just by 
meeting the needs of the underserved but by creating cutting edge 
technical opportunities for people who would otherwise participate 
in an ordinary medical structure, and are being attracted there so 
there is a coming together of all parts of the community in the cen- 
ters. 

At one time, there may have been a slight stigma attached to 
them but there is a great deal of pride now. The new construction, 
the new building, the dentist facility, all those are tied to these 
health centers. I think there is a great opportunity in terms of a 
willingness to just do the job and be creative, but the funding has 
to be there. 

Mr. Bernstein, there has been a lot of verbiage about coverage 
versus access and access versus coverage and we don't just want 
access, we want coverage. I think I understood what you meant in 
terms of you want to stress access rather than coverage. You are 
talking about the ability to deliver rather than the comfort of say- 
ing that you are covered. What good is a plastic card if you don't 
have a place to use it; is that basically what you are saying? I 
know that is a kind of a mine field when you get into coverage ver- 
sus access. Maybe you ought to spend a minute to make sure ev- 
erybody understands that you are not choosing sides in the political 
rhetoric contest here. You really mean something when you say you 
want access. Coverage is important, but access is primary and 
fundamental. 



89 

Mr. Bernstein. That is what I mean. I have some suggestions 
but they are my own, they are not the association's on the issue. 
It seems to me the more you Hsten to the debate the more I under- 
stand the cost of the reform is going to be — could be quite astro- 
nomical, and I enjoyed the little repartee between the chairman 
and Dr. Lee, but I think we are going — most of the plans are going 
about the concept of access and missing the boat on one very im- 
portant issue. They are not to me recognizing where the real eco- 
nomic force is in this whole managed competition debate. The force 
and what the plans are trying to do — and I believe we need to do 
this — is to put a lot of money into grant programs and I am all for 
that. I am involved with many, many programs, whether public 
health, community health centers, national health service — we 
need that money but we are betting the house that you can fund 
those programs. I think in addition to that we need to recognize 
that these big companies, insurance companies, HMOs, these big 
hospitals, the forces that they want to play in this game — and if 
we don't harness them in some way so that they benefit rural and 
inner-city underserved areas, we are missing the boat. 

What I mean here is that we need to figure out creative rules 
and I don't see rules in these managed care bills. We need to figure 
out rules that say if you want to play this game, then we need a 
strong infrastructure. You need to support our community-based 
programs. We need to add to them in our rural inner-city areas. 

We let you do that collaboratively. We will let you combine Kai- 
ser, put money in and Prudential, put money in but we would set 
the standards for inner-city and underserved areas and rural areas 
so they wouldn't be able to participate — like you were talking about 
redlining, that is a must. If you let them chop off the best parts 
of the geography we really have a problem. But if we make them 
participate, invest in these areas, I think we can cut down on the 
overall cost of the total program. 

But if we are going to just add on money that the Government 
has to come up with, I am concerned about that. 

Mr. Thomas of California. I think all of our concern is rather 
than sit in an academic criticism of the current system and make 
changes in the law and assume it is going to be fixed is, those folks 
who identify themselves in whatever percentage group understand 
they are 100 percent of themselves and that if they aren't getting 
the kind of medical coverage they at lease define as minimum, 
whether you call it access or coverage, they have been left out and 
that is the last thing that we should be doing. 

Thank you, Mr. Chairman. 

Chairman Stark. Mr. Lewis. 

Mr. Lewis. Thank you, Mr. Chairman. 

Ms. Rosenbaum, I was struck and moved by your testimony as 
it relates to inner cities. You make a strong and compelling case 
that because of years of neglect, maybe generations of neglect, 
many of the health problems that we are facing in the inner cities 
of our country and in many of our rural areas is because of what 
we failed to do in the past. 

I would like for you to give us some idea about your thoughts 
and concerns how we can provide civil rights protection in a new 



90 

world of health reform or the new world order of, the American 
order of health reform. 

Ms. RosENBAUM. As we move into health reform and rewrite 
health policy for the United States we are also rewriting a huge 
raft of related laws. 

One of the great bodies of law that is being rewritten and should 
be rewritten to reflect a changing health system is the body of civil 
rights law in the United States. I have spent 20 years as a health 
and civil rights lawyer now and have spent a lot of time with col- 
leagues talking about what kinds of protections would be required 
based on our experience with discrimination in health care and the 
kinds of plan that seems to be emerging. 

As Representative McDermott pointed out before, very strong 
protections are needed at the level of drawing the market areas or 
the service areas, the pooling areas for the organization of the 
health care financing system. Whether those organized areas are 
voluntary or whether they are mandatorily drawn as in the case 
of the President's plan, there is great concern on many persons' 
part, and I believe it is one of the great strengths of the President's 
plan, that those boundaries not been drawn in ways that either in- 
tentionally discriminate, or the effect of discriminating. 

I recommend that in addition to the establishment of standards 
for drawing the boundary lines that Congress give serious consider- 
ation to something akin to the kind of preclearance process used 
under the Voting Rights Act. Depending on the kind of bill that is 
developed, you could have a gerrymandering of health service areas 
that for all practical purposes, whether or not patients can go inter- 
state, intrastate, or anywhere else for services, makes the financing 
of care virtually impossible in poor areas. 

Beyond that and most profoundly from my experience is behavior 
of health plans themselves. As we move into managed care, wheth- 
er we getting there under the gun of a bill or because we are drift- 
ing there anyway, we have now collapsed the financing of care with 
the access to care and along the way have come a series of unfortu- 
nate incidents, some of which you heard about last week in the 
managed care testimony. We see these problems every day. 

The most important issues in managed care are nondiscrimina- 
tion provisions in the selection of the marketing and service areas, 
with nondiscrimination standards not only on the basis of race and 
national origin but on the basis of socioeconomic status, perceived 
health status, gender and other suspect classifications. 

If we use a community rating system, the whole risk underwrit- 
ing of health insurance is basically gone and we have to rethink 
what it means to discriminate. When it is your job to discriminate, 
you get to be exempt from civil rights laws. When you no longer 
can risk underwrite, then the bases for discrimination on the basis 
of actuarial assumptions also goes up in smoke. 

Another great concern is the role that essential provider provi- 
sions play for people. Those provisions have received the most pub- 
licity with respect to certain health providers who either do have 
the status or can apply for the status. The real purpose behind 
those protections had much less to do with protecting providers 
than as a means of preventing health plans from cherry picking 
providers who only see certain patients. If you take people's normal 



91 

source of medical care which is a community health center or pub- 
lic hospital and you shut that normal source of care out of a man- 
aged care network, people are cut off from their services. The im- 
mediate impact is a dramatic drop in use of care because people 
are afraid to come to a new provider or they don't know how to get 
through the door of a new provider. They have lost their health 
care home. 

When you think about the essential provider protections you 
should think of them in the same category as any provisions tnat 
directly relate to nondiscrimination by the plans. I would be happy 
to go through the issues in greater detail with you, but it is at both 
the alliance level and the health service delivery level that you 
need to be concerned. 

Mr. Lewis. I appreciate your response. Mr. Silva, what else can 
we do to encourage the creation and continuation of medical homes. 
I understand community health centers need funding. What else 
can we do as a Congress; is there anything we can do under this 
proposed administration? 

Mr. Silva. I think there are a number of things that Congress 
can do and can propose from a front line perspective: Access to cap- 
ital, infrastructure investment, dollars. I know everybody comes be- 
fore Congress and wants dollars. I think it would be fair for me to 
say that an analysis of the community, migrant homeless health 
center programs will show you probaoly the best investment of 
Federal, private and community-based resources that has been ex- 
perienced since the days of OEO. 

I was going to say earlier that under the chairman's leadership 
with Federally qualified health center status, even in my same 
cramped quarters, we went from providing 43,000 patient visits 3 
years ago to 71,000 patient visits this current year in basically the 
same space, and that was due to an influx of additional resources. 
If the infrastructure is developed and invested in we can take care 
of an awful lot of those 43 million uninsured. But when forced to 
compete with what we call the big boys, the large HMOs, the major 
health plans, we can't compete at that level. 

We can compete in the communities and bring people into health 
care. I think an acknowledgment of that and I think we need some 
basic controls on Medicaid waiver approvals to make sure that in 
the name of cost savings that we are not throwing the baby out 
with the bath water as we appear to be doing in Tennessee and 
some other locations where we are literally decimating those pro- 
viders of care to the uninsured, the poor and rural Americans in 
the name of Medicaid reform. 

If Congress looks at the waiver process and how it is being ap- 
plied, I think those two activities more than any I can think of 
right now would assist us in expanding those services. You know, 
in Atlanta you have some of the best health centers doing some of 
the best work in the country. We just need more of them. 

If you are going to invest resources, start at the grassroots and 
work your way up and invest in community and migrant health 
centers. 

Mr. Lewis. Mr. Gage, you mentioned Grady. You mentioned that 
in 1990, Grady provided nearly 865,000 emergency or outpatient 
visits. Along these lines can you explain the importance of financ- 



92 

ing for capital improvement for public hospitals like Grady? You 
know Grady is undergoing a $300 million capital improvement 
effort. 

I think most of those resources came from the citizens of two 
metropolitan counties that serve Atlanta and De I^lb County. 

Mr. Gage. Well, Grady is in the middle of a major rebuilding 
process and the fact that they have among other things, I think it 
is the single highest total of outpatient emergency visits in the 
country of any public hospital, 865,000 sounds right. There are oth- 
ers that were cited in the testimony. 

To follow up on the response to your earlier question, Grady was 
quite fortunate that Fulton and De Kalb Counties, which are the 
two counties that formed the hospital authority that operates 
Grady, are growing, are reasonably prosperous, they have very sig- 
nificant problems with the inner-city and with underserved areas; 
but Atlanta is one of the success stories certainly of the southeast, 
and therefore they were able to sell bonds basically that were 
backed by the citizens of the counties. That is very important to 
understand because it means that infrastructure support in Fulton 
county didn't cost the taxpayers directly. 

They were able to sell bonds and the Grady and the hospital au- 
thority itself will pay those bonds back over a number of years out 
of revenues from current patience and certainly from the counties. 
They get well over $100 million at Grady from the two counties for 
normal operations and clearly some of that goes to pay for debt 
sei^ce. Hopefully over time with health reform much of those 
resources can be shifted to resources that are tied to patients who 
have some form of coverage. But it is clear that not all of those are 
going to be able to be shifted, and it is clear that many of the serv- 
ices Grady provides are going to be essential to their entire 
community. 

Grady is an entire health system, not just a hospital. It runs the 
emergency medical system, it runs a number of health centers, sat- 
ellite hospitals and clinics. But on the other hand, Grady's renova- 
tion can be financed without a lot of up front capital from the Fed- 
eral Government or from the citizens of the county. 

We have a piece of legislation that we have worked closely with 
the community health centers and the rural health association that 
Chairman Stark is the primary sponsor of in the House a few small 
provisions of which have been included in the Health Security Act. 

We urge you to look at that. We think that for $1 to $2 billion 
a year you can meet all the infrastructure needs through 
leveraging these dollars, through loan guarantees and interest sub- 
sidies so that a lot of this capital can be acquired in the private 
markets. 

Mr. Lf:wis. Thank you very much. Thank you, Mr. Chairman. 

Chairman Stark. Mr. McCrery. 

Mr. McCrery. Thank you, Mr. Chairman. 

Mr. Bernstein, prior to coming to the Ways and Means Commit- 
tee, I was on the Budget Committee and we fought hard to just get 
language included in the budget report, begging the Ways and 
Means Committee to assist in leveling the reimbursement rates be- 
tween rural and urban hospitals. So I am a supporter of rural hos- 
pitals. I support the incentives that you included in your testimony. 



93 

Having said that, though, there are a lot of rural hospitals that 
have gone out of business already because they couldn't generate 
enough revenue to pay their expenses, and there are more that are 
on the verge of going out of business. Where do we draw the line, 
or should we, between letting market forces have their will and 
running a rural hospital out of business and interjecting govern- 
ment aid, government support to keep that facility alive? 

Are there some places in rural America that simply shouldn't 
support what I will call a full service hospital, but perhaps could 
support something less than that? And if so, are there any changes 
in Federal law that would help to accomplish that? 

Mr. Bernstein. Wow 

Mr. McCrery. You may not be able to fully answer that ques- 
tion. 

Mr. Bernstein. I can't answer the last part, but I think I can 
answer the rest of it. Each State — in North Carolina, and we are 
getting together tomorrow for this week — first of all, a lot of hos- 
pitals probably need to — not a lot, but there are a number of hos- 
pitals that need to get out of the acute care business, and it is just 
a change in how medical care is delivered over time, and somehow 
we are just going to have to figure a way to deal with it. 

I don't think that the supply and demand method of dealing with 
that is fair or appropriate for certain parts of rural America. So by 
necessity we are going to have to have some sort of planned way 
of supporting some hospitals that need to be in the acute care busi- 
ness to some extent and then adding more incentives like the 
EACH program which needs to be tuned up some to entice hos- 
pitals to move quicker out of inpatient care into out patient care. 
I think it can be done. A lot of States are trying different ways. 
We are developing our own way in North Carolina. 

The legislation you are talking about, the problem with getting 
them to move that way is the reimbursement system that we have 
now with part A, part B, the Medicaid system, the whole thing 
doesn't lend itself to get hospital boards to make the move, because 
they don't see a funding source for the outpatient care or the emer- 
gency care that they need if they give up their inpatient care. We 
need to rethink that. That is what the EACH program is trying to 
do, and that concept needs to be refined. 

Mr. McCrery. Thank you. 

Chairman Stark. Mr. McDermott. 

Mr. McDermott. Mr. Gage, I always try and understand how 
things would work and I understand that your organization has en- 
dorsed the President's plan; is that correct? 

Mr. Gage. We have endorsed the general principles and the key 
provisions of the President's plan, yes. 

Mr. McDermott. Because I have worked at some of these hos- 
pitals, I try and figure out how it would actually work and I would 
like to know your vision of how Cook County Hospital will be in- 
volved with managed care plans would it be Prudential that would 
want to contract with them or Cigna or Humana — how do you actu- 
ally see it working, the Alameda County Hospital in his d.istrict or 
Harbor View in mine, or Cook County where I used to work — how 
do those hospitals get integrated? Who wants to take the people 
that usually come to them? 



94 

Mr. Gage. Well, we have actually taken a hard look at that ques- 
tion. In fact as the chairman was asking Dr. Lee earlier, we are 
actually taking a stab at quantifying it in a way that can let us 
look at different scenarios for a hospital like Harbor View or Cook 
County that may lose half of its uninsured population but retain 
half the population as insured patients. 

There are many different answers, depending on a variety of fac- 
tors. Cook County Hospital needs to be renovated or rebuilt in a 
new site. It is hard to imagine Cook County Hospital in its current 
configuration competing very effectively except in areas like trau- 
ma care and burn care and neonatal and other services where they 
in fact provide the services to the entire community and not just 
to the poor. The fact is, we think there are provisions in the Presi- 
dent's bill which we believe are inadequately funded and articu- 
lated, but with some help from this committee could well provide 
the access to the capital needed to rebuild the Cook County health 
system in its current — in a new configuration that would make 
them not just a key player for Prudential and others, but would 
make them an essential component for many years to come. 

Cook County has what a lot of hospital and health systems lack 
in Chicago and elsewhere. It has a fully integrated medical staff 
that is largely on salary, medical departments that talk to each 
other about patients that share information. The information sys- 
tems may need upgrading, but there is a strong commitment to 
low-income patients who are going to still be low-income patients 
even after they have a little insurance card to wave around. 

We speak many different languages that are spoken at cook 
county but not at other hospitals. So we think there are strong rea- 
sons why hospitals like Cook County with adequate assistance will 
be able to compete effectively. Harbor View is an example of a hos- 
pital that probably is miles ahead of Cook County right now be- 
cause of its location, its role in the community, the fact that it has 
been involved in a major way in managed care. But it too has those 
benefits. I understand your question was how under the Clinton 
plan versus some other plan. It was not an easy decision to come 
out and let people say we endorse the Clinton plan. 

We see the Clinton plan as being on one side of a very clear fence 
that has been erected by a lot of players that we have no control 
over. We see your bill on one side of the fence too. Nothing would 
make us happier than to see a merger of the concepts. We felt we 
had to declare in favor of universal and mandatory coverage be- 
cause if we don't honor those key principles, we don't think we will 
get anything and Cook County and Harbor View will be in a worse 
situation than they are today. We believe the Health Security Act 
needs a lot of amending before it can guarantee that Cook County 
Hospital can be a player on a level playing field under health re- 
form, but we think the foundation is clearly there. 

Mr. McDermott. If I could pursue for a second — it sounds like 
your vision is that Cook County or whatever big city hospital would 
become a health network. They would market themselves and be 
a certified health plan under the President's proposal, that they 
would take those folks who live in the neighborhood, since they 
have been alwavs gone there, they would just keep coming there 
and that would Be the certified health plan for that area? 



95 

Mr. Gage. I think survival of any system or institution is going 
to be based in part on developing tneir own networks, and in part 
on being able to participate in the networks and the plans of oth- 
ers. I don't see an institution the size of Cook County which by the 
way is already a major network, it is not just a single hospital sit- 
ting there on its site — it has satellite hospitals, arrangements with 
many health facilities and clinics. They have been talking for sev- 
eral years about merging the city's clinic system with the county. 
They are entering into an affiliation with Rush Presbyterian that 
would not have been thinkable 5 years ago but now makes a great 
deal of sense. 

Cook County is going to position itself to be part of a larger sys- 
tem that will compete effectively, probably will and should develop 
plans of its own, and will also compete an a provider in the plans 
of others. 

Mr. McDermott. One of the things that it seems to me happens 
in the President's plan is that if a plan is full they can say we have 
all that we want and then the alliance can direct people to some 
other place. It looks to me like that the big city hospital with its 
health net will be the kind of receptacle for those people who aren't 
quick and fast enough to join other health plans and will really be- 
come I won't say a poor people's system, but a system of those who 
aren't quick on the draw. 

Mr. Gage. I am not even sure it is so much the patients who will 
be quick on the draw as it will be plans. We share the concern that 
has been expressed here today about what will happen when cer- 
tain health plans that may not even exist today grow up to compete 
in Chicago or Seattle or Denver or Los Angeles and they are look- 
ing only for healthy patients who aren't going to utilize services or 
maybe at the other end of the spectrum the homeless and the dein- 
stitutionalized mentally ill who they will sign up who will never 
going to Cook County Hospital no matter how much educating you 
do. We do have concerns. 

However, we serve all of those patients now and we are not going 
to turn away patients just because they are sicker. We do believe 
that there are going to need to be risk adjustment factors and ena- 
bling services and other things, payments to these hospitals that 
will enable them to care for these patients, and we do hope that 
there will be also protections as discussed earlier, including civil 
rights protections that can be brought both by patients and by gov- 
ernmental entities against plans that engage in dumping and other 
kinds of activities, redlining, cream skimming, whatever you want 
to call it. We have concerns about that. 

We also believe by the same token that the Harbor Views and 
Cook Counties will be able to compete effectively for patients they 
don't now have, because we think they will position themselves in 
most cases in networks that are going to be attractive to those pa- 
tients. 

Mr. McDermott. It will be a surprise to me if anybody wants 
them in their network services except for selected services. In Se- 
attle if you have a bum the only place to go is Harbor View. I can 
see why people would make those kinds of arrangements, but I 
can't see them making those arrangements for obstetrical, and gen- 
eral surgery and those sorts of things. I don't see why anybody 



96 

would contract with them to bring them into the net. That is why 
I think they are going to wind up upsetting their own. Thank you, 
Mr. Chairman. 

Chairman Stark. I was curious about that myself. Am I reading 
that your endorsement is that you are afraid if we don't have the 
President's plan we won't have anything or are you saying of the 
plans you are aware of including Mr. McDermott's, you think it is 
the best? There is a difference there. 

Mr. Gage. There is a third statement to be made which is look- 
ing at the universe of plans that perhaps are going to serve as the 
realistic and politically acceptable basis for final passage, and I un- 
derstand that Mr. McDermott's plan probably still has the largest 
number of house cosponsors of any plan. 

Chairman Stark. You can write him off. 

Mr. Gagk. I am not writing him off. 

Chairman Stark. You wrote me off too. 

Mr. Gage. We just think — put it this way. The President's plan 
is as far to the right as we are willing and prepared to go, and yet 
we can see the potential for compromise on the right not just the 
right hand side of this committee but of the many other committees 
that are going to be looking at this legislation. That was really 
what under 

Chairman Stark. It is pretty hard to get much further to the 
right and still have a plan. 

Mr. Gage. I think that is probably a decision we made. To be 
honest with you, we are very concerned about what we hear from 
business groups and others who are rejecting what we consider to 
be genuine health reform and may leave us worse off than 
before 

Chairman Stark. But none of those business groups give you 
guys 10 cents anyway. Even Kaiser doesn't give 10 cents to High- 
land Hospital, and wouldn't. They are not a bad plan, but they 
haven't done anything for the poor or disproportionate share popu- 
lation in our area. They have been cherry picking for 50 years 
which is why they could do quite well. They are nice guys, but they 
are not exactly tne County Welfare Department. I guess that is a 
concern. 

I want to go back to Sara's issue on some of these cost sharing 
and/or ventures for people into new plans. We have had some expe- 
rience in California with contracting out medical, Medicaid, only to 
find that people wake up and they can't go to their community 
health clinic any more and they really are devastated. You and I 
might say there is another hospital down the street; we will go 
there. 

But I have a hunch that much of the census of these clinics are 
there because of language barriers or initially cultural barriers that 
led them to be very timid about getting in there in the first place, 
and after they reach a level of comfort, to have that removed seems 
to me to take them out of the system. 

Now, this may not be a large part of America, but a large part 
of America, 70 percent, already have good plans. They are like us. 
They have Blue Cross and all these generous plans. They are good 
plans today, but they aren't going to Cook County Hospital or to 
Highland either. 



97 

If you have Blue Cross, you sure won't go near those places. First 
of all, they are full of poor people who don't have any insurance. 
Why wait in the line? You can go down the street to Alamades, 
which is half empty, and they will give you champagne while you 
wait and Blue Cross will pay for it. Those folks are OK They are 
going to be in trouble if their employer quits footing the bill, and 
I think the President rightly perceives that. 

Sara, let's talk a little more about this concept that is subtle of 
the payments, the copayments, or having to participate in a plan 
that requires going someplace to sign up and how that will, in ef- 
fect — and I am not talking about some a sophisticated gatekeeper 
here. I am just talking about a well meaning bunch of white, 
middle-aged suburbanites on both sides of the aisle who decide we 
are going to go help poor people, who we have not had much con- 
tact with for a great number of years. 

What are we doing to them if we pass the President's bill? 

Ms. ROSENHAUM. If you look at basic economics of any family, a 
family can probably afford to spend anywhere from 5 to 10 percent 
of its disposal income on health care, that amount and no more. 
And you would have to factor in premiums, deductibles, coinsur- 
ance, and uncovered costs that would be part of the 

Chairman Stakk. Drugs? 

Ms. RosENBAUM. Anything, and including a lot of services that 
may be health related. For example, if you nave a child with asth- 
ma and have to get an air-conditioner, if you have to adapt your 
home in some way, if you have a child in special education who 
needs a related service of some kind. All of those are health ex- 
penditures, people really don't have very much disposal income for 
health care. 

Based on some preliminary review of the various plans now 
under consideration, that there are two proposals on the table that 
certainly keep within some realistic framework the amount of 
money that an average family would have to pay in premium costs, 
and that is Congressman McDermott's bill and the President's bill. 
If you look at low and moderate income working families, under the 
President's bill, because of a lot of the health insurance costs are 
underwritten by employers, there is a financing source and the pre- 
mium payments are reasonable. Of course, the cost sharing is high- 
er than under the McDermott bill, which has none. By definition, 
the President's bill has higher cost sharing. But for a health insur- 
ance plan for an average family, it is certainly within reason. 

The other bills that do not keep the spending levels reasonable 
at all for an average family. A lot of attention has been focused on 
business and government exposure. Last week when the Governors 
were in town, when big business was in town, we heard a lot about 
the burdens that they would have to bear. But during that whole 
week, of course, we lost any focus on the burdens that families 
would have to bear. 

And if you assume that financing health care is a three-way 
proposition in the United States, among business, government, and 
individuals, which it seems to be under many different plans, then 
this whole third player was completely absent for 8 days. And that 
third player does very poorly when there is no assured financing 
source, whether it is Government payments directly, as under the 



98 

McDemnott bill, or whether it is an employer premium, as under 
the President's bill, or a combination of the two. 

Somebody has to pay for it, and if nobody comes up to the bar 
and pays for it, then we are left, as John Silva mentioned, with 
plans that purport to assure access to services and access to the 
coverage, but are completely unrealistic for a family that can 
maybe afford to pay, if it is a minimum wage working family, 
maybe $20 or $30 a month at best, toward the cost of a premium 
and even that is ridiculous, and certainly almost nothing in out-of- 
pocket copayments and deductibles. 

So I guess from my time with families, I have been mystified by 
a lot of the discussion about universal access. I don't really care if 
you call it voluntary or mandatory. You can call it whatever you 
want. If a family can't afford it, it can't afford it. 

Now, I think that too much time is being spent on the ultimate 
test without filling in everything that comes before. This is all an 
issue about who is going to bear the burden for paying for this and 
how those burdens will be allocated. 

If I were designing a plan for very low-income people, I would 
charge them no premiums, nothing at the point at which they actu- 
ally had to enroll in a plan and that would keep them from enroll- 
ing in a plan. No matter what you do to punish low-income people 
for not enrolling, they won't enroll. And I would use cost sharing 
very selectively. 

There is some literature that suggests if you give people a health 
care home that they like, that you certainly can tell them, yes, you 
can go to an emergency room but you better be sure that that is 
what you need and that you haven gone to your health care home 
first. 

Mr. Thomas. Excuse me. On that point, do you think that even 
a very modest deductible or copay is a useful educational device if 
it doesn't raise any money or not? What is your attitude on that? 

Ms. RosKNHAUM. It is an interesting question. In the area of pe- 
diatrics, which I know better than internal medicine, adult medi- 
cine, cost sharing has either a complete impact that you don't want 
or it has no impact. And by that, I mean at the point at which you 
want a child to receive a preventive service or a primary service, 
the effect of a copayment is horrendous. 

At the point at which a child is very sick, the copayment does 
nothing but reduce the amount of payment that goes to the pro- 
vider because nobody at that point stands between the provider 
and the patient. 

There have been some relatively creative uses of cost sharing to 
encourage such cost saving measures as substitution of generic 
drugs, if appropriate, and one appropriate, one therapeutically 
equivalent, or attempts to steer people into less costly care settings. 
For example, if you have an emergency room and on the same hos- 
pital campus an outpatient clinic and you say if you go to the emer- 
gency room, we will charge you $10, but if you go to the clinic, we 
will only charge you $1 or $2, that is realistic. 

Anything beyond that, I think, is either punitive to the patient 
or it is just a way of reducing outlays to the providers. If you want 
to reduce outlays to the providers, there are probably more equi- 
table means of achieving that goal than cost sharing. 



99 

So, you know, you can't load cost sharing on people who have no 
money to pay for health care. 

Chairman Stark. Or much else. 

Ms. RosENBAUM. Or much else. And so you have got to be realis- 
tic about what you expect people to pay. If you expect them to pay, 
you have to get it out of them in a way that they will be able to 
budget and plan for, so that they don't have to come up with it at 
the point of the service. 

Now, that is one of the great strengths of programs like commu- 
nity health centers. That is one of the reasons to find health de- 
partments, community health centers. If we decide that we can't af- 
ford to reduce cost snaring within the insuring mechanism, then 
the great value of publicly financed health programs is that in com- 
munities where there are lots of poor people, you can target grant- 
based programs so that for the uncovered services, they can get 
those services on a sliding fee scale. 

I am a great believer in the fact that health insurance is only one 
way to pay for care. I think we spend too much time in the United 
States on health insurance as the exclusive means to pay for care; 
one area of compromise is to combine the two in high poverty com- 
munities. 

Chairman Stark. Thank you. Thank you very much. If there are 
no other inquiries, I will thank the panel for their participation and 
ask them to stay close, because as this exercise gets going in the 
next month or so, we are going to need a lot of help. 

Thank you very much. 

Chairman Stark. Our final panel will be led off by our former 
colleague on this subcommittee, Hon. Jim Moody, who is here in 
his new capacity as a visiting professor at the Wisconsin Medical 
College. I presume you are a professor at the Wisconsin Medical 
College and you are visiting us. Perhaps it is the other way around. 

Mr. John Vice, who is president of Children's Hospital in Wiscon- 
sin, representing the National Association of Children's Hospitals 
and Related Institutions. Dr. Barbara Staggers, who is the director 
of adolescent medicine at Children's Hospital in Oakland, Calif., 
representing the California Children's Hospital Association, accom- 
panied by Susan Maddox, who is president and CEO of the associa- 
tion; Martin Goldsmith, president and CEO of Albert Einstein Med- 
ical Center, in Philadelphia, representing the National Association 
of Urban Critical Access Hospitals; and Hon. Edward McNamara, 
the county executive of Wayne County, Mich., I presume represent- 
ing Wayne County, Mich. 

Welcome to this subcommittee. Jim, why don't you lead off with 
your statement? 

STATEMENT OF HON. JIM MOODY, VISITING PROFESSOR, 
HEALTH POLICY INSTITUTE, MEDICAL COLLEGE OF WIS- 
CONSIN, MILWAUKEE, WIS. 

Mr. Moody. Thank you, Mr. Chairman, and former colleagues. It 
is delightful to be back here among you and to be in this hallowed 
room where I spent so many long hours on the other side of the 
red light bulb. 

I wanted to make several points about the inner city and its 
health needs based on my 10 years representing a district that in- 



100 

eluded an inner city and my study since leaving the Congress on 
the issues that they face. 

At first glance and taken as a whole, Wisconsin appears as a 
state to be in good shape, almost a prototype of state for the Clin- 
ton health care plan to succeed in, well-known for good govern- 
ment, hard working and compassionate people imbued with stand- 
ard middle class values. We are at the top or near the top among 
States in education, very low in poverty. Only 8.2 percent of popu- 
lation have no health insurance, which is virtually half of the Na- 
tion's number. On unemployment, we continue to be one of the low- 
est states in the Nation. On the surface, all looks well. 

Chairman Stark. Just don't drink the water, 

Mr. Moody. Pardon me? 

Chairman Stark. Don't drink the water. 

Mr. Moody. Don't drink the water, right. In terms of health indi- 
ces, we are in good shape too. But beneath this rosy surface, there 
are two worlds in Wisconsin — and I suspect in a number of other 
states — one world where these average indices apply, and another 
world where the numbers tell a far, far different story. These two 
worlds for Wisconsin are that 4.5 million people inhabit 99 percent 
of the State's land surface, and on the other hand, the 300,000 who 
inhabit its compact inner city. 

In stark contrast to the rest of the state, the inner city is plagued 
with rising crime, soaring teenage pregnancy, grossly substandard 
public schools, high dropout rates, double digit unemployment, de- 
caying housing stock and deteriorating tax base. During the past 
decade, about 10,000 jobs left Milwaukee City, while employment 
in the surrounding suburbs increased by over 7,000 jobs. In 1980, 
32 percent of Milwaukee's residents jobs were in manufacturing 
which traditionally offers minorities and many others opportunities 
for family supporting jobs with benefits, usually including health 
insurance. But as of 1990, only 22 percent of the jobs were in man- 
ufacturing, a drop of about a third. And by the way, this dramatic 
shift has created legions of involuntarily retired pre-Medicare 
workers who have a huge stake in the retirement coverage issue 
in the Clinton plan. 

The statistics of distress distinguish the world of Milwaukee's 
inner city from the rest of the state. Milwaukee leads the Nation 
in teenage pregnancy. Half of its African -American households are 
headed by women and over 80 percent of the infants born to those 
households are born to unmarried women. Infant mortality is 18.4 
per thousand live births among Milwaukee's African-American 
community compared to only 7.5 among whites. Low birth weight, 
12.9 among black newborns versus 4.7 for whites. 

Child abuse continues to rise in Milwaukee's economically de- 
prived neighborhoods, white and black. The percentage of 
nonvaccinated school children is only 4.2 Statewide, but is 9.5 in 
the inner city. Over half of the ninth graders in Milwaukee will not 
graduate. Almost half of these dropouts have a substance abuse 
problem. About 30,000 homeless live in Milwaukee, a third on the 
streets. Milwaukee has half of the AIDS population of the entire 
State. 

So it is obvious that Milwaukee's inner city has extraordinary 
and compelling health needs. Compared to the suburbs and outer 



101 

regions of the city, the inner-city residents are 320 percent more 
likely to be treated for pregnancy complications, 370 percent more 
likely to face a threatened pregnancy, 200 to 800 percent more like- 
ly to be admitted for substance or alcohol abuse, and 143 percent 
more likely to be admitted for bums. 

But in addition to these obviously lifestyle-related indices, the 
data shows that for illness after illness, inner-city residents are far 
more often hospitalized on an urgent or emergency basis, as the fol- 
lowing examples show. Kidney, urinary tract, 32 percent more like- 
ly to be hospitalized on an emergency basis; immunity systems: 138 
percent higher likelihood; nervous systems: 72 percent; eye condi- 
tions: 39; ear, nose, throat: 41 percent. The examples go on and on. 
Those are, in general, not lifestyle issues or issues directly related 
to poverty. Something much deeper is going on. And these indices 
have gotten worse over the last decade. 

At the same time as these extra health needs for inner-city resi- 
dents have been growing, city hospital capacity has been decreas- 
ing. Four city hospitals nave closed or moved to the suburbs and 
only one remains viable. Milwaukee's county large public hospital 
system and a very excellent children's hospital, are at the suburb 
of Wauwatosa, which is some 4 or 5 miles out of downtown. 

Only three private practice physicians remain in Milwaukee's 
inner city as a result of low Medicaid reimbursement rates, al- 
though there are four very important clinics struggling to serve 
about 25,000 low-income patients per year with personnel, includ- 
ing doctors. 

Implications for the Clinton plan. The chief point I would like to 
make is that a health care reform plan that may work well, even 
very well for a State like Wisconsin as a whole and many States 
like it, may not work well at all for the inner city in places like 
Milwaukee, the other world I speak of. 

The Clinton plan relies heavily on market forces to deliver health 
care on a high quality, reasonable cost basis to health conscious 
and cost conscious consumers who will make educated, informed 
choices between an array of plans and providers. Assuring this ap- 
proach works well across the country — and I hope it does if it is 
passed — this does not at all assure that it will work without exten- 
sive nonmarket interventions in places like Milwaukee. 

The fear that health resources for inner-city providers will be in- 
adequate is heightened by the administration's announcement that 
a reform plan will cut into Medicare and medicate funding, includ- 
ing the disproportionate share funds for hospitals that now have a 
high proportion of Medicaid and Medicare patients, and into direct 
and indirect medical education. 

But the two larger questions, it seems to me, for inner-city resi- 
dents are, one, how will the essential community provider feature 
of the Clinton plan be actually organized? And, two, how will 
health alliances be structured in urban areas? The essential com- 
munity provider aspect of the Clinton plan recognizes that 
nonmarket features must be grafted onto the plan. Hopefully, this 
initiative will build on and learn from the extensive experience of 
the community health centers and clinics which have done much 
in a city like Milwaukee to fill the gap created by closing and re- 
treating hospitals. For these existing health centers and clinics, the 



102 

key issue, of course, will be availability of resources. For example, 
will alliances be required to pass on to such inner-city providers 
the financial benefits of the so-called risk adjustment payments, or 
will they be able to keep them to enhance the financial strength 
of the alliance itself? The inner-city clinic would normally not have 
enough economic bargaining strength to require these transfers, 
absent legislative requirement. 

Second, will the alliances in States like Wisconsin with cities like 
Milwaukee be required to risk pool inner-city residents along with 
large noninner-city populations? Or will the alliance be able to 
avoid such high-risk groups? This has been discussed in earlier 
panels and I won't dwell on it here. Obviously the size of the opt 
out requirement will also impact this. The smaller the size of the 
opt out, the more companies with a healthy work force will opt out, 
leaving behind the inner city with the high health needs and high 
health costs. 

This leads me to my final point regarding outreach and preven- 
tion. For cities like Milwaukee, the Clinton plan must place a spe- 
cial emphasis and inducements on prevention, an emphasis far 
above what might be necessary in the rest of the State. The 1989- 
90 measles outbreak in the city of Milwaukee offers a glimpse of 
why an ordinary managed care system, such as that proposed in 
most health care reform plans now before Congress, might not 
work well in the environment of a typical inner city. Over 70 per- 
cent of the 1,000 Milwaukee children struck by measles in late 
1989 and early 1990— of which 260 had to be hospitalized and 3 
died — were in fact enrolled in HMO-type managed care programs 
funded by Medicaid. It also turns out that two-thirds of the HMO- 
covered children were unvaccinated even though it was clearly in 
the financial interest of the HMO to do so. It had not vaccinated 
those children. 

Postcrisis analysis shows that the HMOs had totally failed to en- 
gage in the type of aggressive outreach effort to families to vac- 
cinate their children. When the city's Public Health Department fi- 
nally stepped in, over 11,000 children were quickly vaccinated 
under a city-run program of public information and outreach, 
which included family involvement and support. 

The measles incident is not an indictment of HMOs or managed 
care in general, but it shows that it can likely — very likely to be 
necessary to, one, bridge the knowledge and communication gaps 
that exist in economically distressed communities, and two, bring 
publicly provided health resources to supplement those induced by 
market forces alone. 

In summary, I would say the Clinton health reform blueprint 
promises to fundamentally alter the coverage, the cost and the fair- 
ness of the American health care system. But beneath the surface 
of glossy averages, there are pockets of disadvantaged population 
in our country, especially in our inner cities, which will need two 
things: One, targeted resources far beyond those created by market 
forces or managed competition, and two, policy adjustments to the 
proposed legislation if these disadvantaged groups are to share in 
the promise of dramatic improvement. 

[The prepared statement follows:] 



103 



TESTIMONY OF JIM MOODY 
MEDICAL COLLEGE OF WISCONSIN 

Wisconsin , the "Model" State 

At first glance, and taken as a whole, 
WiBConsin appears in good shape, almost 
a proto-type state for the Clinton plan 
to succeed in. It is we 13 known to be 
a hard-working, good - government, 
compasBionate state embued with standard 
middle class values. At or near the top 
in education scores, fourth lowest in 
incidence of poverty, etc. Only 8.2% of 
its population has no health insurance -- 
nearly half the national proportion. 
Wisconsin's state wide unemployment is 
one of the lowest in the nation. 

In terms of health indices, Wisconsin as 
a whole also does well: 3rd lowest in 
measles and other vaccine -preventable 
disease, 2nd lowest in drug and alcohol 
abuse related hospitaD admissions, etc. 



But beneath this rosy surface, there are 
two worlds -- the world where these average 
indices apply and another world where the 
numbers tell a far, far different story. 
These two worlds are (1) the 4.5 million 
people who inhabit 99% of the state's land 
surface, and (2) rhe 3 00,000 who inhabit its 
compact inner city. In etark contrast to the 
rest of the state, the inner city is plagued 
with rising crime, soaring teenage pregnancy, 
grossly substandard public schools, high drop out 
rates, double digit unemployment, decaying 
housing stock and a deteriorating tax base. 

Milwaukee contains 90% of the state's minority, 
and about 95% of the state's African-American 
population. Over 3 0% of the city is Black, about 
6% is Hispanic and another 3.5% is Native 
American or other minority. 



104 



During the past decade, about 10,000 jobs 
left Milwaukee city, while employment in 
the surrounding Milwaukee suburbs increased by 
over 7,000. In 1980, 32% of Milwaukee 
residents' jobs were in manufacturing, 
which has traditionally offered minorities 
opportunities for family- supporting jobs 
euid benefits, including health insurance. 
As of 1990 only 22% of the jobs were 
in manufacturing, a drop of about one third. 

statisti cs of Distress 

The statistics of distress distinguish the 
world of Milwaukee's inner city from the 
rest of the state. Milwaukee leads the 
nation in teenage pregnancy. Half of its 
African American households are headed by 
women and over 80% of its infants are bom to 
unmarried mothers. 

Infant mortality is 18.4 per 1,000 live 
births among Milwaixkee'a African Americans, 
compared to only 7 . 5 among whites . Low 
birth weights is 12 . 9% among black newborns 
vs. 4.7% for whites. Child abuse continues 
to rise in Milwaukee' s economically 
deprived neighborhoods. The percentages 
of non-vaccinated school age children is only 
4.2V statewide but is 9.5% in the inner city. 
Over half of the 9th graders in Milwaukee will 
not graduate. Almost half of these dropouts 
have a substance abuse problem. About 3 0,000 
homeless live in Milwaukee, a third of which 
live in the streets. Milwaukee has over half 
of the state's AID'S patients. 

Health Needs in nhe Inner Citv 

With the economic and demographics figures cited 
above, it is obvious that Milwaukee's inner city 
has extraordinary and compelling health needs. 
Compar-ed to auburb^n and oiit^T- regions of the 
city, inner city residents are: 



105 



320% more likely to be treated 

for pregnancy comp.H. cat ions, 

3 70% more likely to face a 
threatened pregnancy, 

200-800% more likely to be admitted 
for alcohol or substcmce 
abuse, and 

143% more likely to be admitted 
for burns . 

But in addition to these obviously "life-style" 
related indices, the data show that for illness 
after illness, inncir city residents are far more 
likely to be hospitalized on an urgent or 
emergency basis . The following examples show 
these increased percentages : 

Kidney/urinary tract 32% 

Blood/ immunity system 138% 

Nervous system 72% 

Eye condition 3 9% 

Ear/nose/throat 41% 

Respiratory system 3 9% 

Circulatory system 63% 

Digestive system 29% 

Hepatobiliary system 51% 

Musculosketal system 21% 
Skin/subcutaneous tissue/breast 97% 

Infectious parasitic disease 53% 

Theee indices have gotten steadily worse over 
the decade. At the same time as these extra 
health needs for inner city residents have been 
growing, city hospital capacity has been de- 
creasing. Four city hospitals have closed or 
moved to the suburbs , and only one downtown 
hospital, Sinai Samaritan remains vxahle. 
Milwaukee County's large public hospital whose 
emergency room B«rvec as family medicine 
provider for thousands of inner city residents, 
is located in the suburb of Wauwatosa about 
five miles from downtown. Only three private- 
practice physicians remain in Milwaukee's 
inner city, although there are four public 
clinics struggling to serve about 25,000 low 
income patients per year with a variety of 



106 

personnel, including somft physiciems. 

Implicat ionfl for the Clinton Plan 

The chief point. T would like to make is that 
a health reform plan that may work well -- even 
very well -- for Wisconsin as a whole, and many 
states like it, may not work well at all for an 
inner city like Milwaukee's. The Clinton plan 
relies heavily on market forces to deliver health 
care on a high quality, reasonable cost basis to 
health-conscious and coet-conecious consumers who 
will make informed choicna between an array of 
plans and providers. Assuming this works well 
across the country -- and I hope it does --it 
does not assure that without extensive, non- 
market intervention there will be adequate and 
appropriate provision of health services to 
the inner city, and a meaningful range of 
choices placed before its residents. 

The fear that health resources for inner 
city providers will be inadequate .is h^^ ' yhtened 
by the Administration' fl announcement tLw 
tifie reform plan will cut into Medicare and 
Medicaid funding, including the "disproportionate 
share" funds for hospitals that now have a high 
proportion of Medicaid/Medicare patients into 
direct and indirect medical education funding 
for teaching hospitals, most of which have a 
high nroportion of inner city patients. 

But the two larger questions for inner city 
residents are : 

(1) How will the "Essential Community 
Provider" feature of the Clinton 
plan be organized? 

(2) How will the Health Alliances be 
structured in urban areas? 

The Essential Community Provider aspect of 

the Clinton plan recognizes that non-market 
features must be grafted onto the plan. 

Hopefully, this initiative will build on 
and learn from the extensive experience of 
the community health center and clinics whici^ 



107 



have done much in citieG like MiHwaiikee to 
fill the gap created by closing and retreating 
hospitals. For these exisiting health centers 
and cliniccs, the key issue, of course, centers 
around availabi.l Ity of resources. For example, 
will Alliances be required to pass on to such 
inner city providers the financial benefits 
of the "risk adjustment" payments, or will 
they be able to keep them to enhance the 
financial strength of the Alliance itself? 

The inner city clinics would normally not 
have enough economic bargaining strength to 
require these transfers . 

Will Alliances in states like Wisconsin with 
cities like Milwaukee be required to risk pool 
inner city residents along with large non-inner 
city popu? ' *• ions , or will Alliances be able to 
avoid such i^igh-risk groups? The fractions here 
are important. If one Wisconsin Alliance is 
required to cover all 300,000 inner city 
inhabitants, obviously its cost structure will 
be very different than if it covers, say, only 
one tenth of them, v/ith nine other alliances 
dividing up the rest . 

The Crucial role of Preve ntion Outreach 

The final point I would make is that for 
cities like Milwaukee, the Clinton plan 
must place special emphasis and inducements 
on prevention - emphasis far above what might 
be necessary in the rest of the state. The 
1989-90 measles outbreak in Milwaukee offers 
a glimpse of why an ordinary managed care 
system, such as proposed in most health reform 
plans now before Congress, may not work well 
in the environment of a typical inner city. 
Over 70% of the 1,000 Milwaukee children 
struck by measles in late 1989 --of which 
260 had ro be hoepi nalized and t.hree died -- 
were in fact enrolled in an HMO type managed 
care program funded by Medicaid. Two thirds 
of the HMO covered children turned out to be 
unvaccinnated . even though it was clearly 
in the HMO's financial interest to do so. 
Post-crisis analysis showed that the HMO's 
had totally failed to engage in the type of 



108 



aggressive outreach effort to families to 
vaccinate their children. When the city's 
public health department finally stepped in, 
over 11.000 children were quickly vaccinated 
under a city-run program of public information 
and outreach which included family involvement 
amd support . 

The measles incident was not an indictment of 
HMO' s or managed care but it shows that it can 
be necessary to (1) bridge the knowledge and 
communi cation gap £3 that exist in economically 
distressed communities , and (2) bring publ leal ly 
provided health resources to supplement those 
induced by market forces alone . 

The Clinton health reform blueprint promises to 
fundamentally alter the coverage, cost and 
fairness of the American health system. But 
beneath the surface of glossy averages, there 
are pockets of disadvantaged population in our 
country, especially in our inner cities, which 
will need targetted resources beyond those 
created by market forces of managed competition 
and some policy adjustments to the proposed 
legislation, if these disadvanteged groups are 
to share in the promise of dramatic improvement. 



109 

Chairman Stark. Mr. Vice. 

STATEMENT OF JON E. VICE, PRESIDENT, CHILDREN'S 
HOSPITAL OF WISCONSIN, MILWAUKEE, WIS., ON BEHALF OF 
THE NATIONAL ASSOCIATION OF CHILDREN'S HOSPITALS 
AND RELATED INSTITUTIONS, INC. 

Mr. Vice. Mr. Chairman, I am Jon Vice, President of Children's 
Hospital in Wisconsin. Thank you for the opportunity to testify for 
NACHRI, which stands for the National Association of Children's 
Hospitals and Related Institutions. 

Children's hospitals are located in metropolitan areas, meeting 
the primary as well as specialty care needs of children in the inner 
city. They are central providers of care to the poorest children. 
They are regional referral centers for children with special care 
needs, centers of pediatric medical education and centers of child 
health research. 

Consider our hospital. We are an essential provider for the poor- 
est children. Although there are 24 hospitals in the Milwaukee 
area, we care for 86 percent of all hospitalized children. We devote 
nearly half of our care to children covered by Medicaid, despite the 
fact that we incur annual payment shortfalls in the millions of dol- 
lars. Children's Hospital is a regional referral center. We have the 
State's only level one pediatric trauma care unit. Our pediatric in- 
tensive care unit is filled to capacity. We serve children with highly 
specialized care needs from both the inner-city and remote rural 
areas. 

Consider this: Less than 8 percent of all of our patients account 
for more than half of our revenues because they require such ex- 
traordinary care. Our hospital is also a center of pediatric medical 
education and research. More than 70 percent of the pediatricians 
practicing in the State and more than 75 percent of the pediatric 
nurses receive their training at Children's Hospital. Because of 
that fact, medical education accounts for 9 percent of our costs. 

Health care reform has been a major issue for several years, but 
recently public leaders have begun to ask whether there is a health 
care crisis. We think the bottom line is the fact that more than 1 
in 3 children now are uninsured or rely on Medicaid. Because these 
children's numbers are growing, their need and their parents' need 
for universal coverage are growing, too. Many in the Congress and 
the President want to build reform on the commercial managed 
care market. Whether it is managed competition or incremental re- 
form, many proposals will result in more children being enrolled in 
managed care. 

Children's Hospital has quite a bit of experience with managed 
care. The majority of our patients today are in managed care. We 
established and ran a capitated managed care plan with 30,000 
Medicaid enrollees. We believe the principle of managed care, cre- 
ating incentives that reward access to timely, appropriate and cost- 
effective care has great potential for children. But we also know 
from experience that managed care's potential is not easily realized 
when cost reduction is the primary goal and the system is not de- 
signed, implemented and monitored for children. 

When managed care becomes only managed pricing, there are no 
incentives to pay for the cost of treating the poorest patients or the 



110 

sickest patients or training the next generation of providers. In 
that kind of market, the children's hospital with a mission of clini- 
cal care, education and research, will be forced to make difficult 
choices, give up its underfinanced care or fail to compete, give up 
its care for the most difficult cases or fail to compete, give up its 
responsibility to train the next generation of pediatric providers or 
fail to compete. 

Associations like to talk in slogans, and NACHRI is no different. 
In health care reform, we need to manage the competition so kids 
win too. Based on our experience seizing children in Milwaukee's 
inner city as well as our State's most remote rural areas, that slo- 
gan translates into several specific proposals. 

First, NACHRI recommends that reform recognize the role of es- 
sential community providers that serve children, based on service 
to the underserved population, not on geographic location. Reform 
should designate not only publicly funded primary care clinics, but 
also public hospitals and children's hospitals devoted to the medi- 
cally underserved. Plans should contract with essential providers 
and negotiate payment adequate to the cost of care. 

Second, NACHRI recommends reform should change the way we 
finance medical education. Since managed care plans don't have in- 
centives to pay for the cost of medical education, all payers should 
contribute to the cost. 

Third, NACHRI recommends that reform should recognize the 
role of designated centers of excellence to meet children's needs. 
They need to be part of every health plan and enrolled children 
need to be assured they will get access to sub specialists trained 
to care for children, not adults. 

Finally, NACHRI recommends that reform should explicitly ad- 
dress children with special care needs. They represent less than 5 
percent of all children. They will get lost in the statistical margins 
of error if benefits, provider networks, financing and public ac- 
countability don't fit them. Even after a decade of experience, our 
State Medicaid program still does not enroll certain children with 
special needs, such as a child with AIDS or the child who is men- 
tally dependent in managed care because HMOs know how expen- 
sive they are. 

Mr. Chairman, that concludes my remarks. I would be glad to 
answer any questions you might have. 

Chairman Stark. Thank you, Mr. Vice. 

[The prepared statement follows:] 



Ill 



Writ:t:en Remarks 

Mr. Chairman, I am Jon E. Vice, President of Children's 
Hospital of Wisconsin of Milwaukee, WI . 

; am also a former chairman of the Board of Trustees of NACHRI 
— the National Association of Children's Hospitals and Related 
Institutions. On behalf of NACHRI, which I represent today, I want 
to thank you very much for the opportunity to testify before your 
subcommittee regarding health care reform and children of the inner 
city and rural areas . 

NACHRI represents more than 130 institutions in the United 
States and Canada, including free-standing acute care children's 
hospitals such as my own, pediatric departments of major medical 
centers, and specialty children's hospitals devoted to specific 
services such as rehabilitative care for children. 

Children's Hospitals in the United States 

Children's hospitals are driven by missions that commit them 
to serving all of the children of their communities, including the 
sickest, poorest, and those in need of the most specialized care, 
through the delivery of primary and subspecialty care in both 
inpatient units and outpatient clinics. Children's hospitals also 
are driven by missions that commit them to serving the children of 
tomorrow through medical education training the next generation of 
pediatric health care professionals and research advancing the base 
of knowledge and the state of the art of children's health care. 
For example: 

• Essential Provider to Low Income Children Virtually all 
children's hospitals are non-profit and located in major 
metropolitan areas, meeting the primary as well as the 
specialty care needs of the children of the inner city, 
especially the children of the lowest income inner city 
neighborhoods. On average, children's hospitals devote nearly 
50 percent of their care to children who depend on Medicaid or 
are uninsured. 

• Specialized Regional Referral Centers Children's hospitals 
also are regional referral centers, meeting the specialized 
care needs of children from the most distant rural areas as 
well as the the closest inner city neighborhoods. On average, 
a children's hospital devotes more than 70 percent of their 
care to children with chronic or congenital conditions . 
Freestanding children's hospitals represent only one percent 
of all hospitals, but they care for 25 percent of all 
hospitalized children with chronic or congenital conditions 
and the majority of children with specific specialized care 
needs. Children's hospitals and the pediatric departments of 
university medical centers together represent only seven 
percent of hospitals, but they care for the vast majority of 
children with specialized care needs. 

• Centers of Pediatric Medical Edncation Although they 
represent only one percent of the nation's hospitals, 
free-standing children's hospitals train a quarter of all 
pediatricians. Together with pediatric departments of major 
university medical centers they train the majority of 
pediatricians and virtually all pediatric subspecialists in 
the United States. 

• Centers of Child Health Research More than one in three 
children's hospitals is the formal sponsor of research on the 
cause, prevention, and treatment of illness in children. Many 
more participate in research through universities with which 
they are affiliated. For example, it was a children's 
hospital which first identified AIDS in children, and it was a 
children's hospital that first cultured the polio and measles 
viruses . 



112 



Children's Hospital of Wisconsin 

Children's Hospital of Wisconsin is a 222 bed private, independent, 
not-for-profit pediatric medical center. It is typical of the 
nation's children's hospitals. For example: 

• Essential Provider to Low Income Children There are 24 
hospitals in the metropolitan Milwaukee area, but one 
hospital. Children's Hospital of Wisconsin, hospitalizes 86 
percent of all children, including children from every zip 
code except one in the city. We devote about half of the care 
we provide to children who depend on Medicaid to pay for their 
health care, either directly or through their enrollment in 
managed care plans . We serve children not only through 
inpatient services but also through extensive outpatient 
clinics, including primary and urgent care clinics in inner 
city neighborhoods. We provide care in more than 65,000 
emergency room and urgent care visits and more than 100,000 
outpatient clinic visits each year. 

• Specialized Regional Referral Center Children's Hospital of 
Wisconsin is the only level one regional pediatric trauma 
center in the State of Wisconsin. Our pediatric intensive 
care unit regularly operates at more than 90 percent capacity. 
In addition, our hospital serves children with specialized 
care needs from throughout the region, including children with 
cancer, malfunctioning hearts, cerebral palsy, AIDS, and many 
other conditions . These are children who require very 
specialized care not only when they are very sick but also 
when they just need basic primary and preventive care. 

• Center of Pediatric Medical Education Through its affiliation 
with the Medical College of Wisconsin, Children's Hospital of 
Wisconsin is a major center of pediatric medical education. 
Approximately 70 percent of all pediatricians practicing in 
the State of Wisconsin trained at our hospital. And all 
family practice residents affiliated with the Medical College 
of Wisconsin receive the pediatric portion of their residency 
training at our hospital. Through our affiliation with nine 
nursing schools, more than 75 percent of all nurses trained in 
pediatrics in Wisconsin received their training at Children's 
Hospital of Wisconsin. 

• Center of Child Health Research Children's Hospital of 
Wisconsin conducts pediatric research through our affiliation 
with the Medical College of Wisconsin, whose chairman of the 
Department of Pediatrics is our Physician-in-Chief . We have 
specialized in research related to blood disorders, unrelated 
bone marrow transplants, and pain management. Children's 
Hospital of Wisconsin also is a growing center of pediatric 
nursing research. 

In addition to all of the above. Children's Hospital of 
Wisconsin is plays important roles as a partner in public health 
promotion with the City of Milwaukee and as an advocate of 
children. We have joined with Milwaukee's Public Health Department 
in a multi-year campaign to improve immunizations rates 
dramatically. We are engaged in a prenatal care education program 
targeted at high risk women. We administer a multi-year grant 
program to assist clinics not run by the hospital to serve 
uninsured and underinsured children in the inner city. We speak 
out and address issues affecting children's health, education, 
safety, and security in our community. For example, in response to 
dramatic increases in the numbers of children injured and killed by 
firearms, Children's Hospital of Wisconsin has become a leading 
champion of firearms control, including a ban on all handguns. 

In speaking about health care reform, NACHRI and its member 
hospitals have sought to make two basic points: 



113 



• First, children's hospitals believe children especially need 
health care reform that guarantees universal coverage, because 
children often are the first to be hurt by the continued 
erosion in private health care coverage and rapid changes in 
the health care marketplace. 

• The second point children's hospitals make on health care 
reform is this: We believe that all reform must be tailored 
to fit children's needs, and reform specifically based on 
competition must be managed so kids win, too. 

I will elaborate on these two points later in my statement, 
but for the purpose of the panel discussion, I would like to focus 
my oral remarks on NACHRI ' s specific recommendations that relate to 
children of inner city and rural communities. These children 
depend not only on the community and other public funded health 
centers serving the medically underserved, but also on institutions 
such as children's hospitals with missions of serving low income 
children, serving children with special care needs, training future 
health care providers, and advancing health care research. 

Based on this, NACHRI offers four sets of core 
recommendations . 

1 ) First, health care reform should recognize the role of the 
" essential commnnity provider . " These are the publicly 
financed providers upon whom people living in medically 
underserved inner city and roral areas depend for care, 
because the comntercial marketplace does not meet their needs. 

NACHRI recommends that health care reform legislation 
designate not only publicly financed primary care clinics but 
also public hospitals and children's hospitals serving a 
disproportionate share of low income patients as "essential 
community providers . " Health plans should be required to 
contract with essential community providers, to cover the care 
given to people living in medically underserved areas, and to 
negotiate payment rates that meet at least minimum standards. 

2) Second, health care reform should recognize the need to 
separate the financing of graduate medical education from 
patient care reimhui-sement. 

NACHRI recommends that all payers should be required to 

finance the direct and indirect costs of graduate medical 
education. Within federal guidelines, the total number, 
division among subspecialty care, and allocation of 
residencies should be determined by health care professionals 
independent of the political process . This is especially 
important if national policy on GME is to recognize how 
different pediatric medical education is, with 85 percent of 
all pediatricians already practicing primary care, and the 
need for our health care system to train both more general 
practice and subspecialty pediatricians . Finally, funding for 
graduate medical education should be allocated to the teaching 
institutions that incur the direct costs of GME and the 
indirect costs of being academic health centers . 

3) Third, health care reform should recognize the role of 
"centers of excellence* and specialized centers of care 
established to meet the needs of children. 

NACHRI recommends that health care reform ensure children's 
access to designated pediatric centers of excellence through 
their inclusion in health plans and the ability of enrolled 
children to receive care from them. 

4) Fourth, health care reform should explicitly and coherently 
address the needs of children with specialized care needs. 



114 



NACHRI reconunends that reform establish a process for defining 
children with special care needs, define standard benefits 
tailored to fit their needs, require plans to offer parents 
the ability to receive care from appropriate pediatric 
subspecialists for the care of these children, and establish 
Pleasures of cost, quality, outcomes, and consumer satisfaction 
that are specific to their needs. Precisely because children 
with special care needs represent less than five percent of 
all children, special focus must be given to their needs in 
health care reform. Otherwise, they will be lost to 
statistical margins of error in any evaluation of reform. 

These four recommendations are by no means the limits of the 
issues that should be addressed to meet children's health care 
reform needs. But from the perspective of children's hospitals, it 
is imperative that reform recognize clearly the roles of essential 
providers, teaching institutions, and centers of excellence for 
children, and establish a clear focus on children with special 
needs . 

Mr. Chairman, in the balance of my written testimony I would 
like to expand upon NACHRI ' s views on health care reform and its 
implications for children. 

Children Need Universal Coverage 

Children in particular need reform that guarantees universal 
coverage, because they are often the first to be hurt in the 
continued erosion in commercial health care coverage. Studies show 
that in the struggle to cope with rising health insurance costs, 
both employers and individuals often draw the line first at paying 
for dependent coverage. Loss of dependent coverage, as well as 
pre-existing condition exclusions and life-time maximums on 
coverage, hit children hard, especially those requiring the care of 
a children's hospital. 

As a consequence, more than one in three children in the 
United States now depends either on Medicaid, which is a critical 
but often underfinanced poverty program, or is uninsured. That 
proportion continues to grow. In 1992, 13.5 million children under 
age 18 depended upon Medicaid and another 9.5 million children were 
uninsured, representing 35 percent of the nation's 65.1 million 
children, according to estimates based on U.S. Census Bureau survey 
data. 

Medicaid has become the nation's safety net for children's 
access to health care — particularly children with special care 
needs. The emergence of Medicaid as children's health care safety 
net has been a tremendously important development. But we know 
that Medicaid often has been challenged to fulfill its promise to 
children because of inadequate resources for eligibility, outreach, 
and payment. We also know that many states are now stretched to 
the financial limit by their Medicaid programs. In today's fiscal 
and political climate, Medicaid and charity are an imperfect and 
ultimately financially unsustainable safety net for children. 

Children also are at the frontlines of change in the health 
care delivery market place, and the pace of that change is about to 
step up substantially because of Medicaid. In health care 
marketplaces around the country, we are seeing a significant surge 
in the conversion of traditional indemnity coverage for 
fee-f or-service health care into managed care coverage, including 
enrollment in risk-bearing, capitated health plans. 

Many state Medicaid progreuns are contemplating what the State 
of Tennessee has received federal pemnission to do — enrollment of 
all Medicaid recipients into capitated managed care plans in 
a matter of only months, regardless of the experience of either the 
state or its commercial markets with capitated managed care. Since 



115 



half of all Medicaid recipients are children, and 70 percent are 
mothers or children, the conversion of Medicaid fee-for-service to 
capitated managed care will be especially significant for children 
and their ability to receive the care they need. 

If implemented carefully, managed care holds great potential 
for children by creating incentives for them to receive health 
services when they can benefit most from them. But make no mistake 
about it, the statewide Medicaid managed care experiments upon 
which states are embarking at times of extraordinary fiscal crises 
are experiments that will be undertaken primarily with children as 
their subjects. The issue is not managed care; it is the adequacy 
of time and resources to undertake these statewide experiments and 
the adequacy of the focus on their impact on children. 

That is why we believe health care reform, based on mandated 
employer- financed health coverage, is so important for children, 
both to give all children coverage of uniform health care benefits 
and to influence the way in which health care is financed so that 
coverage translates into access to appropriate care. 

Health Care Reform Should Be Tailored to Fit Children's Needs 

Many Members of Congress have visited a children's hospital — 
as a parent, family member, or friend of a patient or as a guest of 
the hospital. You know that our institutions look and feel very 
different from other hospitals. You know that the care givers who 
work with our institutions often have different training and 
different experience than care givers in other hospitals have. 

All of these differences that define the character of a 
children's hospital might be summed up by the slogan: "When it 
comes to children, one size won't fit all. We must tailor health 
care to fit their needs." This slogan may have a simplistic ring 
to it, but it has profound implications for the way we deliver care 
to children. Just last summer, the Institute of Medicine 
highlighted this point by issuing a major report on emergency care 
for children. It concluded our health care delivery system fails 
to meet the needs of children who suffer from injury or trauma, 
because all too often our emergency and trauma care services are 
designed to fit the needs of adults or "average" people, not the 
needs of children. 

For example, because children have smaller veins that often 
are not receptive to emergency injection of fluids, such injections 
may need to be made directly into their bone marrow. And because 
children's blood supply is smaller, injured children frequently 
experience a much faster drop in blood pressure. As a consequence 
of emergency services not being designed to fit these kinds of 
different needs, children's survival and recovery from injury or 
trauma suffer. 

The children's hospitals believe it is equally true that when 
it comes to health care reform , one size won't fit all. We must 
tailor the requirements of reform to fit children's needs. I would 
like to give you examples of what I mean by focusing on four areas 
of bipartisan agreement on health care reform between members of 
both political parties. These -.reas of agreement involve 
commitments to uniform benefits, managed care, cost containment, 
and Medicaid's reorganization. 

Uniform Benefits Members of both political parties have 
advocated that the federal government establish, by act of Congress 
or independent commission, a uniform benefit package for all 
Americans, with special emphasis on primary and preventive care. 
That is a very important, bipartisan commitment, which is sure to 
benefit children, for whom preventive and primary care often are 
the least expensive and promise the best financial returns in terms 
of well-being and future productivity. However, as experts in the 
care of children with special care needs, children a hospitals know 



116 



uhat it is equally important to focus attention on how the benefits 
will cover the needs of the child with a chronic or congenital 
condition, such as cerebral palsy. 

For example, if they limit coverage for rehabilitation to 
treatment of a condition resulting from an 'illness" or "injury" or 
related to an "acute care episode, " uniform benefits could be 
subject to the risk of interpretation that they do not cover 
congenital conditions, which are not the result of illness, injury, 
or acute care episode. Similarly, a limit on coverage to treatment 
that results in "improvement" of function could deny coverage of 
therapies that would enable children with special needs to 
"maintain" a level of function, allowing them to attend school or 
live at home. Or it could deny coverage of therapies prior to 
surgery that could be essential to a successful outcome. In 
addition, an "improvement" standard may not recognize the need for 
"habilitation" to help children attain function for the first time. 

That is why children's hospitals say that the uniform benefits 
in health reform must be tailored to fit all children, including 
children with special care needs who require access to ongoing 
specialized care, which is not the same as long term care. 

Managed Care Members of both political parties believe that 
in order to restructure the way in which we deliver care, we need 
to promote more enrollment of individuals and families into 
risk-bearing, capitated health plans competing with one another in 
the marketplace. Whether they call it managed competition, managed 
collaboration, or something else, they believe we should give 
health plans an incentive to manage the care needs of individuals 
cost-effectively by having them compete for a single, fixed per 
capita payment -- adjusted for the risk associated with the 
individual's health needs — for every individual enrolled. 

Managed care has great promise to meet the needs of children 
if financial incentives facilitate their access to primary and 
preventive care. Indeed, through the provision of 
multi-disciplinary care involving the family, many children's 
hospitals have pioneered in managed care in the best sense of the 
word by trying to make sure the child receives the most appropriate 
care, including inpatient care, only when it is truly necessary. 

But if managed care is purely cost-driven, it can have the 
opposite effect for children, denying them access to appropriate 
care instead of assuring it. The fact is that many of the 
protections essential to managed care — risk adjustment, public 
cost reporting, measures of quality and outcomes — have not been 
developed for children, in particular children with special care 
needs. At the same time, because so few children require 
hospitalization, they are much more dependent than adults on having 
access to regionalized centers of care. They see a large enough 
volume of pediatric patients with specialized conditions that they 
are able to achieve and maintain both expertise and efficiency in 
pediatric care. 

Such institutions -- children's hospitals — also carry the 
added costs of their commitments to serving a disproportionate 
share of low income patients, training the future generation of 
peditaric health care professionals, conducting pediatric medical 
research, and caring for the sickest of patients. If driven only 
by costs and lacking adequate tools for risk adjustment or measures 
of quality for children, managed care plans often will refer only 
the sickest and most expensive patients to children's hospitals and 
other pediatric specialized facilities, making them financially 
unsustainable. Or plans will refer children requiring specialized 
care to hospitals with with adult but not pediatric subspecialists. 
To gain competitive advantage, managed care plans will seek to 
prevent children's hospitals from contracting with multiple plans, 
which often is essential for the hospital to ser\'e a large enough 
population of children to sustain its specialized services. These 



117 



are not concerns borne out of speculation; they are the real life 
experiences of children's hospitals seeking to fulfill their 
missions in competitive markets driven by managed care. 

That is why children's hospitals believe it is so important 
;hat health care reform built upon capitated health plans must 
manage the competitive market to ensure children's access to the 
rare they need. It is important to require that health plans: 

• provide access to pediatric specialists and subspecialists , 
including at least one hospital that specializes in the care 
of children, so that when a child needs a cardiologist or 
pulmonolgist or other subspecialist, it is one who is trained 
in pediatric cardiology or pediatric pulmonology or other 
pediatric subspecialties; 

• give parents choice among providers for both primary and 
specialty care, including choice of specialists to deliver 
primary care to children with special care needs, should they 
demonstrate the capacity to provide such care; 

• allow pediatric providers to contract with multiple plans; 

• contract with and refer patients to hospitals that have 
demonstrated themselves to be "essential" to the children of 
low income and medically underserved communities; 

• contract with and refer patients to recognized centers of 
excellence and specialization for pediatric trauma care, level 
III neonatal intensive care, pediatric intensive care, high 
risk perinatal care, and other, highly specialized services; 

• separate the financing of graduate medical education from 
patient care reimbursement, by requiring all payors of care to 
contribute to a pool of funds , which are used to meet both the 
direct and indirect costs of graduate medical education and 
are paid to the institutions that incur those costs; and 

• account to the public for the costs and quality of care, 
consumer satisfaction, and health status of the population 
served in terms that are specific to children and their needs. 

The net effect of such public policy requirements should be to 
foster the development of integrated pediatric care networks , 
either within health plans or independent of them. An integrated 
pediatric care network would assemble a team of family practice 
physicians, pediatricians, and other primary care givers as well as 
pediatric subspecialists. They would have an identifiable mission 
of service devoted to children, expertise to meet children's needs, 
resources measured in terms of children's needs, and accountability 
for the cost, quality, outcomes, and consumer satisfaction specific 
to children's experience. Indeed, it may well be worth considering 
that health reform policy should require health plans to 
demonstrate to consumers that they have such integrated pediatric 
care networks . 

Children's hospitals believe these kinds of policies will be 
needed to manage competition so kids win, too. 

Cost Cont.a 1 nment There has been much disagreement both 
between Democrats and Republicans , and within their respective 
parties, about whether and how to cap the growth in health care 
spending nationwide, the growth in commercial insurance premiums, 
or the amount of reimbursement given to individual providers . 

However, as institutions that devote a major portion of care 
to children assisted by Medicaid, children's hospitals are struck 
by the fact that members of both political parties strongly agree 
on capping the growth in Medicaid, at least at a per capita level. 
That is the equivalent of a de facto spending cap on health care 
spending for children. Children's hospitals do not support the 



118 



principle of government imposed caps on health care spending, but 
they already live with the reality of caps on Medicaid. We believe 
it is imperative to talk about the need for cost containment 
strategies to be adjusted to fit children's needs. 

Let me explain why this is so important. Children have 
different health care resource requirements than adults have, and 
the patients of children's hospitals have different resource 
requirements than children receiving care in general hospitals. 
For every hour in the hospital, a child on average requires 31 
percent more routine nursing care than an adult; a child younger 
than two requires 45 percent more care than an adult. The 
patients of children's hospitals require even more intensive care, 
because they are younger, sicker, and more likely to have a chronic 
or congenital condition than the pediatric patients of general 
hospitals. Since nursing care is a major portion of the expense of 
hospitalization, these differences can have significant 
implications for the resource requirements of children. 

Too often, strategies to cap health care spending fail to take 
into account these differences. We see proposals to cap either 
national health care spending or Medicaid based on an extrapolation 
of historical rates of health care expenditures, in which the costs 
of children's and adults' care have been averaged together. In 
addition, children have been disadvantaged in historical spending 
— because they have been disproportionately poor, dependent upon 
Medicaid which has inadequately reimbursed care, and dependent upon 
primary and preventive care, which indemnity plans traditionally 
did not cover. Caps on health care spending will not make sense 
for children if they are based on historical spending, instead of 
an assessment of children's real health care needs. 

Most advocates of capitated payment for health care have 
recognized the importance of risk adjustment — adjustment of 
capitation for the risk of higher or lower costs of care associated 
with an individual. Without such risk adjustment, a health plan or 
health care provider who cares for a population that is 
disproportionately sicker would be at financial risk. This is 
exactly what a children's hospital is — an institution which 
specializes in caring for higher risk children with the most 
complex care needs. However, experts have testified before this 
subcommittee that risk adjustments specific to the needs of 
children — particularly children with special care needs — do not 
exist, and will take years to develop. We must begin now to invest 
in risk adjusters for children, even before embarking on health 
care reform. And if reform is implemented before pediatric risk 
adjusters are developed, interim measures, such as mandatory 
reinsurance for a wide range of children's chronic and congenital 
conditions, or exclusion of these cases from capitation, will be 
necessary. 

Children's hospitals have learned the necessity of adjusting 
cost containment strategies to children's needs through years of 
living with state Medicaid programs and private payors, which have 
adopted the Medicare diagnosis related groups (DRG) payment 
methodology, even though it was not designed for a pediatric 
population. According to financial experts whom the federal 
government often has used for payment policy analysis, no 
children's hospital could survive financially if it were subject to 
the Medicare payment system unadjusted for the needs of children in 
general and the needs of children's hospitals' patients in 
particular. In fact, these experts have stressed that in health 
reform based on competition, it is essential that the adjusters be 
based primarily on children's needs. 

That is why children's hospitals believe that in health care 
reform, cost containment strategies must be tailored to fit 
children ' s needs . 

Medicaid According to opinion surveys, most people think 
Medicaid is either a welfare program or Medicare. But to 



119 



children's hospitals, Medicaid represents the nation's largest and 
most important child health program. No single program, public or 
private, affects more children nationwide or more children in 
children's hospitals. Therefore, it is especially important that 
great care be given to how health care reform transforms Medicaid. 

Let me give you an example. Many members of both political 
parties have called for the elimination of Medicaid 
disproportionate share payment adjustments — extra payments given 
to hospitals that serve a disproportionate share of low income 
patients . They contend that such disproportionate share payments 
are only needed to pay for the costs of care of charity patients. 
With the achievement of universal coverage, they believe, such 
payments no longer will be necessary. 

However, to children's hospitals, disproportionate share 
payments represent something entirely different. In many states, 
the Medicaid program makes disproportionate share payment 
adjustments because the base Medicaid payment rate is substantially 
inadequate to cover the costs of care. These payment adjustments 
have been critical to the ability of children's hospitals' ability 
to play such an important role in providing access to care for 
children of low income families. 

If Medicaid financing continues at historically inadequate 
levels, exacerbated by the elimination of disproportionate share 
payments , health plans and communities with larger numbers of low 
income people will be particularly hard hit, as will the 
institutions devoted to serving them. This will be doubly true for 
institutions such as children's hospitals, which serve large 
numbers of both low income and high risk patients . 

Similarly, most people are not aware that contained within 
Medicaid is an extremely important national health policy for 
children. It is a commitment, through EPSDT, that every Medicaid 
eligible child is entitled to medically necessary care, regardless 
of whether the services required to provide that care are otherwise 
provided by states to adults under Medicaid. Proposals that 
eliminate Medicaid need to preserve this commitment to medically 
necessary care to the most vulnerable children, so that they are 
not worse off as a result of national reform. 

These are examples of why children's hospitals say Medicaid's 
replacement needs to be tailored to fit children's needs. 

Conclusion 

NACHRI has applauded the President's leadership in making 
health care reform a national priority and we have supported many 
principles reflected in his legislation: universal coverage, 
comprehensive benefits, employer-based coverage, assurance of 
choice among health plans, recognition of the roles of essential 
providers of care to low income patients and academic health 
centers treating rare conditions , separating the financing of 
graduate medical education from patient care reimbursement, 
sustaining Medicaid eligible children's access to medically 
necessary care, and more. 

A number of other important proposals also attempt to address 
these basic principles, and in the months ahead, this subcommittee 
will help lead the Congress to forge a winning consensus to achieve 
what all Americans, and especially parents, hope for: reliable and 
affordable health care coverage that meets our needs and our 
children's needs. NACHRI believes it is important for that 
consensus to be shaped by an understanding that reform must be 
tailored to fit children's needs, and if it is based on 
competition, the competition must be managed so kids win, too. 

Mr. Chairman, thank you for the opportunity to present 
NACHRI 's views on health care reform. 



120 

Chairman Stark. Dr. Staggers. 

STATEMENT OF BARBARA STAGGERS, M.D., DIRECTOR OF 
ADOLESCENT MEDICINE, CHILDREN'S HOSPITAL OAKLAND, 
ON BEHALF OF THE CALIFORNIA CHILDREN'S HOSPITAL 
ASSOCIATION; ACCOMPANIED BY SUSAN MADDOX, 
PRESIDENT AND CHIEF EXECUTIVE OFFICER, CALIFORNIA 
CHILDREN'S HOSPITAL ASSOCIATION 

Dr. Staggers. Thank you, Mr. Chairman. It is my pleasure to 
be here. What I would like us to think about as we move toward 
considering fiscal manners regarding health care is that we don't 
overlook the extremely vulnerable population of children in this 
country. In addressing matters of health care reform, managed 
care, all the things we have been talking about today, issues of who 
consents to care for children, issues of adolescent confidentiality, 
access to care, et cetera, are often ignored or never addressed. And 
my concern is if this happens, those of us who work in children's 
hospitals and care for children like I do, literally end up picking 
up more bodies. 

Therefore, there are some things that we thought about at the 
California Children's Hospital Association and my colleagues in ad- 
olescent medicine that we think are important when you consider 
or when you propose any health care reform legislation. 

One in the area of adolescent health care is that any health care 
reform must understand that adolescents really still are children. 
They are not adults. They have highly specialized needs, and the 
health care reform must address adolescent needs in terms of their 
ability to make consent, their ability to access care, and confiden- 
tiality which they have a right to in terms of their own medical 
services, and we are extremely concerned about that. 

As I represent the California Children's Hospital Association, 
there are three things we are concerned about. One is that any leg- 
islation ensure that specific language in the reform bills designate 
children's hospitals as essential providers, or another similar des- 
ignation given to safety net or traditional providers, require all 
managed care plans to contract with children's hospitals and keep 
their pediatric networks in place, to keep pediatric primary care 
and specialty care appropriately available to children. 

Children's hospitals are special. They are designed, implemented, 
and planned to meet the needs of children, youth and their fami- 
lies. They do this in a way that helps promote transition from in- 
fancy to young adulthood. It is important to understand and under- 
score the special services children's hospitals give when you are 
talking about health care reform. 

Also, preservation of disproportionate share payments is impor- 
tant to supplement Medicaid programs if they continue to exist, or 
funding some sort of equivalent program to ensure coverage for 
vulnerable populations. Children's hospitals average 60 percent 
Medicaid in some cases and cannot make up that shortfall through 
cost shifting or other windfalls, since I have never seen a windfall 
yet in our hospital. 

Even for those of us who are adolescent service providers, it is 
even more critical because in the State of California, even if your 
parents own General Motors and you want to come in for confiden- 



121 

tial services, you are eligible for Medi-Cal, which means that as an 
adolescent, for you to get health care access, you are going to be 
on a State supplemented program. So 90 percent of my patients are 
Medi-Cal, which does not make me real attractive to the hospital 
for obvious reasons on specific things. 

Third, that title V programs that we know that work well in 
California for children with special needs, like diabetes, like sickle- 
cell disease, like cystic fibrosis, asthma, that they stay in place, be- 
cause they are good demonstration projects for targeting children 
with special needs. These children require timely interventions in 
very high specialty referrals and service networks. 

In California, California's service programs, CCS as it is known 
by us, is the oldest, most successful managed care program in the 
State. We consider it a model. We are looking at integration of the 
CCS program into the California's Medi-Cal managed care system, 
and pilot programs, like those that are happening in California, 
need to be looked at when you are making decisions about health 
care reform. 

As a provider, I know the four things I talked about in terms of 
issues for adolescents, in terms of them accessing and appro- 
priately utilizing any health care plan, issues of preservation of 
title V programs, ways to reimburse the hospital in terms of dis- 
proportionate share payments, and specific language making chil- 
dren's hospitals essential providers will be critical for maintaining 
the level of health care services we have for children, and that con- 
cludes my comments. 

Chairman Stark. Thank you, Dr. Staggers. 

[The prepared statement follows:] 



122 



TESTIMONY OF BARBARA STAGGERS, M.D. 
CALIFORNIA CHILDREN'S HOSPITAL ASSOCL\TION 

Mr. Qiairman and members of the Committee, my name is Dr. Barbara Staggers and I 
am the Director of Adolescent Medicine at Children's Hospital Oakland in California On 
behalf of Children's Hospital Oakland and the families it serves, I thank you for the 
opportunity to testify before the Committee today. 

Children's Hospital Oakland treats children up to early adulthood and integrates patient 
care, teaching and research. TTie medical center serves children from 46 of Cahfomia's 58 
counties, drawing patients from surrounding states and Pacific Rim countries and offers 
satellite subspecialty services in the cities of Fairfield, Pleasanton, Santa Rosa and Walnut 
Creek With 205 beds and 32 subspecialties. Children's Hospital Oakland also has an 
impressive team of pediatricians and subspecialists — 130 based in the hospital and 450 in 
the coirmunity 

Children's Hospital Oakland is very much attuned to the inner city problems existing 
in our neighboring communities where teen-age rape and pregnancy, child abuse and juvenile 
crimes are unfortunately common incidences that are on the rise. We not only provide 
specialty care services but also primary care to meet the needs of children in the inner city. 
We see approximately 25,000 patients a year in our primary care clinics — these children are 
considered "mentally and socially fragile". Mental health services are extremely diflScult to 
find for these children. 

In the Adolescent Medicine department which 1 direct at Children's Oakland, we see 
almost 12,000 youths between 1 1 and 19 years old who belong to a new at-risk population of 
children in the United States - teenagers. To give these difBcult-to-reach young people access 
to healthcare, we have developed a comprehensive community collaborative healthcare system 
which operates a Teen Clinic at the hospital, school-based clinics at Oakland high schools, 
peer counseling/adolescent advocacy programs, and a spectrum of treatment from preventive 
care to intensive hospitalization. 

The leading causes of death among young people are motor vehicle injuries, suicide 
and homicide. Make no mistake about this: it's the same leading preventable causes of death 
whether the teenager comes from an inner city or a wealthy suburb. For me, all high-risk 
behavior such as teen pregnancy, escalating violence and substance abuse are all syrrptoms of 
a larger disease. A lot of youths are looking for love and support in all the wrong places. 
We need to look at eveiy teen and say, "What's going on in your life? How can we help you 
grow?" 

It takes extra time, special skills and expertise to work with adolescents, to find out 
that a patient who presents with asthma or a broken arm is also dealing with having been 
raped, experienced violence at home or attempted suicide last week. 

This is not ti^aditional medicine, or the medicine 1 was tramed for. But it's the kind of 
healthcare that children's hospitals are uniquely qualified to provide because they specialize in 
the needs of children, youth and their families. 

We also have a Center for the Vulnerable Child that provides an innovative approach 
to the relationship between poverty and children's health. The Center sees approximately 
1,200 patients per year and provides comprehensive services to children reported to have been 
sexually abused, those in foster care, and to chemically dependent women and their drug- 
exposed infants. Our neighboring communities have seen a rise in the number of Asian 
refiigees. Children's Hospital Oakland opened a Southeast Asian Qinic in March, 1980, and 
now serve approximately 2,600 patients per year. Many of these children have parasites, are 
anemic, have positive TB skin tests, poor growth associated with poor nutrition and some 
have malaria, pneumonia or war scars and bums. 



123 



Children's Hospital Oakland is by no means the only facility serving children in need. 
The seven Qiildren's Hospitals in California all serve their communities and children in very 
much the same way that we do. As a member of the National Association of Children's 
Hospitals and Related Institutions (NACHRI), Children's Hospital Oakland supports 
NACHRI's recommendations on health care reform and children. I am here today to speak to 
California-specific issues that concern the seven Children's Hospitals in California, including 
Children's Hospital Oakland. These concerns have been expressed through the work and 
representation of the California Children's Hospital Association (CCHA). 



The California Children's Ifcspital Association 

CCHA, under the leadership of President and Chief Executive Officer Susan Maddox, 
represents seven not-for-profit children's hospitals located in Oakland, Palo Alto, Fresno, Los 
Angeles, Long Beach, Orange, and San Diego. Together these institutions, which represent 
less than 2% of the state's hospitals, provide approximately 30% of all hospital care needed 
by Medicaid-eligible children in Cahfomia and an even higher proportion of the care for 
children with special health care needs. CCHA's mission is to strive to advance the health 
and well-being of children by taking a leadership role in advocacy, public policy, educatioa 
and research in support of a Cahfomia children's health care delivery system CCHA 
advocates a balanced approach to health care reform which improves child health status by 
increasing access to prevention and primary care services for ^ children while preserving 
access to high quality specialized care when still needed. In the maintenance of this balance, 
CCHA supports the protection of the well-being of children in health care reform, ensuring 
Qiildren's Hospitals as "essential providers," maintaining existing sources of fionding during 
the transition to managed care, and encouraging the development of integrated pediatric 
networks 

The Children's Hospitals flilly understand the fiscal pressures facing the state and 
federal government. Given that financial resources are scarce, the Children's Hospitals 
strongly advocate that, at a minimum, all children in the US. should come first and be taken 
care of Children are our country's most precious resource and are our fiiture. 

The seven Children's Hospitals have concerns regarding health care reform and the 
potential effect on California's children. These concerns stem fi-om key Cahfomia-specific 
statistics and the unique role of Children's Hospitals fi-om other adult facihties. 



1. Children's Hospitals have the highest concentration of Medi-Cal (California's 
Medicaid program) patients of any hospital type. Over 60% of their 
patients are covered under Medi-Cal, versus ^ut 15% at contracting 
hospitals statewide. 

2. A disproportionately high number of children served by Children's Hospitals 
have special health problems and needs — approximately 70% of the 
Medi-Cal days in Children's Hospitals are for Medi-Cal children with 
medical conditions so serious that they qualify for the California Children 
Services (CCS) Program the state's version of its Children With Special 
Health Care Needs (CSHCN) Program under Medicaid's Tide V program 
These are truly society's sickest children. Over 67% of the patients seen at 
Children's Hospital Oakland are Medi-Cal children quahfied for CCS. 

3. Children's Hospitals treat sicker patients than most genera! hospitals Almost 
33% of Children's Hospitals' beds are designated for intensive care, compared 
to an average of 1 1% in general hospitals. More than 80% of Children's 
Hospitals' beds are occupied on an average day, while the statewide average 
is just over 50%. 



124 



4 California has the highest number of illegal immigrants residing in the state. 

There are over 2 million illegal immigrants, over 50% of the nation's total, 
living in California It is estimated that 392,000 illegal immigrant children 
are between the ages 5 to 17 These children did not make a conscious 
decision to break the law to cross the state border. 

5. In 1992, there were at least %,000 Medi-Cal children (40% of all Medi-Cal 
births) bom to illegal immigrants. 

6. The exorbitant number of illegal immigrants has placed a high burden on the 
state. It is estimated that federally mandated services, including health, cost 
California taxpayers $2.5 billion per year 

7. Children's Hospitals have long recognized their responsibility to the children 
of California and have steadfastly upheld their long-standing mission to care 
for all children, regardless of ability to pay and citizenship status . 

8. In California, approximately 70% of the patients in an average Children's 
Hospital are either charity patients or are covered by government programs 
(such as Medi-Cal or CCS Program) where the basic payments fall far short 
of the cost of care. 

9. During the 1991-92 fiscal year, Children's Hospitals lost $22 million dollars 
on outpatient services provided to Medi-Cal children. This loss figure is 

the difference between actual costs (not charges) and reimbursement received 
Preliminary data fi-om six Children's Hospitals ^ow that our member hospitals 
have experienced, on average, a 5% increase in Medi-Cal outpatient visits with 
an estimated shortfall of $33 million dollars in 1992. This represents a 50% 
increase in the shortfall from the 1990-91 fiscal year. 

10. The state's on-going recession and high unemployment rates (higher than the 
national average), coupled with the fires and recent earthquake in Los Angeles, 
places increasing burden to California residents and state budget. 

In the context of health care reform, the Children's Hospitals urge you to keep in mind the 
following points: 

Elnsure that Children's Hospitak receive status as 'tessential provideis" or another sinilar 
designation given to safety net provideis — Children's Hospitals are safety net providers by 
virtue of theu" high concentration of Medi-Cal patients (on average over 60% of each of their 
total patient load) and represent a wealth of experience in providing the broadest range of 
services to all children, from primary to long-term care. As a result. Children's Hospitals 
should receive "essential provider" status to ensure that all managed care plans and the 
children within their plans have access to pediatric experts and services. 

Preserve disproportionale share payments (DSH) to supplement the Medicaid program 
shortfall or fund an equivalent program to ensure coverage for vuhieraMe populations — 

Vulnerable populations — children bom to illegal immigrants, children on Medicaid, and 
those with special health care needs — are at greater risk of receiving inadequate care. This 
risk will dramatically increase if certain protections are not in place as health care reform 
unfolds. Children's Hospitals recognize their responsibility to all children and have 
steadfastly upheld their mission to refiise no child that enters their hospital doors. During the 
health care reform debate and early stages of implementing changes to the nation's health care 
delivery system, Children's Hospitals advocate for the preservation of DSH payments to 
supplement the Medicaid program to ensure that every child is able to receive needed health 
care services and to ease the shortfall experienced by providers, such as Children's Hospitals, 
dedicated to serving vulnerable populations Charitable donations and cost shifting to the few 
insured patients is inadequate Molicaid disproportionate share hospital payments will 



125 



continue to be critical to Children's Hospitals as long as the basic payments fail to cover the 
costs of the care delivered. Universal coverage alone will not protect the disproportionate 
share safety net hospitals when only sixty cents on the dollar of cost is reimbursed. It is also 
imperative that prepaid health plan (PHP) Medicaid days be counted in the calculations for 
DSH allowances. 

Preserve Tide V Progtnms, particulariv funding for programs for children >vilh special healtti 
care needs — Approximately 70% of the Children's Hospitals Medicaid recipients are 
children with special health care needs served by the California Children Services (CCS) 
Program, the state's version of its Children With Special Health Care Needs (CSHCN) 
Program under Medicaid's Title V program. The CCS Program is designed to assist families 
meet the financial burden of caring for children under 2 1 with severe physically handicapping 
conditions. The program helps to ensure that the state's children receive only the most 
appropriate and highest quality pediatric care possible. CCS is one of a limited number of 
programs that sets medical standards for its CCS-approved providers (physicians, nurses, 
physical/occupational therapists, and hospital facilities such as special care centers) to treat 
children with CCS-eligible conditions. These standards ensure that chronically ill children are 
cared for by professionals who have significant experience in pediatric specialty care. The 
CCS Program serves as a model for other health systems trying to control rising health care 
costs and ensures that care is provided using the most cost-effective means by emphasizing 
early intervention and access to primary care. CCS provides a unique combination of case 
coordination and case management rarely found in state programs. CCS case management 
goes beyond the mpatient utilization review common witfi other programs by assuring that 
appropriate outpatient and follow-up care aie given by qualified providers 

Encourage innovative state progiams and/or demonstration projects taigeting children widi 
special healfli care needs — California has taken a unique approach towards health reform 
within the state. The Cahfomia State Department of Health Services Strategic Plan, " 
Protecting Vuhierable Populations," details the Department's commitment to expand managed 
care for Medi-Cal beneficiaries as the most cost-effective way to improve access to quality 
preventive and primary care services. The Strategic Plan recognizes that traditional managed 
care E^'^oaches may inadequately serve the needs of children with chronic or acute 
conditions, such as those with CCS-eligible conditions. These children require timely 
intervention and specialty referral. The Strategic Plan excludes CCS services fi^om the 
expansion of Medi-Cal managed care. The Children's Hospitals, in collaboration with other 
providers in the community, are currentiy working with the state in developing and 
mplementing pilot projects to test a variety of managed care models tailored to the needs of 
this most vuhierable population. The Children's Hospitals strongly advocate that a similar 
approach be taken at the national level, perhaps in the form of federal demonstration projects, 
to protect these children as the country moves towards health care reform 

Conclusion 

The seven Children's Hospitals in California commend the President in making health care 
reform a priority on the national agenda We strongly urge the President and members of 
Congress to keep m mind the needs of aU children in the U.S. They are the next generation 
and the fiiture of our country rests on thera tvEnimallv, the early stages of health care reform 
should ensure that our children are protected fifst before anyone else . Mr. Chairman and 
members of the Committee, 1 thank you for the opportunity to present the views of 
California's Children's Hospitals. We stand ready, as always, to assist in any way that we 
can. 



126 

Chairman Stark. Mr, Goldsmith. 

STATEMENT OF MARTIN GOLDSMITH, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, ALBERT EINSTEIN MEDICAL CENTER, 
PHILADELPHIA, PA., ON BEHALF OF THE NATIONAL 
ASSOCIATION OF URBAN CRITICAL ACCESS HOSPITALS 

Mr. Goldsmith. Thank you, Mr. Chairman. My name is Martin 
Goldsmith. I am president of Albert Einstein Medical Center in 
Philadelphia and I am here today in my capacity as president of 
the National Association of Urban Critical Access Hospitals. 

Our group consists of urban hospitals that depend on govern- 
ment to an unusual degree to pay for the care we provide. By 
urban critical access, we mean that we are private nonprofit, lo- 
cated in cities, large and busy. We are the largest providers of care 
to the elderly, the poor and the underinsured, fulfilling much the 
same role as public hospitals in the many cities in whicn there are 
no public hospitals, and in other communities working alongside 
those public hospitals. 

Because much of this care is paid for by Medicare and Medicaid, 
the outcome of the health care debate will have a major impact on 
us. More important, that outcome will have a profound and lasting 
impact on our communities. For the unusually large number of el- 
derly and poor people who rely on us for care, we are essential and 
irreplaceable. 

We are in favor of health care reform. There is much in H.R. 
3600 that we support. We enthusiastically support the extension of 
medical benefits to all Americans, portability of benefits, the end- 
ing of limits on those with preexisting medical conditions, and the 
integration of Medicaid population with the rest of the public. 

Despite these improvements, H.R. 3600 also includes several pro- 
visions that would jeopardize our ability to continue serving our 
large urban poor and elderly communities. We think it is essential 
that you preserve the worthy provisions of H.R. 3600, correct those 
that cause problems, and adopt reform legislation this year. There 
really is a health care crisis and we can't afford to wait another 
year to do something about it. 

Now I would like to outline a few of those problems I mentioned. 
First, the Medicare cuts proposed in H.R. 3600 would be devastat- 
ing and it would hit our member hospitals much harder than the 
average hospital. According to a study based on the bill and on 
HCFAs testimony before this committee in December, the 10 hos- 
pitals that meet the criteria for urban critical access in my own 
city, Philadelphia, would each lose on average $116 million during 
the first 5 years of this plan, jeopardizing our long-term ability to 
continue providing our poor and elderly patients with the quality 
and scope of service they deserve and that everyone else would be 
receiving. 

Hospitals in the city of Philadelphia as a whole would lose $1.5 
billion in Medicare revenue during that same period and thousands 
of jobs would be unquestionably lost. We can provide you with a 
summary of losses in other cities and explain how we arrived at 
those figures. 

Second, under this bill, we would continue to be responsible for 
a good deal of uncompensated care, especially for the many undocu- 



127 

merited aliens in our inner cities. In addition, many people will be 
unable to afford their copayments and deductibles, and some may 
refuse to purchase insurance. The financial impact of providing this 
additional uncompensated care would be much greater on us than 
the average hospital. 

Third, while this committee's jurisdiction does not extend to Med- 
icaid, I would like to mention that H.R. 3600 would eliminate Med- 
icaid disproportionate share payments before those payments 
would be replaced by universal coverage. This would be yet another 
devastating blow to us. 

The most important thing, of course, is what this means to our 
inner-city communities. Our hospitals have long been the primary 
care providers — the primary providers of care for the urban, elderly 
and poor, but portions of H.R. 3600 would jeopardize our existence 
and discourage others from fulfilling that void. 

We believe that H.R. 3600 is basically a sound bill and can be 
amended to rectify these problems and insure the future of urban 
critical access hospitals. 

First, these hospitals should be designated as essential commu- 
nity providers. Bv any reasonable measure, we are essential to our 
communities and need to be preserved. Second, eliminate the in- 
equitable impact of the proposed Medicare cuts because of the de- 
structive effect they would have. Third, reimburse these hospitals 
appropriately and directly for the continuing and substantial un- 
compensated care they provide. Fourth, restore our Medicaid dis- 
proportionate share payments until they are fully replaced by uni- 
versal insurance or another mechanism, and insure providers they 
will be paid adequately to care for Medicaid recipients. Risk adjust- 
ing payments to plans does not provide any assurance of adequate 
payment to hospitals. And fifth, through statute, create a rapid re- 
sponse system to monitor the effects of the changes stimulated by 
reform and create a system which will correct any unanticipated, 
undesirable effects on our community quickly. 

This would be the desired outcome. We continue serving our com- 
munities, the poor and elderly receive the care they deserve, and 
you implement an effective, efficient groundbreaking program with- 
out sacrificing access to care for the elderly and poor who need it 
the most. I appreciate this opportunity to address the committee 
this afternoon and will be delighted to answer questions. 

Chairman Stark. Thank you. 

[The prepared statement follows:] 



128 



Testimony of 

Martin Goldsmith 

President 

National Association of Urban Critical Access Hospitals 

before the 

Subcommittee on Health 

of the 

House Ways and Means Committee 

February 7, 1994 



Greeting 

Good afternoon. Mr. Chairman and members of the committee, my name is Martin 
Goldsmith, and I am president and chief executive officer of the Albert Einstein Medical Center 
ill Philadelphia. I am here today to address the Health Subcommittee of the House Ways and 
Means Committee on behalf of the National Association of Urban Critical Access Hospitals, to 
express our support for the vast majority of H.R. 3600, including its goals and its basic 
approach, but also to describe to you how and why we fear that certain aspects of this bill will 
jeopardize access to health care for the poor and elderly in America's inner cities. I also will 
outline how this problem can be addressed and corrected. 



About the Association 

I would like to begin by telling you briefly about our organization. The National 
Association of Urban Critical Access Hospitals was formed last year to represent urban 
hospitals that depend to an unusual degree on government reimbursement for tlie care we 
provide. This is the case because so many of the patients we serve are elderly and poor and 
receive Medicare and Medicaid benefits. 

We call ourselves "urban critical access hospitals" because we believe we are essential 
to access to care for the residents of many urban communities. We define "urban critical 
access" as consisting of the following qualities: our hospitals all are private, non-profit, and 
located in cities as defined by the census bureau; we are reimbursed for at least fifty-five 
percent of our patient days by the combination of Medicare and Medicaid, and at least ten 
percent by Medicaid alone; and our total hospital days must be at or above the sixtieth percentile 
of hospitals in comparably sized Metropolitan Statistical Areas (MSAs). In our view, the 
combination of these characteristics maices us essential to access to care in our communities and 
virtually irreplaceable to those communities. In many of those communities, in fact, urban 
critical access hospitals fill the same role as that of public hospitals: we care for the poor, the 
elderly, and the uninsured - that is, for people who frequently have nowhere el.se to go for 
medical care. 

Not many hospitals meet our criteria for "urban critical access hospitals." According to 
our research, fewer than five percent of this country's hospitals, only 276 of 6600, qualify for 
this designation. 



Our View of Health Care Reform 

As providers on the front line of the health care delivery system, we are enthusiastic 
about the prospect of health care reform. Many of the reform proposals we have seen have a 
great deal to offer, and most would be a vast improvement over the system we have today. 

We are here today to speak about H.R. 36(X), which was introduced by Majority 
Leader Gephardt, and again, we find a great deal to applaud in this bill. We iue especially 



129 



delighted by the steps it would take to bring health care coverage to unprecedented numbers of 
Americans. We also support the portability of benefits it would provide. 

Despite these significant improvements, we are troubled by several aspects of this plan. 
Before we address those aspects, though, we want to reiterate our view that on the whole, this 
proposal has great promise. We do not want that message to be lost amid everything else we 
say today. 



Summary of Three Major Problems in H.R. 3600 

With that said, I would like to turn now to the three major problems we have identified. 

First, we are gready troubled by the size of the proposed Medicare cuts and the uneven, 
inequitable manner in which they would affect American hospitals. 

Second, we believe that the plan may not address the uncompensated care issue as 
completely as some observers feel and that this may cause continuing problems for some 
providers, especially urban critical access hospitals, and for the largely low-income and elderly 
communities that they serve. 

And finally, we are concerned about several of the potential side-effects of how the plan 
would serve Medicaid recipients. 



Problem #1: 

The Use of Medicare Funds to Finance Health Care Reform 

■ The Unequal, Inequitable Impact of Proposed Medicare Cuts 

Our first concern is the proposal to use reductions in the growth of future Medicare 
spending to finance health care reform. These sizable and unprecedented cuts specifically and 
directly hit urban critical access hospitals, and they would be devastating to us. The proposed 
cuts in graduate medical education, indirect medical education. Medicare disproportionate 
share, capital payments, and the rate of growth of future DRG rates especially affect hospitals 
such as ours, and they clearly would hit us hardest. If adopted, they would fall most heavily 
on urban critical access hospitals, tlie same hospitals that provide most of the care to the elderly 
and the poor in our nation's cities. They would affect all hospitals, but they would hurt ours 
the most. 

These conclusions, moreover, are based not on assumption or conjecture but on hard 
data. We suspected instinctively that these cuts would hurt us, but we knew we needed some 
numbers to substantiate our fears. With this in mind, we made financial projections based on 
H.R. 3600. Using the analysis of the Prospective Payment Assessment Commission, 
testimony before this committee by Bruce Vladeck, administrator of the Healdi Care Financing 
Administration, other publicly available information about the plan, and 1990 Medicare hospital 
cost reports, we developed computer models to simulate the effect of the Medicare spending 
cuts on all hospitals, not just on urban critical access hospitals. 

The result of tliis modeling was startling - and bad news for us, exceeding some of our 
worst fears. We found that together, all hospitals would lose an average of 7.16 percent of 
their Medicare revenue a year for the first five years under H.R. 3600. As we feared, this 
burden would not be evenly or fairly shared. Hospitals that are not urban critical access 
hospitals would lose less than that average, only 6.93 percent, but urban critical access 
hospitals would lose far more than that average -11.5 percent of their Medicare revenue a year 
during the first five years. Our loss would be almost twice that suffered by other hospitals. 

This country's urban areas and the hospitals that serve them would suffer extraordinary 
financial losses. New York City's hospitals, and the city's economy, would lose an 
astounding $4.4 billion, just in Medicare inpatient revenue, during the first five years, and 
along with that money an as-yet uncalculated number of jobs. Other cities would suffer, too. 
Philadelphia would lose $1.5 billion, Los Angeles $715 million, Chicago $1.3 billion, Boston 
$954 million, Houston $575 million, and Seattle $316 million. 

Not surprisingly, these lopsided geographic losses of Medicare revenue translate into a 
simihirly skewed effect on individual hospital revenue. These spending cuts would cost the 
average hospital that is not an urban critical access hospital 1.38 percent of its overall revenue, 
but urban critical access hospitals would lose 2.37 percent. That may not sound like a big 



130 



difference, but it is when you consider that our loss would be seventy-two percent greater, and 
it is when you realize that hospital operating margins typically are only in the lower single 
digits. 

■ The Financial Impact on Individual Hospitals 

Let me give these numbers some immediacy with an example that hits very close to 
home for me: how they would affect my own hospital, Albert Einstein Medical Center. In the 
first year alone under H.R. 3600, we would lose $15.8 million. In the second year, we would 
lose another $21.3 million. During the first five years under the plan, Einstein would lose 
$140.5 million. 

I do not think I have to tell you that this is an extraordinary amount of revenue for a 
hospital to lose. Even so, I would like to take a moment to outline what that loss would mean 
to a hospital such as Einstein and to all of the other urban critical access hospitals that would 
find themselves in similar positions. 

Those losses would come right out of our operating margins, which would decline and 
in some cases disappear. Like many other hospitals, the losses we would suffer will exceed 
any margins we have ever made. Without doing anything wrong, without failing to implement 
cost-saving measures, without losing even a single patient, we immediately would fall a huge 
step behind other hospitals in our service areas. 

Operating margins are important to hospitals. They provide the cash fiow we need to 
pay bills, service debt, and maintain our current facilities - that is, to pay for the things we 
must do to ensure that those whose rely on us for access to the health care delivery system 
enjoy the same high quality of care as everyone else. The money we need to provide these 
services comes from our operating margins, but suddenly, those margins will be gone. 

The losses we would suffer would be both absolute and relative. As I noted a moment 
ago, we would lose much more on a dollar-for-dollar basis than other hospitals. For every 
$100 in Medicare revenue that hospitals that are not urban critical access hospitals receive, they 
would lose an average of $6.93; we would lose $1 1.50. This is a large and significant 
difference. 

But even that does not tell the entire story, because Medicare is a bigger and more 
important part of our payer mix than it is at the average hospital. A hospital three or four miles 
from us may receive twenty or thirty percent of its revenue from Medicare, but urban critical 
access hospitals receive forty or fifty percent. This means that the difference between $ 1 1 .50 
and $6.93 is multiplied many more times for us than for other hospitals. 

■ The Impact on Urban Critical Access Hospitals 

This difference has significant implications for the ability of urban critical access 
hospitals to coinpete for patients. Keep in mind that one of the goals of hcaltli care refonn is to 
eliminate cost-shifting. In the past, we would have sought to make up this difference by 
passing it along to other payers. In fact, govemment, by underpaying us for Medicare and 
Medicaid, has effectively encouraged us to do so. Now, though, government suddenly wants 
us to reverse fields. In a managed competition environment, anyone who tries to pass along 
costs to other payers will lose that competition and will not have other payers. 

Consider, moreover, that one of the primary ways that we hope to control rising health 
Ciue costs is tlirough greater use of managed care. In the future, hospitals will compete to be 
parts of managed care networks, and that competition will really be decided based on just one 
consideration: price. The hospitals that offer the best prices to managed care plans will 
become part of their provider networks; the others will be left out in the cold. 

But urban critical access hospitals are going to suffer significantly larger Medicare 
losses that we will need to make up, so we will have to price our services accordingly. We 
may have to charge a little bit more than hospitals that do not suffer those losses, or that lose 
less. As a result, we may lose in our bids to become part of those networks. That is not 
managing competition: it is limiting competidon. 

There is a certain irony here that is hard to miss. Much of health care reform is about 
using market forces to control escalating health care costs, but the very plan that purports to put 
those market forces to work would put some of the competitors at a major disadvantage before 
the competition even begins. 



131 



So what, you may ask. If managed competition means that a few hospitals fail and 
close, is liiis really a problem? In theory it may not be, but in practice, it is. 

By virtue of how we define ourselves, urban critical access hospitals play an unusually 
large role in the care of the elderly and the poor in their communities. We are their essential 
link to the health care community, in some cases their only link, because historically, just a few 
of us provide most of the care to the elderly and the poor. Whether it is because our services 
are more oriented to their needs or because our location is more accessible or because we have 
consistently made a point of reaching out to them, we have become the primary providers for 
many people. 

If we are not there to provide this care, it is likely that no one else will be, either, that 
no one else will be willing to step forward to fill the void that we would leave behind. The 
proposed reform, in fact, would punish them for doing so. Having a health security card will 
be meaningless if there is no one to provide care when people need it, so we think it does 
matter whether our hospitals survive. We are irreplaceable resources in our communities. 

While the proposed Medicare spending cuts could threaten hospitals that care for the 
poor, providing unprecedented coverage and access to care for the uninsured at the same time 
that we propose significantly underpaying for Medicare services could jeopardize access to care 
for the elderly. If health care providers suddenly are paid much better to care for the poor than 
for the elderly. Medicare recipients would become a much less attractive pool of patients for 
providers. 

For these reasons, H.R. 3600's plan to finance health care reform with cuts in future 
Medicare spending could have the unintended effect of reducing access to care in our 
communities. These cuts in graduate medical education, indirect medical education. Medicare 
disproportionate share, capital payments, and the rate of growth of future DRG rates hit urban 
critical access hospitals esf)ecially and disproportionately hard. They would jeopardize our 
ability to compete in a managed competition environment and they would jeopardize our ability 
to survive. 



■ Impact on the Urban Poor and Elderly 

Now, let us take a moment to look at what really matters: how all of these numbers and 
projections and prognostications would affect the people and the communities we serve and 
how we serve them. 

TTiese changes most likely would have their greatest impact on the elderly and the poor. 
The significant reductions in hospital revenue that I described will jeopardize the financial 
wherewithal of many hospitals that care for especially large numbers of Medicare patients. In 
some cases, those hospitals may have to reduce or eliminate individual patient services that lose 
large amounts of money because of these spending reductions. Special outreach programs, for 
example, or services designed specifically for the elderly, might have to be ended. In some 
communities, lliat may even be a best-case scenario, because we believe that the proposed 
Medicare spending reductions may very well force some hospitals to close entirely, leaving 
large numbers of elderly patients to fend for themselves, to find new sources of care in an 
environment in which new public policies have made Medicare recipients the least desirable 
patients a hospital can attract. 

In cities, moreover, elderly people tend to be low-income as well, and they tend to live 
among other low-income people. This, in turn, means that if hospitals serving large numbers 
of Medicare patients reduce services or close, the large numbers of poor patients that those 
same hospitals serve also would find themselves suffering greatly reduced access to care. 
Thus, for the elderly and the poor, health care reform, as currently proposed in H.R. 3600, 
could be an unmitigated disaster. 

H.R. 3600 provides for the designation of selected hospitals as "essential community 
providers" and for those hospitals to receive special consideration when necessary. We believe 
that urban critical access hospitals truly are essential community providers. We serve 
unusually large numbers of people who are totally dependent on government for their medical 
care; we do so in communities where there are no other providers, not enough other providers, 
or where other providers specifically seek to avoid serving these patients; and our 
disappearance would cause irreparable harm, leaving many of the urban low-income, elderly, 
and poor without adequate access to medical care. By any reasonable measure, urban critical 
access hospitals are essential community providers and deserving of such designation. 

We do not believe for a moment that it is the Administration's intention to jeopardize the 
future of these hospitals, nor do we believe it is this committee's desire. We share your 
commitment to controlling healtli care costs, but not at the expense of reducing access to care. 



132 



If we do, we truly will control costs, because for some people, there will be no care, and from 
tlie narrow perspective of those who keep the books on these tilings, no care will cost us 
nothing, although we would pay a fearsome price of an entirely different kind. 

■ Our Recommendation 

To address this problem, we propose that urban critical access hospitals be 
among those designated as "essential community providers" under H.R. 3600 and 
thai hospitals with such special missions be accorded appropriately special consideration. The 
Medicare reimbursement provisions ofHR. 3600 then would be re-evaluated and readjusted 
with the unique situations of these hospitals in mind. Further, because it may be difficult to 
predict whether the adjustments ultimately made will adequately resolve the problems they were 
implemented to address, additional provisions should be made to monitor their 
effectiveness through a specifically designated mechanism such as an annual 
review or report to Congress; those same provisions should authorize the Administration 
to make any adjustments found necessary based on these reviews. Such steps are 
essential if we are to assure tliat health care reform reaches the inner-city communities where 
such reform is needed most. 



Problem #2: Continued Uncompensated Care 

The second issue I would like to address today is what we fear will be a continued 
problem with uncompensated care. 

Beyond any reasonable doubt, H.R. 3600 would, if enacted, greatly reduce 
uncompensated care. Contrary to what has been suggested, however, uncompensated care 
would not disappear completely, and its continuation would most affect urban critical access 
hospitals. 

■ Four Areas Where Uncompensated Care Will Continue 

Uncompensated care would endure through four primary means. 

First, most health care plans would require their members to make co-payments and 
reach deductibles, yet some people, especially the poor and the unemployed who are not 
eligible for Medicaid or other government subsidies, would not be able to afford these 
payments. Hospitals would be expected to absorb those costs. 

Second, some people would be unable to purchase health insurance or would choose 
not to do so, but they would continue to seek care. When they do, hospitals will not turn them 
away; again, they would provide the care and absorb the cost of doing so. 

Third, some Americans are "lost" today. They are not employed, so they would not be 
covered through their place of business; they are not old, so they would not be covered by 
Medicare; and while tliey are poor, they do not receive Medicaid or other government benefits. 
Most are homeless, and when they come to a hospital, they would be lost no longer. At that 
point, they would join tlie ranks of the insured, but the cost of their first hospital visit, whether 
for a scrape suffered in a fall or a near-fatal illness, may have to be absorbed by the hospital. 
Insurers may not be expected to provide retroactive coverage for new enrollees. 

Fourth, this country has a significant number of undocumented aliens who would not 
be covered by health reform. While H.R. 3600 proposes some funding for the care of 
undocumented aliens, that sum is nowhere near the cost of the services that those individuals 
would consume. As a result, undocumented aliens would continue to receive hospital care, but 
hospitals would not be paid for their services. 

All of the groups that avoid the umbrella of protection raised by health care reform - the 
poor, the lost, and the undocumented - can be found in especially large numbers in America's 
cities. In those cities, the same basic core of hospitals - critical access hospitals - would be the 
providers to which they tum. Consequently, urban critical access hospitals would bear a 
disproportionate share of the cost of caring for them. 

Again, you may question whether this really is a problem, and again, we must express 
our view that it is. One of the ways that H.R. 3600 seeks to contain rising health care costs is 
by fostering price competition among health care providers. By failing to accommodate tlie 
remaining uncompensated care, the plan would add to the operating costs at a relatively small 
number of hospitals, placing those few hospitals - mostly, urban critical access hospitals - at a 
decided financial disadvantage before the competition even begins. In so doing, it threatens the 



133 



financial survival of tlie very hospitals that are and will continue to be the providers of choice 
among the poor and the elderly in most American cities. 

We also must not lose sight of the human factor. Under these circumstances, some 
people who cannot afford insurance or co-payments or deductibles will try to put off seeking 
medical attention for as long as they can. Some who are sick will get sicker, some who have 
contagious diseases will pass them along to others; some who support families will no longer 
be able to do so; some who are pregnant will give birth to unhealthy babies; and some who 
have treatable diseases will die. This should not be the legacy of health care reform. We can 
do better, and we must. 



■ Our Recommendation 

Tlie National Association of Urban Critical Access Hospitals supports H.R. 3600's 
goal of ensuring universal access to health care yet notes that the bill does not guarantee actual 
health care for all. The Association feels that providers must be adequately reimbursed 
for the uncompensated care they provide, regardless of to whom they provide 
it. Anything less leaves just a few hospitals, America's urban critical access hospitals, to 
sitoulder a financial burden that should be the entire country's to bear. 



Problem #3: How the Reform Proposal Would Affect Medicaid 

Finally, I would like to turn to the manner in which H.R. 3600 deals with Medicaid. 
Because Medicaid does not fall under the jurisdiction of this committee, 1 will touch on this 
subject just briefly. 

■ The Premature Phasing Out of Medicaid Disproportionate Share 

Our first concern is the bill's call for phasing out Medicaid disproportionate share 
payments by 1997. While we understand the rationale for ending these payments, we are 
mystified by the timetable for their termination. 

Even the most optimistic estimates do not envision the full implementation of universal 
healtli insurance by 1997. Consequently, Medicaid disproportionate share payments could be 
eliminated well before the changes that are supposed to make their elimination possible are even 
implemented. Tliis may leave a gap of a period of years during which disproportionate share 
hospitals would continue caring for unusually large numbers of poor patients without the 
supplemental support of their Medicaid disproportionate share payments. This could place an 
enormous financial burden on these hospitals - especially on urban critical access hospitals, 
with their large numbers of Medicaid patients. 



■ Our Recommendation 

The National Association of Urban Critical Access Hospitals believes that Medicaid 
disproportionate share payments should not be phased out before the rest of 
the reform plan, including universal health coverage, is phased in. To do 

otherwise could expose disproportionate sliare hospitals, and especially urban critical access 
ho.tpitals, to potentially devastating financial losses. This, in turn, could jeopardize access to 
care in the communities that these hospitals serve. 

■ Providing Private Insurance for Medicaid Recipients 

We also are concerned about how H.R. 3600 may change the way Medicaid recipients 
are served. Under the plan, Medicaid recipients would join the premium-paying public in 
choosing from a selection of insurance plans. Their choice, though, would be limited to plans 
that are at or below the weighted average of cost for plans available through their health 
alliances. 

We believe this fxjiicy may have the unintended effect of creating Medicaid-only health 
plans. Because Medicaid recipients would be required to choose from among the lowest cost 
plans, they may, from the very beginning, constitute unusually large proportions of the 
members of those plans. Eventually, we believe those plans may come to be viewed as plans 
primarily for Medicaid recipients and that people who have a choice may specifically choose 
not to join these "Medicaid plans." 



134 



The result could be that some plans may consist primarily or even entirely of Medicaid 
recipients. We believe this could have a very undesirable effect. Historically, the poor are 
sicker than others and correspondingly more costly to treat. As a result, we may be directing 
the most expensive patients into the lowest-cost plans. Because they have the lowest 
premiums, those plans may have to pay the lowest rates to their contracting providers. Thus, 
hospitals that care for Medicaid recipients could be responsible for the extra costs incurred 
through the higher utihzation that comes with treating a poorer, sicker population, as well as 
for tlie kinds of supplemental services that many Medicaid recipients need but that are not 
reimbursed by Medicaid or other payers - services such as outreiich efforts, home visits, and 
providing money for carfare or day care to enable patients to keep appointments with their 
doctors. 

And who will those providers be? In many cases, they will be us: America's urban 
critical access hospitals. We are the providers of choice for unusually large numbers of 
Medicaid recipients today, and we are likely to remain the providers of choice for them 
tomorrow as well. 



■ Our Recommendation 

In the past, Congress fias made it clear that it does not approve of Medicaid-only 
managed care plans. We have regulations against their use, and obtaining a waiver from those 
regulations is extremely difficult. While HM. 3600 does not explicitly call for the creation of 
Medicaid-only plans, we believe that it ultimately may have that effect. We believe that any 
new method of providing health care coverage to Medicaid recipients should 
ensure that Medicaid-only health plans do not develop. Only through such a policy 
can tlie prospect of such plans and the continued inadequate reimbursement for Medicaid 
services be prevented. In addition, a means should be devised to assure adequate 
reimbursement to hospitals for the full cost of treating Medicaid recipients. 

Summary of Recommendations 

• Classify urban critical access hospitals as "essential community providers," a 
designation created in the bill. 

• Alleviate the devastating impact of the proposed Medicare cuts by reducing 
those cuts. If that is not possible, refocus the proposed cuts in graduate 
medical education, indirect medical education. Medicare disproportionate 
share, capital payments, and the update factor so they do not have as 
devastating and disproportionate an impact on urban critical access 
hospitals. 

Develop a mechanism to reimburse urban critical access hospitals for the 
disproportionately large amount of uncompensated care they would continue 
to provide under H.R. 3600. This mechanism only needs to bring their 
uncompensated care obligations in line with those of other hospitals; it does 
not have to eliminate those obligations entirely. 

• Refrain from phasing out Medicaid disproportionate share payments to these 
hospitals until everyone, including all Medicaid recipients and tlie 
uninsured, has complete access to health insurance. Currently, there would 
be a gap between the end of disproportionate share payments and the 
beginning of universal insurance coverage, leaving urban critical access 
hospitals responsible for millions extra in uncompensated care. 

• Create a means of assuring tliat the requirement that Medicaid recipients 
choose from among health plans at or below the weighted average of cost 
among those offered by their health alliances does not result in the de facto 
creation of "Medicaid-only" health plans. 

• Devise a method of adjusting risk for providers that serve Medicaid 
recipients. Historically, Medicaid recipients are more expensive to treat than 
the general population, so a mechanism is needed to protect insurers that 
pay for their care and providers that deliver that care. 

• Create a statutory mechanism that directs the Administration to conduct periodic 
assessments of the impact of the changes outlined above on urban hospitals and the 
delivery of urban health care and to report those results to Congress. This 
mechanism also should authorize the Administration to make any adjustments 
necessary based on the results of these reviews. The purpose of such review is to 



135 



ensure that tliese changes are having the desired result, that the finances of urban 
critical access hospitals are not jeopardized, that the urban elderly and poor continue 
to have appropriate access to medical c^e, and that those hospitals are neither over- 
compensated nor under-compensated for their special role in serving the urban 
elderly and poor. 



Conclusion 

As I noted a few ininutes ago, our organization views many aspects of H.R. 3600 with 
great enthusiasm. By appearing before this committee today, we hope only to call attention to a 
few of the bill's shortcomings, not to suggest that it be discarded entirely. We also urge you to 
act to pass health care reform this year; this issue is too important to wait another year. 

As it is written today, H.R. 3600 could seriously jeopardize access to care in many 
American cities. It would penalize hospitals that care for large numbers of elderly and poor 
patients by detracting from their ability to compete for the opportunity to care for patients who 
are neither old nor poor, and this, in turn, could jeopardize access to care for the urban elderly 
and poor. It would leave some hospitals, mostly urban critical access hospitals, with an 
enduring uncompensated care problem while declaring this problem to be cured, and this could 
lead to new health problems among those who lack the meaiw to pay their share of their health 
care expenses. And it would threaten to create a two-tiered health care system in which 
Medicaid recipients are alone in the second tier. 

All of these problems are very real, and they concern us greatly, but we think that with 
proper attention, all of them can be rectified. By designating urban critical access hospitals as 
"essential community providers" under existing provisions of H.R. 3600, special efforts can 
be launched to refocus the cost-savings provisions of the proposed Medicare spending 
reductions so that they do not have a devastating impact on the very providers most involved in 
caring for the urban elderly and poor. In so doing, we can ensure that health care reform 
reaches the inner-city communities of America, where it is needed most. 

We look forward to an opportunity to work with this committee, others in Congress, 
and the Administration to address these problems and move forward with reforms that truly 
benefit all Americans. 



136 

Chairman STARK. Mr. McNamara. 

STATEMENT OF HON. EDWARD H. MCNAMARA, COUNTY 
EXECUTIVE, WAYNE COUNTY, MICH. 

Mr. McNamara. Mr. Chairman, members of the subcommittee, 
thank you for allowing me the opportunity to testify before you 
today. In Wayne County, Mich., we have for the past 7 years been 
tackling many of the problems of urban health care delivery that 
have now moved to the front of national debate. I am hopeful that 
some of our experiences may help your discussions. 

With more than 2 million residents, including the city of Detroit, 
Wayne County is Michigan's largest county and America's 8th larg- 
est county. We have every problem of size, poverty and economic 
development that you can imagine, but we have also been success- 
ful in addressing many of these challenges in a productive and 
cost-effective manner. 

We are here today because President Clinton's health care re- 
form legislation calls for a radical overhaul of the Nation's health 
care system. We have already done that. While media attention 
was focused on other programs in New York and Hawaii, we think 
we have had some useful experiences in health care reform in 
Wayne County. We believe it would be helpful for us to tell you 
what we have learned along the way. 

As Congress moves forward with consideration of health care re- 
form, our experience in managed health care can serve as a na- 
tional demonstration of delivering health care to the medically un- 
insured and underserved. If our experience can make your way 
easier, we are at your service to provide information. In other 
words, we have already groped around in the dark on this matter, 
stubbed our toes, banged our heads and now that we found the 
light switch, we hope we can help you avoid some stumbles in the 
path to health care reform. 

Wayne County supports managed care as an effective way of pro- 
viding health care to poor urban residents and controlling govern- 
ment costs. When I took office in 1987, Wavne County faced a defi- 
cit of $135 million, due largely to uncontrolled indigent health care 
costs. Until that point, our poorest residents had no access to pre- 
ventive health care. A woman with high blood pressure couldn't get 
medication to control it. She had no guaranteed access to treatment 
until she had a stroke and was taken to an emergency room. A 
man with diabetes had no doctor to write regular prescriptions for 
insulin. He needed to go into insulin shock and head for the emer- 
gency room. As you well know, emergency room care is as expen- 
sive as it gets. Untreated illnesses were killing our residents and 
the cost of the treatment was killing us. 

Wayne County has no deficit today, thanks in large part to 
CountyCare, the managed care program for indigents we instituted 
in 1988. CountyCare was one of the first programs in the Nation 
to provide a comprehensive range of inpatient, outpatient, and 
home care service to the indigent population. Nearly 50,000 enroll- 
ees are members of our managed health care system which pro- 
vides an HMO type approach to delivering health care services. 

Under CountyCare, we bid our service contracts to private sector 
health care providers who treat enroUees for a flat rate of $80 per 



137 

month per person. This puts the incentive on providers to offer con- 
venient, preventive care. It is far more profitable to pay for blood 
pressure pills than heart surgery. As a result, enrollees are treated 
with respect, dignity, and old fashioned customer service. 

Each CountyCare enrollee membership card gives them access to 
geographically convenient clinics and a 24-hour hotline. Services of- 
fered include office visits, outpatient treatment, hospitalization, 
prescription drugs, vision, and hearing services and dental care. 

We have few cases of enrollees abusing the privilege of the sys- 
tem. Instead, people seem to take advantage of the opportunity to 
take better care of themselves. We have reduced the average length 
of hospital stays by 1.1 days and our annual costs have increased 
by an average of only 1.5 percent. That compares favorably with 
the annual rate of increase of more than 11 percent for Michigan's 
Medicaid program. 

CountyCare and its current successor, renamed PlusCare, have 
had positive effects in a wide range of areas. The program has 
helped the financial health of our hospitals in Wayne County, 
which have seen a decrease of more than $100 million a year in 
unreimbursed cost due largely to decreased emergency room visits. 
County health care providers have created jobs. Our $135 million 
deficit has been eliminated and indigent health care costs are prob- 
ably less of a concern today than employee health care costs. 

Our success with CountyCare has inspired us to attempt a log- 
ical expansion of the managed care system into an area of health 
care for the working poor. Wayne County's health choice program 
will commence operation this month. In its pilot phase, four health 
care providers will offer services for up to 8,000 low-wage workers 
for a single rate of $108 per person per month. 

Before I give brief details of this program, let me explain why we 
are doing this. There are more than 1 million uninsured persons 
in the State of Michigan and 150,000 of them are in Wayne Coun- 
ty. That is a disturbing figure. 

More disturbing is the fact that two-thirds of Michigan's unin- 
sured adults have jobs. Almost 60 percent have high school or col- 
lege degrees. These people are caught in a trap. They earn too 
much to be eligible for traditional public sector health care like 
Medicaid, Medicare and PlusCare, but their low-wage jobs make in- 
surance impossible. One serious illness may mean unemployment 
and a whole wave of new public costs to support that person. 

Wayne County targeted this population with the health choice 
program. The attractions to employees are obvious. We felt employ- 
ers would be attracted by the prospect of offering the sort of bene- 
fits that would significantly reduce turnover and training costs. A 
qualifying employer is one who has no health plan for its employ- 
ees since January 1993, 90 percent or more of its employees must 
be located at a workplace in Wayne County. The company must 
employ at least five people and not less than 50 percent of all em- 
ployees must have an hourly wage of $10 or less. 

Qualifying workers must be without health care benefits and in- 
eligible for Medicare or Medicaid, ineligible for other employer 
sponsored health care coverage, work an average of 20 hours a 
week or more, and enjoy an anticipated work future of more than 
5 months. 



138 

The premium fee structure is one-third employer paid, one-third 
employee paid, one-third health choice subsidy. Covered services 
include office visits, outpatient treatment, hospitalization, prescrip- 
tions, ambulance services and home care services. Supplemental 
services can be purchased by enrollees for physical therapy, dura- 
ble medical equipment, vision, contraceptives and unlimited hos- 
pital stays. 

HealthChoice is employer driven. You can't sign up for the pro- 
gram unless your employer does. We are currently marketing the 
program to such employers as fast food outlets, family owned Dusi- 
nesses and service industries. 

We think HealthChoice is a positive step forward, but it will not 
solve all the health care problems of Wayne County's uninsured 
population. Financing, health status and access issues must be ad- 
dressed at a State and Federal level. At Wayne County, we actively 
support ongoing efforts to address these problems. We believe our 
programs can serve as a national demonstration available for dupli- 
cation in other areas of the country. We have learned a lot about 
the challenges of serving this population and we look forward to 
sharing our lessons. Our Congress continues the debate on health 
care reform. 

Wayne County is proud to be in the forefront of change. We are 
concerned about access to care, especially to urban residents. We 
endorse universal coverage and applaud the efforts of the adminis- 
tration and Congress to resolve this longstanding problem. 

Congress must face up to the challenge. Municipalities have 
struggled with horrendous financial problems created by unfunded 
Federal mandates. In the Federal haste to eliminate disproportion- 
ate share hospital payments and the Medicaid program itself, mu- 
nicipalities must be protected against increased financial burdens 
caused by uncompensated care or underfunded initiatives. 

We urge that any health care legislation passed by Congress 
allow local jurisdictions the flexibility and creativity to tailor our 
solutions to health care problems to local needs. Specifically with 
respect to establishing regional health care alliances, we ask Con- 
gress to consider an option that allows municipalities, such as 
counties, which meet certain size and demographic requirements, 
or with significant experience in managing health care, to be quali- 
fied by statute for a designation as a regional health care alliance. 

Wayne County, with a population larger than 16 States, must be 
allowed to tailor our programs to the needs of our citizens, employ- 
ers and government. We should not have to depend on the State 
of Michigan to design our programs for us. We are prepared to 
meet specific Federal standards. We need the flexibility to meet 
those standards with a system that will work in an urban area that 
bears few resemblances to the rest of our State. 

Wayne County supports the public health related improvements 
in the President's plan. Given Wayne County's large indigent popu- 
lation, the essential community provider provisions of the legisla- 
tion are also of pivotal importance. The experience and success we 
have had in and the coalitions we have built with CountyCare, 
PlusCare and HealthChoice, position Wayne County to serve as a 
demonstration to the Nation of how to design and operate a man- 
aged health care system that works. 



139 

We appreciate the opportunity to share our experiences with you 
and hope we can be of continuing services as this critical debate 
moves forward. 

Thank you. 

Chairman Stark. Thank you. In CountyCare or PlusCare, you 
pay a flat rate of $80 per month per person. Who do you pay that 
to? 

Mr. McNamara. You pay it to a health care provider. There are 
four health care providers that have bid competitively, and of the 
50,000, each one has in the neighborhood of about 12,000 patients 
or 

Chairman Stark. They provide primary care as well as special- 
ists? 

Mr. McNAMAitA. Yes. 

Chairman Stark. They provide hospitals? 

Mr. McNamara. They in turn contract with hospitals to provide 
that service. 

Chairman Stark. And there is no cost to the county? 

Mr. McNamara. The county puts $15.5 million in the program 
each year. 

Chairman Stark. $15 million? 

Mr. McNamara. Yes, but we know that it is costing us $15 mil- 
lion. Seven years ago, it was costing us $22 million. 

Chairman Stark. So about $300 a head of county resources in 
addition to about $1,000 that you pay, no other costs. So you are 
averaging $1,300. 

Mr. McNamara. It is roughly $1,000 per year per capitated per- 
son in the program. 

Chairman Stark. That is the $80 you pay. 

Mr. McNamara. Yes. 

Chairman Stark. What about the $15 million? 

Mr. McNamara. Mr. Chairman, the $15 million is a part of the 
total cost of the program. We put $15 milHon in. The Federal Gov- 
ernment puts — matches a portion of that. The State puts $7.5 mil- 
lion in for a total of about $51 million. 

Chairman Stark. $51 million? 

Mr. McNamara. Of that— that is correct. We serve almost 50,000 
people. 

Chairman Stark. So that is where you get your $1,000? 

Mr. McNamara. Yes. 

Chairman Stark. That is what I couldn't quite add up. 

How are you doing in your new plan, HealthChoice? As I read 
it, if the employer decides he doesn't want to spend any money, you 
can't get in. In other words, the employer has to participate. 

Mr. McNamara. That is correct. It is employer driven. We have 
several very interested employers, such as Little Caesar's, and I 
think what they see is a program that permits them to keep em- 
ployees that might otherwise leave the employ and go on to a 

Chairman Stark. How long have you had the enrollment open in 
this? 

Mr. McNamara. It has been open about 30 days and we have 
about seven prospects. Again, the people that are going to sell this 
program are the health care providers that we have designated to 
go out and search out 



140 

Chairman Stark. I will tell you what is happening in California. 
I can't compare the plans, but the State has got some kind of a new 
HIPC for the same population. If there are 35,000 enrollees now 
and only 3,500 of them are previously uninsured, the rest of them 
are all just employers who switched to this plan because it is 
cheaper, and I at that rate, we figure it will take about 83 years 
for California to cover its uninsured, but I hope you have better 
luck than we are having in California. 

I am — a bit of nostalgia here. Jim, as you know, I was born in 
what is now Mount Sinai and had my tonsils out in Mr. Vice's hos- 
pital, and was a member — auxiliary member I suspect — of the Ca- 
melia or Azalea branch, whatever those things were in Children's 
Hospital 1,000 years ago, although I am not sure I did my fair 
share, and I welcome these hospitals here. 

I would ask Dr. Staggers and Mr. Vice that, you are worried 
about this essential community designation, but that is only critical 
if we have managed competition approaches, isn't it? You get paid 
under Medicare and Medicaid now. You don't need any special des- 
ignation, right? 

Mr. Vice. I guess my comments are we get paid under Medicaid 
now. 

Chairman Stark. I am not talking about the amount. I am just 
saying if you don't get into managed competition, you aren't going 
to get paid any more by Aetna than you do by Medicaid. Don't hold 
your breath. 

Dr. Staggers, same thing is true for you. If we go on with the 
insurance and the reimbursement systems as they are, you don't 
have to be designated anything. 

Ms. Staggers. Well, I am not sure that is — our experience has 
been that there is still this whole issue of nonpediatric hospitals, 
the adult facilities being able to take as good care of children as 
children's hospitals can. Same with private insurance companies, 
the issue has come up, so I am not sure it has to do 

Chairman Stark. Private. It doesn't come up with Medi-Cal or 
Medicare. 

Ms. Staggers. With the whole managed care movement 

Chairman Stark. That is what I am saying. If you get managed 
care out of here, you don't have any problem. Blue Cross pays you, 
right? 

Ms. STAGGEits. Theoretically, you are right. 

Chairman Stark. Medicare pays you, Medi-Cal pays you. 

Ms. Staggeils. That is true. 

Chairman Stark. I am not going to argue about the rates with 
Mr. Vice either. Kaiser doesn't pay you, or very seldom, right? 

Ms. Staggers. Right. 

Chairman Stark. And I don't know who you get as a big HMO 
in Milwaukee, but they aren't coming to you very often, I would 
imagine, either, are they? 

Mr. Vice. We see more and more of them in negotiating. Get us 
all back to managed care. If managed care is not there, it won't be 
as bad. 

Chairman Stark. That is what I wanted to hear. Let's have that 
answer again for the record. If managed care isn't there, it what? 

Mr. Vice. Won't be as bad. 



141 

Chairman Stark. All right. That is what I thought you wanted 
to say. 

I don't know. Mr. Goldsmith, you anticipate some losses. Do you 
think that those will mostly come from that reduction in the dis- 
proportionate share adjustment? 

Mr. Goldsmith. Well, we are looking at all the reductions, the 
Med Ed reductions, the dis-share reductions really across the 
board, and they are obviously very substantial and hit our mem- 
bers very, very hard. 

Chairman Stark. Jim, you give us a pretty graphic picture of the 
neighborhood around the area in which Mount Sinai exists, and it 
still has an emergency room, right? 

Mr. Moody. It does. 

Chairman Stark. The only other place is County Hospital way 
out for the next emergency room going west? 

Mr. Moody. Well, there are — Columbia and St. Mary's have 
emergency facilities, too, on the east side. There is a very well- 
known burn center in St. Mary's, for example. 

Chairman Stark. St. Mary's on North Avenue, right by the wa- 
terfront? 

Mr. Moody. Right, exactly. 

Chairman Stark. Then you go to the south side. 

Mr. Moody. On the south side, there are several. 

Mr. ViCK. I have got to add, Mr. Chairman, we work with Sinai 
and actually run an urgent care clinic in the evenings and week- 
ends adjacent to their ER so we can help them with the children 
there. 

Chairman Stark. I don't know what kind of managed care 
groups you have showing up in Milwaukee. I am more familar with 
Dr. Staggers. It isn't so bad. I just don't know how many of them 
actually refer to Children's. I doubt if Kaiser does. In our county, 
half the people belong to Kaiser, half. 

Ms. Staggp:rs. Yes. 

Chairman Stark. So you are dealing with the other half of the 
people, and I don't suppose anybody else has the hospital resources. 

Ms. Staggkrs. No, but 

Chairman Stark. They own. So you get your crack at the other 
half of the kids. 

Ms. Staggers. Right, but there is some Kaiser crossover. As I 
said, since I am in adolescent medicine, if you don't want to be seen 
because your parents are at Kaiser, your family is at Kaiser, you 
would come into Medi-Cal and see us. 

Chairman Stai^k. Is that the Medi-Cal rule? You have just got 
to be under 18? 

Ms. Staggers. It is 12 to 18 for confidential services. 

Chairman Stark. That is good. Jim, I wish you were still here 
to help us get this problem worked out. 

Mr. Moody. Thank you very much. 

Chairman Stark. We are going to have a tough time. I think 
that the hospitals that you all represent are ones that we will — in- 
sofar as this subcommittee is concerned — do our best to see that 
you continue to get funded. I think you will have better luck with 
us than you will with Prudential, but vou can take vour choice, and 
like my friends in the previous panel who decided to endorse the 



142 

President's plan, I wish them a lot of luck, but I think if they will 
think it over, they have had better luck with this committee then 
they are ever going to get out of the Jackson Hole group. Of course, 
it is a free country and you can take your choice. 

Mr. McNamara has decided to do it on his own and not wait. I 
presume that you wouldn't like a mandatory alliance forced on the 
State of Michigan because then you would have to comply with 
that and you would just as soon have the flexibility to work out 
programs that work best for Wayne County, is that your 

Mr. McNamara. Well, obviously we believe that health care 
should be there for everyone, whether they like it or not, but cer- 
tainly we would like to work them out. We think that if the user 
does have some input in the form of contribution, it is going to be 
a more effective plan and it is probably going to be a little more 
cost contained than some of the Blue Cross plans that are out there 
floating around today. 

Chairman Stark. Do you still have to operate a county hospital, 
a municipal hospital? 

Mr. McNamara. We sold it 7 years ago. We have the medical 
center that is made up of numerous hospitals that are part of this 
prograni and benefit from it. 

Chairman Stark. I want to thank you all for your assistance. I 
hope that whatever we do the next month or so, I am quite sure 
it will take care of the concerns that you represent. Whether we 
can hang on to that as we wind through the procession of the other 
committees and the other body is another question. But we will try 
and we appreciate your assistance here today. 

Thank you very much. The committee is adjourned. 

[Whereupon, at 5:30 p.m., the hearing was adjourned.] 

[Submissions for the record follow.] 



143 



ADA SHEN-JAFFE 



EVERGREEN LEGAL SERVICES 

YAKIMA-KITTITAS OFFICE 

510 LARSON BUILDING 

e SOUTH SECOND STREET 

YAKIMA. WASHINGTON 98901 

February 25, 1994 



Chairman Pete Stark 

Subcommittee on Health 

House Ways and Means Committee 

1114 Longworth House Office Building 

Washington, D.C. 20515 

Attention: Janice Mays and Tricia Neuman 

RE: Health Care Reform and American Indian/ 
Alaska Native Populations: The 
Federal Obligation to Preserve 
and Enhance Indian Health Programs 

Dear Chairman Stark: 

We have participated in numerous National Indian Health Care 
Reform meetings and discussions in the past 12 months. We have 
also reviewed the National Congress of American Indian (NCAI) 
December 3, 1993, resolutions regarding health care reform, and 
January 31, 1994, testimony of NCAI and the National Indian Health 
Board before the Senate Committee on Indian Affairs. While we are 
writing specifically in behalf of our low-income American Indian 
clients, we are confident that our views are largely shared by 
national Indian leaders. 

We ask that the following comments be added to the record of 
your January 31, 1994, hearing on Health Care Reform and Urban and 
Rural Populations. This letter discusses the unique and overriding 
obligation of the federal government has to promote and enhance the 
Indian health care delivery systems and several important Indian 
issues which we believe would arise under your proposal (as we 
understand it) to join Medicaid with Medicare into a new federal 
program. 

The Federal Government Is Obligated To Enhance Indian Health 
Programs 

The Administration's Health Security Act, H.R. 3600, expressly 
acknowledges the unique status of Indian health programs, but 
further reduces funding to already underfunded Indian health 
programs and otherwise weakens the Indian health care delivery 
system. Other health care reform bills have no language describing 
Indian health programs' interrelationship with new health care 
delivery systems. We are greatly concerned that no federal 
proposal for health care reform has adequately recognized the 
federal government's moral and legal obligations to provide health 
care for Indians and Alaska Natives. 



144 



The federal government's unique obligation to provide health 
services to American Indians and Alaska Natives should not be 
jeopardized by including the Indian health care in either one 
national health care reform plan or in a separate plan for rural 
and urban populations, without consideration of the legal, moral, 
and cultural reasons for maintaining a separate, strong Indian 
health care system. Nor should health care reform be used to 
further cut back resources to Indian health programs which are 
already greatly underfunded. 

Congress and the federal courts have protected the sovereignty 
of Indian tribes for 170 years. Congressional statutes and 
appropriations have been used to provide health care for Indian 
people even longer. The promise of health care was a major element 
of the treaty negotiations of the last century, in which Indian 
tribes ceded vast tracts of land to the federal government and non- 
Indian settlers. Senator Inouye calls health services to Indian 
people "the nation's first prepaid health plan." 

The Indian Health Care Improvement Act of 1976 was Congress' 
first attempt to codify the broad scope of the federal obligation 
to provide health care to Indian people. It does not repeal or 
replace the earlier treaties or congressional declarations. The 
1976 statute does provide a useful definition of the federal 
government's obligation to provide Indian health care, which should 
not be overlooked during the current health care reform debate: 

(a) Federal health services to maintain and 
improve the health of the Indians are 
consonant with and required by the Federal 
government's historical and legal relationship 
with, and resulting responsibility to, the 
American Indian people. 

(b) A major national goal of the United States 
is to provide the quantity and quality of 
health services which will permit the health 
status of Indians to be raised to the highest 
possible level and to encourage the maximum 

participation of Indians in the planning and 
management of those services. 

25 U.S.C. §1601 

The federal government has committed itself to providing localized, 
culturally appropriate health services to Indian people and to 
assuring that the services are increasingly provided by Indian 



145 



professionals and, at the tribe's option, through Indian-controlled 
programs. While inadequate funding has been a chronic problem, not 
until the current health care reform debate has the federal 
government ever wavered in its support for independent Indian 
health programs. 

The importance of culturally-appropriate health services for 
Indian people, especially for the many of our clients who are 
elderly, cannot be overemphasized. They need health services which 
are based in their community and where Indian culture is understood 
and respected. Many tribal elders need interpreters for languages 
that are unwritten. Fluent English is spoken by relatively few. 
It is not fair to them to be forced to turn to health care 
providers who do not possess the deep and broad sensitivity of 
existing Indian health programs. 

Indian Health Programs Need Better Access To Federal Medicaid and 
Medicare Funds 

Indian medical services through IHS are limited by very 
inadequate budgets. To stretch its limited budget, IHS has 
declared itself to be a "payor of last resort." This unpopular 
policy requires Indian health programs to look first at Medicaid, 
Medicare, and private insurance reimbursements before spending IHS 
funds for medical services. 

Because of the "payor of last resort" rule, Indian programs 
are very affected by Medicare and Medicaid reimbursement rates and 
by the relationship of the federal government to state Medicaid 
programs. Your Subcommittee's Medicaid and Medicare proposals 
could provide badly needed increased revenue to Indian health 
programs . 

As we understand your proposal, Medicaid, except for long-term 
care, would become a fully-federal program and would be folded into 
a new program possibly called Medicare Part C. We can see two 
potential improvements for Indian health programs: 

(1) Reduction of State Involvement in Medicaid 

If Indian health program must depend on Medicaid revenues then 
the Medicaid monies should be more accessible. Presently Indian 
patients must apply separately to the state Medicaid program and to 
IHS for coverage of medical expenses incurred outside of Indian 
health facilities. Development of a single IHS Medicaid 
application/screening instrument has long been needed for use by 
Indian programs, but remains unfeasible if 50 different state 



146 



Medicaid eligibility standards are involved, as present. A single 
federal Medicaid/Medicare program would be in a much better 
position to coordinate health coverage with Indian health programs 
than are the 50 states. 

A second major problem that arise with state Medicaid is the 
requirement of a state percentage Medicaid contribution. Because 
the states do contribute to Medicaid costs, tribal programs must 
have state consent to access Medicaid monies. The federal Medicaid 
statutes allow 100% Medicaid reimbursement for medical services 
performed at an Indian Health Service facility , but the same full 
reimbursement rates do not apply to tribally-funded health 
facilities. 42 U.S.C. §1396d(b) . Thus most tribes may only access 
Medicaid under state guidelines. 

While some tribes have the technical resources and/or a 
political relationship with their state which allow them to work 
out acceptable agreements regarding access to Medicaid monies, most 
tribes do not. Again, we believe a chance to deal directly with a 
single, federal program on reimbursements or direct funding for 
Medicaid-type services would be a great improvement for most Indian 
health programs. The higher federal rate of reimbursement would 
also benefit Indian programs (state reimbursement under Medicaid is 
usually lower) . 

(2) Greater Access to Medicare Funding 

We hope that health care reform will also give Indian health 
programs better access to Medicare resources. The present system 
of Home Health Care Agencies, for example, is too highly regulated 
and expensive for Indian tribes (even the largest, the Navajo 
Nation) to administer. Further, Indian programs without IHS 
hospitals or facilities are not eligible for Medicare 
reimbursements at all. We hope, in developing a proposal for a 
Medicare/Medicaid combined program, that the final program funding 
would be much more reasonably accessible to Indian health programs. 

Health Care Reform or Wrap-around Coverage Should Not Be Paid for 
from Existing or Future Indian Health Service Budgets 

Indian Health Programs need assurance that federal funding for 
any standard benefit package or wrap-around benefit package will 
not diminish the Indian Health Service Supplementary Benefit 
appropriations. One of the distinguishing features of Indian 
health programs is its own type of wrap-around services which have 
developed in response to the unique legal status and unusual health 
problems of Indian people. For example, IHS has a highly developed 



147 



public health delivery system with a heavy emphasis on preventative 
health care, and a safe water and sewage program that funds well 
digging and installation of septic tanks in rural areas. 

Tribal leaders are greatly concerned that existing and future 
funding for IHS supplementary services will be diverted to cover an 
expansive standard medical benefit package under health care 
reform. Funding for health care reform should increase services to 
Indian health consumers so that existing IHS funding can be used to 
finally meet its obligation to provide the IHS supplementary 
services package. One example of current underfunding: the IHS 
sanitation program is presently underfunded by $1.64 billion, IHS 
has budgeted only $600 million over the course of a 10 year plan to 
meet this critical need, and the Administration has requested no 
sanitation funding in its FY 95 IHS budget. If additional federal 
money is available to pay for present IHS medical services under 
health care reform, then IHS should be better able to more 
adequately fund its existing supplemental benefit programs. 

We hope that you include Indian leaders and Indian 
organizations in your discussions of health care reform. Please 
call us if we can provide more information, or contact Gordon 
Belcourt, Executive Director of the National Indian Health Board 
(303-759-3075), or Rachel Joseph of the National Congress of 
American Indians (202-546-9404) . All Indian leaders are greatly 
concerned that American Indian and Alaska Native health care needs 
are not being given adequate consideration in the national debate 
over health care reform. We would be happy to work with your 
Subcommittee to help ensure that its proposals enhance present 
Indian health care delivery systems. 




Helen Spencer "^ 
Evergreen Legal Services 
Native American Program with 

Thomas N. Termaine 
Spokane Legal Services, 



Steven C. Moore 
Native American Rights Fund 
SuDDort Center 



National Congress of American Indians 
National Indian Health Board 



148 

STATEMENT OF GEISINGER FOUNDATION 



The Gelsinger, Health Care System ("Gelsinger") wishes to provide this written 
statement on the health reform issues relating to rural communities. 

Geisinger, as a rural health care system, serves approximately 2,300,000 
residents in a 31-county region of central and northeastern Pennsylvania. 
Geisinger Medical Center is one of four rural referral tertiary-care centers 
of 500 or more beds in the United States. With its full-time, salaried, 
mul tispecial ty group practice, it was the basis for the present Geisinger 
health care system. (Geisinger's organization and service area are described 
further in Appendix A). 



149 



GeisingeKs Principles for Health Care Reform -1993 

In the spring of 1992, as the current national health care debate was being joined, 
Geisinger adopted a statement of reform principles (see Appendix B). 

In brief, these principles encapsulate the thoughts of Geisinger's management 
concerning the accessibility, affordability, and accountability of health care, and the 
place of medical education, research, and public health in the refomi debate from a 
rural health care system perspective. 

During this year, Geisinger has been cited three times as a potential model for 
reformers to follow. (See Appendices C, D and E). That national attention has made us 
aware of two critical facets of the health care reform debate. 

• First, a considerable amount of reform is occurring, without government 
intervention. And Geisinger is among the leaders in that reform movement. 

• Secott(/, there are specific areas in which federal action can empower and 
amplify those private efforts. 

ACCESSIBILITY 

The Geisinger experience shows how a private institution can effectively improve 
the accessibility of health care in a large rural region. Over the past 12 years, Geisinger 
has established 26 rural medical practices and expanded a number of additional 
existing practices. That has resulted in the addition of many physicians to our service 
area — the majority of them specializing in primary care. Geisinger physicians now 
reprint 9.4 percent of primary care physicians in the 31-county area we serve. 

Because of Geisinger's charitable charter, Geisinger physicians provide service 
without regard to ability to pay, which improves accessibility to medical care for all the 
residents of the area we serve. The declining economic state of rural providers, 
exacerbated by health reform initiatives, has led to many collaborative discussions on 
how best to restructure the combined resources of providers to meet the health care 
needs of the population. Those discussions focus on such issues as : Tlie continuing 
need for certain rural providers entirely or as as "full-service" hospitals; the ability of 
private, primary-care practitioners to continue in solo practice; and the conversion or 
establishment of urgent-care centers and other alternative-delivery fedlities, including 
the restructuring of home health services. Home health services represent a delivery 
alternative that is growing in importance in our rural setting. 



150 



But Geisinger currently has 66 vacancies for primary<are physicians. 
Recruitment in priniary care has become increasingly difficult in recent years. 
Recognizing that we will be unable to recruit, nor possibly afford, all the primary-care 
physicians we need, Geisinger is emphasizing the necessity of expanding alternative- 
care providers in support of our clinical programs and is actively considering the 
development of training programs for such professionals. 

Additionally, we will no longer be able to afford or recruit the high level of 
^Tedalization that has been traditional throu^ut our workforce. We are studying 
ways to shift to a broader-based workforce and to alter the work we do in order to 
downsize and reduce our overall operating costs. 

In order to continue, and pertiaps to enhance, access to our services, Geisinger 
has established a technololgy strategy to link together our provider network for 
accessing and sharing medical informatioa Although an appropriate goal, it will be 
very difficult to accomplish in an environment of declining reimbursement and 
increased cost-containmenL 

RECOMMENDED FEDERAL ACTIONS: 

Improve the quality of care and the quality of rural practice as a career 
choice by: 

• Using incentives to increase the number of physicians entering the 
primary care specialties. 

• Using incentives to increase the number of primary care physicians who 
choose rural practice. 

• Providing assistance to private institutions to devdop rural practices. 

• Supporting puUic transportation in ruml areas, with a focus on 
mcreasing access to medical practices. 

• Supporting research and development of communication and 
information technology to link ruml generalists with specialty centers. 

• Provide demonstration-project funding for hospital facility conversions to 
altemative<are facilities associated with health care networks. 

• Use incentives to enhcnce the altemative<are professions and increase 
the number ofswJi practitmers, especially those wSling to locate in 
rurdareas. 



151 



AFFORDABILITY 

Geisinger is demonstrating the effectiveness of an integrated health system in 
improving the affordability of health care. Geisinger's health maintenance 
organization, Geisinger Health Plan, has the lowest premiums of any HMO in 
Pennsylvania. It has the lowest premium of any HMO option being offered to federal 
employees in 1993. Yet the Geisinger Health Plan is able to provide high-quality care 
within a fixed budget and still contribute to the support of Geisinger's charitable, 
educational and research activities. Geisinger Health Plan now covers approximately 
160,000 people and provides one-third of the total support of the Geisinger system. 

In response to Geisinger Health Plan's success, we are seeing changes in the rest 
of the area's health care economy. Competition among providers (the typical medical 
arms race) is being replaced by competition among systems (in which the most efficient 
win). Meanwhile, competing health plans are moderating their premium increases and 
improving their managed care operations. 

Employers in the area we serve are actively fostering competition by favoring the 
low-priced options in their employee health-benefit plans. They are already creating 
"manage/ competition" on their owa 

Thus, directiy and indirectiy, Geisinger is having a positive impact on the 
affordability of care. 

RECOMMENDED FEDERAL ACTIONS: 

• Encourage the states to develop managed competition at the state and 
load leveL allow waiver of the "ERISA preemption " of state laws 
pertaining to emplajee health benefits. 

• Protect the access of non-profit institutions to low-cost capital by 
clarifying the criteria for charitable tax exemption (Section 501(c)(3)), to 
include health plans and other non-profit components of integrated 
systems engaged in the support and advancement (/federal health policy. 

• Encourage efficient integrated systems to enroll Medicare and Medicaid 
benelidarks. That would include hirther improvement of the risk contmct 
payment methodology (the AAPCC), and legislation to permit HMOs to 
Hmction as medicare supplemental plans. 

• Reduce the administrative costs associated with health care through an 
expanded use of communications technology such as Electronic Data 
Interchange (EDI). 



152 



ACCOUNTABILITY 

Geisinger has come to ^ncM accountability as more than periodic acaeditation, 
even as acaeditation and licensing requirements continue to be among our most 
important public accountabilities. 

In the past year, one of our hospitals placed in the top ten percent of national 
reviews by the Joint Commission on the Acaeditation of Healthcare Organizations 
(JCAHO). Geisinger Health Plan voluntarily went beyond the requirements of 
Pennsylvania law for external quality review, and applied for full accreditation by the 
National Committee on Quality Assurance (the HMO industry's accreditation body). 

Beyond aareditation, we are working with a major corporate client to design a 
scorecard of quantitative and qualitative measures demonstrating quality and quality 
improvement to that employer. 

Geisinger conducts formal, statistically significant patient surveys. We monitor 
the technical quality of care in a variety of ways; to do so, in &ct, we conducted more 
than 400 studies last year. We track patient complaints and concerns, and we report 
tiiem for management response. Results are considered major management 
accountabilities, and Geisinger's group practice structure makes our physicians 
continuously accountable to their peers in the group. 

In general, however, the threat of litigation impedes public accountability for 
quality improvement in the health care industry, in the event that peer review data are 
made public 

RECOMMENDED FEDERAL ACTION: 

• Increase the willingness (/health care institutions to publish comparative 

information about quality: enact a more equitable approach to identifying 

medical malpractice and compensating patients. 



153 



EDUCATION 

Geisinger's support ior education dates from our earliest days. Since our 
founding, we have trained more than 2,400 interns, residents and fellows, graduated 
more than 3,200 registered nurses, and developed training programs in nine allied 
health professions. Total registration for the 1993 - 1994 school year was 181 resident 
physicians, 16 graduate fellows, 190 nursing students, and 72 students in allied 
technologies. Many of those students will remain in rural service when they complete 
their training. 

Geisinger operates nine schools of allied health education: 

• Cardiovascular Technology 

• Dietetic Internship 

• Histotechnology 

• Medical Technology 

• Nurse Anesthesia 

• Nursing (diploma program) 

• Radiation Therapy Technology 

• Radiographic Technology 

• Pastoral Care 

increased competition, however, will reduce the ability of medical institutions to 
subsidize the cost of education from patient revenues. 

RECOMMEM>ED FEDERAL ACTION: 

• Provick direct support for educational programs, especially those that 
advance federal poliq/, such as primary care and rural practice. 

RESEARCH 

Geisinger operates an $9 million basic science research program. Of that, nearly 
$4 million is supported by grant funding and endowment Geisinger supports 11 full- 
time scientists and 408 separate research projects. 



154 



In addition, Geisinger has also begun research in health services arul outcomes. 
The first project, measuring the short-term savings and health improvement from 
smoking cessation, has already produced encouraging data. We have seen a high 
cessation rate and nearly inmiediate savings from the reduced use of medical services 
among those who have successfully quit 

RECOMMENDED FEDERAL ACTION: 

• hoBOse support for outcomes research, especially in the setting of 
integrated health systems. 

• Suj^port methods to rapidly disseminate results of outcomes research. 

PUBLIC HEALTH 

The medical community's interest in public health concerns has feded in 
prominence with the improvements in sanitation, immunization and treatment of 
disease that have characterized the second half of this century. Over the years, 
Geisinger, like most institutions, had adopted a reactive posture in public health 
matters. We are a major source of care for accident and illness for much of our area. We 
are the place to go if a man, woman or child is sick, and especially if that man, woman, 
or child is sick and uninsured. 

Geisinger employees, often acting on their own initiative, have continued a long 
tradition of voluntary public education about hygiene and safety in the communities we 
serve. Now, as an institution, we have come to recognize again the need to specifically 
incorporate a public health role in our business plans, and to support encourage, and 
recognize the individual initiatives among our employees. 

RECOMMENDED FEDERAL ACTIONS: 

• Provide support and recognition for health care institutions that adopt 
active public health agendas. Look to the nation 's emerging integrated 
health systems as logical allies of federal and state agencies in identifying 
and ameliorating public health hazards. 

• Support a public-private partnership to greatly improve the level of public 
knowledge about disease prevention, diet, exercise, safety, stress 
management, and the risks of chemical abuse. 



155 



SUMMARY 

In summary, the past few years have seen most of the components of proposed 
national health care reform develop in the private sector. Geisinger is a practical 
example. Managed care, managed competitioa public accountability, access 
improvements: all can be found to some extent in various sections of the natioa The 
time is ripe for federal action to encourage the growth and spread of those developing 
systems. 

While major reform is being debated, we suggest a package of more modest 
reforms to amtinue that signi/tcani private sector activity. 



Appendix A 



156 



GEISINGER« HEALTH CARE SYSTEM 



Corporate Structure 



tola 



■EOICAL 
CENIER 

«77«id Riband 



oon>o(UTioii 






UgOMatmHp: 

Gemvl 

U«ntenHpC«nM . 



Gdsln^er. 



•-GcsmgerbiregtttovdicmceouffcofGeamga-Founlaoca for opcntkig medical, ouniog nd otber bealih 
care educabootl pro g r w ps through i muld-iostitutioDil beahh cue lystem. 'nnougbout thii docuoMni, die torn 
Gcnbger itfen lo dK eiuc lystoD of health eve comprved of Ge^JBger FouD^^ 
affiliated with or coolroUed by Geif ioger FouidatiofL 



Geisinger — A Regional System of Health Care 

Hospitals and Group Practices *'g^!:::i1-*~ 




167 



Geisinger Overview 



Mission Statement 

The Geisinger health care system serves more than 23 million Pennsyhonians 
across 31 primarily rural counties, from the state's northeastern comer to its midpoint 
— and thousands of others through widely distributed outreach programs. That broad 
focus is consistent with the Geisinger mission: 

To improve the health of the people of the Commonwealth through an integrated 
system of health services based on a balanced program of patient care, education and 
research. 

Geisinger's primary values are enumerated as a commitment to constancy of 
purpose, continuous improvement, people caring, teamwork, tradition and financial 
stability. The New Yorit Times, in a front-page article on March 18, 1993, applauded 
Geisinger's integration of its medical and administrative staffe in ways that contribute 
to cost-effective medical care. 

The character of Geisinger health care management is recognized nationally. The 
National Committee for Quality Health Care last September offered the Geisinger 
approach as one of several national models for reforming American health care. TTie 
Geisinger management style integrates continuous fonral planning and problem- 
solving methods with day-to-day control systems that assure efficient operating 
perfomiance. 

Geisinger's four driving corporate strategies are articulated succinctly this way: 

• Geisinger functions as one organizatioa 

• Clinical programs and clinical process improvements size and drive the Geisinger 
system. 

• Managed care is Geisinger's primary business strategy. 

• Geisinger seeks collaborative opporhmities to increase access to cost-effective 
services. 

Geisinger is focusing on its managed-care system, replacing fee-for-service 
business with capitated populations. That strategy will permit an even more effective 
management of limited resources, offer greater value to central and northeastern 
Pennsylvania consumers, and position Geisinger as the provider of choice in its region. 



1S8 



Geisinger's History 



Crucial to the Geisinger concept of managed care is Geisinger Health Plan (GHP), 
which now has approximately 160,000 members. Founded in 1972 as one of the first 
rural health maintenance organizations in the United States, GHP is now the nation's 
largest rural HMO. The Geisinger Clinic's approximately 520 employed physicians offer 
GHP services at 45 primary care locations and 13 community hospitals in all or parts of 
25 Pennsylvania counties. And, also through the Geisinger Clinic, GHP has agreements 
with 433 privately practicing physicians in central and northeastern Pennsylvania to 
deliver services complementing those that Geisinger specialists offer. GHP enrolled its 
500th employer group during the past year. 

Geisinger has introduced a variety of strategies to strengthen and improve its 
operational perfomiance. Those strategies were aimed at sizing our system to respond 
to changes in the healthcare environment, and they included a system-wide workforce 
reduction. 

A resiliently adaptive frame of mind is ingrained in the Geisinger approach to 
health care. Throughout its history, in fact, Geisinger has been a consistent example of 
the efficiency, effectiveness, and flexibility of medical group practice. The Geisinger 
group practice has changed in form and function over the years to respond to changing 
socioeconomic environments, but it has not deviated from the intent of its founder, 
Abigail A. Geisinger. Nearly 72 years after her passing, this organization retains Mrs. 
Geisinger's commitment of service to mankind. 



History and Development 

Founded in 1915 as the George F. Geisinger Memorial Hospital, Mrs. Geisinger's 
gift to her community in memory of her husband, the hospital was designed as a 
comprehensive regional health care institution that would offer specialized services to 
people in rural areas. 

Harold Foss, M.D., was Geisinger's first chief of staff, and he served in that 
capacity from 1915 until 1958. Trained at the Mayo Clinic, Dr. Foss advocated the 
group practice of medicine and hired specialty-trained physicians who formed the full- 
time, salaried, closed staff of the hospital. The original hospital of 70 beds has grown to 
be one of the nation's four largest and most modem rural medical centers and now has 
577 beds. 



159 



In 1%1 the George F. Geisinger Memorial Hospital became Gdsinger Medical 
Center. Twenty years later, in 1981, Geisinger Medical Center and its affiliates 
underwent a corporate reorganization and became a system of health care delivering 
medical and health-related services under the conunon control and direction of 
Geisinger Foundation. 



A Geisinger Overview 

• Approximately 520 physicians provide the excellence of Geisinger healthcare 
throughout central and northeastern Pennsylvania. Some of those physicians 
practice in small family health centers and some in large medical groups. Wherever 
they practice, Uiey have access to hundreds of support services provided by the entire 
Geisinger system. 

• Geisinger has two hospitals. Its 577-bed Geisinger Medical Center in Danville delivers 
specialized care — emergency medicine, cardiovascular surgery, newborn intensive 
care— actually 75 specialties and subspedaities in all. Geisinger Medical Center 
operates two medical helicopters, provides comprehensive trauma care 24 hours a 
day, and conducts oub'each, educational and research programs in trauma care. ITie 
medical center is also home for tiie Janet Weis Children's Hospital, now under 
constaiiction and scheduled for completion in 1994. Its other specialized care centers 
focus on kidney, neurosdences, h^uma, heart cancer, and infertility b-eahnenL 
Geisinger Wyoming Valley Medical Center in Wlkes-Barre is a 230-bed secondary 
referral center serving as the eastern hub of the Geisinger system. Geisinger 
Wyoming Valley Medical Center cares for patients in the Greater Wyoming Valley and 
western Pocono region with comprehensive maternity programs and pediabric 
services, five medical/surgical units, the new Frank M. and Dorothea Henry Cancer 
Center, and a complete emergency department Geisinger Wyoming Valley Medical 
Center also offers an extenave community-health eduction program. 

• The Geisinger program for alcohol and chemical detoxifiation and rehabilitation is 
system wide. It includes the 56-bed Marworth inpatient b'eatanent center in Waverly, 
Pennsylvania, which addresses the physical, social, psychological and family issues of 
dependency and recoveiy and coordinates outpatient chemical dependency services 
wherever Geisinger provides health care. 



160 



> Geisinger's health maintenance organization, GHP, offers members a variety of 
medical services for a flat fee. Medical expenses such as hospital and doctor bills are 
pre-paid under the plan, as are routine check-ups, immunizations, well-child care, 
and inoculations. 

► ISS, a Geisinger afifiliate in Plymouth Meeting, Pennsylvania, has responded to the 
requirements of the Joint Commission on the Accreditation of Health Care 
Organizations by offering hospitals clinical technology-management programs that 
can improve the quality of patient care while reducing hospital costs. ISS is one of the 
nation's largest independent clinical engineering firms. It has served hospitals and 
clinics throughout the mid-Atlantic region since 1972 and now has more than 160 
corporate clients. 

» Geisinger Foundation serves as the parent organization for the Geisinger system, 
which also includes Geisinger System Services and the Geisinger Medical 
Management Corporation. Geisinger Foundation coordinates fundraising, manages 
telethons, and facilitates community services. 



161 



1993 Fiscal Year 



Admissions 



30.000 
2S,000 

15.000 

10.000 

s.ooo 



«l_ 



I I I I 

i I if 

i 1 1 1 



ino laei isu lan 



Clinic Visits 



1.500.000 



1.200.000 
S00,000 

600.000 
300.000 



I I I I 

I II I 



1990 1991 1992 1993 



CME Programs 



S 



III 
III 



1901 1992 1993 



Number of Physicians 



iHH^ 



111 I 
1 1 1 1 
I 111 



1990 1991 ISSe 1993 



Number of Clinic Sites 



J^_JS_J!?_|1 



I I 11 

II 11 



CME Attendance 



10.000 
S.000 



iiii 

II II 



19C0 1991 1992 1983 



GHP Members 



120.000 
60,000 

n.ooo 




IIII 
IIII 



1980 1981 1982 18 



Active Research Projects 



S_S_ 



III 
III 



1990 1991 1992 1983 



*all figures as of June 30, 1993 



162 



1993 Fiscal Year 



GEISINGER STATISTICAL SUMMARY 

(for fiscal year encdng 6130193, except where noted ) 

Patients 

GHP Enrollment (asofio/3i/93) 149,193 

Outpatient Visits 1,225,556 

Hospital Admissions (inclmiing newborns) 30,616 

Life Flight Helicopter Retrievals 1,236 

Employees 

Physicians 520 

Physicians in Training 207 

Employees (including physicians and physicians in training) 7,301 

Education 

Residency Programs 15 

Fellowship Programs 6 

Medical Education Programs 146 

Medical Education Participants 7,347 

Research 

Research Expenditures $9,215,000 

Research Projects 408 

Financial Indicators 

Total Revenue $786,564,000 

(including operating and nonoperating revenues) 

AUowances 278,245,000 

(to insurers, government, third-parties, 

charity care, and uiwollectible accounts) 

Total expenses ...■480,649,000 

Funds Available for Reinvestment 27,670,000 

Less Transitional Obligation (14,683,000) 

Less Loss on Defeasance ( 2,273,000) 

Total Funds for Reinvestment ...$ 10,714,000 

Public Support $8,259,000* 

(includes gifts and grants, plus revenue associated =^=^=^^ 

with the Children's Miracle Network Telethon) 

Charity Care, Policy Deductions ...$ 12,040,000* 

Uncompensated Care 

* included in the totals listed above 



163 



Appendix B 



Geisinger's Principles for 
Health Care Reform 

Introduction 

Government is a partner in the 
health care system. 

Over time, the cost of this 
partnership has fer exceeded original 
expectations. 

As a result, and in the absence of 
a coherent federal health care policy, 
government's decisions about health 
care have been budget-driven, not 
pfogram-driven. 

This budget-driven approach has 
created confliaing incentives between 
patients and health care providers, and 
access issues for the uninsured and 
underinsured. Health care policy 
reform is key to the improvement of our 
nation's health care system. 

Integrated regional systems of 
health care, like Ceisinger, have a vital 
role to play in the delivery of health care 
and health care policy reform. 

A national consensus on health care reform 
is yet to emerge. However, while no single 
proposal can claim majority support, we believe 
certain basic principles are already held in 
common. Th'ese principles, in tum, can serve as 
aframeworktogukle the design andconstruction 
of the actual components of reform. 

Central to reform are the accessibiUty, 
affonUbUity, and KcountabOity of health care 
services. In addition, to be comprehensive, re- 
fomi must also address medical educatioii, 
loearch, aivl public health. 

Health can miut b« accessible. Effective 
reform must remove barriers posed by cost and 
geography. 

• A basic set of essential services must be 
available to anyone, without regard to medical 
history, employment status, or ability to pay. 

• These basic services must be physically 
aaessible in the urban core and the rural coun- 
ties, as well as the populous suburbs. 



Health care must be affordable The cost of 
care, both to society ar>d to the individual, must 
be within our means. 

• bilegrated regional systems which com- 
bine the finarxiing and delivery of health care in 
a single economic unit offer the best mechanism 
to reward efficiency and penalize waste. 
Whether HMO's, PPO's or managed care net- 
works, the formation and growth of such 
systems shouW be actively encouraged 

• In the long temi, a competitive market- 
place is the only effective means to control cost 
Price controls and global budgets, unless cre- 
ated with perfect wisdom, produce perverse 
incentives and shortages. This is demonstrably 
true in any industry, including health care. 

• Competition must be among integrated 
systems, competing in the private sector on the 
basis of quality and cost Competitkm on quality 
alone has produced excess capacity. Competi- 
tion on cost alone has produced inadequate 
coverage and exclusion of individuals with pre- 
existing conditions among Insurers. Lack of 
competition rewards unnecessary procedures 
and duplicative services. 

• There must be adequate financing, both 
public and private, to ensure ttiat no one is 
excluded from the marketplace by personal 
financial circumstances. The affordability of 
the basic set of services must be assured. In 
addition, individuals or groups wish'ing to pur- 
chase additional services or coverage should be 
free to do so. 

• The market price for the basic set of 
benefits must reflect true cosL Hkkien subsi- 
dies, pricing by regulatioa and cost shifting 
must be eliminated for the market to functron. 
Tax subsidies should be limited to the cost of the 
set of uniform basic benefits. State mandated 
benefit levels above the basic set of benefits 
should be eliminated. 

Health can must be actountahfc. To en- 
sure a fair marketplace, the integrated regional 
systems providing patient care must be publicly 
accountable for the cost and quality of their 
services. The marketplace itself must be ac- 
countable for its structure and operatioa 

• Integrated regional health care systems 
should demonstrate the ability to measure and 
improve the quality of care, as a condition of 
participation in the competitive marketplace. 



• Tort refonr^, to encourage rather than 
impede public accountability for quality, is a 
necessary corollary. 

• To permit comparison among competing 
systerru, all partkipants in the marketplace 
must offer, at a minimum, a uniform basic set of 
essential services. 

• Establishment and modification of the 
bask set of essential servkes must, itself, be an 
accountable process. It must be directed to pro- 
mote the general welfare, not secure private 
interests. Experimental procedures shouU be 
included only upon demonstrated efficacy. 

Medical t<luatk>ii must be supported and 
directed. Medkal education should be financed 
arxl managed to produce an appropriate distri- 
bution of personnel among professions, 
specialties and localities, based upon anticipated 
public need. 

Medical research must receive adequate 
support and direction. In addition to advancing 
the scientific frontier, medH:al research must 
focus on improving the quality and efficiency 
of current technology. Research shouU focus on 
practke guidelines to kientify the best approach 
from among competing opinions and tech- 
niques. Research funding should be separate 
from patient care finaiKing. 

Public health must be reinvigorated. 
Improved control of preventable diseases and 
conditions could dramatically reduce the cost of 
patient care, while permitting the rededlcation 
of resources to improve both accessibility and 
quality. 

• Public educatkin in health promotion 
and disease prevention should be greatly ex- 
panded. The message needs to be carried beyond 
our schools, into workplaces, shopping malls, 
and homes. 

• Publk law and publk funds must be 
dedicated to produce further reductions in envi- 
ronmental risks. 

• Pressing publk health needs must be 
given greater prominence In medical education 
and medkal research 

• The health care system must educate 
patients to assume additional responsibility for 
their own health through healthier life-styles 
and partkipatkn In medical treatment deci- 
sions. 



Appendix C 



164 







This article has been 
iqrinted with 
pamission from 
TheNewYorkTimes 

If you would like ftmher 
, information about the 
Geisinger health care 
system, please write: 

Geisinger 

100 Ncxth Academy Ave, 

DanvUe, PA 17822-3013 



g 



Gelslnser. 



Sl^e ^m Jjark §Jlme$ 



NEW YORK. THURSDAY. MARCH IS. 1993 



Doctors Say They Can Save 
Lives and Still Save Money 



B; ERIK ECKHOLM 

Special to The New York Times 

DANVILLE, Pa. — Dr. James C. 
Blankenship. a cardiologist with a health- 
maintenance organization in central 
Pennsylvania, performs costly, risky pro- 
cedures in which tubes are pushed to the 
heart to help find whether coronary ves- 
sels are clogged. 

In his catheterization laboratory, he 
studied X-rays revealing a partly blocked 
artery in a 55 -year-old man. "What are the 
chances this will shut off. causing a heart 
attack, versus the risks of surgery?" he 
asked. 'The studies differ." 

"I'll advise him to watch and wail," 
said the doctor, whose salary would not 
be affected one way or the other. "I want 
to do everything that's necessary, but not 
too much." 

As Americans consider a more frugal 
medical future, possibly dominated by com- 
peting H.M.O.'s or other forms of "managed 
care" that limit consumer choice, urgent 
questions are rising about the quality of care 
and how to protect iL Will people be pushed 
into health plans staffed by sullen, rushed 
doctors whose decisions are second-guessed 
and who are paid ettra to scrimp on costly 
tests and operations? 

Room for Judgment 

Or will they find sensitive doctors who 
have no financial incentive to do too much 
or too little, have ready access to the best 
technologies and hold down costs by pre- 
venting illness and avoiding procedures 
with little benefit? 



Medical experts are scrutinizing better 
health plans around the country to see how 
large savings might be gained through ef- 
ficiency and prudence, not through 
shortchanging the sick. And the evidence 
suggests that institutions that foster physi- 
cians like Dr. Blankenship and allow them 
to exercise professional judgment may be 
in the best position to pursue that goal 

In the case of the 55-year-old man. 
some doctors would have recommended 
immediate surgery, but Dr. Blankenship 
fell sure, based on available science, thai 
a trial period of drug therapy was in his 
patient's best interest. 

At his organization, the Geisinger Foun- 
dation in Danville, the decision about how 
much is enough is left to the doctors. Their 
cautious style of medicine has held costs 
well below the national average. Increases 
here have still averaged 8.6 percent in re- 
cent years, though, raising questions about 
whether the counuy will be able to lame 
medical infiation without culling into the 
quality of care. 

The 530 salaried doctors who work 
here, and offer care through a prepaid in- 
surance plan, do receive prodding from 
above. But it involves not consiant sec- 
ond-guessing or rewards for scrimping, but 
rather a steady How of research news and 
tips that helps suffuse the institution wiih 
an ethic of conservative care. 

"Here, we don'l police; we trust our 
doctors." said Dr. Howard G. Hughes, who 
directs the H.M.O., the Geisinger Health 
Plan. 

In Danville, a lown of 6,000 people, 
Geisinger runs an advanced 577-bed hos- 



Copyright ©1993 by the New York Times Company. Reprinted by pccmission. 



;65 



piial is well as a network of clinics over a 
wide area of central and northeastern 
Pennsylvania. Its growing H.M.O. serves 
142.000 members, while the same doctors 
and clinics also provide the same style of 
care to hundreds of thousands more people 
covered by government or other insurance. 

The doctors insist that their brand of 
medicine improves on a system laden with 
incentives to overuse procedures. 

And they are saving money The 
H.M.O. has the lowest rates in 
Pennsylvania, according to the state insur- 
ance department, with monthly premiums 
this year of $109.70 for individuals and 
$285.22 for families for a plan covering 
nearly everything but prescriptions. 

But the numbers suggest, loo, just how 
severe the challenge is. The health plan's 
charges have risen by an average of 8.6 
percent a year since 1985. Dr. Hughes said. 
That is a good record compared with that 
of most insurers: nationwide. H.M.O. rates 
grew by an average of 11.7 percent per 
year from 1986 to 1992. and rates for tra- 
ditional feefor-service plans rose annually 
by 14.2 percent, according to A. Foster 
Higgins & Company, a consulting firm. 

But it remains well above the national 
goal of steady real spending set by Presi- 
dent Clinton. Recent increases have mainly 
reflected the rising cost of nurses, techni- 
cians and other personnel, the soaring price 
of new drugs and other factors, officials 
said. 

At What Point 
WIfl Savings Stop? 

Geisinger doctors and administrators, 
most of ihem practicing physicians, insist 
that through steady refinement they can 
save much more without compromising 
care. Just how much and how fast, though, 
no one is sure. 

"Price competition doesn't scare me." 
said Dr. Stuart Heydt, president of the 
Geisinger Foundation. "If this model can't 
hold down prices enough, then I'm not sure 
it can be done in a way that fulfills the 
medical expectations of society." 

While America's medical costs are in- 
creased by administrative waste, excess 
equipment, incentives to use procedures 
lavishly and outright fraud, in the end 



spending mainly reflects the routine deci- 
sions of physicians. They decide when a 
patient needs a $70 electrocardiogram, 
when to order a $100 dollar antibiotic in- 
stead of a $10 one, and when $40,000 
bypass surgery is truly likely to improve 
a patient's chances of survival or quality 
of life. 

"The best way to control costs and pre- 
serve quality is to have the physicians do 
it," said Dr. Arnold S. Relman, the former 
editor of The New England Journal of 
Medicine. "The whole health-care system 
is built on the behavior of doctors, and 
that behavior is greatly influenced by the 
way health care is organized." 

Dr. Relman. who has been studying 
health plans around the country, praised 
Geisinger for high doctor morale and a 
system of mutual review that promotes ex- 
cellent care. 

While no organizational structure guar- 
antees quality care, Geisinger has several 
traits that promote it. The bedrock, offi- 
cials here say. is the careful selection of 
doctors who share the group philosophy 
and are happy to work for a salary Since 
they are not paid piecework, they make 
decisions with no direct financial interest 
at stake. (Nationally, doctors are salaried 
in some but not all H.MO.'s or other forms 
of managed care.) 

The salaries here arc enough to support 
an affiuent life in this rural region, but for 
many doctors they are well below poten- 
tial earnings in private practice. 
Primary-care doctors have starting salaries 
in the range of $75,000 to $90,000. while 
among the most experienced specialists 
who might earn several limes as much else- 
where, "very few go beyond $300,000." 
said Dr. Laurence H. Beck, senior vice 
president charged with improving effi- 
ciency and quality. 

Morale rests on the pleasures of patient 
care, collaboration, teaching and research, 
said Dr. Francis J. Menapace. the director 
of cardiology. "We look for a different 
type of physician, one who still looks at 
medicine as a profession, not a business." 



Less Reliance 
On the Specialists 

As in most H.M.O. 's. all patients must 
choose a primary-care physician in the 
plan. Usually trained in family practice, 
internal medicine or pediatrics, these doc- 
tors provide most care and refer sicker 
patients to specialists only when neces- 
sary, holding down costs. 

Now about 30 percent of the plan's doc- 
tors provide primary care, but studies 
suggest the proportion should rise to close 
to 50 percent. Dr. Beck said. This means 
cutting back on specialities, a painful and 
controversial topic among the medical 
staff. 

Dr. Ernest W. Campbell, a primary-care 
physician and head of the Geisinger clinic 
in the nearby town of Bloomsburg, had 
been in independent practice for 18 years 
before he and his partner decided to join 
the salaried group in 19SS. 

"We looked at the H.M.O. and liked 
what they were saying," he said. "It's more 
geared toward preventive medicine, keep- 
ing people healthy rather than just meeting 
the acute needs as they arise." He said the 
switch involved a significant loss in in- 
come, but offsetting this was a drop in 
work time to 60 to 70 hours a week so he 
could see his family more. 

Far from feeling pressure to avoid 
needed care. Dr. Campbell said, "I think 
the quality if anything has gone up." Since 
patients are in a prepaid plan, he said, "now 
we can tell them they have no excuse for 
not coming in when they are ill." 

A large unified system like Geisinger's 
can also avoid duplication of costly equip- 
ment and readily monitor its use. For 
example, all cardiac catherizations, which 
are Dr. Blankenship's diagnostic specially 
and require a million-dollar laboratory, are 
performed at the main hospital in Dan- 
ville, as is open-heart surgery. This does 
mean, though, that some patients have to 
travel up to 100 miles for major proce- 
dures that in a less efficient system might 
be available at a community hospital. 



166 



With central control, too, can come im- 
balances in stafHng, sometimes yielding 
long waits for non-urgent appointments. 
Currently, for example, because of a short- 
age of gynecologists in the group, an 
appointment for a routine pelvic checkup 
can take several months. Officials insist 
that is a temporary side effect of rapid 
growth and a national shortage, not a long- 
term shortchanging of patients. 

But in surveys of H.M.O. patients that 
generally Hnd high satisfaction with care 
and doctors, intermittent dlfnculty in get- 
ting quick appointments has been the most 
common complaint, said Dr. Duane Davis, 
medical director of the health plan. 

When Supervision 
Is From Within 

For all its emphasis on efficiency. 
Geisinger does little of the routine over- 
sight that is now so prevalent in the 
health-insurance industry and so annoying 
to doctors. Instead, the doctors, with lead- 
ership from department heads, are expected 
to watch themselves for unjustined varia- 
tions in individual practice and 
opportunities for improvement. 

"We have a high awareness of what our 
colleagues are doing in the next room," 
Dr Blankenship said. "There's lots of in- 
tercommunication, lots of informal second 
opinions. If someone is consistently doing 
something inappropriately, too much or too 
little,^ we'd notice." 

Peer review is, however, increasingly 
backed up with research and suggestions 
from above. The H.M.O. , for example, 
keeps track of prescribing patterns and 
sends out newsletters urging physicians to 
prescribe cheaper drugs or generic versions 
where they have been shown to be equally 
effective. One recent flyer warned that a 
drug company was "actively encouraging 
pharmacists to call physicians to switch 
patients" from current diabetes drugs to 
its new product, priced 40 percent higher 
even though it offers "no therapeutic ad- 
vantage." 

In another example, officials studied 
whether patients who were put on an ex- 
pensive cholesterol-lowering drug were 
first asked to experiment with dietary 
change. By sharing the results with other 
physicians and stressing the recommended 
course, doctors found that the proportion 



of patients trying diet changes had risen. 
Some will end up needing the drug any- 
way, but some will avoid indermite use of 
a drug that can have dangerous side ef- 
fects. 

As the country seeks to flatten out its 
health costs, the question is how far even 
the best-organized providers can trim back 
without choking off tests and treatments 
of significant potential benefit. 

Dr. Beck said he believes that Geisinger 
and other similar groups still have large 
opportunities to wring out expense. In- 
creasingly important, he said, will be 
reliance on clinical guidelines that reflect 
research, done locally or nationally, on 
what sequences of tests and treatments 
yield the best results for particular condi- 
tions. 

Still. Dr. Beck said, "At some point 
there will be tradeoffs between cost and 
quality." If price controls are too severe, 
he said, society will have to openly face 
the issue of rationing. 



167 



Appendix D 



Modem Healthcare 

September 7. 1992 



Provider groups finding success with 
managed care, study says 



Managed care, a key cost-contain- 
ment and quality-improvement tech- 
nique included in almost every local or 
national healthcare refonn proposal, is 
being implemented by provider groups 
in communities across the country. 

That's the finding of the National 
Committee for Quality Health Care, a 
Washington-based coalition of provid- 
ers and suppliers, which has put together 
a rq»rt profiling 19 successfiil provider- 
based managed-care programs 
throughout the United States. 

The report, "Reinventing Health 
Care: The Revolution at Hand," will be 
released to the public late this week. 

The study was prepared by New 
Dire^ons for Policy, a fiscal policy con- 
sulting group based in Washingtoa 

It 's meant to be a companion study to 
last year's report by the NCQHC describ- 
ing several successful managed -care 
projects initiated by healthcare buyers, 
said William Dwyer, director of corpo- 
rate account development at Abbott 
Laboratories and chaimian ofNCQHC's 
managed-care subconunittee. 

Many providers also have devel- 
0{>ed effective models of 
community-based managed-care pro- 
grams, but policymakers aixl analysts 
have tended to overlook them because of 
all the publicity garnered by the corpo- 
rate efforts, Mr. Dwyer said. 



The report shows that decision-mak- 
ers can learn much from these 
lesser-known examples of how to con- 
strua successfiil quality-improvement 
programs and operate them within a co- 
ordinated healthcare system, he said. 

The provider oi^anizations profiled 
represent essentially two models for de- 
livering services: those based on group 
practices, such as Lovelace Medical 
Center and Health Plan in New Mexico 
and Geisinger Medical Center and 
Health Plan in Pennsylvania, and hospi- 
tal-based network systems, such as Sharp 
Healthcare in San EHego. 

They represent a "small selection" of 
what provider- initiated programs can ac- 
complish in reforming the healthcare 
system when they become leaders in 
promoting community health and 
wellness, he said. 

—PaulJ.Kenk£l 



168 



Appendix E 



Networking 

by Frank Ceme 



Sizing up Pennsylvania 

Geislnger aims to reshape its delivery system 



'// we as a nation are going to gel a handle 
on the escalation ot tiealtli care costs and it 
we are going to be able to provide better 
healin care to more people tor less cost, su- 
ing tt>e delivery system is a tundamental pari 
olmalang that happen ' — Sluarl Heydl, 
M.D , president and CEO ol Geismger Foun- 
dation, Danville, PA 

Ai Geisinger health sysiem. righl- 
sizing has become a creed, shared 
by executives and physicians 
alike, thai drives an organization 
singled out by some health care ex- 
perts as one of several models for na- 
tionwide reform. 

Geisinger's structure and operat- 
ing su'ategies are buill on the assump- 
tion that "we are going to have to pro- 
vide better care to more people for less 
cosi." says Heydt. 
■* Efhciency is the fundamental 
pnnciple thy aJlows Geisinger to ac- 
complish that mission, from the care- 
ful selection of pnmary care and spe- 
cially physicians — most ol whom are 
salaned — to the placement of health 
<&e personnel and technology accord- 
ing to patient needs o\ cr a wide geo- 
graphic area. 

Integrating system components 

Founded in 1915 as the George F 
Geisinger Metnonal Hospital, a 70- 
bcd facility with a mullispecially sala- 
ried group pracuce. the hospital evol- 
ved into a senes of separate corporate 
entities by the late 1980s under the 
control of the Geisinger Foundation. 
System components include the 
Geisinger Medical Center, a 577-bcd 
tertiary care teaching hospital in Dan- 
ville with 75 specialties and subspeci- 
alties; Geisinger Wyoming Valley 
Medical Center. Wilkes-Barrc. PA. a 
230-bed secondary care referral cen- 
ter; a 77-bed inpatient chemical de- 



pendency treatment center. Waverly, 
PA; a 145.000-member HMO: and the 
Geisinger Clinic, a 500-member multi- 
specialty group practice. 

By 1990, Heydl says, it became 
apparent that Geisinger's management 
structure and corporate strategies had 
to change in response to foreseen 
changes in the health care environ- 
ment, primarily the increasing empha- 
sis on vertical integra- 
tion of services and 
managed care. 

Geisinger execu- 
tives then identified 
siraiegies that would be 
needed to carry the orga- 
nization into the future: 

• Geisinger functions as 
cwf organization. 

• Clinical programs and 
clinical process im- 
provements determine 
the size and direction of 
the Geisinger system. 

• Managed care is Gei- 
singer's primary busi- 
ness strategy. 

•Geisinger seeks col- 
laborative opportuni- 
ties to increase access 
to cost-effective ser- 
vices. 

Although Geisinger 
still maintains separate 
corporate entities for le- 
gal purposes, there an: no 
independent boards or 
management structures 
thai identify them as 
such: Geisinger has corporate and re 
gional managers for the system's east 
west and central regions. 

The sysiem spans i 1 counties in 
north-central Pennsv Ivania, a rural re- 
gion with a population of 2. 1 million. 
Heydl says that Geisinger's approach 



to "sizing" the system is Co design the 
network in the most efficient and ef- 
fective manner 

To achieve that goal, Geisinger 
has esublished a network of 45 pri- 
mary care clinics staffed by salaried 
physicians employed by the Geisinger 
Clinic. The physicians offer services to 
Geisinger Health Plan (GHP) mem- 
bers, as well as to other patients. 

GHP also con- 
tracts with other rural 
primary care clinics, 
13 community hospi- 
tals and approxi- 
mately 450 pnvate- 
practice physicians in 
central and northeast- 
ern Pennsylvania 

Heydt says that 
physicians and man- 
agement determine 
how to best distribute 
resources throughout 
the system to build a 
vertically integrated 
network of primary, 
secondary and tertiary 
care that provides the 
appropriate level of 
care lo communities. 

"Wc know that 
we have to size the 
system according lo 
the needs of the popu- 
lations we sen'e." 
Heydl says. "That 
way you not only pro- 
vide greater access to 
high-quality services, 
but you also avoid duplicating services 
and adding expensive technology." 

The right physician mix 

"Sizing' the sysiem means placing 
physician specialists and referring pri- 
mary care physicians in areas where 



PARTICIPANTS: 

•Geisinger Medical Center 

•Geisinger Wyoming \felley 

Medical Center 

•Geisinger Clinic 

•Geisinger Health Plan 

•Marworth Chemical Dependency 

Treatment Center 

UnUZAnON(FY1993) 

Admissions: 30,616 

Clinic^sites: 45 

Clinical vi^: 1.2 inillion 

HMO members: 144.296 

PAYER MDC (FY 1S92) 

Medicate: 37% 
Commercial (includes GHP) 32K 

Medicaid: 10% 

Blue Cross/Blue Shield: 16% 

Selfpay/othen 5% 

EMPLOYEES (Fri992) 

Physicians: 499 
Physicians in training: 198 
Total employees: 7,656 



169 




^ Gelstnger medical group locations Q Gelsinger inpatient facilities | Geislnger health plan service area Q Geisinger service area 



lhe\ ire most needed 

■'ir you assume in j rural area ilui 
people wili visit ihcir luniilv physi- 
cian, tiow man\ pcdiaincun-^ and pc- 
diainc subspeciaiisiv do ytm need u* 
lla^■e ' ^^'herc would ihey h-j located in 
order m provide support lor laniiK 
practice phvsicians'" Hc\di a^k'^- 

Geisin^'cr plans to find tne ansuer 
to those questions b\ anahzuvj the ra- 
tios of pnmarv' care physicians lo spe- 
cialisis in populations ser\'ed b\ other 
sysiems isuch as Kaiser Foundation 
Hospiials). and h> analyzing it^ own 
demographic and cpideniioloLiical 
data. js\ cxiremelv diflicult process. 
Heydi says 

"AVe realize we can t sininls huiid 
J system to sujl our needs We ha\e w 
make sure thai our icsourcev conc- 
spond to the actual needs ol tlic popu 
lalionv ue serve." he says 

Geismcer has 500 sjlaned physi- 
cians. and 30 percent o! the s\sicm s 
clinical practice comes from iis HMO. 
so the alignment of physician iiicen- 
iives is a cr\JCial pan ol Geisineci s 
St rate c> 

Heydt says the system needs lo he 
more creative with physician incen- 



tives in the future, with capitation ex- 
pected 10 become the dominant pay- 
ment method Nearlv 30 perceni ol 
Geisincer s jjross patient service re\ - 
enues come trom GHP 

"The concept ol prospective pay- 
ment lor a dehncd population on a 
pcr-capita. risk-adiusted basis, with 
ph\sicians manjL'inL' that financial re- 
source. IS someihini! we need lo learn 
to do," Heydt says "We need to be a*, 
nsk in terms of utilizing resources to 
ireai a dehned population." 

Heydi says gualit\ assurance and 
utilization review actniiics are made 
easier by Gcisingers structure a salj- 
ned multispecially group practice. 
w hich allows physicians to police 
themselves 

The Geisinpcr Health Plan con- 
tributes to (his process by central!) 
collecting and disseminating informa- 
tion aboui all of Gcismger's qualiiv 
improvcmcni activities 

"Ue are also trying to hnd wa\s 
of milking more inlormation from our 
grossing medical claims data base so 
thai we can learn more about the prac- 
tice of medicine as we conduct it.' ac- 
cordinc lo Wjlham MacBain. a senior 



\ice president and administrative di- 
rector of GHP 

Expansion through collaboration 

GHP IS licensed to offer coverage in 
25 Pennsyhania counties and has con- 
tracts wuh 5(X) employers Managed 
care i-- the s\ stem s stated business 
sirateg\. so Geisinger is looking for 
panners lo integrate into its neiwork- 

.\rcasir. which Geisingei will 
seek expansion will depend on the 
needs of the population, and on w here 
resources need to be located lo best 
^er\c thai population, 

Heydt sa>s Geisinger has ap- 
proached pro\ iders in the region to de- 
termine hou ihe\ can share their com- 
bined resources lo better serve the 
needs ol the populations ihe> |Ointl> 

Such discussKMis ha\e helped 
identit> poiential partners, but anti- 
trust ctmcems ha\e had a chilling ef- 
lect "\^e think such discussions are 
appropriate if thc> don'i occur with 
the intern ol vioLmng sonic of the 
principles of aiiiiiiusi. such as price 
living. "" He>di says, "but we'xe had to 
tiptoe through this process " ■ 



170 




NAMES 



National Associ; 



Medica] Equipmeni Services 



Written Testimony 

of the 

National Association for Medical Equipment Services 

on 

"Inner Cities and Rural Issues" 

presented to the 

House Ways and Means Subcommittee on Health 

Hearing 

of 

Monday, February 7, 1994 

The National Association for Medical Equipment Services 
(NAMES) is grateful to have the opportunity to provide written 
testimony to the subcommittee on meeting the needs of persons with 
disabilities and the elderly in "inner cities and rural 
communities," NAMES represents over 2,000 home medical equipment 
(HME) suppliers, who provide quality, cost-effective HME and 
rehabilitation/assistive technology equipment and services to 
consumers in the home. 

NAMES and the HME services industry applaud the Administration 
for including HME services and custom devices as part of its 
"standard benefits package" because HME is demonstrably cost- 
effective and persons with disabilities and the elderly far prefer 
to recuperate from an illness or injury at home. In addition, 
NAMES is extremely pleased that the Administration's proposal 
includes a long-term care component that allows individuals with 
disabilities and older Americans the opportunity to further utilize 
HME equipment and services. 

However, the following two key issues in the Clinton 
Administration's plan need further consideration: 

1. Competitive Bidding 

As the health care reform debate advances, with the goal of 
maintaining and improving quality health care for millions of 
Americans, NAMES believes Congress should not consider implementing 
competitive bidding for the HME services industry as proposed in 
the Administration's plan. Competitive bidding will reduce the 
provision of quality HME services for persons with disabilities and 
older Americans living in both inner cities and rural communities. 

Specifically, the Administration's plan seeks to implement 
competitive bidding for oxygen and oxygen equipment, parenteral and 
enteral nutrition (PEN) and "such other items and services" as 
determined by the Secretary of the Department of Health and Human 
Services. This provision is part of the $238 billion in Medicare 
and Medicaid cuts over five years that will help pay for the 
Administration's proposal. 

The provision of HME for persons with disabilities and older 
Americans requires extensive services. Providers of HME deliver 
much more than just the equipment; the more critical component of 
HME is the service rendered, which includes but is not limited to 
setting up the equipment, explaining how it operates and 
maintaining it. Experience indicates that competitive bidding 
systems do not guarantee the maintenance of high levels of quality 
service. The bottom line is that competitive bidding will not 
ensure quality HME services at reduced payment levels and could 
curtail access of home medical equipment to all Americans. 



171 



competitive Bidding Studies 

In 1986, the General Accounting Office (GAO) studied eight 
Health Care Financing Administration (HCFA) -initiated competitive 
fixed-price contracts, conducted on an experimental basis for 
Medicare carriers and intermediaries. After examining seven of the 
contracts, GAO concluded that HCFA lost money on four of them 
(Medicare - Existing Contract Authority Can Provide for Effective 
Program Administration, GAO/HRD-86-48, April 1986). In that same 
report, GAO made the following observations: 

A major change in the method of contracting used in the 
Medicare Program is not justified because the competitive 
fixed-price experiments have not demonstrated any clear 
advantage over cost contracts presently used to 
administer the program; 

• The frequent use of this method of contracting could 
increase Medicare administrative problems, including the 
risk of poor contractor performance; and 

• There is potential for disrupted service. 

HCFA also has studied and recommended the implementation of 
competitive bidding for many years — without success. Between 
1985 and 1990, Abt Associates of Cambridge, Massachusetts, was 
under contract with HCFA to evaluate competitive bidding as a 
method of purchasing home medical equipment. One Abt Report 
summary stated that: 

"Competitive bidding processes per se will not necessarily 
result in lower Medicare costs (service and administration) 
for DME or clinical laboratory services in comparison to other 
available reimbursement methods. The ability of competitive 
bidding to realize savings for Medicare, while safeguarding 
quality, depends critically on the design, implementation and 
subsequent administration of the bidding system adopted. This 
review of the empirical literature has raised a host of issues 
for DME and clinical laboratory competitive bidding 
demonstrations, while providing considerably fewer findings 
that can be put forward with confidence." 

From these studies alone it is clear that competitive bidding on 
HME should not be an option for the Medicare program. NAMES does 
not oppose competition in the health care marketplace, provided 
that the quality of patient care and services are maintained. 
However, no data has been presented to indicate that inadequate 
competition exists today in the HME services marketplace. Indeed, 
the increasing number of new entrants indicates that competition is 
flourishing. 

Complexity of Implementing Competitive Bidding 

Competitive bidding for certain HME items has been tried and 
subsequently abandoned in a number of states, undoubtedly due to 
implementation problems on that level. Even more enormous 
complexities would arise in dividing the entire nation into 
multiple and reasonable service areas, since few HME suppliers 
provide all possible HME services. The following consequences are 
probable: 

Rural communities across America will be most affected as 
they will not have access to hundreds of medical 
equipment supply items; 

• Successful bidders for oxygen and other major products 
will not be able to provide reasonable coverage for the 
delivery of the full spectrum of HME items and services 
to all of the areas and regions throughout America; and 

Successful bidders will be delivering a significant 
portion of HME services. Therefore, the smaller 
companies that provide and service less costly and lower 
volume items simply will not be able to continue to 
provide delivery of these items, subsequently forcing 
them out of business. Severe delivery delays for 



172 



equipment and services by large companies that may 
maintain their presence through the bid will occur 
because of the high cost of delivering HME beyond any 
reasonable distance, across urban areas and throughout 
rural areas. Thus, hospital discharges to the home will 
be delayed and hospital admissions will increase, while 
patients are waiting for the required equipment to be 
cared for at home. 

Cost of Competitive Bidding 

Under competitive bidding structures that currently exist for 
oxygen in the Veterans Administration (VA) , there are expectations 
of equipment delivery time that range from 24 hours to 72 hours 
from the time the order is initiated. This delay is necessary to 
allow the bidder, who now has the contract, time to service the 
large geographic area as well as to be as efficient as possible in 
order to stay in business under the lower competitive bidding 
rates. 

• With delivery delays, there will be an increase of 
overall health care delivery costs. Patients will 
experience delays in discharge (which will severely 
disrupt the current DRG structure under Medicare Part A) , 
while waiting for service. 

• Under a competitive bid structure, the service levels 
will deteriorate significantly. Follow-up visits by 
health professionals that facilitate ongoing and thorough 
patient/physician/provider interaction, patient/caregiver 
education and monitoring of adherence to physician orders 
will be eliminated or considerably reduced. 

• Emergency service (24 hours per day) will be compromised 
because of the distance that companies typically travel 
to care for patients under a competitive bidding 
structure. Routine maintenance checks of equipment 
servicing will be cut back due to cost constraints, 
causing concern for patient safety. 

• If only one re-admission for acute exacerbation of COPD 
occurs, which otherwise could have been avoided by 
providing the high level of in-home service that exists 
today, the cost of that admission to the federal 
government will exceed the savings achieved under 
competitive bidding for that individual patient for 
several years. 

The Service Component 

With any competitive bidding system, the first issue to 
consider must be a determination of what level of service provided 
by HME suppliers the government is willing to pay. Otherwise, the 
government should be concerned that the service component — so 
integral to assuring patient health and safety — may diminish or 
disappear. As an example of how competitive bidding has not 
worked, HME providers from Minnesota have expressed concern about 
service-related problems associated with Minnesota Medical 
Assistance Contracted Providers, those companies that have been 
awarded Medicaid contracts with the state. Some problems include: 

• Inadequate patient education and training on equipment; 

• Poor professional follow-up services to determine if the 
patient is properly using the equipment; 

• Irregular equipment checks to determine if the equipment 
is properly working; and finally, 

• Contracts that allow a wait of as long as 24 hours from 
the time the initial physician's order is received by the 
supplier until the equipment is delivered and set-up. 



173 



Americans with disabilities and older Americans alike will 
suffer significantly under competitive bidding because access to 
the custom, highly specialized equipment that they require will 
diminish. NAMES estimates that the small percentage of HME 
suppliers who could remain in business under this type of structure 
would not be able to provide this type of high cost, low margin and 
highly serviced equipment to all corners of the country. 

One HME provider in Minnesota, for instance, services 
approximately 100 oxygen patients with 90 of them being Medicare 
beneficiaries. Typically, he provides an average of three after 
hours (evenings and weekends) calls per week to provide emergency 
service to patients or new set-ups. If these patients were not 
serviced adequately and on a timely basis, then costly 
hospitalization would result. Often, new orders for oxygen in the 
home are initiated from an urgent care clinic or hospital emergency 
room, thereby avoiding hospital admission. 

Under competitive bidding, a rapid response time by a limited 
pool of providers will not be possible. The upshot could be an 
additional and more costly hospital admission. 

Other Competitive Bidding Models 

Competitive bidding is Jcnown to work poorly both for the 
Defense Department and the VA, where this technique already is used 
on a large scale, similar to what Medicare would require. VA 
hospitals have experienced deficiencies documented by the Joint 
Commission on Accreditation of Healthcare Organizations (JCAHO) due 
to the poor quality of home care provided by VA competitive bidding 
contract winners. 

Under the Administration's plan, we would have to expect 
similar, if not greater, problems in access and quality. The VA, 
once acquiring a signed contract in certain states, has monitored 
the provider for provisions of services only to find they have no 
awareness of home oxygen and HME items in the areas of: quality; 
appropriateness of equipment; various types of equipment; safety 
features of equipment; and current pricing of equipment. 

British Columbia, Canada, has had a competitive bid process 
for HME services in place since November 1991. There, the 
government uses a scheme of establishing a "preferred" provider 
based on the lowest bid and up to 2 "approved" providers based on 
the next lowest bid in each health unit (7 units in British 
Columbia) . Typically, this system allows for: 

48 hours to set up new patients, from time of initial 
order; 

A three-year bid period with the government option to 
renew every year if the provider is not performing based 
on confirmed complaints; 

• Concentrators, liquid oxygen systems, portable systems 
and contents to be bid and paid for separately. Contents 
are based on actual usage; 

Government mandates on patient follow-ups/assessments 
done every 6 months as a minimum, but can be done more 
often if so desired; 

• Government mandates that require concentrators to be 
maintained at a minimum of every three months and more 
often if desired; 

The preferred and approved vendors compete on service and 
are permitted to obtain clients based on referral, 
physician or patient preference, even though providers 
will be paid at different rates based on their bid; and 

An overall decline in service levels because patients 
have remained in hospitals longer. Service delays and 
hospital admissions more than likely have increased 
because of minimal patient/provider/physician 
interaction. 



174 



Based on the accumulated evidence that demonstrates the 
inadequacies of competitive bidding and because of the adverse 
impact we predict that such a system would have on persons with 
disabilities, HME providers and the entire health care system, 
NAMES strongly opposes competitive bidding for home medical 
equipment services. 

2. Freedom of Choice 

Especially important, all Americans should have freedom to 
choose their health care providers. The Administration's proposal 
encourages health plans to operate as efficiently and cost- 
effectively as possible. This objective, while laudable, could 
allow health plans to contract only with one provider in a given 
field. Such a practice, however, would limit the choices of 
available providers from which consumers can select. And, as such, 
HME suppliers from whom consumers may have received care in the 
past or whose companies are closer to home could be closed out. 

NAMES already is beginning to see situations develop where 
consumer choice is being severely limited because some HMOs will 
contract only with one HME supplier. Our concern is that reducing 
the number of providers in a given field will result in decreased 
competition, eventually driving up prices, while diminishing 
quality of care. No single provider can adequately cover as large 
a geographical and populated area, across many miles and through 
dense inner cities, as envisioned in the Clinton plan. Suppliers 
also vigorously oppose the concept of a competitive bidding system 
for HME items that essentially would lead to diminution of services 
and quality. 

NAMES recommends that the final health care reform legislation 
should provide incentives for health plans to contract with as many 
providers as necessary to meet the needs of the community. At the 
very least, there should not be any disincentives in the system to 
allowing full provider participation. As well, administrative 
simplification of forms and the processing of reimbursement claims 
would help eliminate some of these disincentives. 

In the midst of the current health care reform debate, the one 
solution to rising costs that emerges as an efficient, affordable, 
and compassionate option is HME services as part of home care. HME 
suppliers meet the needs of a wide range of individuals who require 
medical equipment and services in their homes. Suppliers not only 
provide many of the more "traditional" items of equipment such as 
those envisioned when the Part B "DME" benefit was first adopted as 
part of the Medicare law in 1965; now we also provide a vast array 
of highly specialized and advanced services, such as infusion 
therapy for the provision of antibiotics and chemotherapy, oxygen 
and ventilator systems, and advanced rehabilitation equipment. 
Comprehensive health care reform should establish no impediments to 
the use of home care and HME services that are currently available 
or to the enhancement of care in the home and other non- 
institutional settings. 

NAMES and HME suppliers are ready to assist Congress in any 
way possible as you debate national health care reform, by 
providing additional information on the HME services industry's 
concerns described above and how they relate to persons with 
disabilities and older Americans. 



175 



TESTIMONY OF GAIASHKTOOS 

PRESIDENT, NATIONAL CONGRESS OF AMERICAN INDIANS 

BEFORE THE SENATE COMMITTEE ON INDIAN AFFAIRS 

INTRODUCTION 

Mr. Chairman and Members of the Conunittee on Indian Affairs, good afternoon. My name is 
gaiashicibos. I am President of the National Congress of American Indians and Chairman of the 
Lac Courte Oreilles Band of Ojibwe Indians of Wisconsin. I would like to thank the Conunittee 
for the opportunity to appear before you regarding the most important issue of health care reform 
for our nation's first citizens. 

The National Congress of American Indians (NCAI) is the oldest and largest federation of 
Indian nations committed to the promotion of tribal governments and the protection of Indian 
rights. Our membership currently exceeds 162 tribes. Established in 1944 and celebrating 
presently our 50th Anniversary, the NCAI is devoted to advocating the interests of American 
Indian Tribes and Alaska Natives. It is in this spirit that I appear before you today. 

Mr. Chairman, before I begin with the main body of my remarks, I would like to draw the 
Committees attention to a resolution passed recently by our membership regarding health care 
reform at the organization's annual convention this past December in Reno, Nevada. (See 
Attachments). I ask respectfully that the resolution, along with my statement, be entered into the 
record. 

It is my understanding that the purpose of today's hearing is to solicit commentary generally on 
SI 757, the American Health Care Security Act, as it is perceived to affect Indian Tribes, and hear 



176 



specifically comments on the interface between the President's National Health Care Reform 
proposal and the Indian Health Service. Accordingly, my testimony begins with a brief overview 
of some of the principals the NCAI believes are essential in order for meaningful health care 
reform be achieved for American Indians and Alaska Natives. I further raise what I believe are 
some of the more serious questions and concerns about the scope of health care sersaces that will 
be provided in Indian country. Indeed, it is imperative that Indian country be provided all the 
information that is necessary to weigh carefully, the merits of the President's proposal. 

BACKGROUND 
It was with anticipation and great hope that I awaited formal introduction of the President's 
Health Security Act (S.1557) into both houses of Congress some 2 months ago. I certainly am 
among those who believe that health care in this country, particularity for American Indians and 
Alaska Natives, is in a state of emergency. At the outset, I am generally encouraged that the 
President's health care proposals for Indian country are premised in the recognition of treaty 
commitments and the system of health care that has been developed over the years to fulfill the 
goverrunent's responsibilities in addressing health care needs of Native Americans by maintaining 
as the principal component of the health care delivery system that would serve Indian country, the 
Indian Health Service (IHS). There is no doubt that the federal government's responsibility for the 
provision of health care to this country's first citizens arises out of commitments that the United 
States made upon entering into treaties with Indian nations. Moreover, Mr. Chairman, this is no 
doubt that the Native people of this country have paid dearly for the benefits they receive. We've 
ceeded millions of acres of land, —in many instances our home lands — in exchange for a promise 
of health care. For decades, we have suffered in a system of rationed health care, a system which 



177 



has been seriously and severely underfunded from the outset. There must now be proper 
assurances that health care reform for the Native people of the United States is meaningful and 
tangible, and not simply yet another unfulfilled promise by the Federal Government. 

QUESTIONS AND CONCERNS REGARDING HEALTH CARE REFORM FOR 
NATIVE AMERICANS 
There is no question that the Health Care Security Act would have a significant effect upon the 
relationship between the Indian Health Service and the population it serves. And, there is no 
question that the National Congress of American Indians supports the general principles of the 
Health Care Security Act. We believe in the principles of universal health coverage for all 
Americans and believe in action to control the soaring costs of health care. However, in order to 
fully evaluate the merits of the President's Health Care Reform proposal, and to provide 
meaningful input in order to achieve more efficient and effective health care systems for Indian 
country, some fundamental questions must be answered and some basic assurances provided. 
1. Funding 

It is essential that sufficient funding to fully support services for Indians be made 
available, consistent with the government's trust obligations to American Indians and Alaska 
Natives. The NCAI is very concerned presently that funding for Indian health programs within the 
Act is wholly inadequate to support the costs of delivery of the guaranteed benefit package to 
American Indians and Alaska Natives. In short, Mr. Chairman, we are concerned that the 
President's plan continues a long history of the severe underfunding of Indian programs. The many 
worthwhile objectives contained in the Act simply cannot be realized without proper financing. At 
best Mr. Chairman, the current level of funding for the health care programs designed to serve 



178 



Indian people who reside in reservation communities permits the IHS and the tribally operated 
programs to address less than 50% of the overall health care needs of the Indian patient 
population. Under the IHS operated programs, this includes some 42 hospitals and 65 health 
centers. Under the Tribally operated programs, which represent a growing component of the 
Indian delivery system, tribes operate approximately 8 hospitals and 93 health centers. And while 
the Congressionally mandated mission of the IHS is to elevate severely the health status of Indians 
to the highest possible level, limited federal funding has forced IHS to severely ration its services. 
I now understand that the President's targeted request for Fiscal Year 1995 for IHS will further 
reduce the capacity of the Indian health care system to address the needs of our communities. All 
the while, there remains a soaring unmet need for safe water and sanitation systems. According to 
its own estimates, only 15 of the nearly 500 IHS facilities currently has the potential to provide 
the fill! range of health care services that are part of the comprehensive benefits package 
guaranteed to all other Americans under the Health Care Security Act sufficient funding is vital. 

We must have some concrete answers to questions about the costs to provide all of the 
benefits listed in the Comprehensive Benefits Package (CBP). Further, we must know more 
precisely what it will cost to maintain the same level of supplemental benefits which the IHS 
currently provides. It would be helpful if Tribes knew what amount the Administration expects 
Tribes to spend on renovation and expansion through the revolving loan fund. We need to know 
what will happen to the Medicare and Medicaid payments which Tribes currently collect, under 
the Act. It is imperative that the Administration and Congress commit to seeking a sufficient level 
of funding necessary to provide the same comprehensive benefits other Americans are guaranteed 
under the Act, at a minimum the same level of supplemental benefits that currently exists and to 



179 

achieve the renovation and expansion of facilities called for under the Act. 

2. The Govemment-to-Govemment Relationship 

In order to be consistent with the principles of Self-Governance, the NCAI believes the 
Administration should have consulted with Tribes in drafting the Indian and IHS sections of the 
bill. We hope that Congress will listen with a carefully to Tribes throughout the debate on national 
health care legislation and its impact on Indian people. 

Similarly, we are concerned that the Act has not properly taken into account the govemment- 
to-govemment relationship between Indian tribes and the Federal Government. While the Act 
provides a number of incentives to states which opt to undergo reform prior to the January 1, 
1998 deadline, no such incentives are extended to the Tribes of the IHS. We hope the 
Administration will agree to provide the same incentives to tribes that it currently is offering to 
states. We also encourage the Administration to take the necessary steps to see that tribes and 
states undergo reform at approximately the same time. It troubles me deeply that Indians and 
Alaska Natives will have to wait an additional year for health care reform under the current 
provision of the Act. 

An additional concern under the govemment-to-govemment relationship occurs with respect 
to service to non-Indians. I know many tribal leaders share this concern. Presently tribes have 
authority to prevent the IHS from immediately extending services to non-Indians under the Indian 
Health Care Improvement Act. My understanding is that the President's bill will undermine that 
authority. The NCAI encourages Congress and the Administration to restore the requirement of 
tribal consent prior to extending IHS and tribal services to non-Indians. 



180 



3. Additional Issues of Concern 

The Act authorizes regional health care alliances to essentially operate as large purchasing 
agents for options of health care plans from which alliance members may select the option which 
most suits their needs. However, the Act does not resolve the issue of whether the overall IHS 
service system could function as an alliance, purchasing health care plans for it's service 
population. A principle feature of the health alliances is that they enable the pooling of a 
sufiQciently number of a large number of health care consumers to afford an economy of scale in 
the purchase of health plans. We are concerned that while the proposal for Indian country may 
well offer more flexibility for local tribal government decision making, it may result in the loss of 
economy of scale of purchasing power if the IHS were otherwise deemed to have the state us 
regional health alliance. 

Similarly we are concerned about the retention of the "payer of last resort" policy. I 
understand IHS will continue "the payer of last resort" in the new era of health care reform. We 
believe that this policy must be eliminated and that to clarify the role of IHS as the primary 
provider to Indian people, direct federal reimbursement be provided to Indian Health programs 
for services provided to patients eligible for third party reimbursements. 

The President's plan lacks a strong health promotion and disease prevention component. We 
believe these programs form the comer stone of any effective health care system and are a vital 
part of addressing the health care needs of Native populations. We hope that Congress takes the 
necessary steps that health plans offer health promotion and disease prevention programs as part 
of the guaranteed benefits packages and that allocations and appropriations for Indian health 
programs include the cost of these preventive services. 



181 



I am pleased that President Clinton's health care plan includes long-term care health care 
services. However it is unclear just where Indian programs will fit into this system. Under the 
current system, states fund many long-term care services for low-income Indians through the 
Medicaid program. It is unclear that such services will continue under the Act. We believe a 
mechanism should be clearly identified within the President's plan for fijnding the portions of the 
various long-term care programs for Indians which would otherwise be paid as part of other state 
matching funds. We are further concerned that the IHS has no comprehensive long-term care 
program for older and disabled patients We hope the Administration remains committed to a 
strategy for improving health care for the Native American elderly and disabled. 

An issue to which I am personally committed as a tribal leader is HIV/ AIDS prevention and 
education. We are faced with an alarming increase of HIV positive Native Americans and patients 
who have developed AIDS. Unfortunately, funding for AIDS programs through IHS has been 
sharply reduced. Essential treatment drugs have been eliminated from the IHS pharmaceutical 
formulary. It is unclear under the President's plan whether such funding would be restored. I 
believe that a meaningful health care plan would provide, at a minimum, essential treatment drugs. 

CONCLUSION 
Mr. Chairman, I would like to again thank the Committee for this opportunity to peirticipate in 
dialogue with the Administration regarding the impact national health care will have on Indian 
people and the Indian Health Service system. We certainly have a significant amount of work 
before us. We remain hopeful that the President's health care reform bill will provide an 
opportunity to address serious problems and improve health care for Native Americans. On behalf 
of the National Congress of American Indians, we look forward to working with the 

Administration and Congress to provide meaningful, effective and efficient health care services to 
this country's first citizens. 



182 



TESTIMONY OF ROBERT E. BARROW 

MASTER OF THE NATIONAL GRANGE 

OF THE ORDER OF PATRONS OF HUSBANDRY 

I am Robert E. Barrow. I are the Master (President) of the 
National Grange of the Order of Patrons of Husbandry, which is 
this nation's oldest, general farm and rural public interest 
organization. It is a pleasure to speak to you today about the 
Grange's views on health care reform, especially as it affects 
the farming and rural areas of our nation. 

The impact of health care reform on rural America has 
received too little attention to date in the public debate on 
this issue. 

After surveying our approximately 300,000 members across the 
nation on this issue, we have found there is a broad agreement 
among farmers and rural citizens on many of the basic goals of 
national health care reform. Grange members support universal 
access to health care for every American regardless of age, race, 
income, prior health condition, or where they live. We support 
efforts to streamline the administrative costs and to contain 
health care's skyrocketing costs. Grange members support main- 
taining the freedom to chose one's own doctor. 

However, our members are concerned that the unique problems 
that are facing health care in rural areas are not magically 
solved simply because we can and should find substantial areas of 
common ground with our urban and suburban countrymen. Our debate 
on national health care reform must focus substantial attention 
on critical rural health care issues that affect nearly one out 
of every four Americans. 

This immense population, distributed across the huge geo- 
graphic expense of our nation, means that the United States has a 
vast rural health care system that no other industrial nation 
tries to maintain. This fact is important because many modern 
medical technologies seem to achieve their highest efficiencies 
as greater economies of scale are found. Unfortunately, these 
economies of scale are concentrated more and more in heavily 
populated urban areas. 

As a result, rural areas are increasingly facing reduced 
access to health care facilities. Rural hospitals are smaller 
than urban hospitals and find it difficult to use modern econo- 
mies of scale. Rural health care providers have also been sub- 
jected to overt discrimination by the federal government's 
Medicaid and Medicare programs, which have set lower reimburse- 
ment schedules for small rural hospitals than for larger urban 
hospitals. 

The difficulties and costs of maintaining quality health 
care in rural areas can be demonstrated by the experiences of 
the state of Pennsylvania. In 1989, the Center for Rural Penn- 
sylvania published a report entitled "Health Care Outlook and 
Opportunities". In that report, the Center found that nearly one- 
half of the rural counties in Pennsylvania either rely exclusive- 
ly on small hospitals or do not have a hospital. 

The problems concerning access to adequate rural health care 
services are not limited to Pennsylvania. The Congressional 
Office of Technology Assessment has found that rural areas cannot 
recruit and retain qualified health care personnel. One hundred 
and eleven rural counties in the United States do not have 
resident physicians. Over one-half million rural residents live 
in counties that do not have a physician who is trained in 
obstetric care. Forty-nine million rural citizens live in coun- 
ties that do not have a psychiatrist. 

Access to health care facilities is not the only critical 
problem facing rural residents. America is an aging society. 
Persons who are 85 years of age or older are the fastest growing 
segment of our population. As we age, we tend to require more 
health care in order to maintain our quality of life. For exam- 



183 



pie, the average 35-year old uses about $1,000 of health care per 
year. The average person over the age of 8 5 uses $6,000 or more a 
year in health related services. 

This problem of an aging population is especially acute in 
rural areas where the average age is 39 years old as compared to 
a national average age of about 32 years old. Moreover, the 
average age of a farm operator in the United States is 53 years 
old. The critical problems involved with dealing with the in- 
creasingly expensive needs of an aging population are already 
having a tremendous impact on the health care system in our rural 
and farming areas. 

Other issues are also critically important to the rural 
health care debate. Our nation's public and private insurance 
systems have systematically discriminated against rural health 
care providers by providing reduced reimbursement for the same 
procedures or services that are provided in rural areas as 
opposed to urban areas. The federal government's policy of not 
allowing 100% deduction of health insurance costs for self- 
employed individuals has also been a burden on rural areas 
because rural and farming communities have disproportionate 
numbers of self-employed people. 

While the National Grange applauds the efforts of the 
Administration and Congress to advance the goals of health care 
reform, we can't help but have nagging concerns about the details 
of the President's plan as presently formulated. Our chief worry 
is that "Health Care That is Always There" will turn into "Health 
Care That is Always (Over) There" for rural Americans. We fear 
the continued consolidation of health care facilities outside of 
areas that are easily accessible to rural citizens. In our view, 
forcing farmers and other rural citizens to travel greater 
distances to receive primary to secondary health care is not 
health care reform. It is merely cost shifting and risk shifting 
in another form. 

Guarding against discriminatory forms of cost shifting and 
risk shifting will require all of us who are concerned about 
health care in rural America to remain actively involved as the 
debate on health care unfolds over the next few months or years. 
There are literally hundreds of issues where rural citizens have 
a distinct interest in how the details of health care reform are 
finally worked out. I would like to offer a few of the key issues 
that the Grange believes will tell us whether or not health care 
reform will be beneficial or detrimental to rural areas: 

1. Global budgeting - If the President's proposals for 
global budgeting rely primarily on historical spending 
patterns, then health care reform will only lock-in the 
discrimination that has historically occurred in rural 
areas. 

2. Relaxing the standards of health, safety, or consumer 
protection. Several proposals to increase the avail- 
ability of health care in rural areas involve relaxing 
certain government standards that are related to pro- 
tecting the patient's safety or consumer protection. 
Related proposals call for expanding the use of non 
physician-administered primary health care in rural 
areas. We are not opposed to a discussion about these 
proposals, per se, as part of the national health care 
debate. However, we are concerned that the merits of 
proposals like these should be debated for their adopt- 
ion by all Americans - not just those who live in rural 
areas. Rural Americans and farmers are not second class 
citizens who must waive their rights to safety or con- 
sumer protection in order to receive adequate health 
care. If it is cost effective for registered nurses and 
physicians' assistants to deliver primary health care 



184 



in rural areas, we assume those same efficiencies will 
be found in urban and suburban areas as well. 

3. Health Care Alliances - The President's proposal envi- 
sions large purchasing cooperatives of one million 
members or more to contract with health care providers 
to provide medical services to the Alliance's members. 
In all but a handful of states, it seems unlikely that 
most health care alliances will be structured so as to 
include a majority of rural residents. More likely, 
health care alliances will be structured around urban 
and suburban population centers that have significant 
numbers of rural citizens lumped into the metropolitan- 
based alliances for convenience sake. 

This situation may or may not be beneficial for farmers and 
rural residents. However, as I have pointed out, rural areas have 
unique health care needs that may not be adequately addressed in 
health alliances that are 60%, 70%, 80%, or more urban and 
suburban based. A key test of the President's reform proposal 
will be adoption of a program that allows a wider range of 
options in the formation of health care purchasing cooperatives 
that recognize, as Revolutionary War hero Ethan Allen once said, 
"The Gods of the Hills are not the Gods of the Valleys". Rural 
areas will need to be allowed to withdraw from metropolitan-based 
health care alliances and form their own purchasing cooperatives 
if rural areas are going to be able to determine their own health 
care destiny. 

The Grange's interest in rural health care dates back for 
decades. Many of the State Granges already act as health care 
alliances for our members by contracting with HMOs and insurance 
companies to provide quality health care services to their 
members. State Granges operate half-a-dozen long-term health care 
facilities for Grange members across the nation. Dozens of local 
Granges across the nation sponsor or actively support Emergency 
Medical Services in their communities. Health care is a critical 
issue for our state Granges and local Grange chapters. 

At the National level, the Grange is sponsoring a multi year 
political education and action program called "Health Care in 
America". At our request, nearly 1,700 local Granges wrote to 
First Lady Hillary Rodham Clinton urging her to consider the 
unique problems of rural America as the Administration drafted 
its health care proposals. We have published and distributed 
nearly 5,000 copies of an information brochure entitled "Health 
Care in America: Issues, Questions, and Facts". I proclaimed this 
past September "Health Care in America Month" and asked our local 
and State Grange chapters to hold meetings on health care reform 
and to sponsor free blood pressure screenings to help make people 
aware of their personal responsibilities of maintaining good 
health as an integral part of any national health care reform. 

The National Grange is committed to working with the Clinton 
Administration, Members of Congress, and our allies and friends 
in rural areas that are represented by colleagues at this table 
to secure affordable health care for all Americans. We believe 
our job is to make sure that the unique problems and challenges 
of providing adequate health care in rural America is incorporat- 
ed into any final national health care reform plan. 

Thank you. 



H.R. 1200, AMERICAN HEALTH SECURITY ACT 
OF 1993; H.R 2610, MEDIPLAN ACT OF 1993; 
AND OTHER SINGLE-PAYER OPTIONS 



WEDNESDAY, FEBRUARY 9, 1994 

House of Representtatives, 

Committee on Ways and Means, 
Subcommittee on Health, 

Washington, D.C. 
The subcommittee met, pursuant to notice, at 10:06 a.m., in room 
1100, Longworth House Office Building, Hon. Fortney Pete Stark 
(chairman of the subcommittee) presiding. 

[The press release announcing the hearing follows:] 



(185) 



186 



FOR IMMEDIATE RELEASE PRESS RELEASE #26 

THDRSDAY, JANUARY 27, 1994 SUBCOMMITTEE ON HEALTH 

COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLDG. 
WASHINGTON, D.C. 20515 
TELEPHONE: (202) 225-7785 

THE HONORABLE PETE STARK (D. , CALIF. ), CHAIRMAN, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCES A HEARING 

ON 

HEALTH CARE REFORM: 

H.R. 1200, THE AMERICAN HEALTH SECURITY ACT OF 1993; 

H.R. 2610, THE MEOIPLAN ACT OF 1993; AND OTHER SINGLE-PAYER OPTIONS 

The Honorable Pete Stark (D. , Calif. )> Chairman, Subcommittee on 
Health, Committee on Ways and Means, U.S. House of Representatives, 
announced today that the Subcommittee will hold a hearing on 
H.R. 1200, the American Health Security Act of 1993; H.R. 2610, the 
MediPlan Act of 1993; and other single-payer health care reform 
options. The hearing will be held on Wednesday, February 9, 1994, 
beginning at 10:00 a.m., in room 1100 Longworth House Office 
Building. 

In announcing the hearing. Chairman Stark stated: "A single- 
payer health care system, such as the Canadian system, is the 
simplest and most straightforward alternative for solving the 
problems facing our health care system today. The Congressional 
Budget Office has found that such a system has the highest potential 
for controlling health care costs. For these reasons a hearing to 
explore the feasibility of a single-payer system is a necessary part 
of our examination of options for health reform^;* 

Oral testimony will be heard from invited witnesses only . 
However, any individual or organization may submit a written 
statement for consideration by the Subcommittee and for inclusion in 
the printed record of the hearing. 

BACKGROUND : 

H.R. 1200, the American Health Security Act of 1993 was 
introduced by Mr. McDermott, Mr. Stark, Mr. Rangel, Mr. Lewis (Ga.), 
Mr. Gibbons, Mr. Coyne, Mr. Ford (Tenn.), et al. 

H.R. 1200 would establish a single-payer model of health care, 
providing coverage for all Americans. The provision of health care 
services would remain in the private sector and individuals would not 
obtain their insurance through their employers. Patients could 
select their own physicians and there would be no deductible, 
coinsurance, or copayment required. The benefit' package would 
include all preventive, hospital and outpatient medical services. In 
addition, the plan would cover long term care, mental health 
services, prescription drugs, and substance abuse treatment. The 
plan would be administered by the States, and providers would bill 
the State for covered services. 

The plan would be Federally financed. The Federal Government 
also would define the standard benefit package and collect the 
premiums. Financing would be through payroll deductions, a tax on 
tobacco products, and an excise tax on handguns and ammunitions. 
Savings from the elimination of health insurance products would be 
used to subsidize care for low-income persons. 

H.R. 2610, introduced by Mr. Stark, Mr. Coyne, et al, would 
extend benefits under the Medicare program to all Americans and is 
similar to a proposal introduced by Mr. Stark in the 102nd Congress, 
H.R. 650, the MediPlan Act of 1991. The bill would assure health 
insurance protection modeled on the Medicare program. 



187 



It incorporates the national health budget and reimbursement 
systems currently included in H.R. 200. The budget would be used to 
establish provider payment rates, and to assure that costs are 
contained within limits. Total expenditures would be gradually 
reduced to the rate of increase in the gross domestic product. 

The bill would provide Federal regulation of MediPlan 
supplemental insurance. Any additional costs would be financed 
through a new lO-percent tax on gross payments received for MediPlan 
benefits by health care providers. In addition, every individual 
(except lower-income Americans) would pay the MediPlan health 
benefits premium (about $1, 500/person; $3,000 per working couple) 
through the income tax system, and employers would pay 80 percent of 
the MediPlan health benefits premium. 

Benefits under Medicare would be enhanced by the bill. Basic 
benefits would include Medicare benefits except that a single 
deductible of $350 per individual ($500 per family) and an out-of- 
pocket limit per person of $2,500 ($3,000 per family) would be added. 
Prescription drugs would be added with a separate deductible, and 
prevention benefits would be covered without cost sharing. 

The bill would encourage States to continue their experiments 
with their own reforms. States, subject to minimum Federal 
guidelines, could opt out of the national program. 

DETAILS FOR SUBMISSION OF WRITTEW COMMEMT8; 

For those who wish to file a written statement for the printed 
record of the hearing, six (6) copies are required and must be 
submitted by the close of business on Wednesday, February 23, 1994, 
to Janice Mays, Chief Counsel and Staff Director, Committee on Ways 
and Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20516. An additional supply of 
statements may be furnished for distribution to the press and public 
if supplied to the Subcommittee office, 1114 Longworth House Office 
Building, before the hearing begins. 

FORMATTING REODIREMEMTB ; 

Each statement presented (or printing to tne Commitiee by • witness, any written statement or exhibit submitted (or 
the printed record, or any written comments in response to a teQuett tor written comments must con(orm to the guidelines 
listed below Any statement or exhibit not in compliance north trtese guidelines will not be printed, but will be maintained in 
the Committee files (or review and use by the Committee 

1. All statements and any accompanying eihioits to' printing must be typed m single space on legal-size paper and 
may not exceed a total o( 10 pages 

2 Copies o( whole documents submitted as exnipn material will not t>e accepted (or printing Instead, exhibit 
matenal should be re(erenced and quoted o' paraphrased All exhibit material not meeting these specifications 
will be maintained in the Committee files for rev«w and use by the Committee 

3 Statements must contain the name and capacrty in which the witness will appear or, (or written comments, the 
name and capacity o( the person submitting trie statement, as well as any clients or persons, or any organization 
(or whom the witness appears or (or whom the statement is submitted 

4 A supplemental sheet must accompany each statement listing the name, (uM address, a telephone number where 
the witness or the designated representative may t>e reached and a topical outline or summary o( the comments 
and recommendations in the full statement This supplemental sheet will not be included in the printed record 

The above restnctions and limitations apply only to material being submitted (or pnnting Statements and exhibits or 
supplementary matenal submitted solely for distribution to the Members, the press and public dunng the course o( a public 
heanng, may be submitted in other (orms 



188 

Chairman Stark. The committee will come to order. 

The chairman would like to announce that the committee is 
going to continue its hearings on health reform today and deal with 
the single-payer option. The chair has a 2 page opening statement 
which lauds the merits of the single-payer system, and I would ask 
unanimous consent to dispense with the reading of this laudatory 
opening statement and have it appear in the record alongside of 
the laudatory statement that I am sure my distinguished colleague 
from California, the ranking member, would like to make in nis 
opening statement. 

[The statement referred to follows:] 

OPENING STATEMENT 

THE HONORABLE PETE STARK 

COMMITTEE ON WAYS AND MEANS 

February 9, 1994 



Good morning. 

Today, the Subcommittee on Health continues its series of 
hearings on health care reform proposals with testimony regarding 
the so-called "single payer" options for reform. 

There are two primary approaches to a single payer approach to 
health care reform. The first is HR 1200, the American Health 
Security Act of 1993, introduced by Representative McDermott amd 
others. I introduced the second alternative, HR 2610, the 
MediPlan Health Care Act of 1993. 

Single payer proposals meet every one of the President ' s 
objectives for health care reform. They would guarantee universal 
coverage and limit the growth in total health spending, with 
scoreeible savings. In fact, the Congressional Budget Office 
estimated conservatively that by the year 2002, reforms along the 
lines of H.R. 1200 would reduce national health expenditures by 
70 billion dollars, with savings escalating in subsequent years. 

Both of these proposals would preserve patients' freedom of 
choice. Unlike many of the competing health reform proposals, 
the single-payer approach allows every American the financial 
freedom to choose his or her own doctor, specialist, and 
hospital . 

Probably the greatest virtue unique to the single-payer reforms 
are their simplicity. Everyone is covered under the same system. 
Providers have only one set of rules by which to play. And, in 
comparison to every alternative health reform proposal, a single- 
payer system wastes the least amount of scarce resources on 
excessive administrative costs. 

The idea of a single payer system is not radical, as some would 
like us to believe. In essence. Medicare is a single -payer 
system for the elderly -- and a very successful and popular 
system at that . 



189 



since 1965, Medicare has insured virtually all senior citizens 
under a single public plan. Medicare now provides universal and 
guaranteed coverage to some 35 million Americans. Individuals 
entitled to Medicare benefits have complete freedom to choose 
their own hospitals and doctors. 

Unlike any private health insurer, Medicare's administrative 
costs are between 3 to 4 percent of total expenditures . Given 
this record of efficiency, I am hard pressed to justify 
alternative health reform plans that recjuire higher payments to 
cover the overhead of private health insurers, which ranges up to 
40 percent. 

Medicare has a proven record of effective cost containment. The 
Medicare program has pioneered innovative payment methodologies. 
In fact, many private insurers have started to follow the lead of 
Medicare in the use of the physician resource-based relative 
value scale (RB RVS) and the hospital prospective payment system 
based on diagnosis related groups (DRGs) . 

Medicare is a popular program. It works. It has been tested by 
some of our most critical and outspoken constituents. And they 
like it. It is an all-American health insurance system, which 
takes good care of our parents and grandparents . 

Of course. Medicare is not perfect, and could be improved, as it 
has been over the course of the past thirty years. Nonetheless, 
I dare say we would be very fortunate indeed if, at the end of 
this year, we produce a health reform plan as popular and 
successful as Medicare. 

A single-payer plan, such as either H.R. 1200 or H.R. 2610, would 
provide all residents of this country health insurance coverage 
that is guaranteed and portable . It would provide seamless 
coverage -- without regard to income, employment or medical 
problems. 

I urge my colleagues to take a careful look at the merits of 
these two bills as we work to pass health care reform legislation 
during the next few months . 



190 

Mr. Thomas. Mr. Chairman, I do not have a written statement 
lauding the single-payer system that I would put in the record, but 
I would say that I am pleased that CBO has finally given us some 
numbers on the President's, so that we can begin to compare other 
plans. 

We have taken testimony from a lot of people in the health care 
industry, and I look forward to begin to hearing testimony from our 
colleagues who have spent a lot of time looking at this questions 
and clearly have different ways of delivering what all of us are in- 
terested in, and that is health care to all Americans. 

Thank you, Mr. Chairman. 

Chairman Stark. We have an opening panel consisting of three 
distinguished members. We are awaiting the arrival of Hon. John 
Conyers of Michigan, who is on his way. 

We are joined by a distinguished member of our subcommittee, 
Mr. McDermott, and my neighbor and colleague from California, 
Hon. George Miller. 

In the interest of time, Jim, why do we not have you start off? 

STATEMENT OF HON. JIM MCDERMOTT, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF WASHINGTON 

Mr. McDermott. Thank you, Mr. Chairman. 

I am here today really as the coauthor of H.R. 1200, the Amer- 
ican Health Security Act, and I want to thank the subcommittee 
for the opportunity to testify about this issue. 

This subcommittee and the Congress are beginning a historic de- 
bate on national health care reform. It is long overdue, and I know 
that many members on this committee have been actively working 
on this issue for many years. 

President Clinton deserves much credit for placing health care 
reform first on his agenda for the Nation. It is now time for the 
Congress to respond to the challenge, and I think we all welcome 
that challenge. 

We are all aware of the need for the reform of the Nation's cur- 
rent system of providing and paying for health care. I am not going 
to waste your time convincing you of the existence of health care 
crisis. The American people know the indisputable reality of this 
crisis. And as far as I am concerned, anyone who tries to convince 
them otherwise can defend that position at the polls. 

The time has come to start making decisions. So far, the debate 
has focused really on competing slogans. But we all know that slo- 
gans are not going to be enough on this issue, because every citizen 
will be personally affected by this vote, and if we mislead them 
with slogans, every voter will know it in a very short time. 

We are at a fork in the road. Yogi Berra said: "When you come 
to a fork in the road, take it." We can now consolidate the control 
of the insurance companies over our health care delivery system 
and spend all our resources policing how they do the job, or we can 
give that control to the American people. 

H.R. 1200 will give you the chance to vote for something that will 
cost your constituents less and give them more than they have ever 
had, and you will be able to explain to them exactly how it will 
work. I believe that is a vote that can you defend. 



191 

Every other option, including the status quo, will cost them much 
more and give them much less. They may not understand that 
today, but they will figure it out in a very short time, and they will 
hold those of us who failed to seize the opportunity for the best ac- 
countable. 

So let us talk reality and substance. Let us really talk bottom 
lines. 

I am here today to discuss a proposal which at least 92 other 
members, including my colleague, Mr. Miller, feel is the most cost- 
effective approach to preserving the best aspects of our current sys- 
tem, while taking bold and necessary new steps to correct the in- 
equities and shortcomings of our current system of health care fi- 
nancing. 

In short, H.R. 1200 offers the best approach to health care re- 
form because it is simple; it is universal; it is proven; and it is effi- 
cient. 

H.R. 1200 in a single-payer model of health care financing which 
guarantees — and I underline "guarantees" — universal coverage 
while preserving the best aspects of the current private delivery 
system. This is in sharp contrast to other proposals currently be- 
fore the Congress. 

President Clinton's plan aspires to universal coverage, but it will 
achieve this only through a tremendous disruption of the present 
system which has never been tested before. Other proposals before 
the Congress do not even pretend to achieve universal coverage. 

Most significantly, H.R. 1200 accomplishes the goals the univer- 
sal coverage, the preservation of the current private physician/pa- 
tient relationship, and offers the most comprehensive benefit pack- 
age, while accruing the largest savings compared to any other pro- 
posal. 

According to the CBO, who was here yesterday, the single-payer 
approach will save up to $175 billion a year from the Nation's 
health care bill by the year 2003. That compares to $110 billion in 
savings in the President's proposal. That is $65 billion a year more 
savings. 

Moreover, the single payer achieves these additional savings 
while providing the most generous benefit package, including full 
long-term care and while providing a much more generous growth 
rate than the President's plan permits. Our growth rate is politi- 
cally attainable, which makes our savings real. In addition, up to 
$100 billion will be saved in administrative savings alone. 

CBO yesterday did not report any administrative savings in the 
President's bill. And as you know, the CBO scoring of the Cooper 
bill last year demonstrated that Mr. Cooper's proposal would add 
$214 billion in health care spending, while leaving two-thirds of the 
uninsured population still uninsured. 

Now I am proud to be here as a cosponsor of the only proposal 
for health care reform that is fully financed and that guarantees 
universal coverage, which is a requirement demanded by 78 per- 
cent of the American people in polls. There is no smoke, no mirrors, 
no phony numbers, and unlike the Cooper proposal, there is no hid- 
den income tax penalties for most middle class Americans in addi- 
tion to their health insurance and out-of-pocket costs, and there is 
no herding of Americans into HMOs. 



192 

Indeed, I commend the cosponsors of the Cooper bill for their po- 
litical courage in supporting effective income tax increases and 
business profit tax without offering to find benefits or coverage in 
return. It really intrigues me how 26 Republicans are willing to 
support an income tax increase, and I am going to watch with in- 
terest how they defend at home this combination of taxes and no 
guaranteed insurance. 

Under H.R. 1200, every American will know exactly how much 
their health insurance is going to cost them in the foreseeable fu- 
ture, and 75 percent of Americans will pay less in 1999 than they 
are paying today for their health insurance. 

Seventy-five percent will pay less for a benefit package that is 
the most comprehensive, including home, community-based, and 
nursing home long-term care, prescription drugs, comprehensive 
mental health and substance abuse benefits, as well as a full array 
of preventive and acute care services. 

Seventy-five percent will pay less for a plan that will give them 
unrestricted free choice of provider, not just free-choice of plans. 

Seventy-five percent will pay less for a plan which eliminates in- 
terference in the doctor/patient relationship by prohibiting 
precertification of medical decisions by some clerk on a 1-800 num- 
ber. 

Seventy-five percent will pay less for a plan that eliminates for 
consumers the need to file the reams of paper with insurers and 
will also reduce the administrative burden on providers. 

H.R. 1200 numbers are the cleanest numbers in town. The bill 
was scored by CBO, and the numbers were sent to Joint Tax to 
raise the required revenue, period. We yield a $9 billion budget 
surplus by the third year and universal coverage in the first year. 
Our payroll deductions for a public health insurance premium for 
most small business and for individuals are smaller than the Presi- 
dent's plan and definitely less than most businesses and individ- 
uals are paying for insurance today. 

No one else can tell the American people what their proposal will 
cost Americans individually for on major reason. No one else can 
tell the American people what their private insurance premiums 
are going to cost. No other proposal can verify whether or not these 
premiums are going to be affordable. 

So let us get one thing straight. Universal coverage is affordable. 
The reason our numbers are the best numbers in town and always 
will be is because the administrative savings by getting rid of in- 
surance company middlemen more than pay for the universal cov- 
erage. 

Make no mistake about that. The tortured, cumbersome and, in 
my opinion, futile attempt to keep insurance companies in the mix 
is consuming our resources for universal coverage. 

Now ask yourself a question. Are insurance companies worth it? 
Does anybody have a constituency who loves their health insurance 
company? 

Consumers Union found that our bill is the best for all segments 
of the population and especially for children and senior citizens. 

The American Medical Women's Association endorsed our bill as 
the best for women. 



193 

The American Public Health Association endorsed our bill as the 
best reform for our public health infrastructure. 

The American people are not looking for another patch on the 
health care system. They are looking for a health care system that 
is simple to understand with clear guarantees on coverage and af- 
fordability. 

H.R. 1200 is the only proposal that does that. And when you take 
it home to your constituents, you will be able to explain it, and 
they will know that they have really gotten something. 

Thank you. 

Chairman Stark. Thank you. 

Welcome to Hon. John Conyers. Would you like to enlighten us 
in any manner you are comfortable? 

STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTA- 
TIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. Conyers. Mr. Chairman, I am delighted to appear here with 
Dr. McDermott and Chairman Miller. We are making a pretty good 
team these days, going from committee to committee, pleading our 
case for the most popular health care reform bill that has been in- 
troduced so far in the Congress. 

I am glad to see my former colleague on Government Operations, 
Jerry Kleczka, here, where he abandoned his committee of original 
first love to join you here. 

I just want to fill in a few spots between Dr. McDermott and 
Chairman Miller on how this bill came into being, and I think it 
is kind of important that we realize that this was not a philosophi- 
cally drive bill. It was not ideological. 

Years ago, a number of people began looking at the notion of how 
this system can be made better. Our committee, Government Oper- 
ations, went to Canada, not only to Ontario but into other parts of 
the provinces, looking at a system and brought back a plan in 
which we took some of the Canadian system's ideas. We did not 
mimic this. Is not a foreign operation. This is an American plan 
taking the best in our system, and we do have some things in the 
health care system of which we can be eminently proud and put 
it into a system that we have to move to. 

You know, I am proud of the President for daring to raise this 
issue in his context when he was asked by a then incumbent: What 
health care problem? 

But I am now beginning to give him more sympathy than I had 
before, because now I am beginning — I think he is beginning to see 
how entrenched and formidable the vested interests are in this sub- 
ject matter. 

There are some people who could care less about what would be 
best for the American people. Their interests are too long and deep 
and wide, and they are just not going to go about it. i^Jid I refer 
to the rebuff that he received from the business organization only 
recently in which he has tried to meet them halfway, as it were, 
and they are attacking him as if he is the sponsor of H.R. 1200, 
and I wish he was. 

Some of our issues are in the Clinton bill, some of our goals. But 
let me just go a through a few of them, and I will yield this great 
honor. 



194 

Universal coverage, here are the things that attracted me to it. 
I did not come with a plan. I started working on one. Marty Russo 
started working on one with all of us. It went through infinite 
changes. Paul Wellstone came into it. You contributed, yourself, 
Mr. Chairman. Greorge Miller has been in this thing for years. 

But let us talk about what it is we are looking at — universal cov- 
erage, comprehensive benefits, strong cost-containment, one tier of 
care — a big star, free choice of provider — fair financing, targeted 
assistance to the medically underserved, and a strong consumer 
role. 

Now in H.R. 1200 — and we have 93 cosponsors — this is what 
brought us to the plan. It was not a Democratic plan; it was not 
a — it was a people's plan. And on each one of the points that I have 
just enumerated, without going into the description, which is my 
statement, there is no question about which plan brings forward 
the most. And when CBO and GAO, both impartial and sometimes 
even critical to the work that is brought to their desks, they scored 
H.R. 1200 far higher than all the rest, as has been indicated, $90 
billion under GAO and $50 billion under CBO. 

It is there. The problem now is whether or not we have the cour- 
age to take on our friendly insurance companies and say: Look, fel- 
lows, most of the American people, by polls, want to have a regula- 
tion. They want health care regulated if it will keep the costs down. 
And that is what we have done. Not government-run, not socialized 
medicine — underlined, not socialized medicine — not England. 

And so what we have done is to have put all of these principles 
together in a sensible way. 

The Congressional Black Caucus, I am very proud to say here, 
has overwhelmingly supported the bill, and we think that as this 
understanding settles down, I think that the support around the 
principles of our bill are going to grow. 

Now I close on one point, and that is on nomenclature. Is it a 
premium, or is it a tax? Please tell me. This is a burning question. 
Is it out-of-pocket? Is it deductible; is it excludable? Wonderful dis- 
cussion, ladies and gentlemen. But the point is, and the American 
people have said it to us already, is that no matter what it is de- 
scribed as, it is more money than we can continue to pay every 
year. 

They are saying: Whether it is a premium or a tax, Mr. Presi- 
dent, really does not matter. The question is: How much is it every 
year? And every year under every analysis — independent, govern- 
mental, and private — we have come upon what so far is the best 
plan for serious health care reform that we can bring to this com- 
mittee at this time. 

Thank you very much for your consideration. 

[The prepared statement follows:] 



195 



STATE^IE^r^ of representative john conyers, jr. 

ON H.R. 1200, THE AMERICAN HEALTH SECURITY ACT, 

BEFORE THE SUBCOMMITTEE ON HEALTH 

COMMITTEE ON WAYS AND MEANS 

FEBRUARY 9, 1994 



Thank you, Chaiiman Stark, for holding this hearing on H.R. 1200, the American 
Health Security Act, and for inviting me to testify. It is clear, Mr. Chairman, that the 
current health care system needs major surgery, not just a bandaid here or there as some 
people advocate. 

I know your Subcommittee has been incredibly busy lately, holding hearings every 
day. Bob Reischauer of CBO testified before you yesterday to report on the scoring of the 
Clinton plan. Based on the news accounts, the CBO report predictably resulted in the usual 
charge and counter charge that only serves to confuse the American people. 

I believe the American people want straight talk about health care reform. H.R. 1200 
provides this because it is built on the most simple and solid foundation of any reform plan. 

• Universal coverage: everyone gets it by 1997. 

• Comprehensive benefits: the best, including comprehensive long-term care, 
mental health and substance abuse, and prescription drug benefits. With no co-pays 
or deductibles for most services, unlike other plans. 

• Strong cost containment: CBO says we save the most, even as we provide the 
most generous benefits. We save at least $75 billion more than the President in 2004, 
with much more generous benefits and little or no cost sharing. 

• One tier of care: without question. You don't have to pay extra for the privilege 
of seeing the provider of your choice. 

• Free choice of provider: No one's forced into a managed care plan under H.R. 

1200. 

• Fair financing: for both individuals and businesses. 75 percent of Americans will 
pay less. And the plan is fully paid for. 

• Targeted assistance to the medically underserved: We double funding for health 
clinics and to place primary care prv>viders in medically underserved communities. 

• Strong consumer role: at all levels of the program. Decisions aren't left to huge 
insurance companies. 

For these reasons, over 80 percent of the Congressional Black Caucus supports H.R. 
1200. And that's why I urge this subcommittee to do the same. 

I feel bad for the President right now. He's been trying to do the right thing. I don't 
believe his health reform proposal is the best way to go. But we all have to give him 
enormous credit for drafting a serious proposal that provides universal coverage and now, 
according to CBO, would significantly contain costs in the long run. 

I believe the strong criticism leveled at the President's plan shows that he made a 
major political miscalculation early on. 

You can't really solve the health care crisis by appeasing the business community, the 
insurance companies, the drug companies, and even a lot of the health providers. Their 
financial stake is too high to expect that they would give up the enormous benefits they 
derive from the current system. What a surprise that many businesses oppose the Clinton 
plan. How many years did business fight family and medical leave — 5 to 10 years? And 
that program was unpaid and didn't cost them a cent. 



196 



The President's program is taking hits all over the place. It's been accused of being 
heavy on government regulation and big bureaucracy, it would limit patient choice of 
provider, and it's a new tax on employers. These criticisms are all too predictable from the 
monied interests that roam the halls of Congress. 

The President would have been much better off with a simple and straight-forward 
approach to health care reform. One that the American people can understand. That's why I 
coauthored, along with my colleagues Rep. McDermott and Sen. Wellstone, H.R. 1200/8. 
491, the American Health Security Act. It's a plan that can stand up to the pushing of hot 
buttons and phony labeling from the health insurance industry and from our colleagues on the 
other side of the aisle. For example: 

Government Regulation. Let's consider the charge that the plan is heavy on 
government regulation. Business won't support regulation even if it's in their interests ~ 
such as to effectively control health costs -- because they fear being regulated in other areas. 
Health providers ~ well, we know why they don't like regulation. 

But the public sure likes government regulation in health care. A Newsweek poll 
from this past Sunday found that by 57 to 36 percent Americans support government 
regulating the cost of care and drugs. Every other major industrialized country controls 
health costs through regulation - by negotiating fair prices with providers. It's tested and 
proven. 

That's why CBO said that H.R. 1200 would cover everyone by 1997 and save up to 
$175 billion a year by the year 2003. CBO said the Cooper bill would leave 25 million 
uninsured and raise national health spending by over $200 billion over five years. CBO felt 
Mr. Cooper's cost containment strategy was as firm as Jell-0 nailed to the wall. 

The answer isn't to back away from regulation. It's to use the bully pulpit of the 
Oval Office to tell the American people what polls show they already know ~ it's necessary. 

Big Bureaucracv. Let's talk about big bureaucracy. 12-15 cents of every health 
dollar a person pays to a private insurance company now goes for bureaucracy. CBO figures 
it will be only 3 cents of every dollar under H.R. 1200. CBO estimates we would save well 
over $50 billion a year in paperwork under single payer. GAO said we could save 10 
percent of health costs under single payer ~ $90 billion a year. It makes no sense to 
maintain a fiiU employment program for health insurance companies when that money could 
go to care for people. 

I'll tell you, Mr. Chairman, my Government Operations Committee wrote the 
Paperwork Reduction Act in 1980, which is supported by Republicans and Democrats alike. 
There's no greater vote for paperworic reduction that this House could make than to approve 
H.R. 1200. It's the biggest paperwork reduction act of all times. 

The Clinton and Cooper plans would reduce paperwork barely a shred. Why? 
Because they keep much of the wasteful insurance bureaucracy in place. 

Free Choice of Provider . This is where the President made his biggest mistake. 
Because he was fearful the business community would not accept the government negotiating 
provider fees he bought into this unproven and crazy theory of managed competition. Lo 
and behold managed competition ~ whether the Clinton or Cooper variety - goes for the 
jugular and tears into the most sacred part of our messed up health care system: a patient's 
free choice of provider. Everyone gets herded into HMOs or other arrangements that limit 
physician choice. If you want more choice you have to pay for it, which means a second 
class health system would serve low-income Americans. H.R. 1200 maintains the current 
delivery system — but gives everyone equal access to it. Patients and doctors would all have 
more autonomy under single payer. 

Single payer is not socialized medicine. It's social insurance with private health care. 



197 



New taxes. CBO said clearly yesterday that the health premiums in the President's 
plan are a tax. So, in effect, his plan raises money like we do under H.R. 1200. The 
Cooper plan makes no bones about taxes — his plan makes Americans pay taxes on health 
benefits that they already get for free. 

The real issue isn't taxes. It's spending. If we can save a lot more money by 
centrally collecting with one payer in each state the same money that is already being spent 
on health care, rather than by using 1,200 different insurance companies, why be bound by 
some ideological debate over taxes. 

Businesses and individuals can pay premiums to an insurance company, and 
individuals can pay for health care out-of-pocket, thereby continuing the waste and 
inefficiency of the current system. Or the govenmient can coUect that money as taxes and 
run a more efficient, cost effective system, as we do under H.R. 1200. I have every 
confidence that the American people can understand this difference, and not be fooled by the 
self-serving rhetoric from the insurance industry. 

Again, the recent Newsweek poll found that by 51 to 41 percent people want 
employers to pay most costs of coverage. And let's put this employer mandate in 
perspective. In 1990 Congress increased the minimum wage by 45 cents an hour. We never 
heard about significant job loss. H.R. 1200 would cost the smallest employers only about 30 
cents an hour. But think of how much it would save employers in reduced health spending 
and healthier workers. 

Mr. Chairman, the critical condition of our health care system requires that we do 
major surgery. Without major surgery the patient ~ all Americans ~ don't have a chance. I 
believe we can come together by adopting a program like H.R. 1200, which brings all 
Americans together under the same high-quality insurance policy. 



198 

Chairman Stark. Thank you. 
George. 

STATEMENT OF HON. GEORGE MILLER, A REPRESENTATIVE 
IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. Miller. Thank you, Mr. Chairman, and let me thank you 
and your colleagues on the committee for holding this hearing on 
H.R. 1200. 

As so often is the case in politics, competition between various 
proposals on a single issue not only sheds great light but also great 
misunderstanding. The debate over the cost of the competing 
health care reforms is significant, but it is not determinant. The 
critical question is not whether the plan is paid for through a tax 
or through premiums or copayments or deductibles; the critical 
question is: Does the legislation deliver what it promises, and will 
it provide quality medical coverage for every citizen that they and 
our Nation can afford? 

The Congressional Budget Office has studied the President's plan 
and the single-payer alternative. In 1992, it also studied the Coo- 
per plan, the so-called Clinton-Lite. The CBO found that the Coo- 
per plan left 25 million people uninsured by the year 2000 and cost 
the Nation an additional $19 billion in health care costs by that 
same year. It does not reduce costs; it does not provide universal 
coverage. The Cooper plan, quite frankly, is not a viable option. 
Rather than being Clinton -Lite, it is really Health Care-Lite. 

The CBO analysis of the President's plan should not be feared 
by the President or his supporters. Being on budget is acceptable 
and probably advantageous. The CBO that found that while the 
plan would cost more than the President had thought, it still will 
generate savings in overall health care costs and ultimately bring 
down the Federal deficit after the year 2004. The CBO found that 
the plan would not have a serious negative impact on the economy, 
and the CBO also stated that we should bear in mind that the 
short-term deficit created by the plan offers this country a very real 
benefit — health care for all of its citizens. 

What did the CBO find when it studied the single-payer plan? 
Quite frankly, the single-payer plan wins this particular round of 
competition. The CBO found that H.R. 1200, our single-paver plan, 
would reduce national health care spending by between $114 and 
$175 billion per year starting in 2003. The CBO also found that the 
financing method for H.R. 1200 would, in fact, pay for the generous 
benefits that the plan prescribes. The single-payer plan will not in- 
crease the deficit, because its financing package of payroll and in- 
come taxes was written to match the costs of the benefits that it 
offers. 

It is important to note that the taxes levied to pay for health 
care are a substitute for, not an addition to, the premiums that the 
consumers pay today. Again, it is not what you call it. But does it 
add up and does it deliver on its promises? The single-payer plan 
will offer better benefits to all consumers at cost savings to 75 per- 
cent of those Americans. 

Bear in mind also that comparing the plans, the single-payer 
plan offers long-term care. The President's plan and Congressman 
Cooper's plan do not. 



199 

The single-payer plan does not require additional copayments 
and deductibles in addition to the premiums. The President's plan 
and Congressman Cooper's plan do. 

The President's plan and the single-payer plan specify a detailed 
list of benefits that would be offered. The Cooper plan has no such 
list. The only guarantee under the Cooper plan is that your health 
insurance benefits are going to be taxed for the first time by the 
Government, unless you go for the lowest possible plan. But there 
is no guarantee of what the country will receive in return for the 
tax on your benefits. The Cooper plan, like its neighbor, the Chafee 
plan, will not meet the test of the American consumer looking for 
both affordable health care and universal coverage. 

Again, we are left with either the President's plan or the single- 
payer model. And in the final analysis, single payer, as offered by 
my colleagues, Congressman McDermott, Congressman Conyers 
and Senator Wellstone, offers a more generous benefit to more peo- 
ple at a greater savings than any other plan. 

The single-payer alternative, H.R. 1200, establishes a health care 
system that preserves the right of every American to select his or 
her own doctor. It affords every American access to care regardless 
of his or her employment or medical history. It provides doctors the 
ability to conduct their profession as they were trained to do, and 
it treats businesses equally and fairly, eliminating the need to cut 
employee health benefits as a competitive strategy. It saves money, 
over $1,000 per family per year. 

What we have witnessed over the past year is that both the 
President and Representative Cooper have been playing hide-the- 
ball with the American public with regard to health care costs in 
this country. 

But this committee is far too sophisticated for that. You know 
the real cost of health care, and you know that we are all paying 
for it in this country, and that there is no free care. Charitable 
care, unreimbursed care, shows up somewhere else in the health 
care expenditures of this country. 

The question that we are going to have to ask is: Are we going 
to rationalize the system of payments and reimbursements and 
preserve the best of the American system of health care? Are we 
going to stop the waste, the inefficiencies, and the anxiety of our 
constituents over their health care future? 

If we are, then there is no other choice than the single-payer 
plan. It is honest; it is straightforward; it is universal; and it pre- 
serves the choice of physician. And most importantly, it is paid for, 
and there is no other alternative that has been put before this com- 
mittee that does that. 

I thank you for the opportunity to testify. 

Chairman Stark. Thank you. 

In round numbers, let me talk about the most distasteful stuff 
first. 

An 8.5 percent payroll tax raises about $255 billion a year in 
round figures? Can you go through these numbers with me? 

Mr. McDermott. The actual amount? I do not know the exact 
amount it raises, because that is not the way we did it. What we 
did was, we defined the benefit package and asked the Joint Tax 



200 

Committee to raise enough money to pay for the costs outlined by 
CBO. So we did not get into exactly what it would cost. 

Chairman Stark. OK. I thought you had gotten to $500 billion. 
But what I cannot find is the other $450 billion that we are now 
spending. Is that savings? How does that 

Mr. McDermott. Well, there are certain current revenue 
streams that are maintained. For instance, Medicare continues 
right on through. So the money that we are raising in 
Medicare 

Chairman Stark. So 140. And Medicaid, you keep that in, too? 

Mr. McDermott. Yes. We keep in 15 percent from the State ef- 
fort. And so there are other revenue streams that are in that. 

Chairman Stark. What I am trying to get to is that yours is ar- 
guably the most disastrous news that anybody could dream up in 
terms of saying: This is what you are going to nave to pay. I mean, 
you come to it, and you and I and Mr. Thomas and Mr. Miller are 
going to have to pay, if it is a 2 percent income tsix, $2,600 a year. 
Now currently if we have got 

Mr. McDermott. That is on taxable income, not on the gross. 

Chairman Stark. I understand. All right. But let us drop that 
even to 2. But we are paying $1,200 now for our share of Blue 
Cross low option probably, so that is an argument that probably we 
should. That is a fair amount. I would hate to make the case that 
$1,200 is our fair share of the benefits we get for our health insur- 
ance. 

Now you take somebody who works in my district, who makes 
$40,000 gross, maybe they are going to have to pay $600 or $50 a 
month, and they are in a union; they are a teamster, and they do 
not pay anything. So we have got to look at them and say: Hey, 
if $50 is what you are 

Mr. McDermott. If they made taxable $40,000, 2 percent would 
be $800 a year. 

Chairman Stark. All right. 

Mr. McDermott. A year. 

Chairman Stark. So that is $75. I was a being a little more gen- 
erous to you. 

But at any rate, you do what has to be done. And what the Presi- 
dent started out to do, but kind of backslided by hiding all of this, 
everybody has got to pay something. 

Mr. McDermott. Yes. 

Chairman Stark. And the question that seems to — and Mr. 
Reischauer said that yesterday and, George, as you indicated, it is 
time we got it on the table. 

The Roundtable and the U.S. Chamber signed up with the Coo- 
per plan, pledged to support paying $16 billion a year corporate tax 
only. That is what they signed up for. 

Now the only question is: Is $16 billion enough out of the cor- 
porate? Maybe they ought to pay 30. But at least they are on 
record. They seem to think that by voting for — by supporting Coo- 
per, it is not going to cost them anything. But it did not. And that 
is what they signed up for. 

What I want to ask either of you is: Do you or anybody else know 
of any way to provide a comprehensive plan to pay for medical care 
for every individual in the United States without changing the dol- 



201 

lar amount that almost every American company and individual 
would have to pay? 

Now some would pay less; a whole lot would pay more. But has 
anybody ever suggested that there is a way to accomplish this goal 
without making some change in the amounts that various people 
pay? 

Mr. McDermott. It is not possible for you not to change the way 
the present burden is carried. 

Chairman Stark. Precisely. 

Mr. McDermott. But the fact is that 75 percent would pay less. 
Well, you will have testimony to that in a short period of time. 

Chairman Stark. But that is exactly where the debate ought to 
be. 

Mr. McDermott. Yes. 

Chairman Stark. Do poor people pay more? I do not like your 
plan, if that is the case. Do rich people pay more? If so, sign me 
up. I mean, the argument ought to be: How much do you pay? How 
much do I pay? How much will my kids pay? 

Mr. Miller. To do otherwise you are insulting the intelligence of 
the American people. Come on. There is no poll that indicates that 
these people thought that this plan, any plan, was going to cost 
them less. But the question is: What is it we are going to get for 
this reorganization? 

Under single payer, we can show them that they are going to get 
dramatic efficiencies. They are going to preserve their freedom of 
choice, and they are going to get a better organization of the pay- 
ments and the disbursements. And beyond that, there is not much 
else you can do, if you want to preserve the best of the health care 
system. 

You can try to avoid that and suggest to them, as the President 
did, that there is this elaborate structure you can create out there, 
so you never have to say "taxes," that people are really sending 
their premiums to somebody, but it is not — that is all hokum. 

Chairman Stark. I know you do not know much about sports, 
but it is called a triple reverse. 

Mr. Miller. It is something like that. It is hokum. I mean, it is 
just — reckoning day was going to come, no matter what, whether 
it was CBO yesterdav or whether it was the deliberations of this 
committee. And the fact is, if you want to provide universal care, 
you have got to pay for it. 

Mr. McDermott. That was my driving principle in writing this 
bill. It is partly because I am a physician. And I think if you go 
to the doctor, you ought to get the truth. And for us to try and put 
out a health care bill that was not explicit about what was going 
to happen would ultimately lead to the kind of thing that we got 
into with catastrophic. 

I do not want to create that kind of situation where people think 
they are going to get one thing, and then they find out about it, 
and then they are angry about it. I would rather have them know 
up front how much it is going to cost and what they are going to 
be guaranteed to get. I think that is the basic way this bill was 
written. 

Chairman Stark. Mr. Thomas. 

Mr. Thomas. Thank you, Mr. Chairman. 



202 

I think we can agree that somebody who tries to write a univer- 
sal coverage health care package in which either you can pretend 
to hide the money on budget or off budget or that you can create 
a structure which allows you to call it something for a political 
comfort level does not make a whole lot of sense, and I would refer 
anyone to chapter 5 of the CBO study, which talks about the alli- 
ances and the National Health Care Board and all of the new and 
novel responsibilities that they have that have to work out of the 
gate the first time as predicted, or the whole thing comes apart. 

So in that sense, I commend you for, you know, truth in packag- 
ing, except I cannot give you a gold star, because what you describe 
basically is something that, if it were true, you would have 435 co- 
sponsors on it. And the fact of the matter is, you do not, and the 
reason is, it is not all plus; it is not all more for less, because we 
have got this equation of cost, choice, and quality, and no one, I 
think — and as you say, Mr. Miller, quite rightly, we should not dis- 
parage the intelligence of the American people. 

Nobody thinks that if they are going to get some cost savings in 
the system, there is not going to be a downside, and it depends on 
how it is done and where it is done as to whether it is commensu- 
rate on choice or quality or both. There has got to be something 
that gives in the formula of cost, choice, and quality. And you can- 
not have lower costs, complete choice, and world's best quality as 
three. You can have two of the three, but you cannot have three. 

Mr. MlLLKK. You can. That is where you 

Mr. Thomas. I know you think you can. 

Mr. Miller. That is where you are missing the equation. That 
is where you are missing the equation, because 

Mr. Thomas. I think you will find that there will be testimony 
later in the day in which people will extol, for example, the Cana- 
dian structure for a number of reasons. But frankly, for certain 
things important to the American people, more so because of its 
high death rate, like cancer, you have got rationing, you have got 
long lines, you have to wait. It is inevitable in terms of a system 
that begins to be structured along your lines. 

But for my purposes, what I need to know — and this is, in part, 
an exercise that we have gone through here, but I think people 
need to understand this — you get in this business of universal cov- 
erage; nobody is going to have universal coverage instantly; it is 
going to take time to phase it in just because of the size. 

We had testimony from our colleague from Vermont, Bernie 
Sanders, who said that it is not universal coverage if you do not — 
if you have any kind of a deductible or a copay; it is not universal 
coverage. It has to be complete, this is, free. 

Now in your bill, you have no out-of-pocket expenses for acute 
care or preventive services. The President does. So does the Presi- 
dent have universal coverage in his package, or is it deficient be- 
cause of the way in which you have provided, "universal coverage," 
or does this debate mean anything? 

Mr. McDkrmott. Our bill guarantees universal coverage, and 
there is no question about it in our bill. 

There are some questions you can raise about the President's bill 
in terms of the subsidies and the ability of the average low-cost 



203 

worker to come up with his 20 percent of the premium, those kinds 
of issues. 

And that is what the CBO raised yesterday in their analysis. The 
President's bill was built on low premiums. The CBO kicked the 
premiums up, and when you then look at people making minimum 
wage, their ability to come up with that 20 percent 

Mr. Thomas. Is much tougher. 

Mr. McDkrmott. If you have not got enough subsidy money, you 
are going to have some troubles. 

Because H.R. 1200 subsidizes those who have not got it on the 
whole universe of the United States, we guarantee it. 

When you are trying to do it on an individual-by-individual basis, 
it is very clear that some people are going to have some difficulty 
in the President's plan. 

Mr. Thomas. What about under your plan for those folks who 
have no acute or preventive services? Is that universal coverage 
and no cost, or do they have to pay something? 

Mr. McDkrmott. We do not have any copays in our bill. The rea- 
son for that — and I am a physician, so I have looked at this whole 
question about how you deal with copays — you do not want to put 
on copays that keep people away. 

For instance, if somebody has high blood pressure and you want 
them to come back for monitoring, if you put a $10 or $20 copay 
out there, some people who need to come back and have their blood 
pressure monitored are going to say: Well, I feel fine; why should 
I go back? That may be exactly the person that you want to come 
back, because they are having some kind of high blood pressure sit- 
uation that you want to monitor. 

So you have got to be careful when you try and mold people's be- 
havior by using financial means. You may get an unintended effect. 

Mr. Thomas. CBO, in its analysis — and I am envious of the fact 
that you have a CBO analysis; we are trying to get one 
ourselves 

Mr. McDkrmott. You have to put your bill in early. 

Mr. Thomas. Well, we wanted to see what ideas were out there 
and offer the best possible package, which, by the way, Mr. Miller, 
if you have not analyzed the Chafee/Thomas package, it does pro- 
vide universal coverage and does meet the complaints that you in- 
dicated that the Cooper package has. 

On page 6, CBO assumes that States would impose copayments 
or coinsurance for drugs, nursing homes, durables, and home and 
community-based services. 

Do you agree with that under your plan? Do you believe that 
that is going to occur, or is CBO wrong in its analysis? 

Mr. McDkrmott. There are copayments for long-term care. 
There presently are. If people are in nursing homes 

Mr. Thomas. What about drugs? 

Mr. McDkrmott. Not in pharmaceuticals. 

Mr. Thomas. CBO assumes States would impose copayments on 
drugs, medical durables. 

Mr. McDkrmott. The only copays in our bill are on the long- 
term care. 

Mr. Thomas. I understand that. But that is from the Federal end 
of it. They say the States are going to impose them because of the 



204 

need to, I assume, ration the use of them because of the fact that 
there would be an enormous increase in the use. 

Mr. McDermott. Mr. Thomas, let me say something. 

Mr. Thomas. The copayments moderate the additional demand 
for these services because people are going to see them as free and 
use them a whole lot more. 

Do you agree with CBO's analysis? 

Mr. McDermott. No. 

Mr. Thomas. You do not? 

Mr. McDermott. They gave us the hardest scrubbing of any 

Elan they have ever had put before them, and we still come out 
etter than the President. 

They anticipate a 50 percent increase in utilization. They only 
gave us a 75 percent efficiency in controlling costs at the State 
level. We did not get any of the benefit of the doubt. And in my 
opinion 

Mr. Thomas. Well, then, you should not. When you say that ev- 
erything is basically going to be free and then say there is not 
going to be an increased utilization of the services 

Mr. McDermott. But the bottom line is 

Mr. Thomas. Something has got to give, and that is the point. 
You cannot have everything. 

Mr. McDermott. But the bottom line was, in the end they still 
gave us more savings than the President's plan with universal cov- 
erage. 

Mr. Thomas. I understand. 

Mr. Miller. Increased utilization of services does not necessarily 
mean that you drive up the overall health care expenditures, be- 
cause some people will come in where they would not otherwise uti- 
lize the service. They will utilize it at a much lower threshold and 
much less cost, and you will avoid the later high -intensity care. 

Mr. Thomas. I understand. And you folks need to have selective 
support of the CBO analysis, just as the President does. 

Mr. Miller. No, no, no, no. 

Mr. Thomas. What you need to do is tell me why CBO is wrong 
in that particular area. But we will be going through that. 

Here is a question that I have, because you pretty well indicated 
that insurance companies have no constituency and that we ought 
to do away with them, and that your plan does just that. 

A lot of times when we pass laws, especially from the tax side 
of it, you have got a long transition period or a grandfather clause 
or something to deal with the current world that changes to the 
new world. And there are a lot of people out there who have pre- 
paid retirement plans through insurance and the rest. 

Did you guys contemplate going from today's world to tomorrow's 
world in which insurance is no longer a private-sector concept 

Mr. Miller. Sure. 

Mr. Thomas [continuing]. And people do not prepay insurance 
plans? 

Mr. Miller. Sure. We contemplated that you would contemplate 
that. And obviously if this committee was to mark up H.R. 1200, 
it would make some decisions both about the benefit package that 
we would hope would remain universal and whether or not there 
are some parts of that benefit package that would be open to some- 



205 

thing like a Medigap policy or whether or not there would be a 
transition period. 

Nobody believes that we are going to wake up on January 1 and 
have universal coverage. But that is a matter of political delibera- 
tion. It is not a matter of the plan that we eventually want to see 
in place. 

Eventually our goal would be to see this plan in place without 
those copayments, deductibles, or additional insurance plans. But 
to get from A to B, there is no hostility to those approaches at all. 

Mr. Thomas. Well, if that question is going to be left to us, and 
if we mark up the bill, then I feel comfortable about not having to 
get an answer to them, because that will not happen. 

Thank you, Mr. Chairman. 

Mr. Miller. And the answer is yes. I mean, that is not a prob- 
lem, if the end of the story is H.R. 1200 with universal coverage 
and no other out-of-pocket expenses. That would be our goal, abso- 
lutely. 

Mr. Thomas. Yes, but then the cost and all of the other problems 
are far greater as you get 

Mr. Miller. No, they are not; no, they are not. 

Mr. Thomas. I understand you say that. 

Mr. Miller. You cannot use the CBO, just as you do not want 
us to use CBO analysis, one way or the other, you cannot either. 
The fact is, CBO says that when you do it this way, you get the 
greatest savings, no deficit, and the greatest expansion of health 
care benefits. 

Mr. Thomas. And there is a downside, and the downside is what 
has occurred in other countries. 

Mr. Miller. No, no, no, no, no, no, no. 

Mr. Thomas. I understand you do not believe that. 

Mr. Miller. No, no, no, no, no, no. 

Mr. Thomas. And that this is the best of all possible worlds. I 
am sorry, but there are negatives. And the negatives are those 
questions that the American people need to be asked, and that is: 
Do you want to give up a degree of quality and of choice, and do 
they want rationing, and do they want to wait in line, and do they 
want Government to run the program? 

Mr. Miller. Or do they want to sleep in the streets like they do 
here waiting for their medical care? 

Mr. McDermott. May I just make one suggestion? There is an 
OTA report on the effectiveness of cost-sharing of deductibles, and 
they do not show any effectiveness. You can deter care. In fact, the 
Economic Policy Institute says you deter as much needed care as 
unneeded care. So there are real serious questions about the use 
of copays as a means of controlling costs. 

Chairman Stark. Mr. Kleczka. 

Mr. Kleczka. Thank you, Mr. Chairman. 

Let us expand on the last point that Bill Thomas talked about. 
When we go back home and have our health care meetings and we 
talk about the single-payer plan, which is the Canadian system in 
part or in whole, the criticism we get is (a) it is sociaHzed medicine; 
(b) there is going to be rationing; (c) there are going to be long 
lines; and (d) if you need the health care in Canada, you run to 
America. 



206 

Those are the things that are oft repeated by my constituents. It 
is amazing the level of expertise Americans have on the Canadian 
system. At one townhall meeting I had an RN come forward, and 
he had moved to this country and is working here now, and he 
extolled it as the best in the West. 

So what do you folks say when you go back to your townhall 
meetings and you get that type of criticism? 

Mr. Miller. Well, I think as Dr. McDermott has pointed out, I 
think about 80 percent of the Canadians live along the American 
border, and the leakage is less than 1 percent by all studies. So the 
notion that you are going to get knocked down at the gate if you 
try to go north by people coming south for medical care just is not 
true. 

There is all this sort of anecdotal evidence that people talk about 
at cocktail parties. It simply is not supported by the evidence. 

The other fact is that this system, I think as Congressman Stark 
pointed out the other day in the committee- hearing, that essen- 
tially a system very similar to this has been in place in this coun- 
try for 30 years. It is called the Medicare system. And most of your 
constituents are not asking you to get rid of Medicare to give them 
something else. What they really want to know is how can they get 
more of it. That is the real question for them. And most people 
hope they get to the threshold where Medicare kicks in. 

You hear people kind of go: WhssshI I am finally eligible for Med- 
icare; I am now safe; I now have my health care taken care of. 

For those people in Medicare, the care is not rationed, and they 
get to choose their physicians. Now we have deductibles; we have 
Medigap; we have a lot of things that you will have to deal with 
here. But the fact is, that is the American system of single payer 
that has been in place. And the fact is that the hospitals and the 
doctors and everybody do very well with that. 

What they cannot take is the Medicare reimbursement and then 
all the unreimbursed costs or the tremendously low reduction that 
they get from a program like Medicaid or no cost at all and com- 
bine those and run a profitable operation or a self-sustaining oper- 
ation. But Medicare payments across the board, clearly they could 
do it. 

So we have had this system. And more people are trying to get 
into the Medicare system than are trying to leave it. People want 
the age threshold lowered. So, I mean, what you hear against the 
single payer is cocktail party talk. It simply is not substantiated by 
the facts either on behalf of the plan or in attacking the Canadian 
system or the German system or the Australian system. 

And this whole business of rationing, you know, Gerry, as well 
as anybody else, we do it here simply on the basis of tne size of 
your wallet. That is how we ration care in America. 

Mr. Kleczka. Two more questions before my time runs out, 
George. 

The State of Wisconsin has more MRIs than the entirety of Can- 
ada. Do you have any cost controls or certificate of need provisions 
in the bill? 

Mr. Thomas. Sure. 

Mr. McDermott. Our proposal puts the responsibility on the 
hospital. They are given the money to run their hospital, and they 



207 

can buy any MRI they want, as long as they have the money to 
operate it. 

We did not put specific certificate of need provisions in this bill 
in part because the experience with that whole program across the 
country has been very, very mixed. Some States had success with 
it; some had absolutely none. 

So we said: Let us let the hospitals manage it. Here is the money 
for you to run your hospital. If you think you need another one, as 
they do in Canada — I had people down from the Ottawa General 
Hospital, and they are putting in a second MRI at the main teach- 
ing hospital in Ottawa. The reason? Because the other one is fully 
used, and they now have an additional need. 

And I think the thing that George is talking about, the Canadian 
system, one of the reasons why they have been able to control their 
costs is they have bought smart. 

When I was an intern at the Buffalo General Hospital, there was 
often a Canadian patient in one bed and an American patient in 
the other bed, the Canadian paying two-thirds of what the Amer- 
ican was paying, because the Canadians negotiated with Buffalo 
General to get their health care done there. 

It is only 50-60 miles from St. Catherine's down to Buffalo, so 
it is a very short drive. It is not as though you are sending them 
10,000 miles away to get health care. The Canadians have pur- 
chased on our side, health care. They do it in Seattle on operations 
on hearts, heart transplants. And the fact is that the Canadian 
Government discovered that there are — $600 million in fraudulent 
claims by Americans in Ontario along. 

They found that 60,000 people using the Ontario health care 
plan had American drivers licenses. So they have now had to go to 
their system and begin to figure out how to put a picture on it, so 
that they can actually — right now their card is just an orange-and- 
white card with a number on it and your name, and they have now 
decided they have got to go to some kind of ID, so that Americans 
will quit coming across from Windsor and everywhere else to get 
their health care in Canada. 

It is a real problem. It is more going across in that direction than 
coming this way. 

Mr. Klp:czka. That is interesting. Let me give you the $64,000 
question now. 

I know full well that your single payer this session will not pass 
in total. The President has already expressed interest in com- 
promise. Cooper is picking up steam from some segments. 

When we start, especially in this subcommittee, putting all of 
these together to come out with an agreed-upon package that will 
do the job, what portions of your bill do you think are most impor- 
tant to meld into this compromise version? 

Mr. McDermott. We have not seen any reason yet while we 
should give away anything. We have got better coverage for less 
cost. We guarantee free choice of provider; it is the only plan that 
does that, the only plan that gives long-term care, and we do it for 
less money. 

Mr. Kleczka. Do you cover optician services, because that is 
lacking in your own — ^you are kidding me? 



208 

Mr. McDermott. Well, we are only five votes short, Grerry. I 
mean, this process- 



Mr. Kleczka. ok. I guess we do not see things- 



Mr. McDermott. Let me raise the question about the Cooper 
bill, because the Cooper bill, you see, is gaining steam. I do not 
know how many people really understand in the Congress the tax 
that is buried in that. 

What he gives is deductibility for the lowest-cost plan. Every- 
thing else to the corporation is not deductible. And if an employer 
gives greater benefits to an employee, it has to pay a 34 percent 
surcharge. 

Now tnat is going to drive employers to push those costs onto in- 
dividuals, and individuals cannot deduct it. It is going to be after- 
tax dollars, which is an income tax on individuals in this country. 

If I were running against him or anybody who supported that 
bill, I would eat them alive. 

Mr. Kleczka. Let me see if George has a more compromising 

Mr. McDermott. Taking away deductibility on insurance bene- 
fits. 

Mr. Thomas. I think the burden is on the other foot, and that 
is this, that they have got to come up with a plan that is superior 
to the existing one. And so far, they have not. 

The President has taken away all your choice; Cooper has taken 
away all your choice. They have raised a lot of money, and they 
still do not quite get to the question of quality care and universal- 
ity. And that is the problem. 

And before we trade this one in, you know, we are not so eager 
here to trade the current system in. We think there are overwhelm- 
ing problems, but as we constantly have pointed out to us, the vast 
majority of Americans are essentially happy with it. They do not 
like the insurance companies, but they essentially have their cov- 
erage. 

Now we are trying to expand the pie to a lot of people who need 
it, who get cannot get it for a whole lot of circumstances. But be- 
fore we trade it in, we want to see that something better is coming 
through the door. 

Right now, ours is the only proposal that improves upon that. All 
the rest of them kind of rearrange the deck chairs here, but the 
system is still going to the bottom of the ocean, and it is not going 
to be saleable. 

Cooper is going to get his turn in the barrel. The President had 
his turn in the barrel, and he did not come out so well. Now Cooper 
is going to go in the barrel, and people are going to start analyzing 
the kinds of tax increases that are going to through for no listed 
benefits, and then we will see where the Congress is. This is going 
to look better and better. 

Mr. Kleczka. Thank you. Thank you, Mr. Chairman. 

Chairman Stark. Mr. Levin. 

Mr. Levin. Thank you. 

I admire your tenacity, but 

Mr. McDermott. I would wish you would admire the plan. 

Mr. Levin. But let me just tell you how it plays in a district — 
the district that I represent, which in many respects is pretty 
typical. 



209 

There is, I think, deep antipathy toward at least two aspects, of 
the single-payer plan. First, there is deep skepticism about shifting 
the funding to the tax system. 

Second, there is a deep, if not hostility, at least a deep question- 
ing about a major enhancement of the role of the Federal Govern- 
ment. 

And I think that the public's antipathy toward use of the tax sys- 
tem and having, in quotes, the government run it, is reflected in 
a recent poll that says these feelings are true not only in Macomb 
and Oakland Counties, Mich, but across the country. This was from 
a poll taken by the Robert Wood Johnson Foundation, and maybe 
you saw the report. I do not think they have an ax to grind. The 
poll was taken for them by the Harvard School of Public Health 
and the Princeton Survey Research Associates. 

It showed first of all that we have a long ways to go to really 
explain any plan to the American people. A lot of people do not 
know the details or really the major contours of any of the propos- 
als. 

But when the various plans, or at least some of them, were read 
to the 1,000-plus who were sampled, here is the way it came out: 
40 percent said they would choose a plan like President Clinton's, 
requiring employers to pay, while 19 percent they would prefer a 
Canadian-style plan. 

Mr. Miller. Well, Mr. Levin, I think, you know, we, those of us 
who are supporting single payer, are into a marketing nightmare. 
To go around and ask people if they want single-payer or a Cana- 
dian system — Americans are not big on foreign 

Mr. Levin. But that really is not the way it was asked. 

Mr. Miller. But let me — no. The point is, you said there is a 
deep skepticism about shifting the cost to the tax system and 
about — what was the second one, the 

Mr. Levin. And a major enhanced role of the government run- 
ning it. 

Mr. Miller. Ask your constituents if they have those concerns 
about the existing system, which is Medicare, where they all pay 
a payroll tax, and the Government runs the Medicare system. So, 
you know, you have got to ask the question. We do not have the 
luxury of asking that about Medicare. We have the luxury of ask- 
ing about single payer or a Canadian system. 

But the fact is, the most popular plan in the country is the Medi- 
care system, and it is done on a payroll basis. The question is: 
What is the rate of tax, and are other people going to be covered 
by it? 

So you have got to, you know — as we all know from polling in 
our business — you have got to ask the question right. Go back and 
ask those same people about whether or not they like the benefits 
of Medicare, where they get freedom of choice, it is paid for, and 
all they do is hand their card across the counter. 

Now some hospitals, some doctors, do not like the reimbursement 
rate, but you have dealt with that now for the last 30 years on this 
committee. And so that is the system. That is the system. 

Now whether or not you have, as I say — whether or not you con- 
tinue deductibles or copayments or Medigap polices, the fact is that 
is the American single-payer system, and it is hugely popular, as 



210 

we know every time we suggest we are going to touch it. It is the 
hottest stove in town. Nobody can carry it more than, you know, 
more than a second if they suggest that someone how they are 
going to deny people access to or benefits under Medicare. 

Mr. Levin. All right. But let me just tell you that I think you 
are right about the basic popularity of the Medicare system for cov- 
ering seniors. 

But the dilemma that you face and this Congress faces and the 
President faces and all America faces is that people know they 
have a Medicare — there is a Medicare system for seniors. 

When you ask them if we want to spread a single-payer system 
to all America and end the private role for insurance for everybody 
and shift the entire burden of health care from the private to the 
public arena, the answer is no. 

Mr. McDermott. But that is a mischaracterization. You are 
talking about financing. Every other plan, including the Presi- 
dent's, takes the delivery system in this country and stands it on 
its head, and it drives people into HMOs by financial incentives. 

Ours is the only plan that says to the American people: You can 
still see your same own doctor; you can go to the same hospitals 
and every other thing. The only thing we are going to fix is the fi- 
nancing system. 

Mr. Levin. All right. Let me just say 

Mr. McDermott. The President keeps the financing system. He 
keeps the insurance companies and stands the delivery system on 
its head. And that is why when you take that home to people, you 
are going to get chewed up. That is why I will not vote for that 
kind of thing that uses financial levers to force people into a deliv- 
ery system. 

Mr. Levin. Yes, but I am opposed to doing that, and to 

Mr. McDermott. That is what the President's plan does. 

Mr. Levin. I do not think it does so nearly to the extent that the 
Cooper plan does. 

Mr. McDermott. That is true. You are absolutely correct. The 
worst is Cooper. 

Mr. Levin. And lurking behind the Cooper plan is a basic effort 
to push people into HMOs. 

I am in favor of retaining the choice, a meaningful choice, for 
Americans, but they want choice and — they want choice and a 
mixed system in terms of funding, and they do not want the gov- 
ernment to run it all. 

Mr. McDermott. Again, let me go back — I will take you back to 
the best model we have in the country. I will go back to Medicare. 

Senior citizens get to go to — in my district, they go to HMOs; 
they go to fee-for-service doctors; they do to some combination or 
in between. If they belong to one, they get referred to another. 
They design their own medical care under Medicare. And the pri- 
vate sector is involved because there are some things that Medicare 
decided it will not cover, and that is under your Medigap, long- 
term care and others. 

So this is not strange. The problem you describe is relatively eas- 
ily solved and understandably so, which is the big trick in this 
business. 



211 

Mr. Lkvin. Well, most Americans want retention of the Medicare 
system for seniors. They do not want that model applied univer- 
sally, uniformly. 

Mr. McDeumott. There is no evidence that that is the case. 

Mr. Lp:vin. Wait a minute. Giving people no option other than 
that. 

Mr. McDermott. There is every option. 

Mr. Lp:vin. I mean, that is the meaning of this poll. People know 
there is a Medicare system. But when you ask them: Do you want 
that to be the single system for this country, the answer is no. 

Chairman Stark. Mr. McCrery. 

Mr. McCuERY. Thank you, Mr. Chairman. 

I want to say that I think your plan, Mr. McDermott, and the 
single-payer concept is a legitimate way to address the issue of spi- 
raling costs in the health care system in this country. And I ap- 
plaud you for coming forward with the plan and putting it out 
there as one of the possibilities for reforming our system, particu- 
larly the payment system. 

I do not agree with your plan because I do think it has some ef- 
fects on the system that you have not talked about too much, and 
we will hear more about those effects later this morning. And Mr. 
Miller denied that there were a lot of those bad effects, but I hap- 
pen to think that there will be rationing. And it is true we do have 
rationing today, and we are always going to have some kind of ra- 
tioning; otherwise, costs would go through the roof even more than 
they are today. But I do think yours is a legitimate way to address 
the system, and it is an option that should be considered. 

Mr. Miller has continually compared your plan to the Medicare 
system and holds up the Medicare system as being the most popu- 
lar part of our health care system and so why snouldn't we just 
kind of enlarge that and make the whole system a Medicare sys- 
tem. 

Is, in fact, your system basically that? Would your plan basically 
just be a big Medicare system? 

Mr. McDermott. The way our system is designed in the bill, the 
Federal Government decides the benefit package — we wrote it into 
the bill — and we collect the money on the basis of a payroll tax. So 
you now have a Federal health care trust of money. 

The money is then apportioned to the States according to popu- 
lation and previous spending patterns, and there are some dif- 
ferences in this country, and it is very hard to iron all those out. 
You cannot make the same system for everywhere. Louisiana is dif- 
ferent than Washington State or Vermont or New York State. 

So we said let's put it down at the State level for the administra- 
tion, and the delivery system changes. The reason is I was a State 
legislator for 15 years, and I have been catching cannon balls from 
this town that whole time. Bills always work for California, New 
York, Texas, and Florida, and the rest of us are out there trying 
to figure out, "Who thought this up?" So I said if I am going to put 
a health care plan out there, I am going to let the States decide 
how it ought to be delivered. 

Now, there will be more HMO activity in the State of Washing- 
ton and in the State of California than there will be in Louisiana. 
No question about it. We have a long history, long experience with 



212 

it. So we wanted to have those kinds of decisions made at the State 
level with a fixed amount of money that was collected from the 
payroll tax, and that then you would decide how in Louisiana will 
you deliver this benefit package to everybody in Louisiana. It 
would be done using private doctors and private hospitals, as it 
presently is today, and that is the basic structure of how it would 
work. 

Mr. McCrery. So it is very similar to the Medicare system? 

Mr. McDermott. Except that it is controlled at the local level 
rather than the Medicare system, which is at the Federal level. 
And that is an important decision. 

I think Mr. Stark and I probably would have a discussion. He 
would favor more a single-payer system like the Medicare system 
all done in Washington, D.C., or Baltimore. I believe that more of 
those decisions should be made down at the State level. That is a 
political judgment that obviously we in the Congress will make. 

The President has put a lot of State options into his. He allows 
for a single-payer option at the State level, and this is really a po- 
litical argument about where the control is going to be. And I tend 
to think the closer it is down to where you are delivering the serv- 
ice, the better off you are. To speak for Mr. Stark and maybe for 
some people, they think that you will get inequities in the States, 
and some States may not do it so you have to do it at the Federal 
level. But we can iron that argument out. 

Mr. McCrery. Well, before my time is up, let me encourage Mr. 
Miller — and you can respond to this, if you like — to maybe get an- 
other model for holding out for examination than the Medicare sys- 
tem. One reason the Medicare system is so popular is because peo- 
ple get a lot more than they pay for. The Medicare system spends 
a lot more money than it takes in, so people are getting a lot more 
than they are paying for. And I do not think that is the way you 
want the entire system to be; otherwise, the Federal deficit just 
goes completely out of control. Some would say it is completely out 
of control now, but certainly the Medicare budget is part of the 
budget problem in this country. So I think that is one reason Medi- 
care is so popular, is people get a lot more than what they pay for. 

I assume under your system you would try to equalize revenues 
and outgo, and it might not be as popular then when people have 
to actually pay for everything they get. 

Mr. Mil.LER. To respond quickly, the reason our payroll tax is set 
at the level that it is is because of the genius of Congressman 
McDermott's request: This is the package that we want to present 
to the American people; now what is the money we need to finance 
this? So CBO says we do not create a deficit because, in fact, that 
package of benefits is paid for. 

Now, that might be too rich for the Congress or for this commit- 
tee or for the American people. That is open to adjustment. But we 
did not do it the other way. 

Mr. McCrery. Sure. 

Mr. Miller. The other way is to try to fudge the issue as we 
have seen now for the last year. 

Mr. McCREiiY. With the Medicare system, and I appreciate that, 
and I applaud you for that. But I think the analogy with Medicare 
breaks down on that basis. 



213 

Mr. McDermott. I do not think any of us would say that the 
Medicare system has been without problems because in some ways 
Medicare is just another insurance company, and Medicare is doing 
what everybody else does, which is try and shift the cost to some- 
body else. 

When I was a State Ways and Means Chairman in the Senate, 
I used to take the request for Medicaid and cut it in half. And if 
you had asked me why I did that, I would say, well, I need money 
to pay for the University of Washington, for the Fisheries Depart- 
ment and the State Patrol, and I know that I can shift those costs 
on to Boeing and to Weyerhaeuser and to U.S. West and all the 
other companies in my State. 

Everybody has been doing that in this present system. In a 
single-payer system, there is no place to shift it. You have every- 
body in the same bag. 

Chairman Stark. Mr. Lewis. 

Mr. Lewis. Thank you very much, Mr. Chairman. 

Mr. Chairman, I am delighted to see two of our colleagues, Mr. 
McDermott and Mr. Miller, here today. 

Up front I must say, Dr. McDermott, I am very proud to be a 
cosponsor and a supporter of single payer. I know in our efforts to 
reform the health care system, we should come up with a system 
that will be accessible to everyone. No one must be left out and left 
behind. 

With the Cooper plan, with the President's proposal and some of 
the others that are floating around, I have been deeply concerned 
that we will have a continuation of redlining by insurance compa- 
nies and by some health providers. We would segregate people, 
gerrymand people. 

Tell me what would happen under single payer. 

Mr. McDermott. Under a single-payer system, everyone would 
have a health care card that would be usable with any physician 
or any hospital that the patient would choose. 

One of the difficulties in looking at our health care delivery sys- 
tem today is that 35 percent of the people live either in rural areas 
or in inner cities, both of which are chronically underserved for 
their health care needs. And the main problem that you have in 
trying to set up a practice either in a rural area or in an inner city 
is that most of the people do not have insurance. You find the unin- 
sured clustered in these areas, and the fact is that because they 
do not have the ability to pay, if you were to open a practice there, 
the people coming in would be unable to pay for their health care. 
And so people do not choose to go into those areas. 

If you have everybody with a card, that is, equal access, the abil- 
ity to go in and purchase health care, it would be possible then to 
recruit people into those areas, and you will begin to see a shift in 
the way the system operates. 

I think that all you have to do is look at Mr. Reynolds' district 
in Chicago. There is not a single emergency room open in his dis- 
trict. No hospital has an emergency room open in that district in 
Chicago. 

Now, that kind of thing will only be dealt within a single-payer 
system that says that everybody who comes to the hospital has the 



214 

ability to pay because they have their card, their universal Amer- 
ican health security access card. 

Mr. Lewis. Mr. Miller, would you like to comment? 

Mr. Miller. Well, I think that is it. It is the portability of the 
care. Today if you belong to various plans, you have got to call an 
800 number if you are out of State, if you are out of city, if you 
are outside of that plan. Will you be reimbursed? If you do not 
make that call, additional tasks are put on you. But clearly, that 
is just the problems of not having a single system. 

But it also goes to the question of inclusion. If you read all of 
these other plans very carefully, there is a very large question 
raised about what happens to what we now consider public medi- 
cine. The people in our inner cities, people with TB, people with 
AIDS, and people with no insurance and no prospect of getting in- 
surance, what really happens to them? 

Well, there is some notion that they will eventually all sort of 
transition into one of these alliances or one of these plans. But the 
question is, even among the alliances, do the alliances want to 
come in and serve these areas? Are the alliances going to be drawn 
in such a way so it does not take in the District of Columbia or 
Manhattan or the city of San Francisco or southeast L.A.? Those 
kinds of issues are being raised. 

That is all, again, because you are trying to fool people about 
what the real total national bill is for health care. As long as you 
try to do that, then you have to try to shave and manipulate the 
system not based upon delivering health care to people and then 
paying for it. And the concern that you raise here is, I think, a 
very, very real concern in each and every one of these plans be- 
cause at some point, under all the other plans, you are going to de- 
cide that you simply are not going to extend coverage in one fash- 
ion or another and we are going to have constituents that continue 
to drop through the gaps in those plans. And that is, again, the 
value of the single-payer system. 

Mr. Lewis. Thank you very much. Thank you, Mr. Chairman. 

Chairman Stark. Mr. Cardin. 

Mr. Cardin. Thank you, Mr. Chairman. 

First, I want to congratulate my colleagues for having the cour- 
age, as the President did, to come forward with a proposal that 
would provide universal coverage for every American and have en- 
forceable cost containment in your legislation. I look at the CBO 
testimony from yesterday as indicating that we now have in the 
House of Representatives two proposals before us that would pro- 
vide universal coverage and would bring down the cost of health 
care: Your proposal — the single-payer proposal — and the Presi- 
dent's proposal. 

What concerns me about having one payer, a Medicare-type sys- 
tem, is that I do not think the Medicare system is very rational in 
the way that it reimburses for health care in this country. I do not 
think it makes an awful lot of sense. 

I have talked to many health care providers, particularly those 
who want to locate in communities where there is a large number 
of elderly, who tell me it is difficult to do that under the current 
system, that the doctors and the hospitals want to locate in subur- 



215 

ban areas where they have a significant percentage of their pay- 
ment in private pav in order to shift costs. 

You see, we shift costs in our society today. And there is a con- 
cern that if we have only one payment system that it is not going 
to pay the fair amount or the rational amount or that a political 
body such as this committee or the State legislature will be very 
political in the way that it determines how those dollars will be al- 
located. And the bottom line is that we jeopardize quality. 

I guess that is my major concern on a single-payer system: 
Whether we run the risk of jeopardizing quality through diversity 
and the protection of having different systems out there to offer the 
incentives for developing new ways of providing health care to our 
constituents in a more cost-effective way. 

So how do you overcome my concern in a single-payer system 
that we will not run into a budget crisis here in Washington so we, 
therefore, just cut the budget or we cut certain parts of the budget 
or that we do things like that; whereas, in a diversified system, 
such as suggested by President Clinton, we at least have the pro- 
tection of having different models out there to see how they work 
in different times and hopefully we get the best from each of the 
proposals that are out there? 

Mr. McDermott. You raise the question of will the budget be 
short and, therefore, we will cut it. The money that is raised by the 
payroll tax goes into a health care trust, and it is used for the 
health care of the country. 

One of Canada's problems is that they mix their health care dol- 
lars in with everything else. It is just general fund money. And so 
they are now in an economic depression. And so they are making 
cuts, and they are making cuts in health care to put roads in or 
whatever. In those kinds of decisions, the health care system does 
stand the risk of quality being dealt with. The reason, then, for 
having a trust is that you have the money and it is going to go 
there. 

Now, the other question of quality, I come back to this: Who do 
you trust? Do you trust the insurance companies or do you trust 
the political system to guarantee your quality? And you can say 
neither one of those is a good choice, but that is the only two 
choices you have. 

Mr. Cardin. Jim, let me try to throw out perhaps a model that 
builds upon what you are suggesting and maybe we will see which 
system works best. Why not pick a market toda^, perhaps the 
small-employer market, where we do not have effective competi- 
tion, and say, look, we will allow that market to have access to a 
public insurance program without any government subsidies at all, 
and let that market compete with the private marketplace; and 
then we will see whether government is more cost effective or 
whether the private sector is more cost effective in developing a 
away to finance that type of health care plan. 

Mr. McDp:rmott. You are suggesting letting small employers buy 
into Medicare, for instance? 

Mr. Cardin. Well, into a public — not Medicare because you do 
not want it to be the same risk pool. Have an opportunity to buy, 
with no government subsidies at all, a Medicare-type plan, and 
then let the private sector also be able to sell insurance to that 



216 

same marketplace, and then we will see who is more cost effective 
and who can come up with the better plans and who the consumers 
like best, whether they like a government plan better or they like 
a private plan better. 

Wouldn't that sort of build on your model? Then we can see 

Mr. McDekmott. My only problem with that, Mr. Cardin, is that 
you are keeping in — or you are giving away the $100 billion in ad- 
ministrative savings that CBO said we can get by going to a single- 
payer system. 

Now, if the Congress decides that they want to keep the private 
insurance industry in and they are willing to spend $100 billion 
more a year to do that, if they think that is worth an experiment, 
I personally say more power to you if that is the way you want to 
spend your money. I do not want to spend my money that way. 

Chairman Stark. Would you yield on that point? 

Mr. Cardin. Yes, I yield. 

Chairman Stark. If you add uniform payment structures and 
you have, whatever it is, a uniform cost containment system, if not 
prices, then the only uncontrolled costs of any major significance 
would be the overhead of the private insurance companies, which 
would be picked up by private payers. And my theory is that if peo- 
ple choose to support their brother-in-law who is selling insurance 
for Aetna, be my guest. 

Now, one would think that a rational public would soon figure 
that scam out and find a better way to put their brother-in-law to 
work. But, basically, only a third of any savings in any program 
comes in what would be public plans like Medicare and Medicaid, 
and two-thirds of the savings goes to private industry. 

If they have the option and we put all of the systematic savings 
that we can, like universal electronic transfer and so forth, then I 
think the difference between you and Mr. Cardin is that the ABC 
Corporation and its employees decide they want to stay with Pru- 
dential and pay Prudential's 30 percent overhead. And I say if that 
is the fight we have, be my guest. 

Mr. Cardin. But remember, Mr. Chairman, just to clarify that, 
there are two parts to the cost of health care. One is the adminis- 
trative cost; the other is delivery system. And there is at least a 
belief by some of us that the private sector can be energized to de- 
velop a more cost-effective delivery system better than just having 
one. 

Chairman Stark. But that happens under Mr. McDermott's plan 
where he will pay privately run managed-care systems now. So 
both your suggestion and Mr. McDermott's would have that oppor- 
tunity. 

Mr. Cardin. What I am suggesting is that we might want to test 
that and see what comes out. 

Mr. McDermott. I would just say, Mr. Cardin, that you probably 
better than most know that the single-payer system and the all- 
payer system are not very different. Maryland has the all-payer 
system. It has the hospital that is considered to be number one in 
the United States, Johns Hopkins, which operates in an all-payer 
system. So the fact that people want to talk about some diminution 
of quality clearly under a single-payer, all-payer system, which is — 
I mean, the differences are very minimal. 



217 

Mr. Cardin. But, remember, you can have an all-payer system 
without a single source of funding, as we do in Maryland, as long 
as everybody 

Mr. McDermott. We simply make one source of funding, and 
then you will have an all-payer system. 

Mr. Garden. Right. But you could very well expand upon an all- 
payer system in a multiple-payer concept. 

Mr. McDermott. I just do not want to pay the administrative 
costs of insurance companies. Thank you. 

Chairman Stark. Is there further inquiry of our distinguished 
witnesses? 

Mr. Thomas. Just briefly. 

In terms of the genius, as my colleague from California said, of 
asking CBO to price or to figure a mechanism for funding the bene- 
fit package, I think when you asked would you rather have insur- 
ance companies or the government do it, there was a degree of 
snickering out there in terms of the choice. It is because if, in fact, 
we run your system the same way — that is, the benefit package 
drives what is charged and it is a political decision as to what is 
in the benefits package — I do not think anybody is comfortable 
with a system in which this committee or any otner committee in 
essence has the ability to define a benefits package because it turns 
into a political football. And I think you are seeing, to a certain ex- 
tent, that today in Germany in which political elections turns on 
"health care issues" and that people are going to wind up promis- 
ing that if they get elected, they are going to add something to the 
benefit package, and you now nave a pure political football in the 
benefits package. 

But the beauty of your system, I think you would agree, is that 
you have got a n)rcea mechanism to fund it, and that is the night- 
mare, I think, that most people are concerned about. 

Mr. McDermott. You absolutely put your finger on the issue. 
You have a system that is decided in a democratic means, out in 
front, in public, and if I vote for additional benefits for the people, 
then I have to step up and vote for the taxes. That is, to me, true 
accountability, and that is what I think has been missing in our 
present system — no accountability. 

Mr. Thomas. I agree with you. In our plan, what we say is that 
if we are going to make savings in the Federal Government pro- 
grams, the Chafee-Thomas bill, that we are going to fund the ex- 
pansion to universal coverage after you make the savings, not be- 
fore. 

Thank you. 

Mr. McCrery. Mr. Chairman, just briefly. 

Mr. McDermott, I listened with interest to your plan to put all 
these moneys into a trust fund separate so they will not be com- 
mingled with the rest of the budget. And I have not looked at your 
design, but I hope it is designed better than trust funds that we 
have included in the Federal budget in the past, which we have 
seen have not been too successful in keeping from being commin- 
gled with other funds. 

Mr. Levin [presiding]. I am sure that will be taken into account. 

Well, thank you. Your forthright testimony, our two colleagues, 
have been very helpful. You can tell by the engaged discussion. 



218 

Mr. Miller, thank you for all this time, and, Mr. McDermott, 
thank you for going on the other side of the table. 

Mr. Leven. We will have our second panel now. Unfortunately, 
two of the witnesses have been unable to attend because of the 
weather — one, Dr. Hsiao from Harvard. There are, I think, a dozen 
inches of snow up there. And also Dr. Dans has been unable to join 
us. But Gerry Anderson is here and Lisa Priest, if you would join 
us. 

Dr. Anderson is the director of the Center for Hospital Finance 
and Management at Johns Hopkins, and Lisa Priest is a distin- 
guished journalist with the Toronto Star. There has been much 
mention of our neighbor to the north. 

Mr. Cardin. Mr. Chairman, before we begin, if I might. Dr. 
McDermott paid a compliment to Johns Hopkins, and I think part 
of that credit is deserved by Dr. Anderson, who does an outstand- 
ing job for us in hospital finance and management at Hopkins and 
has really been a great help to me personally in helping me on 
health care issues. It is a pleasure to have Dr. Anderson before our 
committee. 

Mr. Levin. Well, I guess we are going to go alphabetically in- 
stead of in a chivalrous way. So, Dr. Anderson, if you would lead 
off? 

STATEME>rr OF GERARD ANDERSON, PH.D., DIRECTOR, 
CENTER FOR HOSPITAL FINANCE AND MANAGEMENT; 
CODIRECTOR, PROGRAM FOR MEDICAL PRACTICE AND 
TECHNOLOGY ASSESSMENT; AND ASSOCIATE PROFESSOR 
OF HEALTH POLICY AND MANAGEMENT, SCHOOL OF 
HYGIENE AND PUBLIC HEALTH, JOHNS HOPKINS 
UNIVERSITY, BALTIMORE, MD. 

Mr. Anderson. Thank you very much, Mr. Chairman and Mr. 
Cardin. 

What I would like to do is mention very briefly four design and 
coverage provisions which distinguish H.R. 1200 from most of the 
other bills, and then discuss in much more detail the cost contain- 
ment and financing aspects of the legislation. Specifically what I 
want to do today that is not in my written testimony is compare 
the financing of H.R. 1200 to the President's bill. Given the work 
that you did yesterday, I can now compare the financing in H.R. 
1200 to H.R. 3600. 

Basically this legislation provides universal, mandatory health 
insurance coverage for all citizens and legal residents. It is a com- 
prehensive, explicitly defined benefit package covering primary 
care, acute care, long-term care, and mental health benefits. It in- 
tegrates Medicare and Medicaid into a single plan. And it does so 
at much lower administrative costs. 

According to the Congressional Budget Office, the administrative 
costs will drop from 7 percent of health spending to 3.5 percent of 
health spending by the year 2000. In addition, the Congressional 
Budget Office estimates that hospitals and other providers will 
save 6 percent of revenue by dealing with only one payer. 

What I have worked on, however, is the financing and cost con- 
tainment aspects of H.R. 1200. By 1997, the American Health Se- 
curity Act will rechannel approximately $500 billion from the pri- 



219 

vate sector to the Federal Grovemmont by eliminating private sec- 
tor financing of health insurance and replacing it with an 8.4 per- 
cent payroll tax except for small firms with low-wage workers, a 
2.1 percent payroll tax, and tax increases on cigarettes and hand- 
guns. 

Since I did my prepared testimony, I had a chance to look at the 
Congressional Budget Office estimates, and what I have been able 
to do is to compare the financing for a variety of families under 
H.R. 1200 to H.R. 3600. 

Let me compare three different two-parent families: One earning 
$100,000, one earning $50,000, and one earning $20,000. 

Beginning with the family earning $100,000, let's assume that 
they work in a large firm where the average wage is $50,000. The 
employer would pay 8.4 percent of the average wage in the firm, 
or $4,200, and the employee would pay 2.1 percent of their ad- 
justed gross income — assuming right now somebody earning 
$100,000 doesn't have a lot of deductions and their adjusted gross 
income is $80,000— $1,680. This is a total of $5,880 or about 6 per- 
cent of their total income. It offers comprehensive coverage, no cost 
sharing. 

Under the President's plan, the premium alone would be, accord- 
ing to the Washington Post today, for that same family of four, 
$5,565 in 1994. Inflating that at 4 percent per year to get it to 
1999, it would be $6,678, or approximately 7 percent of their in- 
come. So somebody earning $100,000 is going to pay more under 
the President's plan than they will under Mr. McDermott's plan. 

Moving to somebody earning $50,000, again, where everybody 
earns $50,000 in the firm, the employer pays 8.4 percent of payroll, 
$4,200. The employee pays 2. 1 percent of their adjusted gross in- 
come, or, as I estimate it, somebody earning $40,000 in adjusted in- 
come, would pay $840. Combined, this is a tax of a little over 
$5,000, or 10 percent of their income. Whereas, the President's plan 
they would pay the same amount as before, $6,678, or more than 
12 percent of their income. 

For somebody earning $20,000 or less, they would even pay a 
higher percentage, although that is much more difficult to cal- 
culate. 

So as you can see, basically most of the Americans will pay less 
under H.R. 1200 than they will pay under H.R. 3600. 

H.R. 1200 does do this by working on rate-setting and a variety 
of mechanisms to control health care costs, such as in Maryland, 
that have worked successfully, and they do it by controlhng the Na- 
tional and State budgets. A global budget has been used by other 
countries for years without access or quality problems. 

In the United States, a number of States, including Maryland, 
have used a form of global budgeting to set hospital rates without 
adverse impacts on quality of care or access to care, and Medicare 
currently uses a form of global budgeting for physician services. 

So what I conclude is that global budgets make sense. As a soci- 
ety, we decide how much to spend on defense, space, public edu- 
cation through the budget process; no reason why we could not do 
exactly the same thing in the health care system. 

Thank you very much. 

[The prepared statement and attachments follow:] 



4 ^^e /^ ^ J 



220 

JOHNS HOPKINS 



H t * I- T II r N S T I T I T I N 



The Center for Hospital 
Finance and Management 

624 Nonh Broadway / Third Floor 

Baltimore MD 21205 

(410) 955-2300 / FAX (410) 955-2301 



Mr. Chairman, my name is Gerard Anderson, and I am the Director 
of the Johns Hopkins Center for Hospital Finance and Management, 
co-Director of the Johns Hopkins Program for Medical Practice and 
Technology Assessment, and an Associate Professor of Health 
Policy and Management at the Johns Hopkins School of Hygiene and 
Public Health. 

Today, I wish to speak in favor of H.R. 1200, the "American 
Health Security Act." The Act contains numerous provisions that 
should be incorporated into the final health care reform 
legislation. There are four coverage and design provisions that 
warrant special mention: 



Universal, mandatory health insurance coverage for all 
citizens and legal residents. Many of the other bills 
under consideration do not achieve this minimum 
standard. 

A comprehensive, explicitly defined benefit package 
covering primary care, acute care, long term care, and 
mental health benefits. The American Health Security 
Act is able to provide these comprehensive health 
benefits without instituting cost sharing. 

Integration of the Medicare and Medicaid programs into 
one comprehensive plan. Maintenance of two or more 
health care financing systems will increase 
administrative costs without improving the health 
status of any American. 

Much lower administrative costs. According to the 
Congressional Budget Office, the administrative costs 
under the American Health Care Security Act will 
decrease from the current 7 percent of health spending 
to 3.5 percent by the year 2000. CBO also estimates 
that hospitals, physicians, home health agencies, and 
other health care professionals would save 6 percent of 
revenue by dealing with only one payer and eliminating 
copayments and other billing arrangements. 



Financing and Cost Containment 

The most controversial and innovative aspects of the American 
Health Security Act, however, involve its financing and cost 
containment provisions. In my testimony this morning, I would 
like to concentrate on three specific issues: 

• Shifting the method of financing from the private to 
the public sector. 

• Using price regulation to control health expenditures. 

• Using state and national global budgets to contain 
health care expenditures. 



221 



Public Financing 

In 1997, the American Health Security Act will rechannel 
approximately $500 billion from the private sector to the federal 
government by eliminating private sector financing of health 
insurance and replacing the funds with an 8.4 percent payroll 
tax, a 2.1 percent income tax, and tax increases on cigarettes 
and alcohol. While many pundits have suggested that such a large 
tax increase makes this proposal dead on arrival, the method of 
financing a single payer plan has considerable merit after 
reviewing the data and comparing it to the current method of 
financing health care. 

In 1997, 75 percent of Americans who are currently insured 
would pay less for health insurance under the American Health 
Security Act than under current law and this percentage would 
increase as the cost savings projected under the American Health 
Security Act would increase. According to projections made by 
the Congressional Budget Office, the American Health Care 
Security Act would save $114 billion in the year 2003 and, 
therefore, the average American family would pay over $1000 less 
for health care services in the year 2003 compared to current 
law. 

I have prepared a series of charts that illustrate how the 
financing system would affect individual Americans. The charts 
show that under the American Health Security Act most Americans 
would pay less than they are currently paying for health care. 
For low income individuals and individual with chronic illnesses 
the amounts would be significantly less. The charts also show 
that most employers would pay less if the American Health 
Security Act were passed. The charts are based upon numbers 
generated by the Congressional Budget Office, Joint Committee on 
Taxation, Employee Benefits Research Institute, and the National 
Medical Expenditure Series. 

Price Regulation 

Under the American Health Security Act, hospitals and 
nursing homes will be paid on the basis of global budgets. 
Physicians and other health care professionals will be paid based 
on a variety of mechanisms including annual operating budgets, 
fee schedules, and capitation payments. 

While no one prefers price regulation to a free market 
solution, international and domestic evaluations of price 
regulation in the health care industry have shown that price 
regulation is able to control costs without an adverse impact on 
either access to or quality of medical care. In 1991, I wrote an 
article in the Health Care Financing Review summarizing the 
published literature on all payer rate setting. The article 
reached the following conclusions: 

• States with all payer rate setting programs have been 
able to consistently lower the rate of increase in 
hospital expenditures by 2-4 percentage points per year 
compared to other states. 

• All payer rate setting programs have been able to 
reduce the extent of cost shifting considerably. 

• All payer rate setting programs have increased access 
for the uninsured because they compensate hospitals for 
the care of people without health insurance. 

• Most studies have found no evidence that quality of 
care declined under all payer rate setting programs. 

• HMOs and other managed care organizations have 
prospered in states with all payer rate setting. 



222 



• The diffusion of new technology and access to capital 

is comparable in states with and without all payer rate 
setting. 

The Prospective Payment Assessment Commission, the Physician 
Payment Review Commission, and the Congressional Budget Office 
have recently conducted independent assessments of the 
feasibility of regulating hospital and physician services based 
upon Medicare payment rules. They all concluded that a national 
payment rate is feasible at this time. 

State and National Budgets 

The American Health Security Act establishes an annual 
global budget for health care, limiting growth in expenditures to 
the rate of growth in the gross domestic product. Each state is 
given a global budget which the state will use to set budgets for 
physicians, hospitals, and nursing homes. Separate budgets for 
new construction, renovation, and major capital equipment are 
allocated directly by the states. A National Health Board 
negotiates prescription drug prices with drug companies. 

Global budgets have been used by other countries for years 
without access or quality problems. In the United States, a 
number of states have, for years, used a form of global budgeting 
- prospective rates with volume adjustments - to set hospital 
rates without adverse effects on quality of care or access to 
care. Medicare currently uses a form of global budgeting for 
physician services . 

Global budgets also make common sense. As a society we 
decide how much we want to spend on defense, space exploration, 
or public education through the budget process. There is no 
reason why the same process could not be used to decide how much 
to spend on health care. 

I would be happy to answer any questions. 



223 



SCENARIO 1 

WORKER IN SMALL MANUFACTURING COMPANY 
Demographics: 



1 Ag«: 


4S 


2 Gindtr: 


Mat* 


3 Family: 


Wlfa ahd t«vo chlldran 


4 Health Statua: 


No praaxlating condltlona 




No long farm haalth cara naada 


5 Ineoma: 


Wagaa - $50,000 In 1999, no othar Ineoma 


6 Haalth Hablta: 


Non smokar, non drinker 


Current Health Insurance Coveraae: 



1 Banadtt: Comprahanaiva benefits; no deductibles; 

Rx drugs with copay; no dental; no 
long term cara 

2 Covaraga: Family 

3 Employer Payment- Employer pays 100% of premium 



COST TO THE WORKER 

Out of Pocket Premiuin Taxes Total 

Cunent System 200"' 5435™ q 5535 

American HeaTth Care O™ BaSO**' 5250 

Security Act^ 

b l l iiM m tmmnal ftkM t m ■ " *>■ m «r» tm—* «■ f niif w ol 9m NMES dw Wh«»< l» t»<hct 1S*a t 
1 100 1 



»c c ««<m W «» Ii M'r " S«n*a« amm li kMHuM'a irf i Mli Bu i n b««d on »m 1M2 ■ippliiiiMH of •■• Cwiwl 
r^p»dmtianStr<mrmn6^997ftm1ianat H ^ l%r ti£ J^p mn^tunS*0V9y,mKlfioy9ttm^M^t JL^^ m^ A^t w^al ^> ltml »m a^OJ^^pmnmm 
til t f|i u a in inamfacturing iraM wMi l a wl tfwn 10 iii y hii M l. Btmim IimMi tumtc* prmnkmm ar« ■nnmil le 
te rw ii fuMr «wn p«T>«a. ■ mnr C Qtnwv«a»i « mmii »aw» b Am «ii > « u » n» |i w* nM clm|>. 

JoW CewiUm on TMjacw »i n (i m » ptr/nM Urn &I S.4 p«rc«n« id Iwcomw m «t 2.1 pwont would raba Om nqutod 



COST TO THE EMPLOYER 

Payments for Health 
Insurance 
Current System 5435" 

American Health Care 4200™ 

Security Act 



OiMWM •> ■■■■ai porrai kt ISM m tso.ooo. 

A tio <*>9 le dM bnplo y i BoiMlil acmtcfc hvtkuu'e col e idod o i M boMd on dx 1*92 imihinwil ol dM 
l>VU>don Swvor and 1 987 Nolkaiol M.<icol Cjq>ndhura Survvr. onvtoiw hooltfi o.l.mitum io(»<«^^ 
o4 poyral ki manwfoclMtna %ifw wMi Imvoi dMn 10 oiwp> u )ooi. 

JoM C om n d n oo on Toudon »i u to i.u • pmrnM uo ol a.4 pweoM. 



224 



SCENARIO 2 

WORKER IN MEDIUM SIZED TRANSPORTATION FIRM 
Demoaraohlcs: 



1 


Age: 


42 


2 


Gender: 


Female 


3 


Family: 


Divorced, two children 


4 


H«allh Status: 


No preexisting conditions 

No long term health care needs 


S 


Income: 


$20,000 In 1999, no other Income 


6 


Health Habits: 


Non smoker, non drinker 


Current Health Insurance Coveraqe: 



1 Benefits: $1000 family deductible; no Rx; 

no dental; no vision 

2 Coverage: Family 

3 Employer Payment: Employer pays 80% of premium 



COST TO THE WORKER 

Out of Pocket Premium Taxes Total 

Current System 3330'" 2130'" q 5460 

American Health Care C" 800'*' eOO 

Security Act 

EitknMa (or out e( podiM upandHum an b«i«d on conpuur nm ol Dm NMES dota kilUtod <o f«<l>ct 1*99 oaML 

Asoumoi 100 porcom t a ttnf «rWl poroom coparmoxts. 

Aceac«<g to Dm Envloyoe Bcnotil ItoMorch ksAuu'i cakUations baaad on Ote 1992 ai^piamant ol Iha CaaioM 
PopubtionSory«TO~<^9a7Ma<ionrfM«<»cal6jip«ndH<«S<«v»T.'oX*'Y«'''aalttia«pcndh»« M iapr«»ont«<10.6Sp>«i«n< 
o< payral In a ttan i powation fim ol batweon 2S and 93 aoiploye a i. Sacauso health knwanca maiiifca m ara aipactad la 
hcnaa* lastar than paynl. a vonr consaivathn astifnata li that this pareontaga wB not cfianga. 



For ain p loi e n of Ian than 75 (ul tkna aqiiv a l an t c»n(ilo>« ei aamtng an awraga wage o< lasa than •24.000. the Joint 
Convnittea on Taaatkn has projectad a ta< rau of 4.0 percant wo>M lalsa tha ra^irad I 



COST TO THE EMPLOYER 



pr Health 
losutancs 

Current System 2130'" 

American Heahh Care 800'" 

Security Act 



Assun>e< Iha nvaga payna In 1*99 Is «20.000. 

Accoxfeg lo Ih. Cinplorn BansOl Rasaareh kitUluIs'i calciaaUons l>asad on Iha 1992 n aipismaw l of Oia Ciaranl 
Popi4auon Swv.y and 19(7 National Medical tj^»odilu>. Suvey. .nH>lo,a. health e >pen<*«uras ie|>raaanled I0.«&pe.cenl 
ol payiol h • uanwonaOon (an ol belween 2S end 99 emploYeei 

ro« enH>lov««s ol le.l then li hA Ikne e«|u~elenl emploveee eeneng en .ve<e«e xege ol tesi Otan (24.0O0. the Jea<l 
Conwnntee on leuoon hei (xo^ecled a lai fele el 4 |>a<cenl oeUd leiu Ihe ie«*ed emounl ol revenue 



225 



SCENARIO 3 



WORKER IN LARGE 


Demoaraohlcs: 


1 


Age: 


2 


Gender: 


3 


Family: 


4 


Health SUtua: 


S 


Income: 


6 


Health Hablta: 



CONSUMER PRODUCTS FIRM 

58 

Male 

Married with no dependenia 

No preeiltting condltlona 

No long term health care needa 

SfiO.OOO In 1999, no other lr>come 

Non smoker, non drinker 



Current Health Insurance Coveraoe: 



Benefits: 



2 Coverage: 

3 Employer Payment 



Comprehensive; $200 deductible; 

drugs; dental; vision 

Family 

Employer pays 100% of premium 



COST TO THE WORKER 

Qv\ 9f Pocket Premium Taxes Total 
Current System 1218'" 6876™ q 3094 



American Health Care 
Security Act 



6300'*' 6300 



Estinwus tar eu( o< poctM upMtdltms arm b«Md on compuur nra si Oo NMES tf«a bi<Utt4 to raltoct 1999 c 
I 100 u i ciM l CJ Ow wu a wWi c 



AccaAig w KM EmvtarM Benefit (teMarch bmttuu's ealcUaliona bncd en ttie 1992 ■<>><■ mini e( Oie Curem 
IVipULetionS«»v«T end 1987Metlon«l»«e<«<alE«t)«n«tt»eSi»veT.«inti4ot««h««ti>ie i i p «» «ilu ie « »«p>e«€me«l11.«« percent 
el perrai In • ceraumo pcoAicts (inn eni«>)<>t4ng 500-999 mplareei. Seceuie heeMi btMnnee p ro iyie m an ejqiected 
to Incnese le«« Bi«i p>Yra(. e verf conucvalive estimete b Ktet M> pwcinliM era net ctienge. 

JoM CammHtee an Te<ationpfoiKts«perroatue<S.4 percent en) hcomelu of 2.1 pwoeni weiM rdee Die rebuked 



COST TO THE EMPLOYER 



Current System 

American Health Care 
Security Act 



Payments (or Health 
Insurance 

6876™ 

6300'^' 



Aaaumes an av a rega payraS hi 1999 el «60.000. 

Accerdins la 0<a C<ti|>Iot<« BenaM RaMarcft Insliruta ■ cakUabona baaed on Iha 1992 . 

Cepi^lion Sway and 1987 MauanalMa<fa:alEv«<dHi«S<jrv«T.afn|><or«<ll.ara«ipandHure< 
e4 perral In a conaunw producia fc™ ampl o yaig &0&999 amplmaai 

Ja4n< Cenwnmaa on Taxaljon protacts a payral lai o) B 4 percent 



a* 4n^" > * ii l of the Cterant 



226 



1 


Age: 


2 


Gander: 


3 


Family: 


4 


Health Status: 


S 


Income: 


6 


Health Hablta: 



SCENARIO 4 

WORKER IN OWNER OPERATED GROCERY STORE 

Demographics: 

32 

Mala 

Married with one child 

Child with chronic leukemia 

$60,000 In 1B9t, no other Income 

Hon smoker, non drinker 

Current Health Insurance Coverage: 

1 Benefits: Medium Option: Basic coverage; 

$500 deductible; no dental; Rx drugs 
lncluded;$3000 out of pocket limit; 3 month 
waiting period lor preexisting condition 

2 Coverage: Family: Ma|or Risk Medical Insuranca 

3 Employer Payment: Owner operator pays 100% 



COST TO THE EMPLOYER 

Out of Pocket Premium j 9x.i S lBia[ 

Current System 6922"' 5394™ 12316 

American Health Care 0'" 6300"' 6300 

Security Act 

" EnkiutM for out e( pockM upxAwn ara b m i t an ean<pi«a> naia t4 Ow NMES daU Mlalad •• la W l H ItM caata. 



* A cuw i fc i g to Iha D iylova Banaflt Raaaarch Inatftula'a calculaliana baaad on tfta 1992 ai^ w ^aniOiH of tfM Cunam 

Popi^tlon SwvaY «i< 1X7 Natfonal M « <cil Expandhm Sofwr. a< ni < U |ai hoallh a^anAuraa mi < aa aii > a« l B.*9 parcoM 
ol payral h wholnaU and ratal trada firms mM\ lawar Own 10 an^laraos. Bica ua a ln i W i hauranoa la a n iu iiu an 
ai90ctod to bnaaaa la*ta> than parol, a «arr uxu a n ral l ni am« n > l l M i It that Itiii p uc a nt agi «rii not ctwnga. 

•■ JotatConwihtao on Taa»<owpwtact»»p«yTBita«oH.4parcan« and l r n nii n mofa.1 pascal a>ai d <ialaaaiaiaqi*a< 



227 

Chairman Stark [presiding]. Thank you very much. 

Before I recognize Lisa Priest, I did want to ask unanimous con- 
sent that the testimony of Drs. Hsiao and Dans, who, because of 
the weather, were unaole to make it this morning, be included in 
the record, and I commend the testimony to my colleagues for their 
perusal. 

[The prepared statements follow:] 



228 



Presentation Before the Subcommittee on Health 
House Ways and Means Committee 

February 9, 1994 

by 

William C, Hsiao 

K.T. Li Professor of Economics 
Harvard University School of Public Health 



I am pleased to give an evaluation of a single-payer system. 
Simply put, a single-payer system can cut total U.S. personal 
health expenditures by at least 20% while improving quality and 
without rationing services. The cost reduction can be achieved 
without sacrificing access or quality because the U.S. now has a 
bloated and inefficient system. This 20% savings comes from 
three major sources. First, approximately 8% of the savings 
comes from reducing administrative expenses. Another 7% of 
savings can be produced by reducing unnecessary tests and 
surgeries. Finally, a savings of 5% will result from removing 
duplication and waste resulting from our excess hospital and 
laboratory facilities. 

The U.S. has such an inefficient and expensive health care 
system for two reasons. First, we have freely chosen a wasteful 
approach by relying on a free market, private insurance system 
that naturally leads to multiple and complicated administrative 
systems and duplication of facilities. Second, the multiple 
insurer/payer system gives an "open checkbook" to physicians and 
hospitals. An open checkbook offers no incentive for providers 
to operate efficiently or balance costs with effectiveness in 
medical decisions. The fundamental debate in the U.S. is how to 
close the checkbook so that pressures will be put upon providers 
to remove waste and inefficiency. 

An effective single-payer system has two essential 
components to control costs and assure quality. The first 
essential component consists of a global budget established 
prospectively for total health expenditures. A global budget 
serves as an effective fiscal cap over the health system which ■ 
pressures providers to manage health care efficiently and adopt 
cost-effective medical technology. Without a global budget, 
everyone would want the latest glittering technology and newest 
drugs regardless of whether they would do the patient much good 
and regardless of cost. Second, under a single-payer plan, 
everyone is covered by public or private insurance plans so all 
payments to providers can be channeled through a single pipe. 
The single pipe payment enables us to effectively monitor quality 
and volume of services and control costs. 

To operate our private insurance-based pluralistic free 
market system, the administrative costs amount to at least one- 
fifth of our health expenditures. My research found that the 
U.S. can cut approximately 8% of health costs by simplifying the 
administrative operations of a national health insurance program 
through a single-payer system. This estimate of 8% is quite 
consistent with those estimates prepared by GAO and CBO. 

The second source of savings comes from reducing unnecessary 
surgeries and tests. Scientific studies show that between 20%- 
25% of the surgeries and high technology tests performed now are 
unnecessary. The New York Times' editorial on January 31, 1994, 
put it this way "Studies show that as much as one-third of 
current health care expenditure is for wasteful or ill- 
advised procedures." 

A single-payer system would close the open checkbook by 
establishing a cap through negotiations on total health 
expenditures and uniform payment rates. More importantly, but 
often missed by analysts, the experiences of Rochester (N.Y.), 
Canada, Germany, and Japan show that a single-payer system would 
assemble the total practice profile of every physician. This 



229 



cannot be done under a multiple payer system. These complete 
practice profiles have been used effectively by other countries 
to monitor the practices of the aberrant physicians which may 
only comprise 10%-15% of the physician population. The other 85% 
of physicians were free to practice good medicine according to 
their best profession judgment, free from the intrusive daily 
monitoring conducted by the multitude of managed care plans as 
they operate in the U.S. now. 

The monitoring of guality is usually delegated to the 
medical profession rather than the government or insurance plans. 
Other nations found that physicians were in the best position to 
monitor each other, not only because they have the expert 
knowledge, but also they can use professional persuasion, 
economic sanctions (such as refusing to refer patients to an 
aberrant physician) , and social pressure to correct the medical 
practices of aberrant physicians. Unlike the market system where 
every third party payer has to set up vast administrative 
machinery, formal claims review processes, and cumbersome due- 
process procedures to enforce quality standards, a single-payer 
system sets the overall budget cap, establishes a uniform payment 
system, then lets providers compete on quality of services, 
monitored by the medical profession itself. Empirical evidence 
shows that a single-payer system not only is able to assure 
better quality of medical care, but at much less cost. 

The third source of savings comes from reducing excess 
capacity. The United States has an excess supply of hospital 
beds and surgeons, and duplication of expensive laboratories. 
Our hospital beds are only using two-thirds of their capacity. 
We can reduce our health expenditures by at least 5% by removing 
the waste produced by excess supply. 

What kind of single-payer system would the United States 
adopt? In my view, we should look toward Germany as a model. 
Germany realized that they could not remove their entrenched 
private non-profit insurance plans (i.e., sickness funds) from 
the scene once they were established. So they built a successful 
single-payer system where the federal government sets the broad 
policy guidelines but leaves the state to implement them, taking 
into account local conditions. German citizens continue to be 
insured by their sickness funds, but all claims are paid through 
a single pipe. Quality control and monitoring are exercised by 
the state medical associations. A global budget is established 
by negotiation where the payers — representatives of sickness 
funds, employers, unions, and consumers -- sit on one side of the 
table while the representatives of the money receivers sit on the 
other side. The government stays out of the middle in setting 
the global budget so the process is not politicized with lobbying 
and political theater. Germany has been able to control its 
costs effectively at an affordable level and provide universal 
health insurance. There is no rationing in Germany and no 
waiting line. Of course, we do not have to adopt the German 
system wholesale — we can improve it by introducing better 
quality assurance and modifying it to our own political and 
economic structure. 

In summary, I would like to assess the single-payer system, 
using the six principles laid out by President Clinton in his 
national health security plan. The six principles are: 
security, savings, simplicity, quality, choice, and 
responsibility. On security, a single-payer plan is at least as 
comprehensive as the President's proposal. On simplicity, 
savings, choice, and quality, a single-payer system clearly is 
superior to the President's plan. 

Anyone doubting that this can be done in the U.S. only needs 
to examine the experience of Rochester, N.Y. Its medical 
technology is first class and services are rendered without 
waiting periods. Meanwhile its medical costs are 34% lower than 
the U.S. average. Another success story is Maryland's single- 
payer hospital payment system. 

Empirically, there is no doubt that a single-payer plan has 
proven to be a superior strategy. The question is whether we 
have the wisdom and political will to adopt it. 



230 



References 

H.R. chassin, J. Kosecoff, R.E. Park, et al: Does appropriate 
vise explain geographic variations in the use of health care 
services? Journal of the American Medical Association 
1987;258(18) :2533-2537. 

A.M. Greenspan, H. Kay, B. Berger, et al: Incidences of 
unwarranted implementation of permanent cardiac pacemakers in a 
largo medical population. New England Journal of Medicine 
1988;318(3) :158-163. 

W.C. Hsiao: Public vs. private administration of health 
insurance: A study in relative economic efficiency. Inquiry 
Winter 1978 ; 15 (4) : 379-387. 

J.F. Shiels, G.J. Young, and R.J. Rubin: O Canada: Do we expect. 
too much from its health system? Health Affairs Spring 
]992;ll(l) :7-20. 

K.E. Thorpe: Inside the black box of administrative costs. 
Hea lth Affairs Summer 1992 ; 11 (2) :41-55. 

US General Accounting Office: Private Health Insurance; 
Probl ems Caused by a Segmented Market . G AO/ HRD- 9 1-114. 
Washington, DC: US GAO, 1991. 

S. Woolhander and D.U. Himmelstein: The deteriorating 
administrative efficiency of the US health care system. The New 
Engla nd Journal of Medicine 1991;324(18) : 1253-1258. 



231 



Testimony of Dr. Peier E. Dans before ihe Subcommittee on Health Of the 
Ways and Means Committee of the House of Representaiives-2/9/94 

Mister Chairman. Distinguished Members and Honored Guests 

Thank you for the privilege of being invited to testify on an issue 
about which I have felt passionately for over 20 years. I am not testifying 
today in my official capacity as a Deputy Editor of the Annals of Internal 
Medicine nor as a member of its parent organization, the American College of 
Physicians but as a private citizen who has had the opportunity to 
participate in and observe the medical care system from many different 
perspectives. Growing up in a cold water flat and then a housing project in 
New York city, I used free dispensaries and dental school clinics. In the late 
40's when my mother was employed as a court interpreter, we were 
enrolled in the Health Insurance Plan (HIP), an early HMO. As a high school 
student in 1951. 1 debated the national debate topic: Resolved Should we 
adopt national health insurance?- an issue with roots at least as far back as 
the convening of the first national Committee on the Costs of Medical Care" 
in 1 927. That debate.shrill with accusations of "socialized medicine, was 
muted by the massive building of acute care hospitals through the Hillfiurton 
aa as well as the use of tai incentives for employers to make medical 
insurance more affordable. 

Still, when I graduated from medical school in 196 1, people, 
especially the poor and the elderly, were being turned away from hospitals. 
Medicare and Medicaid corrected that but also institutionalized a usual and 
customary fee payment system that favored high-tech and acute hospital 
care over dfioe-based care, long-term care and prevention. The lives of 
many were markedly improved by these reforms as I learned from caring 
tor people in places as diverse as Massachusetts, Col<M-ado, and Maryland. 
However, the incentives from these and other well-meaning reforms such as 
the expansion of medical school enrollment became perverse with the 
explosion in non-curative technology and the replacement of acute diseases 
by chronic ones as the population.aged. By the mid-70,s , when I was a 
health policy fellow in the US. Senate, it was clear that Medicare and 
Medicaid had fueled a health care cost crisis. However, most people were 
satisfied with their care and other issues like energy and defense took 
precedence. 

In 1978, 1 returned to Johns Hopkins Hospital to establish one of the 
first medical practice evaluation units aimed at increasing the quality and 
decreasing the costs of care - now called outcomes research and continuous 
quality improvement. I watched the «>st crisis worsen as AIDS, drug and 
alcohol abuse, violence, tuberculosis, and homelessness overwhelmed an 
eroding public health system. Unfortunately, the medical care system's 



232 



after-the-fact response was tremendously expensive and only marginally 
effective. For example, drug-addicted patients coming to the Emergency' 
room to kick the habit would be given a number to call for programs whose 
waiting lists were months long. However, if they had infected their heart 
valve with a dirty needle, we could admit them for a valve replacement at 
great expense. 

So why is there so much controversy about whether there is a crisis"? 
I beheve it is because of imprecisely diagnosing it as a "health care crisis". 
Health care, or what is more appropriately called medical care, is not in 
crisis. While it needs improvement in its distribution, organization, and (in 
some areas) its qualitv. our medical care is generally acknowledged to be 
very often the best in the world. We do, however, have a crisis in what 
medical care we pay for, how much we pay for it. and how that payment is 
administered. As a result, we have a coverage crisis whereby too manv 
Americans do not have basic medical care benefits. 

! am here today because 1 believe Congressmen McDermott, Stark.and 
their cosponsors have made the right diagnoses and have tailored their 
treatments accordingly. They don t rely on untried concepts not found in 
nature like health insurance purchasing cooperatives which threaten to 
interpose large impersonal bureaucratic organizations between patients and 
their doaors. Instead, they propose to take a payment system that has 
worked in Germany .Canada, and other developed countries and tailor it to fit 
America, Even in America, in my home state of Maryland, an all-payor 
system for hospital care has worked extremely well in holding down costs 
while not adversely affecting care. 

By mandating a basic medical benefits package and developing a 
uniform system for paying for it. the bill will take much of the confusion out 
of the current system. It also will reduce the huge administrative costs 
which do not translate into improved care but instead enormously increase 
the hassle factor for patients, their families and for physicians. I have seen 
this from both sides. My parents died in 1991. six months apart. I had to 
cope not only with my grief, but with masses of fragmented and almost 
unintelligible medical bills. I had to communicate with 3 separate insurers, 
of whom only Medicare seemed readily willing to fulfill its contractual 
obligation. Having a medical degree was of little help. As a physician, I have 
also seen the harassment by multiple third party payors with a myriad of 
confliaing rules. Rather than improve quality, these rules have fostered the 
creation of a paperwork bureaucracy and at times have even restricted care. 

Another reason I favor this bill is that it doesn't incorporate the other 
untried concept we so often hear about, "managed competition '. We don t 
need more competition in the medical care system. Competition is largely to 
blame for the combination of maldistribution and duplication of services. 
We need more collaboration for the same reason we don t have competing 



233 



lire deparimenis in a given lunsdiaion. During war. we doni coniraa oui 
medical care ser\'ices lo competing groups; we iniegraie them beginning with 
triage at the front all the way back to the stateside hospitals. Indeed, under 
the threat ol legislation, we are already seeing unprecedented mergers 
among institutions in Boston and Philadelphia that once competed for the 
same pool of insured patients. We have seen collaboration work effeaively 
to improve care and hold down costs in Rochester. New York. By removing 
many perverse payment incentives, this bill wlU level the playing field in 
medical service areas. Global budgeting will encourage states and regions to 
convene all local interested parties to define the needs of their inhabitants 
and then to make sure that the quality, mix and distribution of services 
meet those needs. 

To help the local entities concerned with quality of care to accomplish 
these goals, the bill mandates the development of a national electronic 
database for patient records. Such systems are becoming more widely used 
in such countries as The Netherlands. This will improve care by making key 
clinical inl'ormation portable in our highly mobile society. It will also permit 
the analysis of patient outcomes and comprehensive profiling of institutions 
and physicians rather than insurance plans. From almost two decades of 
experience, I can attest to the general inadequacy of most claims data for 
accomplishing these tasks. I see physician profiling not as a report card" 
with grades from A to F, but primarily as an educational tool. The vast 
majority of doaors want to know how they are doing and how to do better. 
It can also serve to identify the small percentage of "bad apples". 

The bill also encourages the recognition d centers of excellence within 
medical service areas. As someone who helped establish a migrant health 
center in Fort Lupton. Colorado-now a thriving one-class community health 
center, I am pleased that the bill takes into account the special needs of the 
medically-underserved. Competition hasn t worked very well in rural areas 
and inner dties-not just for medical services but also for other necessary 
services. 

The bill is silent on two important issues. The first is malpractice 
reform. However, I agree with the sponsors that this issue should be uckled 
separately. I believe that tort reform should be across the board. A society 
where someone who is drunk and falls off a subway platform can win 
millions of dollars in awards is completely out o{ whack. A system which 
seeks "deep pockets ' to blame rather than trying to rectify any errors, most 
of which are unintentional is ripe for reform. Compensating those who 
should be , many of whom are not compensated under the current system, in 
a non-punilive way would take the onus off the majority of physicians and 
lead to improved care. Rather than continue the disabling specter of 
litigaiion for the good doctors. I would prefer that that we isolate the truly 
negligent physicians and deal with them punitively. 



234 



I also urge that Medicine be exempted from ihe provisions of the 
Anii-irusl aci, as ii was before a 1970's ruling. Medicine is a profession not 
a trade and doctors ought to be ezpeaed to aa accordingly. If baseball can 
be exempt, it's not clear why Medicine should not be. My concerns stem 
from my term on Maryland's Board of Physician Quality Assurance 
from 1988 to 1992. Although almost a quarter of the complaints involved 
allegations of excessive fees, virtually all were dismissed, even though one <rf 
our standards prohibited "gross and wilful overcharging' . Presumably, 
because doaors couldn t know one another s fees.we could not prove that 
even the most outlandish fees were gross, let alone wilful. The medical 
society also refused to get involved as a mediator, as it had in previous years 
allegedly because it had been sued once for restraint of trade. For the same 
reason, doaors who were aware of the bad aaors cited the famous Patrick 
case which hinged on concerns about restraint of trade as a reason for 
their reluaance to come forward. The potential for individual harm simply 
out weighed the benefit. In a new era stressing prolessionalism and 
cooperation for the public good, treating Medicine as a trade is out of step. 

I would also favor reinstating the ban on advertising. Advertising 
drains resources from the patient and invites overstatement and 
downplaying problems. It makes us spin doctors not medical doaors. 
Even at Johns Hopkins, iustifiably recognized as one of the premier hospitals, 
the premise of our office of medical praaice evaluation was that as good as 
we were, we could be even better. Again, no surprise here,because medical 
care is a complex social enterprise involving imperfea people working in an 
imperfea system. The idea should be to strive for perfeaion by identifying 
errors and correaing them, not hiding them. 

Finally. I am very much concerned that the terms of this debate were 
established by a secretly -convened task force whose plan was being sold 
even before it was made public. Some of the press coverage suggests an 
'enough already attitude with the issue being reduced to a two horse race 
with the handicappers urging you to get your bets down. This issue is simply 
too important to come to premature closure. I have also been dismayed at 
the polarization created by the tendency to cast villains as well as to 
substitute slogans, jargon and catchy phrases for clear and reasoned analysis. 
In the process, the Cooper " bill becomes "Clinton Lite". The single-payor 
proposal is dismissed as not politically viable and too hberal when as a 
matter of faa, it is probably the most fiscally conservative and least 
intrusive into the patient-doaor relationship. 

It gets to the root of the most pressing problems and preserves the 
best of the current system. It does so in 200 pages as compared vilh 
anywhere from 600 pages tol364 in the competing bills. There's an 
enormous risk for mischief in those extra 1000 or so pages. As a health 
policy fellow. I saw too many well meaning ideas start simply and then run 



235 



amok as micro management mania and a lack o( irusl led lo the orchestration 
of every last deuil. As a result, the law-abiding people got tied up in the 
red tape of voluminous regulations while the operators figured out how to 
get around them. Whatever you do I urge that you keep it as simple and as 
surgically precise as possible. This isn t about getting it done but getting it 
right. What you do will have profound effects on the the profession of 
medicine as well as how Americans choose lo live and die. Thank you for 
vour attention. 



236 

Mr. McDermott. Mr. Chairman, may I say that the last page of 
Dr. Hsiao's testimony, beginning with "in summary," I think is 
probably the best, most concise compilation of what he has to say, 
and he essentially, unfortunately, was snowed in in Boston. I would 
love to have him here saying it. 

Chairman Stark. So he could not snow the rest of us this morn- 
ing [laughing]; is that right? 

Mr. McDermott. No. He would tell us the truth actually. 

Chairman Stark. Having said that, I would like to recognize Ms, 
Lisa Priest, a journalist from the Toronto Star. 

Please proceed, Ms. Priest. 

STATEMENT OF LISA PRIEST, HEALTH POLICY REPORTER, 
TORONTO STAR, TORONTO, CANADA 

Ms. Priest. Dear Mr. Chairman and members of the committee, 
I am a health policy reporter for Canada's largest newspaper, the 
Toronto Star, and my only agenda as a journalist is to relate as 
dispassionately and as objectively as I know how some of the 
strengths and weaknesses of Canada's $67 billion health care sys- 
tem. 

In a country divided by language, various cultures, and frequent 
constitutional squabbles, health care has been the one thing that 
united and defines Canadians. Indeed, many would feel un-Cana- 
dian without its health care system and its principles of universal- 
ity, comprehensiveness, accessibility, portability, and public admin- 
istration. 

Canadians are overall very satisfied with their health care sys- 
tem. Recent surveys show 84 percent of Canadians rate the quality 
of their medical services as excellent, very good, or good; 81 percent 
think government should pay for health care of all Canadians, re- 
gardless of their income. 

Saying that, we are having some problems with financing, and 
the Federal and Provincial governments are trying to determine 
what we can no longer afford. 

Sixty percent of Canadians approve the charging of user fees, 
and 82 percent believe that the government will introduce them 
sometime in the future. 

One of the problems that you have with capped resources inevi- 
tably is that you are going to get waiting lists, and much of my re- 
porting has concentrated on waiting lists. And since this is a public 
system, you tend to find out about them quite a lot. And I would 
like to give a few examples. 

One of them is that Sunnybrook Hospital, you have to wait up 
to 9 months for a hernia repair, 8 months for gallbladder surgery. 
If you are a routine patient wanting a crack at the magnetic reso- 
nance imager, it is 9 months. At Toronto Hospital, it is 4 to 9 
months for an autologous bone marrow transplants, which is 
deemed as urgent care. Essentially anyone who needs emergency 
care gets emergency care. 

And these problems, for the most part, are reflective more of poor 
management than resources. In the past, we have always chucked 
money into the system, and our budgets were growing at 10 per- 
cent a year, and then we found that essentially we were not man- 



237 

aging the resources well, and a lot of these things can be fixed with 
central registries. 

Cancer, we have had a real problem with cancer care. I remem- 
ber interviewing a woman who had to be driven by her paraplegic 
son up to northern Ontario for radiation treatment. But overall, 
Canadians do get access to their health care. 

And I have also covered good stories where I have seen two 
brothers with cystic fibrosis get double lung transplants, and that 
was a total cost of $300,000, and they did not even know how much 
it cost. 

The Canadian health care system, though, is not in crisis, which 
a lot of people tend to think, but there are just certain things that 
need to be fixed. 

And what is happening right now is that they are delisting cer- 
tain procedures. A lot of these procedures, Canadians think, are 
cosmetic anyway. They are things like tatoo removal and acne re- 
moval and sterilization reversal. Those things are being delisted, 
20 million dollars' worth in Ontario right now. 

As well, doctors are not part of a socialist medicine state. In fact, 
90 percent of the country's 60,000 physicians are self-employed, fee- 
for-service practitioners who bill the Provincial health plans for 
each medical procedure they perform. In fact, they are also able to 
bill on top of that for third-party billings such as doctor's notes and 
aviation medicals and things of that nature. 

Since there is little utilization management on prior approvals, 
physicians enjoy really a free way of practicing medicine. They do 
not have insurance companies calling them us saying: Here, how 
about that patient and hospital; when can you get them out? They 
really practice on the Lone Ranger model for the most part, and 
they negotiate their payments with government, so government 
gets a very good bargain for the doctors. 

Right now in Ontario, doctors are at a cap, and they are paid — 
the 22,000 physicians are paid $3.9 billion a year. If they bill any- 
thing over that with this hard cap, they have to pay back the 
money to government, and, in fact, that is what they are doing 
right now. They anticipate that they will run out of this $3,841 bil- 
lion by mid-March, and the Ontario Medical Association has, in 
fact, told its doctors: Could you please take a week off in March 
sometime and not see any more patients, so we keep our utilization 
down? And they are going to end up holding up on $148.9 million. 
And the government gets that money by a clawback; essentially 
they dock their pay. 

Hospitals are also downsizing. Over the past 5 years, they have 
taken out 5,000 beds in Ontario alone, and still they are seeing a 
lot more patients than before because of the move to day surgery. 

And I would like to end this by — I did notice that someone had 
mentioned that a lot of Canadians go down south. We do have a 
big fraud problem. Of our $17.5 billion budget in Ontario, up to 
$700 million is fraud, some of it from Americans coming to Canada 
to get care. And they are trying to control that, and they are hav- 
ing a devil of a time. 

And as a journalist, I would just like to finish by saying that I 
am always trying to look out for the health care system. 



238 

Chairman Stark. That is because they are so mad that we make 
all those Fords and Chevrolets up in Canada. Just trying to get 
even. [Laughter.] 

Ms. Priest. I would just like to end by saying that I have tried 
to look at health care systems in other countries to see what should 
Canada be doing, what should we emulate, and for the most part 
I think Canada is a very good system, and it is just that you hear 
about the bad things because of the public accountability aspect, 
but over all it is quite a good system going through changes. 

[The prepared statement follows:] 



239 



STATEMENT OF LISA PRIEST. 
HEALTH POLICY REPORTER, TORONTO STAR 



Dear Mr. Chairman and members of the committee: 

My name is Lisa Priest. I am a health policy reporter for Canada's largest newspaper The 
Toronto Star, an invited witness of the subcommittee on health and a patient in my country's 
health care system. 

As a journalist, I will endeavour to relay - as dispassionately and objectively as I know how - 
some of the strengths and weaknesses of Canada's $67 billion health care system. 

In a country divided by language, various cultures and frequent constitutional squabbles, 
health care has been the one thing that unites and defines Canadians. Indeed, many would 
feel un-Canadian without its health care system and its principles of universality, comprehen- 
siveness, accessibility, portability and public administration. 

While Canadians are very satisfied with their health care system, they are concerned about 
the profound changes taking place as federal and provincial governments determine what we 
can no longer afford. 

I would like to put a human face on our health care system as seen through the eyes of 
patients, doctors, government officials, hospital administrators and many others who have 
been involved in the emotional debates during this transition period. 

Here are just a few recent snapshots: 
•Two brothers with cystic fibrosis each received double-lung transplants. When they left 
Toronto Hospital a few months ago with their new, pink lungs they didn't have to worry about 
the tens of thousands of dollars it cost. In another health care system, they could have 
perished. 

•A woman in her 60s, stricken with breast cancer, had to rely on her paraplegic son to drive her 
hundreds of miles to Northern Ontario for radiation treatment, following her surgery. A backlog 
in radiation spots meant she couldn't obtain treatment at a hospital near her home in 
Metropolitan Toronto. But she didn't mind travelling to Sudbury at her own expense. 
•In Toronto, a dialysis patient said she was literally waiting for someone to die or get a kidney 
transplant so she could take over someone else's spot. Dialysis is in great demand as the 
number of patients increases disproportionately to resources. (Dialysis patients are increasing 
annually by 10 per cent in Toronto.) 

•When I was 13 and a pedestrian. I was hit by a car. Near death, I was rushed to hospital with 
broken txsnes and other injuries. As I lay in emergency and later in the intensive care ward, all 
my parents had to worry about was whether I would recover. They never had to fret atx)ut how 
much it would cost and it's a good thing - because they could not have afforded my hospital 
stay and subsequent rehabilitation. Uke most Canadians, I have no idea of how much my 
medical care cost but I am thankful to the doctors who saved my life and a system that has no 
financial barriers. 

Inevitably, a system with capped resources will have the rather undesirable consequence 
of waiting lists. While there are no waiting lists for emergency care, there are many for so-called 
"elective" procedures, including those for hip replacements, cataract surgery, knee replace- 
ments, appointments with some specialists, to name just a few. However, the word elective is 
a misnomer as these are not optional medical procedures - patients do need them. 

Currently, routine patients wanting a crack at the medical world's hottest new diagnostic 
tool, the Magnetic Resonance Imager, have to wait up to nine months in some areas, whereas 
urgent patients wait less than a month. In the province of Alberta, a private MRI clinic has 
opened up and patients wanting the diagnostic procedure quickly can get it - for a price. 

Many health care critics believe that Canada's waiting lists reflect poor resource manage- 
ment and planning in addition to a lack of funding. For example, in the late 1980s, there was a 
cardiovascular surgery scare. Countless stories detailed how patients needing heart surgery 
were dying waiting for treatment. Indeed, some Canadian patients flew to the United States for 
surgery. Some critics screamed there weren't enough doctors. Others complained there were 
too few operating rooms. A small amount of money and the creation of a central registry that 
priorizes patients according to need solved this problem quickly and quietly. 

Short waiting lists, as some health policy analysts point out, are desirable as it means the 
most efficient use of resources. As one physician told me, "there's nothing more dangerous 
than an idle surgeon." In fact, an open-ended system \M[h unlimited resources would likely 
result in more surgery and treatment than is medically desirable. And it has been pointed out 
that there are no scientific studies to prove waiting lists hurt patient outcomes. 



240 



However, I have interviewed many people on waiting lists and observed their anxiety and 
intense psychological pain waiting for treatment. Some of them wonder whether they will get 
help in time. Since those in need of emergency and urgent care don't have to wait, other 
patients frequently get their dates of operations changed. It is not unusual for a patient'to get 
psychologically prepared for open heart surgery or another serious procedure only to be told 
he or she will have to wait another month. Others are in so much pain they can't work, costing 
the system more in lost wages and taxable income. While waiting lists may make good 
economic sense, they are often at odds with a patient's quality of life. 

For example, a man named Alan Boothe is on an 11 -month waiting list for a right partial 
knee replacement. At times, the pain of bone rubbing against bone is so severe it wakes him 
at night. The way he talked about his upcoming operation this fall reminded me of a child 
counting down the days until Christmas. 

At Canada's largest acute-care hospital. The Toronto Hospital, it takes four to nine months 
to get an autologous bone marrow transplant. At that same hospital, it currently takes about 
one month to get surgery for head and neck cancer - which as you probably know - produces 
a tumor that doubles in size within 60 days. This hospital isn't much different from the 
hundreds of others across Canada. One Canadian radiation oncologist said if he was 
diagnosed with head and neck cancer today, he'd "panic like hell and go to Buffalo." 

Americans hearing these stories would find this kind of waiting intolerable in the same way 
many Canadians find the U.S. system - which leaves 37 million people without health insurance 
- impossible to fathom. 

But there is no perfect system, Canadians are justifiably proud of their health care system 
yet recognize there are areas that need to be fixed. 

One constant source of worry is the decreased funding from the federal government. 
Having lured the provinces into Medicare three decades ago, the federal government started 
becoming alarmed at rising costs and has been steadily decreasing its funding to the 
provinces. The 50/50 federal and provincial government split in health care spending three 
decades ago has now decreased to 30/70. f^rovincial governments are also concerned about 
increased costs and have been in the process of de-insuring or de-listing some medical 
procedures. 

For example. In Ontario, the provincial government and its doctors are in the midst of 
slashing $20 million worth of medical procedures which are presently covered under the 
Ontario Health Insurance Plan. Some of these proposed cuts include tattoo removal, in-vitro 
fertilization, sterilization reversal, routine circumcision, and annual health exams. 

/\n Environics Research Poll done on behalf of my employer. The Toronto Star, revealed an 
overwhelming majority of people believe that cosmetic procedures such as acne and tattoo 
removal should not be covered under the health plan. Interestingly, a majority of those polled 
last month also support middle- and upper-income seniors pay part of the cost of their drugs, 
which are currently covered by government. 

Doctors, too, are waged in battles with their provincial governments, fvlore than 90 per cent 
of the country's 60,000 physicians are self-employed, fee-for-service practitioners who bill the 
provincial health plans for each medical procedure they perform. Doctors are also able to bill 
separately on a fee schedule for non-essential procedures, which are largely cosmetic. Since 
there is relatively little utilization management or prior approvals, physicians enjoy a rather free 
way of practicing medicine. They do, however, negotiate their payments with government and 
many physicians - who prefer to practice on the Lone Ranger model - don't like any affiliation 
with government. 

The Ontario government likes to label its negotiations with the province's physicians as 
lively. Recently, the Ontario tvledical Association, which represents 22,000 physicians, agreed 
to a hard cap which means they have to pay the government anything they bill over a $3.9 
billion annual ceiling. This year, they have gone over their cap and are in the midst of paying 
the government a projected $145 million. They do it grudgingly as many doctors believe they 
shouldn't have to pay back what they have earned while caring for their patients. 

This payback is done through a clawback, which means each physician's pay is essentially 
docked. Two weeks ago, the Ontario Medical Association sent a notice to its physicians, 
asking them to take one week off in March in an attempt to keep health care costs down. 
Despite some physician complaints, Canada has a good track record for keeping its doctors. 
In Ontario, for example, at)out 100 physicians move to the United States each year, which 
amounts to less than half a per cent. Within five years, half of those physicians have returned. 

Canadian hospitals are also going through a period of restructuring and downsizing. In 
Vancouver, a hospital was recently closed. Ontario's 222 hospitals are in the midst of slashing 
$260 million from their budgets under the Social Contract Act, which was imposed by a 
provincial government that needed to cut $2 billion from its deficit. This is in addition to the 
millions of cuts they have already made and the 5,200 beds that have closed over the past five 
years in Ontario. In Toronto, a nine-member committee is being formed by the Metropolitan 
District Health Council, a government advisory body that plans health services in Metro 
Toronto, to realign 44 hospitals. It could mean the closing of some hospitals and the program 
mergers of others. Already, hospital presidents are busily meeting and trying to merge 
programs in an effort to make changes before the committee does it for them. 



241 



Perhaps the most pronounced part of Canada's health care system is how politicized it 
has become. Patients routinely call journalists to tell them their health care woes. Writing or 
broadcasting a story, patients think, will get them better access to treatment. Often, they're 
right. A news item that exposes a serious flaw in the system means It will be picked up by 
other media and opposition political parlies will raise it with government in the legislature. In 
fact, I've seen health policy made in this fashion. 

Months ago, news broke on how two big Toronto teaching hospitals had hired a marketing 
manager to help them sell medical services to the U.S. Americans could order a la carte from 
menu at a cost less than the U.S. but more expensive than what is charged in Canada. When 
this news broke, it hit a nerve. Canadians were outraged and they let their elected officials 
know they did not want their health care sold to anyone. Critics said it would create a 
two-tiered health care system - the bottom tier for Canadians and a second one for rich 
Americans. Even more said Canada should get its own house in order before it starts selling 
health care elsewhere. Within days, the plan was dead. Ontario Health (vlinister Ruth Grier 
declared that the province's $17.5 billion annual health care system was not for sale. 

The crisis in cancer treatment is another example. Patients have been receiving mutilating 
surgery because they couldn't get timely access to radiation therapy. Voiceboxes were being 
surgically removed and women were getting mutilating mastectomies because the waiting lists 
for radiation treatment had doubled in the past decade. Other patients became incurable 
waiting for treatment. Dying patients - who needed radiation for comfort during their last 
months at life - were being drugged instead because their chances of getting on the waiting list 
were worst of all. At a recent task force hearing, radiation oncologists and hospital presidents 
stated at least 13 per cent of patients who could benefit from radiation weren't receiving if. 

Each day, opposition Liberal and Conservative leaders lambested Ontario's provincial New 
Democrat government for weeks in the legislature, complete with horror stories from their 
constituents. This problem - predicted two decades ago - was finally getting the profile it 
deserved only because of public pressure. ' 

Shortly after, the Ontario govemment approved a $1 million annual plan to hire 20 more 
much-needed radiation therapists. As well, it approved the hiring of more radiation oncologists 
and officials vowed to form a long-term plan for cancer treatment. Soonafter, the Liberal party 
formed a task force on cancer care, travelling the province to hear stories from hospital staff 
and patients at)out the quality of treatment. I point to this example because it so clearly 
illustrates that political pressure and will are often the sure way to get a problem in our health 
care system fixed. While this is a terrific method of accountability, it seems an odd way to make 
public policy. Without question period, the opposition political parties and the media, some 
horrors in health care could go undetected and uncorrected. 

Health care is moving in new directions in Canada. Hospitals are downsizing but aren't 
nearly as far as the United States. If Canada could achieve the same efficient use of hospital 
beds as the U.S., 30 to 40 per cent of our beds could be closed. Those resources could go to 
day surgery, outpatient and community care. ' 

However, other gains are being made. Physicians are stressing preventive care and policy 
makers are preaching the determinants of health. Governments are becoming more involved 
with public policy such as tough tobacco and seat-belt legislation. Patients are finding out that 
health care isn't "free." In fact, government ads are informing them that they don't need to go 
to the doctor for a cold, which has cost the health care systems hundreds of millions of dollars. 
Centres such as the Institute for Clinical and Evaluative Sciences in Ontario and Manitoba's 
Centre for Health Policy are measuring the cost-effectiveness of certain procedures. One study 
found that $4.26 million in health care could be saved each year in Ontario if vasectomies were 
done in doctors' offices instead of hospitals. 

Canada's health care system is facing many challenges. Hospital administrators, govern- 
ment officials and health care providers are trying to meet that challenge by doing more day 
surgery, stressing preventive care, community care and adopting other mettiods of containing 
costs while treating the country's 27 million residents. 

As a journalist who likes to compare health care systems in other countries, I have often 
looked abroad to see if there's a place Canada should model itself after. But every time I look 
elsewhere, I always come back to my country. It's true, we do have to wait for some of our 
health care and we don't always like to. But we figure a little waiting for all of us is better than 
letting others go without care. 



242 

Chairman Stark. Thank you, Ms. Priest. 

If I could, there is a rather bizarre notion that you could have 
a huge single publicly-financed plan without some politics getting 
involved in it. 

Could you kind of just summarize? Your Parliament, I mean, are 
they really second-guessing the doctors and the system, or do they 
only come in in an oversight capacity and on occasion to try and 
fix the system? I mean, how involved is your Parliament in the 
day-to-day running of the system and managing it? 

Ms. Priest. Actually the Ontario Government and the Ontario 
Medical Association just formed what they called a Joint Manage- 
ment Committee. It was formed IV2 years ago. And what they also 
did is, they set up an Institute for Clinical Evaluative Sciences, 
which does a lot of — measures the cost-efficiencies of certain proce- 
dures, variations across the Province. 

Chairman Stark. Who participates in these boards or organiza- 
tions? 

Ms. Priest. The Health Minister and Deputy Health Minister 
would be on the Joint Management Committee, and members, sen- 
ior members, of the Ontario Medical Association, which is sort of — 
they do not like to call it this, but it is sort of a union of doctors, 
and they decide jointly on future health care practices. 

Chairman Stark. OK. Dr. Anderson, you gave us some examples 
of how the world would fare under the McDermott bill. Have you 
made similar calculations about other proposals, such as the Stark 
bill or the Clinton bill or the Thomas bill? 

Mr. Anderson. I did, while I was listening to Mr. McDermott, 
some calculations on the President's bill, and effectively what I 
showed was for families of four in 1999 earning $20,000, $50,000, 
and $100,000, they would pay less under the McDermott bill than 
they would under the President's bill. 

Chairman Stark. How about under Mr. Thomas' bill? 

Mr. Anderson. I have not had an opportunity. 

Chairman Stark. I wonder, it would be interesting — I was re- 
viewing your figures — if you would care to, as we go along and a 
couple of alternatives become more clearly identified — I am not 
sure now that there are an awful lot of bills out there with names 
on them that are not quite as clearly identified as Mr. 
McDermott's, but I would appreciate it — I am sure my colleagues 
would find it interesting if you would, at some point, maybe in the 
next couple of weeks, extend your research and see how it com- 
pares with other programs, the Cooper bill, for example. 

Mr. Anderson. I would be glad to do that. What I insisted with 
Mr. McDermott, however, is that the CBO go first, effectively, be- 
cause I do not want to go out there and be essentially making my 
estimates and then having somebody else do another estimate. So 
I would be very happy to do it after CBO has done their work. 

Chairman Stark. OK. Thank you very much. 

Mr. Thomas. 

Mr. Thomas. Thank you, Mr. Chairman. 

I just hope CBO moves forward after their brief respite that they 
were so desperate for. Give them the weekend. I wonder if they 
showed up today on a slow day. 



243 

I echo the chairman's desire for some kind of an ongoing analy- 
sis. We are inevitably required to compare apples and oranges, and 
to the degree we can compare apples and apples and look at the 
upsides and the downsides, it makes our job not easier, but at least 
slightly better at doing something that works. And I think that is 
the fundamental motivation of most of us. 

Ms. Priest, you are a reporter, and you responded to the chair- 
man's question in regard to the Provincial and National Legisla- 
tures in the political cattle of what we can afford, and they nave 
set up a structure to assist them in making that decision. 

You said something else that I am wondering if you had any sto- 
ries about or anecdotal information about, and that was that for 
particular elective surgery, there appears to be inordinate or per- 
haps unacceptable waiting periods to get that, but for emergency 
care, it seems that you can jump the queue and go right to the 
front. 

Do you have any instances of folks gaming the system or doctors 
attempting to define something as an emergency care rather than 
elective to try to jump the queue to get patients some kind of serv- 
ice prior to what they would ordinarily if they played the ballgame 
the way it is supposed to be played. 

Ms. Priest. There is always — I have heard some people and sen- 
ior administrators in hospitals say: You know, it is only human na- 
ture that if you are sort of well-known or if you have connections, 
you will jump the queue. I have not seen one particular person that 
has done that, but I have heard anecdotal stories that if you know 
people and that doctors generally like tend to like to take care of 
people who are more like them and educated and more well off. So 
there have been instances. 

Mr. Thomas. So to a certain extent, you are saying that, as it 
is kind of in politics, it is not what you know; it is who you know 
in a system that is controlled from the top down. 

Ms. Priest. In a way. I mean, that is not representative of the 
system. It is probably a very small amount of the cases. 

The problem we have with waiting lists is that we do not have 
waiting lists. There is no list in an office that says: Hey, here is 
your name, and this is where I call. 

Mr. Thomas. Take a number and wait, yes. 

Ms. Priest. It is a laundry list in someone's head. And that is 
the real problem, and that is when you can get the queue-jumping. 

Mr. Thomas. Dr. Anderson, you wanted to say something? 

Mr. Anderson. Yes. I have a grant from the Federal Government 
looking at queuing right now in Canada in the Province of Mani- 
toba specifically related to cataract surgery. And what we see is, 
if somebody has a serious problem because they cannot drive or 
something like that, each doctor has their own waiting list, but 
every once in a while somebody cannot have surgery for a particu- 
lar reason, and that person becomes the person who gets put into 
the queue and gets care very quickly. So doctors have their own in- 
ternal ability to prioritize. And that is pretty much what they are 
doing in Manitoba. 

Mr. Thomas. Prioritize between doctors of the same specialty or 
within a doctor who has his own list and can bump his own list? 

Mr. Anderson. His own list. 



244 

Mr. Thomas. His own list. 

Mr. Anderson. Correct. 

Mr. Thomas. OK. Thank you, Mr. Chairman. 

Chairman Stark. Mr. McDermott. 

Mr. McDermott. Thank you, Mr. Chairman. 

I want to talk a minute about this situation and ask Ms. Priest 
a couple of questions. 

The illustration used in the Northwest about why the Canadian 
system is so much of a problem is that the British Columbia Gov- 
ernment said there was this long waiting list for heart surgery. So 
they wrote a contract with the State of Washington and the Uni- 
versity Hospital for 200 cases. 

And I have examined every anecdotal thing anybody says about 
Canada, and I go and try to find out if it is true or not. So I went 
to them to figure out what had happened. 

First of all, it took more than a year for them to find 200 cases 
to send down to the United States. So there was no great waiting 
list. We have unused capacity at the University of Washington 
Hospital that I tried to stop, but they could not find any Canadians 
to send down there. 

Then it turned out that what really was the problem in Van- 
couver is that there are two very famous heart surgeons. Every- 
body wants to be done by those two people. The other 8 or 10 very 
competent surgeons did not have any waiting list, but two people 
had long waiting lists. 

And my experience really jibes with what Dr. Anderson found in 
cataracts in Manitoba. 

I want to ask a question of Ms. Priest, though. There is now a 
rumor around in the Congress that Canadians are shutting down 
hospitals. And when the people were down from Ontario, the 
woman who is the president of the Canadian Hospital Association 
and the head of the Ottawa General Hospital were in my office, 
they said: The next thing you are going to hear from Canada is 
that we closed hospitals. And she said: The fact is that in the old 
days when there were no paved roads and no snowplows, we put 
a nospital about every 20 miles, and we have got these hospitals 
all over the place, and they are so inefficient, we are now closing 
them. 

Is that a fair representation of what the hospital-closing rumor 
out of Canada is all about? 

Ms. Priest. That is exactly right. On University Avenue in 
downtown Toronto, we have six or seven hospitals within about two 
blocks of each other. And we just built too many hospitals, and now 
we are in the process — no one has really had the guts to actually 
close them down, so they are taking the beds out of the system. 
But there is a District Health Council in Toronto that is spending 
the next 18 months looking at reconfiguring the hospitals and pos- 
sibly closing some. 

But also four hospitals on University Avenue have formed a — are 
in the midst of forming a consortium, so that all the duplication 
with human resources and microbiology labs, that will be gone, and 
they will save, they figure, tens of millions of dollars by doing that. 

So whenever people scream that hospitals are closing, they really 
need to. There are just too many, and we do not need that money. 



245 

Mr. McDermott. Have you done any research about the actual 
number of Canadians whose health care is in the United States? 

The numbers that I got from the Ontario Government in the past 
were that about 4 percent of their budget was spent in the United 
States. Half of it was by snowbirds, older people who had come 
down to the United States, got sick here and had their health care 
in Florida or Arizona or California, and the other 2 percent was for 
a variety of reasons and people. 

Does that square with the kind of figures that you have seen? 

Ms. Priest. I am not really familiar with the figures. But I do 
know from what I understand that it is a very small amount, that 
most people get their health care in Canada. And you are abso- 
lutely right; it is when you are out of town that you are getting it, 
if you are old and you are away in Florida. Then, you know, you 
are going to get your health care there. 

And I think for a brief period, there was a time where our head 
injury people were going down to Texas. 

But those are the only instances I have heard of where people 
have gone south. Most people are, you know, afraid to come down 
south from Canada. Their two big fears are getting shot or getting 
sick. 

Mr. McDermott. Thank you very much. Thank you, Mr. Chair- 
man. 

Chairman Stark. Mr. McCrery. 

Mr. McCrery. Ms. Priest, is it your impression from your work 
in journalism that the health care system in Canada is improving, 
or do you see any patterns of decline in the health care system? 

Ms. Priest. One big area of decline is the Federal funding that 
is funneled down to the Provinces before health care spending 
would be split 50-50 between the Provincial governments and the 
Federal Government. 

Over the past few years, actually the past 10 years, they have 
been — it has split now to 30 percent Federal funding, and they 
have passed it on to the Provinces, which in turn cannot afford 
quite a few things, so they are, in turn, delisting. 

So that is one big area where, you know, we are getting less 
money. 

Mr. McCrery. So as a result, you are seeing, I suppose, dif- 
ferences in the quality of health care among the Provinces? 

Ms. Priest. We do not have a homogeneous care package across 
the country. I think that is one problem, is that like four Provinces 
fund psychoanalysis; other ones do not. Some do in vitro fertiliza- 
tions; other ones do not. But the Federal Health Minister is trying 
to get it so that we have a homogenous package instead of the 10 
little health care systems across the country. 

But that has been what is happening. Since it has been shoved 
onto the Provinces, they have been delisting and cutting without 
any kind of comprehensive line across the country. 

Mr. McCrery. How do you pay for your health care system in 
Canada? Is there a separate tax for that? 

Ms. Priest. You know, I have no idea how much I pay for my 
health care system. It is just taken off my taxes. The Ontario Gov- 
ernment, for instance, a third of their budget is health care. That 



246 

is $17.5 billion a year. But I do not know the precise figures per 
person. It is just taken off our taxes. 

Mr. McCrery. So you do not know if there is a separate health 
care tax in Canada, or if it just comes out of general revenues? 

Ms. Priest. Oh, I am sorry. It does come out of general revenues. 
That is right. 

Mr. McCrery. So there is no separate health care tax? 

Ms. Priest. No, no. 

Mr. McCrery. What problem do you hear most frequently voiced 
from people that you encounter while you are studying the Cana- 
dian health care system? 

Ms. Priest. I think the worst one was the radiation backlog, 
which they are trying to fix right now. There are people literally 
getting their throats ripped out, their breasts chopped off. They 
were getting mutilating surgery because they could not get radi- 
ation treatment. With larynx, head and neck cancer, for instance, 
the radiation would have been able to shrink the tumor, but in- 
stead, since they had to wait in the queue so long, it had grown 
big; it had maybe become incurable, or it had to be surgically re- 
moved. 

So we had people losing their voices when they did not need to 
lose their voices. We had women losing their breasts when they 
could have had a lumpectomy and radiation. 

At one point, the radiation backlog was 14 weeks, and this is 
treatment that you are supposed to get ideally within 1 month. I 
mean, that is a clinical standard. That is one big area. 

We also have problems with any kind of orthopedic surgery, hip 
and knee replacements and bone marrow transplants, which actu- 
ally is urgent care. But we have waiting lists for that. 

Mr. McCrery. Well, has the Federal Government in Canada ad- 
dressed these problems? 

Ms. Priest. It is usually the Province that will do it, and what 
happens is that somebody screams about it and brings it up in a 
legislature, and then the opposition will go after the government, 
and they usually try to do something about it. 

Right now, they have poured $1 million into hiring more radi- 
ation therapists, and they are trying to come in with a long-term 
plan as well. The problem with oncology is really a worldwide one. 
There is a shortage of radiation oncologists, and I know that they 
are trying to recruit some from around the world right now. So 
they are addressing it, and the queues are getting smaller, but they 
are still there. 

Mr. McCrery. So has your experience been that the government, 
whether it is the Provincial government or the Federal Govern- 
ment, then responding in a timely way to the problems that have 
cropped up in the health care system, or does it take a long time 
for the political system to react, or what is your experience? 

Ms. Priest. It has to be political, because these problems, espe- 
cially for radiation, were predicted, and I think the first time was 
1973 or 1975. I mentioned these were old, old problems, and people 
are looking at how we are treating more people with radiation and 
how we are having an aging population. So there were reports after 
reports after reports done, and nobody did anything until someone 



247 

started screaming about it. And that is usually what it takes. It 
does not always fix itself on its own. 

Mr. McCrery. So essentially what you are telling us is that 
when there is an identified problem in the health care system con- 
cerning a lack of facilities, a lack of services available to treat peo- 
ple in a Province, it is the political system that has to respond, and 
your experience has been that the political system takes a long 
time in some cases to respond? 

Ms. Priest. In that particular case, it did. I mean, once it was 
brought out into the public eye, it was solved quite quickly. But in 
some instances — and there are other cases where doctors some- 
times are able to solve it, but mostly you need a big, massive re- 
structuring to form central registries or funding. Those are usually 
the answers. 

Mr. McCrery. Thank you. 

Chairman Stark. Mr. McDermott. 

Mr. McDermott. Yes. Mr. Chairman, let me just say something 
about Dr. Hsiao and Dr. Dans' testimony. Dr. Hsiao if he were 
here, would testify that the single-payer system would cut 20 per- 
cent from national health care expenditures without affecting cost 
or quality. That is his testimony. 

Dr. Dans would testify that the single payer is the least disrup- 
tive of all of the proposals and the most conservative in terms of 
experimental changes. And this is a doctor talking from the Annals 
of Internal Medicine. He is an internist from the American College 
of Physicians. So as doctors look at it, it is the least disruptive. 

And I want to ask a question of you, Dr. Anderson. There is some 
conventional wisdom here on Capitol Hill that price controls will 
not work. Could you expand on your testimony regarding why you 
think they will work? 

Mr. Anderson. Well, I think we have to look at the fact that 
they have worked in places like Maryland and other places as well. 
They have been able to control the rate of increase in health care 
spending. They have been able to do that without any dem- 
onstrated adverse effect on quality. The studies have shown that 
access to care, especially to the uninsured, have been improved. 

The hospitals themselves have been able to acquire capital, to ac- 
quire new technology, and they have been able to do this in essen- 
tially a globally budgeted system. 

In Maryland, we have been working for the last 18 years under 
a global budget set by the Medicare program. And as Mr. Cardin 
and others have suggested, the health care system in terms of 
quality of care in Maryland is equal, if not better, than any place 
in the country. 

Mr. McDermott. I think Congressman Cardin created that sys- 
tem. 

Mr. Anderson. Correct. He did. 

Mr. McDermott. He just said it works very well. 

Mr. Anderson. And we are investigating in Maryland whether 
or not we should expand it to the physician sector as well. So they 
physician is taking a look at that issue along with the politicians. 

Mr. McDermott. Thank you. 

Mr. Cardin [presiding!. If I might just follow up on that one 
point, one of the concerns I have about the Maryland all-payer rate 



248 

system is that it works well; it has been — there is a lot of credibil- 
ity among the providers that we are treating each of the providers 
fairly in the way that the rates are set; there is no discrimination 
against a facility that wishes to have a larger proportion of Medi- 
care patients, because everybody pays the same rates. We, of 
course, still have a problem with uncompensated care that we are 
trying to deal with, and if we get universal coverage, then we will 
not have to worry about the uncompensated care. 

But what worries me is that if the pressures become so great to 
reduce cost, will a Maryland all-payer rate system be able to sur- 
vive, if the Medicare is arbitrarily reduced and more cost-shifting 
occurs nationwide between the government progn"ams and the pri- 
vate sector? 

Will we be able to maintain a system by trying — what is going 
to happen if we get our rates so low in our State, what is going 
to happen to the availability of health care providers or hospitals? 
Will it be able to do that? 

Mr. Anderson. I obviously cannot predict the future. But if I 
look at the past, the rate of increase that Maryland has had to 
work under has been the Medicare rate of increase, which has been 
less than the private sector rate of increase and less than the over- 
all rate of increase. 

And so Maryland has been able to do this over an 18-year period, 
working under a constraint which is less than the rate of increase 
in the overall health care sector and the rate of increase in the hos- 
pital sector. 

So I think if you look at the past, Maryland has been able to do 
it. Will they be able to do it in the future, I cannot predict. The 
hospital administrators are still enthusiastically endorsing this sys- 
tem, and they look at their crystal ball, and they still are strongly 
supportive of the system that you created. 

Mr. Cardin. Well, let me thank both of our witnesses for being 
here and braving the weather to appear before our committee. We 
thank you very much. 

Mr. Garden. The next panel will consist of Hon. Arthur 
Flemming, chair and former Secretary of Health, Education, and 
Welfare, representing the Save Our Security Coalition; Sara S. 
Nichols, staff attorney for the Public Citizen's Congressional Con- 
gress Watch; Lawrence T. Smedley, executive director of the Na- 
tional Council of Senior Citizens; Dr. Michael A. Walker, executive 
director of the Fraser Institute from Vancouver, Canada; and Dr. 
William MacKillop, director of Radiation Oncology, Kingston Re- 
gional Cancer Center, Ontario Cancer and Research Foundation, 
Queens University, Kingston, Ontario. 

Welcome. 

Mr. Flemming, it is always a pleasure to have you before the 
committee. 

STATEMENT OF HON. ARTHUR S. FLEMMING, CHAIR, SAVE 
OUR SECURITY COALITION, AND FORMER SECRETARY OF 
HEALTH, EDUCATION, AND WELFARE 

Mr. Flemming. I am delighted to be here, and I appreciate the 
opportunity of presenting some of my views at this point relative 
to a great national debate. 



249 

Sixty years ago, our national community, in the midst of the 
greatest depression we have ever experienced, heard Franklin Roo- 
sevelt's challenge to pool our resources in both the public sector 
and private sector in order to help our people deal with the hazards 
and vicissitudes of life. 

I was a reporter than on the staff of what is now the U.S. News 
& World Report. I saw the national community respond to Presi- 
dent Roosevelt's challenge by launching our Social Security pro- 
gram. 

I later joined the Roosevelt Administration as a member of the 
U.S. Civil Service Commission and had the opportunity of helping 
on the implementation of that program. 

Now I am hearing President Clinton challenge our national com- 
munity as we move out of a serious recession to pool our resources 
in both the private sector and public sector in order to help our 
people deal with the hazards and vicissitudes of health care. 

We are truly thankful that the national community, as it existed 
60 years ago, turned Franklin Roosevelt's vision for universal cov- 
erage into reality. The national community, as it exists today, I be- 
lieve will turn President Clinton's vision for universal coverage of 
health care into reality. If it does, our children, grandchildren, and 
great-grandchildren will have reason to be truly thankful. 

I want to do everything I can to see this happen, to see us reach 
the objective of universal coverage for all our people. 

I feel that it is unnecessary to spell out again the hazards and 
vicissitudes in the field of health care that confront our Nation, and 
I will not do it. 

I represent a group who are delighted that President Clinton has 
stated unequivocally that the health care plan must contain a pro- 
vision that guarantees that all of our people have coverage of the 
health care benefits that are spelled out in the law. He has in- 
cluded in his plan the provisions that are needed if this guarantee 
of health care coverage for all is to be achieved. His plan is a genu- 
ine pooling of resources from the public and private sectors. All of 
us will have the satisfaction of contributing some of our resources 
to the pool, no matter how small. Then all of us will be permitted 
to draw from the pool when and if we are confronted with the haz- 
ards and vicissitudes of health care. 

Also the group I represent rejoices in the fact that older persons, 
survivors, and the disabled not only will retain their present Medi- 
care benefits, but will have added to these benefits prescription 
drugs. 

For over 60 years, I have heard people debate various plans. But 
we have no plan. The time has come to stop our debate and act. 
At this point, I recommend the Clinton plan, because the Clinton 
plan guarantees coverage to everyone for the health care benefits 
set forth in the law. 

It will undoubtedly be changed in some ways as a result of Con- 
gressional hearings. But that fundamental principle will remain. 
And once again, that fundamental principle will be come embedded 
in our way of life. 

I recognize that the executive branch, headed by the President, 
has decided that it is politically feasible to recommend to the coun- 
try the kind of a plan that he has submitted to the Congress. I rep- 



250 

resent and recognize that under our system of checks-and-balances, 
you are now in the process of checking that judgment. 

His plan is made up of various parts, all with the idea of achiev- 
ing the objective of universal coverage. Undoubtedly some parts 
that are in his plan will be exchanged for other parts by the Con- 
gress. But I hope that the Congress and the President will continue 
to communicate with one another until they agree on a plan that 
will reach this objective. That is the one thing that I am interested 
in. 

But let us get to the place where we learn by doing. We have had 
no experience with some of the recommendations in the Clinton 
plan. Some will work; some will not work. When recommendations 
do not work, let us change them. But let us begin by doing. 

That is my theme. I feel after 60 years of watching this that this 
country desperately needs a plan which will provide a universal 
right of coverage for minimum benefits, and I hope that the nego- 
tiations that are now taking place between the Congress and the 
Executive will lead to the adoption of such a plan. 

Thank you. 

[The prepared statement follows:! 



251 



TESTIMONY OF ARTHUR S. FLEMMING 
SAVE OUR SECURITY COALITION 

Introduction 

A. Sixty years ago our national community, In the midst of the greatest 
depression we have ever experienced, heard Franklin Roosevelt's 
challenges to pool our resources. In both the public sector and 
private sector. In order to help our people deal with the hazards and 
vicissitudes of life. 

1. I was reporter then on the staff of what is now the United 
States News and World Report. 

2. I saw the national community respond to President Roosevelt's 
challenge by launching our Social Security program. 

3. I later joined the Roosevelt Administration as a member of the 
U. S. Civil Service Commission and had the opportunity of 
helping on the implementation of that program. 

B. Now I am hearing President Clinton challenge our national community, 
as we move out of a serious recession, to pool our resources, in both 
the private sector and public sector in order to help our people deal 
with the hazards and vicissitudes of health care. 

C. We are truly thankful that the national community, as it existed sixty 
years ago turned Franklin Roosevelt's vision into reality. 

D. The national community, as it exists today, I believe will turn 
President Clinton's vision Into reality. 

E. If it does our children, grandchildren, and great grandchildren will 
have reason to be truly thankful. 

F. I want to do everything I can to make this happen. 



ftl -fififi n - Q4 - Q 



252 



II. Body 

A. I feel that It Is unnecessary to spell out again the hazards and 
vicissitudes in the field of health care that confront our nation. 

1. All I want to say Is that I am convinced that because of 
these hazards and vicissitudes untold numbers of our 
people face premature death and millions of our people face 
unnecessary suffering. 

2. I am likewise convinced that unless we act and act now runaway 
prices for health care will make it impossible for us to 
straighten out our economy and promote the best Interests of 
our people. 

B. I represent a group who are delighted that President Clinton has stated 
unequivocally that the health care plan must contain a provision which 
guarantees that all our people have coverage of the health care benefits 
that are spelled out in the law. 

1. He has Included in his well-rounded plan the provisions that are 
needed if his guarantee of health care coverage for all is to 

be achieved. 

2. His plan is a genuine pooling of resources from the public and 
private sectors — all of us will have the satisfaction of 
contributing some of our resources to the pool, no matter how 
small. 

3. Then all of us will be permitted to draw from the pool when 
and if we are confronted with the hazards and vicissitudes 
of health care. 



253 



C. Also the group I represent rejoice In the fact that older persons, 
survivors, and the disabled not only will retain their present 
Medicare benefits but will have added to those benefits prescription 
drugs and coverage in Federal-state programs of long term care. 
III. Conclusion 

A. Over 60 years I have heard people debate various plans — but we have 
no plan. 

B. The time has come to stop our debate and act. 

C. I recommend the Clinton plan 

1, The Clinton plan guarantees coverage to everyone for the 
health care benefits set forth in the law. 

2. It undoubtedly will be changed in some ways as a result of 
Congressional hearings but that fundamental principle will 
remain — and once we adopt that fundamental principle it will 
become embedded in our way of life. 

D. Let's learn by doing. 

1. We have had no experience with some of the recommendations 
in the Clinton plan. 

2. Some of the recommendations will work; some will not work. 

3. When recommendations do not work let's change them; let us 
learn by doing. 

E. I urge that the national community respond to the vision and challenge 
of President Clinton to pool our resources, in the private and public 
sectors, and by so doing enable all of our people to deal with the 
hazards and vicissitudes of health care. 



254 

Mr. Cardin. Thank you very much. 
Ms. Nichols. 

STATEMENT OF SARA S. NICHOLS, STAFF ATTORNEY, PUBLIC 
CITIZEN'S CONGRESS WATCH 

Ms. Nichols. Thank you. Good afternoon. I am pleased to be 
here to talk about the American Health Security Act, H.R. 1200. 
I am working with over 1,000 groups around the country who sup- 
port this legislation and want to see it passed. 

It is now clear to me with the scoring of the Congressional Budg- 
et Office yesterday of the Clinton plan that single payer is the onlv 
plan before the Congress which is deficit-neutral and saves enough 
money to cover everyone fully for the same amount we are spend- 
ing now, including long-term care coverage. It is the onlv reform 
before the Congress which fulfills the President's goals of simpHc- 
ity, savings, security, choice, and quality. 

It is very important to understand, because it is stated and mis- 
stated so often, that a single-payer plan is a government-financed, 
not a government-run, system. It replaces the inefficient private in- 
surers with one insurer, the Federal Government, and it leaves the 
entrepreneurial private delivery system in place. Doctors work for 
themselves, and hospitals are not owned by the government. 

Some people have quipped that a single-payer system would have 
the inefficiency of the Post Office. I hasten to point out that if the 
insurance industry were running the Post Office, 37 million people 
would not receive mail. 

H.R. 1200 bases itself on the Canadian health care system, and 
it has very much, and the authors of the bill, have very much 
learned from both the successes of that system and the mistakes 
of that system. 

And in my written testimony, I have at some length expounded 
on that point and shown the extent to which H.R. 1200 improves 
on the Canadian system, and it does that partly because we spend 
30 percent more per person on health care in this country than 
they do in Canada, so we can afford to provide better benefits; we 
can afford to have more comprehensive services; we can afford to 
have even more research and development of technology than they 
do in that system and than we do now with the savings that we 
can achieve. So it is truly the American Health Security Act. 

I would hke to spend a little time comparing single payer to the 
President's plan with looking at the particular goals that the Presi- 
dent has set forth. I am not spending time comparing it to other 
plans before Congress, in particular the Cooper-Grandy plan that 
has been so much in the news, because I do not see that those are 
really serious attempts to provide universal coverage. I am focusing 
on the one other plan which actually makes an attempt to provide 
universal coverage. 

First, as to simplicity, clearly single payer is much more simple 
than the President's plan. It could not be more simple. Everyone 
is in the same plan; everyone has the same benefits; everyone pays 
in, and everyone gets out. It removes a layer of bureaucracy, which 
is the insurance industry. 

In contrast, the President's plan is so complex as to be virtually 
unexplainable. Instead of removing a level of bureaucracy, it adds 



255 

two new layers of bureaucracy, the health alliances and the man- 
aged care bureaucracy, if you are not currently in such a plan. 

It has, you know, as we know, many different contingencies. Peo- 
ple in Medicare stay in there. Employers over a certain amount can 
opt out. Others are in; they choose through their alliance. The 
plans have various different costs. They pay copayments and 
deductibles. While everyone may pay in the same amount to an al- 
liance, the alliance will pay out different amounts to the different 
plans, depending on whether the people in those plans are sicker 
or poorer, and the subsidies are very complicated to figure out and 
have to be adjusted retroactively if they have not been done cor- 
rectly. 

As to savings, it has already been amply demonstrated here this 
morning that single payer saves more than any other plan and is 
the only plan that saves enough to cover — simultaneously extend 
universal coverage now and not in the future. 

I cannot emphasize enough the importance of providing that sav- 
ings now and not in the future. 

The State of Massachusetts passed a plan in 1988 that was sup- 
posed to provide universal coverage. Six years later, the savings 
still are not there. They have given up all hope of universal cov- 
erage, and costs are higher than anywhere else. 

The Clinton plan does not save enough money to pay for itself; 
$74 billion it adds to the budget deficit. 

And security, of course, the single-payer plan, because it saves 
money and because it is simple and because it is not employer- 
based and goes with you rather than your employer, your spouse, 
or where you live is ultimate security from cradle to grave, whereas 
the Clinton plan, because it is not fully funded and employer-based, 
may provide insecurity. 

And the single-payer plan, of course, is the ultimate in choice, 
free choice of physician everywhere. 

In closing, I would like to dispel the single biggest fallacy about 
the single-payer system and in relation to the President's plan in 
particular. 

People often act as if and talk about these plans as if the Presi- 
dent's plan is more market-based than the single-payer plan. In 
fact, both plans rely on a mixture of the public and private sectors 
to achieve their goals. Single payer combines the best of the public 
sector, fair financing, with the best of the private sector, entre- 
preneurial free-market medicine, whereas the President's plan com- 
bines intrusive — combines private sector inefficient financing with 
government intrusion into the delivery of the health care system 
and to the very choices that are made about medical care. 

Single payer, the American Health Security Act, is by far the 
least intrusive and best option for reform before our country. 

[The prepared statement follows:] 



256 



TESTIMONY OF SARA S. NICHOLS 
PUBLIC CITIZEN'S CONGRESS WATCH 

My name is Sara Nichols, I am a staff attorney and health lobbyist with Public 
Citizen's Congress Watch. Thank you Chairman Stark and to the other members of 
this committee for allowing me to testify on the American Health Security Act. 

According to numerous studies by the Congressional Budget Office (CBO), 
single payer is the only health reform option before the Congress that has been 
shown to save money and deliver health coverage to every resident simultaneously. 
As such, a single payer plan is the only plan that can deliver on the President's 
nonnegotiable demand for universal coverage. 

The American Health Security Act, H.R. 1200, introduced by Representatives 
Jim McDermott (D-WA) and John Conyers (D-MI) along with 90 other cosponsors, is 
the piece of legislation before the House of Representatives which best represents the 
single payer system. 

Not only is H.R. 1200 the only reform before the Congress which actually 
provides umversal coverage, if s the only legislation which fulfills the other laudable 
principles set forth by the President but not deUvered by the President's plan: 
security, simplicity, savings, quality and choice. 

Single payer is simple: everyone's in the same plan. It provides security 
because it is not employer-based. It saves more money than any other plan 
according to the General Accounting Office (GAO) and the CBO and provides full 
choice of provider. The President's plan is complex, saves little money, and therefore 
provides no security and little choice. 

Unfortunately, neither H.R. 1200 nor the President's plan significantly 
improves the quality of medical care. 

The most important thing to understand about the single payer system is that 
despite constant misstatements to the contrary, single payer is not government-run 
health care, it is govemment-/i>iflnced health care v^dth full and free choice of doctor. 

While the Canadian system provides an excellent model for an American 
health system, it is possible to improve on the Canadian system. H.R. 1200 has done 
just that. Its sponsors learned from Canada's successes, and its mistakes, and they 
have adapted the bill to the American health care crisis and system. Although it 
could adopt still more from the Canadian experience, H.R. 1200, as we will 
demonstrate, is truly the American Health Security Act. 
n. THE SINGLE PAYER SYSTEM 

The basic notion of single payer is very simple. The "single payer" refers orUy 
to the financing of health care. The inefficient wasteful multiplicative financing of the 
nearly 1500 private health insurers is replaced by a single government insurance 
fund. All of the private expenditures currently in the health care system are 
converted to public financing collected through the tax system. 

The primary model for the single payer system which we rely on in this 
country is the Canadian system. There are other nations in the world that have 
workable umversal national health care programs. While features of these other 
systems could no doubt play a role in any good health care system here, we think the 
single payer Canadian-style system is the most adaptable to the American palate 
because it is govemment-/jnflnced, not government-run. The distinction is important. 

In a government-run system doctors work for and hospitals are owmed and 
operated by the government. The often-derided British health care system is an 
example of this model. In contrast, in a single payer system like Canada's, the claims 
are processed by the government, but the doctors work for themselves and hospitals 
are privately owned and operated. 

While Americans can be easily convinced of the merits of a public insurance 
fund over 1500 private insurance funds, they would be much more skeptical about 
the idea of providers, climes and hospitals being government-ovvT\ed and operated. 

It is incorrect to thii\k of the Clinton health plan as more market-based than 
the single payer plan. In fact, both plans depend on a mixture of the public and 
private sectors to achieve health system reform. In our estimate a single payer 
system combines the best of the public;sector~fair financing-with the best of the 
private sector-entrepreneurial private practice medicine. The Clinton health plan. 



257 



on the other hand, combines inefficient private sector financing with intrusive 
government restructuring of the health dehvery system. The single payer plan is the 
better and less intrusive option for the American medical and political system. 

A. Universal Coverage. Single payer has as its most basic feature universal 
coverage because single payer starts with the prenruse that health care is a right; 
neither a benefit, nor a privilege, but a right. If health care is a right, our 
government has a duty to provide basic health services to all its residents, not just 
the rich ones or the poor ones, nor the employed ones nor the unemployed ones, nor 
only the legal residents. Under single payer, all the residents of the United States could be 
covered fully for the same amount we are spending now. 

B. Cost Controls. Single payer is the oiJy health reform before the Congress 
which controls costs enough to cover every person in this country fully for the same 
amount we are spending now. In 1993, health care bureaucracy consumed 24.7 cents 
of every health care dollar, $232.3 billion." By switching to a single-payer system, we 
could have saved in 1993 at least $117.7 billion; $456 for every American, or $3,325 
per uninsured person. These savings include $49.1 billion (60.1 percent) on 
hospital administration,^ $23.8 billion (28.3 percent) on overhead in doctors' offices, 
$1.6 billion (13.3 percent) on nursing home administration, and 34.2 billion (79.6 
percent) on insurance overhead.' This is enough to fvmd vmiversal access for the 
uninsured and improve benefits for the tens of millions of Americans who currently 
have only partial coverage without any increase in overall health spending. 

Single payer would achieve savings in insurance overhead by replacing the 
nearly 1500 private payers of health insurance claims with one "payer," the federal 
government. The hospital administrative savings come from global operating 
budgets and reduced billing costs associated with direct reimbursement by the 
government. 

And finally, the single payer system, like every universal coverage health care 
system in the developed world, controls costs by negotiating providers' fees, and 
pharmaceutical costs. 

C. Comprehensive Benefits. Single payer is the only health reform system 
before the Congress that can afford to provide comprehensive benefits. Because 
single payer controls costs better than any other system, it allows us to stretch dollars 
further getting as much value as possible from our phenomenal health spending. 

In 1993, Canada spent 38 percent less per person than the U.S. did and was 
able to guarantee every Canadian comprehensive major medical coverage including 
full primary care treatment. Because we spend so much more, we can afford to 
provide better benefits than in many provinces in Canada, benefits like mental health 
coverage, full long term care and dental coverage. Since we can afford it if we use 
our money more efficiently, we should provide what everyone really needs, not just 
the bare minimum. We need full coverage for all the people in this country, not just 
the few who can afford it. 

D. Accessibility. Single payer is fully accessible. There are no financial 
barriers to care or treatment. There are no copayments or deductibles in a true single 
payer system. Because there are no such "cost-sharing" provisions, people can go to 
the doctor whenever they need to, not just when they can afford to. 

The Clinton plan, in contrast, relies heavily on shifting costs to health 
consumers, requiring families to pay as much as $3,000 a year out of pocket on top of 



'Hellander, Ida M.D., Himmelstein, David M.D., Woolhandler, Steffie, M.D., 
M.P.H. and Wolfe, Sidney, M.D., "Health Care Paper Chase, 1993: the Cost to the 
Nation, the States and the District of Columbia," from Physicians for a National 
Health Program, Chicago, IL; The Center for a National Health Program Studies, 
Harvard Medical School/The Cambridge Hospital, Cambridge, MA; and The Public 
Citizen Health Research Group, Washington, D.C.-August 1993. 

^Woolhandler, Himmelstein, New England Journal of Medicine, August, 1993. 

^Ibid., "Health Care Paper Chase." 



258 



20% copayments. These cost shifts create an illusion of lower premivims and health 
costs while simply forcing consumers to pay three additional ways, through their 
taxes, through lost wages and through out-of-pocket expei\ses. 

Some argue that we can't afford to break down these barriers, that we need 
cost-sharing in order to bring in more revenue and deter people from seeking 
unnecessary care. The reality is that by paying into a tax-based system, we all are 
sharing costs. We all will need to access the health care system at some point in our 
lives. So-called "cost-sharing" deters as much needed care as it does urmecessary care 
and in so doing drives up the cost of health care because by the time people come to 
the doctor, they are generally sicker and more exj. ensive to treat.* 

E. Freedom of Choice. Single payer allows people full choice of provider, 
even improving over the current choices people have in this country. In a single 
payer system, you're provided with a health security card. That card guarantees you 
full coverage at the provider of your choice. You take that card to the provider of 
your choice anywhere in the country and you're covered. The provider sends the bill 
to the government instead of billing you and your insurance company. 

In contrast, the Clinton Health Security Card does not guarantee coverage. It 
guarantees only universal access. The difference between access and coverage is 
important. In theory, everyone has access to the finest hotel in town, but only if you 
have the money to pay. In our current health care system, the ii\sur2mce companies 
restrict both access and coverage. The Clinton health plan cures only the access 
question, without providing coverage. 

F. Portability. A single payer system is fully portable. Instead of coverage 
being dependent on where you work, who you're married to, or where you live, your 
coverage goes v^th you and stays with you, no matter where or whether you work. 

G. Public Accountability. A single payer system is publicly accountable. 
Instead of decisions about your health needs being made by insurance bureaucrats, 
decisions are made by accountable, fairly-comprised health boards which are 
answerable to the public through the political system. 

m. CANADA'S VERSION OF SINGLE PAYER 

The Canadian version of single payer is most illustrative of what we want to 
provide here because it works, if s dose to home, and Americans have heard about it. 
The Canadian system is able to deliver universal health care to all its residents with 
no barriers to receiving care, and it does so at 38% less per person than the cost of 
the American system. 

A. Federal Minimums . In Canada, the single payer system evolved from 
province to province, and the administration of the systems varies by province. But 
there are certain features that never vary: 

1. Copayments, deductibles and other "cost-sharing" devices are barred 
by law; 

2. Provinces have local health boards which negotiate fees with 
physicians and drug companies; 

3. Provinces have mandated separate capital and operating budgets; 
and 

4. Hospitals rim on global operating budgets which are determined on 
a capitated basis (based on the number of patients served). 

B. Provincial Jurisdiction . While the Canadian federal government provides 
these basic standards, it allows other features to be controlled and determined at the 
provincial level. Some examples of provincial discretion include: 

1. The extent of the benefits provided; 

2. Whether the physician is reimbursed on a strictly fee-for-service basis 
or a salaried basis; and 

3. How much money is allocated to capital development such as the 
building of new high tech equipment, etc., vs. allocation to operating expenses. 

In all, the single payer system, modelled on Canada, is not just the best plan 
for consumers, but the only plan that provides what consumers need. 



*Rassell, Edith, Ph.D.-Economic Policy Institute. 



259 



IV. H.R. 1200, AMERICAN HEALTH SECURITY ACT 

H.R. 1200 takes the basics of the Canadian health care system and adapts it to 
the United States. Most of the faniiliar featvires of the Canadian system make the 
journey intact H.R. 1200 provides comprehensive benefits for all Americans for the 
same amount v^^e are spending now to cover only a portion of the population. It 
does so not only by replacing the inefficient private insurance financing with public 
financing, but by employing global operating budgets for hospitals, and insuring 
negotiated fee schedules for providers and drug compaiues. In all, H.R. 1200 is the 
best representation of a single payer system currently before the Congress, containing 
the oi\ly structure capable of guaranteeing health care to the nation. 

In this section, because I have edready extolled the virtues of a single payer 
system, I v^U concentrate on the ways in which HR. 1200 improves on the Canadian 
system and point out a few places where it falls short. While the foundations of this 
house are sound, we aim to take a closer look at its curtains and furnishings as well. 

A. Decentralization. H.R. 1200 adapts itself to the American political and 
economic system by decentralizing the running of the business of health care. Under 
H.R. 1200, while the federal government would collect the premiums and set 
minimum standards for benefits and allocation of resources, it is up to the state and 
local govenunents to dedde how to use those resources, beyond a standard benefit 
package. 

There are aspects of this decentralization which are excellent. In general, it is 
preferable for states and local corrununities to make decisions with regard to the fair 
allocation of resources rather than the federal government. In theory, as long as 
those decisions are publicly accountable, the resources stand a good chance of being 
fairly distributed, especially when compared to the current health care system. 

Nonetheless, there are some basic aspects to a single payer system which must 
not be left up to the states, they must be set by the federal government. The most 
important central principle which is left out of H.R. 1200 is the principle of mandated 
separate capital and operating budgets for hospitals and other health providing 
institutions. 

H.R. 1200 fails to mandate such separate budgets. Instead, it specifies simply 
that states must have budgets for capital and operating expenses and leaves it up to 
the states to dedde whether to merge or split these budgets. 

Granting latitude in this area subverts a fundamental precept of a successful 
single payer system: namely, that vnthout this mandate of separate budgeting of 
capital and operating expenses, there is no guarantee of halting the out-of-control 
"medical arms race" which has eaten up our health care resources and dramatically 
increased the cost of medical care. 

Ur\less capital and operating expenses are paid for and budgeted for 
separately, nothing is to prevent the local health boards set up by H.R. 1200 from 
siphoning off money badly needed to operate existing facilities and devoting it 
instead to building yet another lavish duplicative facility aimed at attracting wealthy 
patients. We must erisure that basic me<ical fadlities and equipment are kept well- 
staffed and running smoothly before we turn toward expanding machinery and 
fadlities in a given metropolitan area and worseiung the wasteful current situation in 
which there are 300,000 empty hospital beds in the U.S.. H.R. 1200 must be amended to 
match its companion bill in the Senate, 5.491, which mandates separate capital and operating 
expenses. 

B. More comprehensive coverage. While most provinces in Canada have 
made the dedsion to guarantee at the federal level only n>ajor medical expenses, we 
can afford more coverage than that here because we spend nearly one-third as much 
per person per armum as they do in Canada. 

H.R. 1200 has gone a long way towards providing those comprehensive 
benefits. It federally guarantees full major medical coverage, prescription drug 
coverage, a basic package of mental health benefits, dental care for children up to 18, 
and long term care and home and commuiuty-based coverage for those who meet the 
requirements. States are free to provide benefits beyond the federal package, but 
they carmot choose to cover less than the federal nunimum. 



260 



Although we applaud the high level of medical benefits guaranteed by the U.S. 
government in relation to Canada, we think we can and should do better. We have 
enough money in the system to eliminate the arbitrarily low cap on mental health 
benefits, to provide dental care for all Americans, and to provide long term care 
(especially home-based care) for people who need assistance with only one Activity 
of Daily Living (ADL), instead of 2, as the bill provides. 

C. Increasing the niunber of primary care practitioners. H.R. 1200 recognizes 
that giving everyone a health security card to present to the provider of his or her 
choice is meaningless if no such provider is available and accessible. 

In fact, we have a critical shortage in this country of primary care practitioners 
that Canada does not have. 2/3 of the physicians in this covmtry are specialists to 
1/3 primary care practitioners. In most other developed nations including Canada, 
the ratios are reversed, 2/3 primary care practitioners to 1/3 specialists. Reversing 
these ratios here would not only increase the availability of the providers whom 
patients need most and most often, but it would further bring down the cost of 
health care by encouraging earlier and less expensive care over costly specialized 
medicine. 

H.R. 1200 has sought to address this problem by setting strong goals for the 
national health board to work towards and establishing funding for those goals. 
Some of those methods include: 

1. Within 5 years of enactment, 50% of the residents in medical 
residency education programs will be primary care residents; 

2. The national board will reduce payments to state health security 
programs that fail to meet this goal; 

3. The bill also seeks to increase the number and use of clinical primary 
care practitioners, certified nurse midwives, physician assistcmts and other non- 
physidan practitioners; and 

4. The bill revives and uses the National Health Services Corps and 
Public Health Block Grants to accomplish these goals. 

D. Increasing the number of primary care facilities. Another problem with 
our current health care system is a critical lack of facilities and medical persormel in 
poorer areas in our inner cities and in many sparsely populated and poor rural areas. 
H.R. 1200 seeks to inaease the number of good primary facilities in previously 
underserved communities in the following ways: 

1. Establishing block grants to develop primary care centers which will 
serve medically imderserved populations. Such centers would include migrant health 
centers, community health centers or other qualified health centers. 

2. The bill also encourages and aeates Community Health Service 
Organizations (CHSOs) to serve previously imderserved communities and areas. 
These CHSOs are basically qualified HMC5s which are designed to fill the vacuiun 
created by a lack of health facilities. 

Although we applaud any effort to create facilities and service for previously 
underserved commimities, we fear the CHSOs will not work because the bill allows 
them to be for-profit entities. Any featiire which encourages for-profit HMOs to start 
and flourish in the future is anti-consumer in effect. In order to maximize profits, 
for-profit HMOs tend to divert money earmarked for care to profit, engage in 
excessive marketing, and pay high executive salaries, all at the expense of care. In 
general, HMOs and other managed care facilities attempt to save money by reducing 
the amount of care provided. There is no evidence that such efforts consistently 
control costs. Global operating budgets and negotiated fee schedules control costs. 

Unfortimately, the legislation distinctly fails to forbid profiteering at the 
expense of care. In the companion legislation in the Senate, S. 491, there is a 
provision that specifically forbids the creation of new for-profit HMOs and ensures 
that existing for-profit facilities cannot divert excess dollars to profit over a 
reasonable rate of return on their capital investments. This arrangement has already 
proved successful with not-for-profit hospitals in the U.S.. To fulfill its goals, H.R. 
1200 must be amended to include such provisions. 

E. Universal Coverage. H.R. 1200 saves enough money to provide universal 



261 



coverage immediately upon enactment, rather thar\ "when the savings are achieved," as 
the Clinton plan provides. Any plan v^rhich defers universal coverage to a time in the 
future— even a specified time-is insufficient to address our current health care crisis. 
The Clinton plan, because it does not save enough money nov^r, projects universal 
coverage into the next millennium. This is unacceptable and doomed to failure. 

The experience of Massachusetts is illustrative. In 1988, the Massachusetts 
legislature passed a health reform plan based on the so-called "pay or play" model. 
The idea was that universal coverage would kick in once sufficient savings were 
realized. Because the plan had woefully insufficient cost controls, the savings were 
never realized. 6 years later Massachusetts suffers from nearly the highest health 
costs in the country, one of the highest p)enetrations of HMOs, and has given up on 
achieving universal coverage vwth that system. H.R. 1200 fulfills the essential goal of 
saving enough money to provide universal coverage immediately. 

Although H.R. 1200 saves enough money to cover everyone, it actually leaves 
at least 3.2 nullion people out. One area where H.R. 1200 does not improve on the 
Canadian system is in its defiiution of uiuversal coverage. The bill has confined its 
coverage to legal residents of this country, rather than all residents. This is ultimately 
a self-defeating and unworkable distinction. 

To take seriously the idea that health care is a right, rather than a privilege or 
a benefit, means providing health coverage to all people who reside in this country 
regardless of immigration status. It is immoral, unethical and unjust to exclude the 
3.2 million undocumented workers of this country and their families from our health 
services. We cannot say "one plan for all," and then define the "all" as we like. 

Since the system will eventually pay for sick undocimiented residents one way 
or another, it would be far cheaper on the system to provide full coverage including 
preventive medicine. Allowing any group of patients to be excluded from "universal" 
coverage creates the same expensive cost-shifting as the status quo. 

We are already paying for the care of undocumented immigrants. In 1993, it 
cost the United States government $300 million to provide emergency care to 
undocumented workers in Texas, California, New York and Illinois alone. Study 
after study shows that undocumented residents, like all of the uninsured, use our 
health care system whether covered or not. They show up at emergency rooms 
about to give birth to an unhealthy baby or they arrive in the advance stages of a 
debilitating disease and our hospitals treat them, because they must. If those 
hospitals and medical personnel are not reimbursed for treating undocumented 
people, it strains our resources and puts an added burden on state and local 
governments to pick up the tab. 

Undocumented workers contribute to our economy. They buy goods and 
services, they pay rent and often they even pay taxes. According to the Center for 
Constitutional Rights in New York, the amount they contribute to our economy 
outweighs or counterbalances the cost of providing health services to them. Yet 
because of xenophobia and lack of leadership, we seek to deny them care. 

Ironically, if for no other reason, we should cover undocumented imnugrants 
out of fear. Diseases know no boundaries of legality. A sick undocumented diild 
resident can infect your child as easily as a documented child. To protect all the 
legal residents of this covmtry we must provide health coverage to the 
undocimiented. 

F. Public Accountability. H.R. 1200 dictates the composition of local health 
boards ensuring a balance of consumer, physician and medical industry 
representation on the boards. There is also an attempt to achieve nonpartisan balance 
on the federal boards. These efforts are to be applauded because they represent a 
dramatic increase over our current health care system in the amount of accountability 
to the public. 

The public accountability portions of the bill would be strengthened greatly by 
facilitating the creation of an independent consumer-funded watchdog organization 
modelled on the successful consumer utility board (CUB). Such a watchdog, funded 
by voluntary contributions, would monitor local health boards, insuring that they 
were accountable to the public. 



262 



G. Financing. Because a new financing section to H.R. 1200 was introduced 
just last Thursday, we have not had a chance to review it thoroughly. Our initial 
impression, however, is favorable. Again adapting to the American political realities, 
the bill relies primarily on a payroll tax which is capped at a percentage of payroll 
depending on the size of the business. The new package has elimiiwted the 
inaeases in the top income tax brackets which the old fimding package had included. 
It has added a $2 cigarette tax and a 50 percent exdse tax on handguns and 
ammuiution. 

In general, an income tax is preferable to a payroll tax as a funding mechanism 
because it is progressive rather than taxing at a flat rate. However, when compared 
to an employer mandate such as the Clinton bill contains, a graduated payroll tax 
like this is much less regressive. 

The $2-per-pack cigarette tax increase is very necessary and long-overdue. 
Such an inaease would reduce the number of smokers over time, particularly by 
discouraging people from ever starting smoking. We applaud its inclusion, and that 
of the gim tax, in the bill. 

H. Quality. H.R. 1200 is the only health reform bill currently before the 
Congress that does nothing to lessen the quality of medical care by restricting 
consumers' legal rights. 
V. COMPARING H.R. 1200 TO THE CLINTON BILL 

In setting forth his proposal for health care reform. President Clinton 
established several laudable goals for what such reform should achieve, namely: 
simplicity, security, savings, choice and quality. Unfortimately, the Clinton Health 
Security Act is structurally incapable of achieving those goals. The only health 
reform proposal before the Congress which achieves these goals is H.R. 1200/S.491, 
the American Health Security Act. 

A. Simplicity. H.R. 1200, the single payer plan, is simple; everyone is in the 
same plan, with the same benefits, no matter where they live, work or what their 
income level. In contrast, the Clinton health plan is so complicated as to be virtually 
unexplainable, to say nothing of the expenses of funding these "complications." 
Rather than removing bureaucracies, the plan inserts two new layers--the hecdth 
alliances and the HMOs-between you and your doctor. 

The Clinton plan is confusing and unfair because it establishes and 
institutionalizes different tiers of care depending on one's income, age and place of 
employment. Seniors continue to receive Medicare; Medicaid recipients go into the 
new system v^dth reduced benefits; people buy care through newly created "health 
alliances;" the level of care depends on ability to pay for more expensive "fee-for- 
service" care and if you can't, you have to join an HMO. Large employers can opt 
out of the plan altogether. 

If people and businesses cannot afford to pay their health premiums, they are 
subsidized (as soon as the savings are achieved and then for as long as they last) by 
the federal government. The Health Alliances have to figxire out how much to 
subsidize each person based on their income level, the size of their business, etc. If 
the subsidy was wrong it will have to be adjusted retroactively. The amount of 
complexity these contingencies generate is difficult to overestimate. The Clinton plan 
could not be less simple. 

B. Savings. H.R. 1200 would save upwards of $117 billion in administrative 
waste and more by going to a single payer system and by setting global budgets and 
fees. According to figures released by Rep. McDermott last week, 75% of consumers 
would pay less out of pocket for health care than they do now. Single payer saves 
money. 

Soon we will know from the Congressional Budget Office exactly how much 
savings the Clinton plan can produce. Preliminary estimates show the plan achieving 
marginal savings by "streamlining" the insurance paperwork--$6 to $8 billion a year. 
At the same time, the Clinton plan adds a cost of $21 billion a year to pay for the 
new layer of bureaucracy-the health alliances.^ 



^Himmelstein, David and Woolhandler, Steffie, 1993. 



263 



Competition amongst health plans provides illusory savings at best. Managed 
competition will hasten the existing trend in this direction. Already 45% of all HMOs 
are owned by the 5 largest insurance companies-QGNA, Aetna, Prudential, The 
Travellers, and MetLife.' Because it is likely that the plans vnU eventually be owned 
by only a few giant corporations, an oligopoly will result. Oligopolies have no 
incentive to compete; they instead act in concert to enlarge the size of the pie so that 
they can all have a bigger piece of it. 

Furthermore, the plan contains no global operating budgets, cmd no negotiated 
fee schedules for physicians or pharmaceuticals (outside of the government-controlled 
Medicare which is squeezed to find new money to fund the iminsured). The plan is 
virtually incapable of saving enough money to cover the new people it hopes to bring 
in. 

On an individual level, there is little in the way of savings either. Individual 
consumers will have to pay high out-of-pocket expenses in the form of co-payments 
and deductibles. Although estimates on the individual savings vary, it is clear that 
the number of people who will pay less under the Clinton plan for health care does 
not begin to approach the 75 percent of us who will pay less under H.R. 1200. The 
Clinton plan does not produce sufficient savings to pay for universal coverage. 

In contrast, the CBO and General Accounting Ctffice (GAO) have consistently 
found not only that single payer is the only health reform before the Congress which 
saves money, but it is the only plan which saves money while providing universal 
coverage simultaneously. 

C. Security. H.R. 1200 provides complete security because coverage goes with 
the person not her job, her spouse or her place of residence. All are covered under 
H.R. 1200 from cradle to grave and no one can take it away. 

Because it is employer-based and under-funded, the Clinton health care plan 
cannot provide Americans with badly-needed health security. As long as the type, 
extent and quality of health care coverage received is dependent on employment 
status, we're all at risk because we may lose or change our jobs. The Clinton health 
care plan depends entirely on employers to cover the workers of this country. The 
rest of us are financed by money (nearly $285 billion) which is siphoned from the 
Medicare system by "slowing its growth rate." Such financing is so flinisy that it 
reinforces rather than alleviates the current insecurity of Americar\s about their health 
care. 

D. Choice. Perhaps the biggest fallacy about a single payer system is that it 
would restrict choice. H.R. 1200 provides a real choice of provider because 
consimiers can take their Health Security Card to the doctor of their choice. They can 
also go to an HMO or managed care facility if they prefer. Plans and doctors 
compete on the basis of quality, rather than cost. Managed care and fee-for-service 
medicine will only survive if consumers choose to go to them. 

By design, the Clinton health care system restricts choice of provider. The main 
cost controls in the plan come from encouraging people to leave traditional fee-for- 
service plans and enter managed care plans. By making the fee-for-service option 
more expensive than HMOs, the Clinton plan would herd people into HMOs and 
away from free choice of doctor, unless they are wealthy enough to afford the other 
option. The President himself emphasizes choice of plan over d\oice of provider, 
acknowledging that the choice of provider is limited in his plan. What consumers 
really cherish is choice of provider not plan. Single payer provides that choice. 

E. Quality. While the Clinton bill restricts consumers' legal rights to 
restitution from negligent providers, H.R. 1200 preserves consumers' rights and for 
that we applaud its sponsors. 

Unfortvmately, the applause ends there. Like all current Congressional health 
care proposals, both plans have ignored the vital concern of affirmatively protecting 
consumers from negligent providers. Although many plaits pursue "quality 
assurance" through anonymous data collection, practice guidelines, and protocols, 
there are no provisions for meaningful regulation of the medical profession. 



*Knov^rn as "the Alliance for Managed Competition." 



264 



Congress should pursue an affirmative agenda of consumer protection highlighted by 
medical malpractice prevention and consumer empowerment. 
Specific suggestions include: 

1. Reducing the number of unnecessary deaths and injuries caused by 
negligent medical treatment by creating a comprehensive medical malpractice 
prevention program; 

2. Developing independent, publicly-accountable state medical boards; 

3. Establishing more stringent physician licensing and discipline 
procedures; 

4. Empowering health consumers by mandating reporting of 
information regarding incompetent health care providers; and 

5. Authorizing consumer access to information regarding health care 
providers through the taxpayer-funded National Practitioner Data Bank. 

VI. CONCLUSION 

H.R. 1200, the American Health Security Act, is, despite some flaws, the best 
representation of a single payer system before the House of Representatives. More 
importantly, it is the only plan before the Congress capable of fulfilling the 
President's nonnegotiable demand of universal coverage. 

In crafting this bill, the sponsors of H.R. 1200 have ingeniously adopted the 
strengths of the Canadian-system, while eliminating its few weaknesses. 

As a govemment-/inflncai system with full choice of doctor rather than a 
govemment-rwn system vwthout, single payer is uniquely adaptable to the American 
system. In it, we could have competition which truly benefits consumers, between 
doctors on the basis of quality rather than between HMOs on the basis of cost. 



265 

Mr. Cardin. Thank you very much for your testimony. 
Mr. Smedley. 

STATEMENT OF LAWRENCE T. SMEDLEY, EXECUTIVE 
DIRECTOR, NATIONAL COUNCIL OF SENIOR CITIZENS 

Mr. Smedley. Good morning. It is a pleasure to be here today. 

My name is Larry Smedley. I am the executive director of the 
National Council of Senior Citizens. 

After years of careful consideration of different approaches to 
health care reform, the National Council adopted a set of health re- 
form principles which determine which specific legislation merits 
our support. 

Mr. Chairman, the health system that best incorporates our prin- 
ciples is the single payer approach embodied in the legislation in- 
troduced by Jim McDermott and Senator Wellstone, H.R. 1200 and 
Senate bill 491. 

Single payer provides a sensible approach to most of our health 
care problems. It will reach every resident of this country and 
guarantee that their health care needs will be met. It will be paid 
for fairly through a progressive income and business tax system 
with those who can afford paying a fair share. 

Single payer finally allows us to get a solid handle on costs that 
are spinning out of control. Single payer will expand benefits for 
all Americans, provide an array of preventive health care services, 
prescription drugs, long-term services keyed to community and 
home-based supports. 

Finally, single payer keeps the private health delivery system in- 
tact and builds on the strength of that system. 

Passage of a single-payer system is the ultimate goal of the Na- 
tional Council. However, our arrival at that goal may not be as di- 
rect as we might wish. 

As you know, the President of the United States has introduced 
a comprehensive plan to cover all Americans. We have examined 
the President's bill in the context of our own health care principles. 
We have found many reasons for senior citizens to support his 
health proposal. 

Universal coverage is guaranteed by 1998, and that is the key 
reason that the National Council believes that the President's plan 
advances the health reform debate. No other health care proposal, 
other than single payer, comes close to meeting this goal. 

The bill has strong cost containment. If we, as a Nation, cannot 
hold down the spiraling growth in private health care expenditures, 
we will never be able to achieve any meaningful, long-term deficit 
reduction or needed domestic improvements. 

Under the President's bill, Medicare is strengthened with the ad- 
dition of a prescription drug benefit with capped out-of-pocket cost, 
and balanced billing is finally eliminated under Medicare. 

Pre-Medicare or early retirees are also covered. While some in 
Congress may see this as a boon to those corporations who now 
provide retiree health benefits, it is actually a necessary component 
of reaching universal coverage. 

And though the bill has some good features, which I have out- 
lined, this does not mean that the National Council believes the 



266 

Clinton bill to be without flaw. There are key improvements we 
would like to see 

Mr. Cardin. Mr. Smedley, let me interrupt you just for 1 minute, 
and I apologize for doing that. 

There are 3 minutes left on a vote. I was hoping that Mr. Stark 
would be back. 

I am going to have to declare a short recess, and we will recon- 
vene within 5 minutes. I would ask the witnesses to please stay at 
the table. We should be able to reconvene within 5 minutes, and 
I very much apologize for the interruption. 

[Recess.] 

Chairman Stark [presiding]. Mr. Smedley, I am sorry. If it were 
not for the weather, this system would work much more smoothly, 
and we would not have interrupted your testimony. 

Mr. Smedley. Oh, that is understandable, Mr. Chairman. 

Chairman STAJtK. Please, if you would like to pick up wherever 
in your testimony you care to. Thank you. 

Mr. Smedley. I will pick up where I left off. 

Although the bill has all these good features — I am referring now 
to the President's bill — this does not mean that the National Coun- 
cil believes the Clinton bill to be without flaw. There are key im- 
provements we would like to have made in the bill as drafted. Un- 
fortunately, some of them are highly technical, and time does not 
permit me to go into them today. 

Chairman Stark. Give us a hint. 

Mr. Smedley. Well, you can ask some questions, if you so desire, 
Mr. Chairman. 

Chairman Stark. I want to know what those overly technical is- 
sues are. 

Mr. Smedley. Mr. Chairman and members of the subcommittee 
and Members of Congress, you will be hearing from us on these 
and other issues as health care legislation goes through Congress. 

Mr. Chairman, in conclusion, the National Council believes that 
national health reform debate now centers on the President's bill, 
H.R. 3600. 

Nevertheless, we now that a single-payer system will be adopted 
by this Nation one day, and we are going to do all we can to fur- 
ther that day along. This is one reason where we are going to be 
fighting very hard for Congress to pass the single State option the 
President included in his bill. 

We support the President's bill because we see that the bill is 
laying the foundation of a national and efficient system of health 
care. We will be working with the Congress and this subcommittee 
to bring the Clinton plan in line with as many single-payer prin- 
ciples as we possibly can, and with your help, our members' nard 
work, and God's blessing, we will enact the most fundamental re- 
structuring of the health care system in our Nation's history. 

Thank you. 

[The prepared statement follows:] 



267 



Testimony of Lawrence T. Smedley 

Executive Director 

National Council of Senior Citizens 
Introduction 

Good morning, Mr. Chairman, members of the Subcommittee. It is a pleasure to 
be here today. My name is Lawrence T. Smedley. I am the Executive Director of the 
National Council of Senior Citizens (NCSC). NCSC represents over five million older 
and retired Americans nationwide through our 5,000 affiliated clubs and Councils. The 
National Council was founded in 1961 to lead the fight for Medicare. After its 
enactment — an event we considered to be the first step in the creation of a universal 
national health care system — the Council continued its work on health reform. At the 
same time, we expanded our commitment to programs for older workers, transportation, 
housing, civil rights and Social Security and pension protections. Our work is not just for 
today's retirees, but also for current workers who will one day enjoy the fruits of their 
labor and for younger persons not yet in the workforce. 

Health Principles 

Over the decades, the National Council has debated which way this nation should 
provide health care to all its citizens. After careful consideration of many different 
approaches, our membership and General Policy Board adopted a set of health reform 
principles. The principles are used by our officers and legislative staff to determine if 
specific legislation merits the support of the National Council. The health reform goals 
of this organization and America's seniors are incorporated in these principles. They are: 

Universal coverage, with everyone in the same system. 

Comprehensive benefits so that all medically necessary services will be provided 
to all without multiple tiers of benefits based on income, age or other extraneous 
factors. 

Costs must be controlled throughout the system. 

Financing must be fair and progressive. 

Cost sharing must not create barriers to receiving care and must not be relied upon 
to finance the system. 

Quality must be strengthened with consumer protections. 

Health planning must be undertaken to allow all our citizens equal access to high- 
tech medicine. 

Patients' rights must be spelled out to guarantee the timely delivery of services. 

The Federal government and states must oversee the program to ensure a strong 
role for consumers in the administration of the program. 

Finally, whatever system is adopted must point the way towards a single-payer 
system. 

Single-Paver 

Mr. Chairman, the health system that best incorporates these principles is the 
single-payer approach embodied in the legislation introduced by Congressman Jim 
McDermott (D-Wash.) and Senator Paul Wellstone (D-Minn.>— H.R. 1200/S. 491. 



268 



Single-payer provides a sensible approach to most of our health care problems. It 
will reach every resident of this country and guarantee that their health care needs will be 
met. It will be paid for fairly through a progressive income and business tax system with 
those who can afford paying a fair share, while lower-income people will not see their tax 
burden increased. Under the Wellstone/McDermott bills, up to 90 percent of all 
Americans will see their overall health care spending decrease. 

Single-payer allows us to finally get a solid handle on costs that are spinning out 
of control. (NCSC believes that the current trend showing slower growth in overall health 
spending is a cynical manipulation of the system by the insurers and providers of health 
care to lull us into believing there is no financial crisis.) Only through system-wide cost 
controls will we be able to put an end to providers being able to pit one group against 
another (e.g., raising private pay rates to make up for falling Medicare and Medicaid 
rates). 

Single-payer will expand benefits for all Americans. It will allow us to provide an 
extended array of preventive care services to keep people healthy, prescription drugs to 
maintain that health, and long-term care services keyed to community and home-based 
supports rather than to institutional services. 

Finally, single-payer keeps the private health delivery system intact and it builds 
on the strengths of that system. 

Passage of a single-payer system is the ultimate goal of the National Council. 
However, our arrival at that goal may not be as direct as we might wish. 

President Clinton's Legislation 

As you know, the President of the United States has introduced a comprehensive 
plan to cover all Americans. We examined the Clinton bill in the context of our own 
health care principles. We have found many reasons for seniors to support the Clinton 
health proposal. 

Universal coverage guaranteed by 1998 is a key reason the National Council 
believes that H.R. 3600 advances the health reform debate. No other health care proposal, 
other than single-payer, comes close to meeting this important goal. 

Strong cost containment: If we as a nation cannot hold down the spiraling growth 
in private health care expenditures, we will never be able to control Medicare and 
Medicaid costs — leaving us unable to achieve any meaningful, long-term deficit reduction 
or needed domestic investments. 

Under H.R. 3600, Medicare is strengthened with the addition of a prescription drug 
benefit with capped out-of-pocket costs. Balance billing is finally eliminated under 
Medicare. NCSC fought for many years, both here in Congress and in State Houses 
across the nation, to have this onerous and regressive cost-sharing provision removed from 
the Medicare program. 

Pre-Medicare or "early" retirees are covered. While some in Congress may see this 
as a boon to those corporations which now provide retiree health benefits, it is actually 
a necessary component for reaching universal coverage. Of the ten million pre-Medicare 
retirees, only about forty percent have any business-provided health insurance. Only four 
percent of all U.S. companies provide any retiree health benefits. This means six million 
older Americans are either buying individual insurance policies themselves, are utilizing 
government assistance or are going without such protection. The pre-Medicare retiree 
benefit is fundamentally not a business benefit, but a help to retired workers and their 



269 



families. Many of these people were "down-sized" out of the workplace. They would 
have continued working had their employer not told them they would get either a pension 
check or an unemployment check. 

This President has taken leadership to acknowledge that meeting chronic care needs 
are as important as acute services. The creation of a non-means-tested long-term home 
and community-based care program for citizens of all ages takes the crucial first step of 
meeting chronic care needs that increase with age across the nation. 

This same commitment to seniors' health needs of America cannot be found in the 
Cooper/Breaux bill which will eliminate all. Federal support for long-term care forcing the 
states to pick up the difference. It cannot be found in the Michel/Lott bill which simply 
cuts reimbursement rates for Medicare making it harder for beneficiaries to find a 
provider. These pieces of legislation, and similar efforts, only take fi-om Medicare and 
offer nothing in exchange. 

The National Council strongly believes that the useful debate should not be between 
the so-called "Clinton-lite" plans and Clinton, but rather between H.R. 3600 and H.R. 
1200. As the polls show, it is not a matter of how far the American people want to go, 
it is a question of how far Congress is willing to hold us back from truly effective 
solutions. 

This does not mean the National Council believes the Clinton bill to be without 
flaw. There are key improvements we would like to have made to the bill as drafted. 

In order to create a single-tiered health care system and to eliminate the perception 
that older citizens could be treated as second-class medical citizens under H.R. 3600, we 
believe Medicare beneficiaries should be given the option to join a health alliance plan 
or return to Medicare during the open enrollment season. If a senior opts into the health 
alliance system, then Medicare should be required to pay the 80 percent average-weighted 
premium like Medicaid, rather than Medicare paying to the alliance what it would have 
paid had the beneficiary stayed in Medicare. The health alliance premium for an older 
citizen must, like their younger counterpart, be community-rated if we are to piu"ge a 
major evil of the current insurance system of risk adjustments of premium by age. 

We are also concerned about the ability of Medicare to absorb another $124 billion 
in cuts. In order to mitigate these changes and stop the current trend of physicians turning 
away Medicare beneficiaries, we believe private-pay rates and Medicare rates should be 
linked together. By legislating that Medicare rates could not' be lower than seven percent 
of the average reimbursement for a geographic location, Congress would ensure providers 
would not lack an economic incentive to see Medicare patients. Also, if the private-sector 
cost containment were more successful than anticipated. Medicare growth would fall more 
quickly. We also believe that the Congress should consider a hard-nosed anti- 
discrimination clause in H.R. 3600 assuring that Medicare beneficiaries will not lose 
access because of lower payments to providers. 

In fairness, since the Clinton program provides financial protections to those at 150 
percent of poverty or below, the Qualified Medicare Beneficiary (QMB) eligibility 
thresholds should be raised to this level. We would also like to see a Federal minimum 
benefit level specifying services established for the long-term home and community-based 
care program in order to establish a uniform set of support services throughout the states. 
The eligibility requirement should also be reduced from three activities of daily living to 
two based on a care manager's assessment of need. 



270 



Single-Paver Option 

Mr. Chairman, the National Council believes that national health reform debate now 
centers on H.R. 3600. As I said earlier, we want that debate to continue and to 
incorporate the benchmarks established by the single-payer proposals. We know that a 
single-payer system will be adopted by this nation one day, and we are going to do all we 
can to further that day along. That is one reason why we are going to be fighting very 
hard for Congress to pass the single-payer state option the President included in his bill. 

Several states are already interested in adopting a single-payer system and the 
Federal government should not prevent their doing so. The Congress of California 
Seniors, as you know, Mr. Chairman, is very much involved in the California Health 
Access campaign to pass a single-payer initiative in your home state. Canada did not 
adopt its successful single-payer structure overnight, rather it was enacted one province 
at a time. If that is what it will take to demonstrate the political commitment for this 
approach to our Federal legislators, then we are prepared to work for single-payer, state- 
by-state. What we will not support is a retreat from basic assumptions of the President's 
proposal. That would betray the principles demanded by our members. 

Goals of the National Council of Senior Citizens 

This organization has not backed away from our single-payer support. We support 
the Clinton bill because we see the Clinton bill as laying the foundation of a national and 
efficient system of health care. We will be working with the Congress and this 
subcommittee to bring the Clinton plan in line with as many single-payer principles as we 
possibly can. We will then use every resource we have available to ensure the passage 
of a progressive health reform package. We will oppose any and all legislation that does 
not meet our principles and sets back the cause of senior health care and the health needs 
of all citizens. 

With your help, our members' hard work, and God's blessing, we will enact the 
most fundamental restructuring of the health care system in our nation's history. Thank 
you. 



271 

Chairman Stark. Thank you. 
Dr. Walker. 

STATEMENTT OF MICHAEL A. WALKER, PH.D., EXECUTIVE 
DIRECTOR, THE ERASER INSTITUTE, VANCOUVER, CANADA 

Mr. Walker. Thank you very much, Mr. Chairman. I must say 
I appreciate the opportunity to appear before your committee to 
bring you the results of the Fraser Institute's latest survey of hos- 
pital waiting lists in Canada. 

First by way of introduction, the Fraser Institute is a federally- 
chartered, nonprofit research organization which conducts studies 
of public policy issues in Canada, and the Institute has published 
three book-length studies that examine Canada's health care sys- 
tem from different points of view. The latest study entitled "Caring 
for Profit" was conducted by professor Malcolm Brown, a self-pro- 
fessed advocate of Canada's approach to single-payer health care, 
just to give you the idea that we do not have a monolithic view on 
this topic. 

The Institute also conducts an annual survey of physicians to de- 
termine the extent to which access to health care is rationed as a 
result of the fact that the demand for health care is steadily in- 
creasing, but the supply is limited by a series of budgetary caps. 

The survey produces two measures of rationing, the waiting time 
for appointments to see a specialist and the waiting time for treat- 
ment once the specialist has been seen. Since all patients proceed- 
ing to either of these steps must first have seen a general practi- 
tioner for a referral, it can be reasonably assumed that those wait- 
ing represent a legitimate demand for care. 

While a survey of specialists may be the only practical way to de- 
termine specialist waiting times, it is not the preferred way to 
measure hospital waiting lists. The Institute adopted this survey 
approach only after ascertaining that hospitals do not have the in- 
formation required to build a comprehensive waiting list in Can- 
ada. 

The publication of our surveys for the last several years has 
stimulated considerable interest in the area, and I am hopeful that 
within several years Provincial governments will publish com- 
prehensive hospital-based waiting lists of a kind which are typical 
in the United Kingdom, for example. 

I have provided you with copies of this year's survey from the 
Fraser Institute. There are many interesting aspects of the study, 
but two seem to be of particular relevance to your deliberations. 

The first is that it is a misnomer to refer to "the Canadian health 
care system" as though it were one uniform system providing simi- 
lar service for all Canadians. In fact, access to the health care sys- 
tem varies dramatically depending on where in the country one en- 
counters it. 

As chart I shows — and for those of you who have copies of it, I 
would ask you to look at chart I — and as that chart shows, average 
total waiting time from referral by the general practitioner to treat- 
ment ranges from 11 weeks in Ontario to 21 weeks in Prince Ed- 
ward Island. 



272 

Wait times also vary within Provinces among specialties. In On- 
tario, for example, wait times varied from 3.7 weeks for urology to 
12.6 weeks for ophthalmology. 

The fact that Ontario has generally the shortest waiting lists 
may be of particular interest to the committee, owing to the fact 
that Ontario was the only province studied when the U.S. Greneral 
Accounting Office did a ministudy of waiting lists a few years ago. 
Ontario is not typical, as our survey clearly shows. So any implica- 
tions or any inferences that the GAO or your committee or anybody 
else might draw from looking at Ontario is clearly not giving you 
a good impression of what is happening in the country overall. 

The second interesting aspect of the survey relating to the first 
is the apparent correlation between the waiting time for treatment 
and the amount which the various Provinces spend on health care. 
This is evident from Chart II. 

As can be seen there, there are two groupings of waiting times, 
and these are roughly aligned with the amount that each of the 
Provinces spends per capita on health care. Provinces that spend 
more per capita on health care have shorter waiting times on aver- 
age than those that spend less. Ontario, which spent the most, has 
the shortest waiting time, while Prince Edward Island, which spent 
the least, has the longest waiting times. 

Evidently this point is of some significance when Americans look 
to Canada for guidance in revising their health care arrangements. 
What the Canadian experience seems to suggest is that centralized 
control of health care spending can indeed limit the total amount 
that is spent. However, with rising levels of demand, the inevitable 
consequence is the rationing of care, and the tighter the spending 
control, the more rationing will result and the longer will people 
have to wait for care. 

Recent fiscal developments in Canada suggest that waiting times 
are likely to increase in the future. All Provinces and the Federal 
Government are experiencing very large deficits. One of the con- 
sequences is that the funding of health care is being reduced at a 
time when demographic pressures are increasing the demand for 
health care. The inevitable consequence will be increases in the ex- 
tent of rationing. 

In other words, as Americans look north to Canada, they have 
to decide whether they want a health care system like that in On- 
tario with its 11-week waits or that in Prince Edward Island with 
its 21-week waits. If they do not like the idea of 11-week waits, 
then they should avoid budget capping as an approach to health 
care. And since budget capping is the silver bullet or the cost con- 
trol that is built into all of the major proposals which currently 
have been made for the revision of your health care system and 
certainly are an integral part of a single-payer system, I heartily 
recommend that you look carefully at this Canadian experience be- 
fore you proceed. 

Thank you very much for the opportunity to make this presen- 
tation to you. 

[The prepared statement and attachments follow:] 



273 

THE FRASER INSTITUTE 



I appreciate the opportunity to appear before your Committee to bring you the results of 
The Eraser Institute's latest survey of hospital waiting lists. The Fraser Institute is a federally 
chartered non-profit research organization which conducts studies of public policy issues. 
The Institute has published three book-length studies that examine Canada's health care 
system from different points of view. The latest study, Caring for Profit, was conducted by 
Professor Malcolm Brown, a scif-profcsscd advocate of Canada's approach to single payer 
health care. 

Tlic Institute also conducts an annual survey of physicians to determine the extent to which 
access to health care is rationed as the result of the fact that the demand for health care is 
steadily increasing but the supply is limited by a scries of budgetary caps. The survey 
produces two measures of rationing — the waiting time for appointments to see a specialist 
and the waiting time for treatment once the specialist has been seen. Since all patients 
proceeding to either of these steps must first have seen a general practitioner for a referral, 
it can be reasonably assumed that those waiting represent a legitimate demand for care. 

While a survey of specialists may be the only practical way to determine specialist waiting 
times, it is not the preferred way to measure hospital waiting lists. The Institute adopted this 
survey approach only after ascertaining that hospitals do not have the information required 
to build a comprehensive waiting list. The publication of our surveys for the last several 
years has stimulated considerable interest in the area and I am hopeful that within several 
years, provincial governments will publish comprehensive hospital-based waiting lists of a 
kind which are typical in the United Kingdom, for example. 

I have provided you with copies of this year's survey. There are many interesting aspects of 
the study but two seem to be of particular relevance to your deliberations. The first is that 
it is a misnomer to refer to the Canadian health care system as though it were one uniform 
system providing similar service for all Canadians. In fact, access to the health care system 
varies dramatically depending where in the country one encounters it. 
As Chart 1 shows, average total waiting time from referral by the general practitioner to 
treatment ranges from eleven weeks in Ontario to 21 weeks in Prince Edward Island. Wait 
times also vary within provinces amongst specialties. 

In Ontario, for example, wait times varied from 3.7 weeks for urology to 12.6 weeks for 
ophthalmology. The fact that Ontario has, generally, the shortest waiting lists may be of 
particular interest to the Committee owing to the fact that Ontario was the only province 
studied when your General Accounting Office did a mini-study of waiting lists a few years 
ago. Ontario is not typical as our survey clearly shows. 

The second interesting aspect of the survey, related to the first, is the apparent correlation 
between the waiting time for treatment and the amount which the various provinces spend 
on health care. This is evident from Chart 2. 

As can be seen, there are two groupings of waiting times and these are roughly aligned with 
the amount that each of the provinces spends per capita on health care. Provinces that spend 
more per capita on health care have shorter waiting times, on average, than those that spend 
less. Ontario, which spent the most, has the shortest waiting time, while Prince Edward 
Island, which spent the least, has the longest. 



274 



Evidently, this point is of some significance when Americans look to Canada for guidance 
in revising their health care arrangements. What the Canadian experience seems to suggest 
is that centralized control of health care spending can indeed limit the total amount that is 
spent. However, with rising levels of demand, the inevitable consequence is the rationing of 
care. The tighter the spending control, the more rationing will result and the longer will 
people have to wait for care. 

Recent fiscal developments in Canada suggest that waiting times are likely to increase in the 
future. All provinces and the federal government are experiencing very large deficits. One 
of consequences is that the funding of health care is being reduced at a time when 
demographic pressures arc increasing the demand for health care. The inevitable 
consequence will be increases in the extent of rationing. 

In other words, as Americans look north to Canada they have to decide whether they want 
a health care system like that in Ontario, with its 1 1 week waits, or that in Prince Edward 
Island, with its 21 week waiu. If they don't like the idea of 11 week waits, then they should 
avoid budget capping as an approach to health care. 



275 

Chart 1: 
Total Waiting by Province 

(Time from G.P. Referral to Treatment) 




10 



15 



20 



25 



W//////////////M 
W//////////A 



™ Time waited for appointment with specialists 
^ Time waited for treatment 

Source: Fraser Institute survey of specialists' waiting lists. 



Chart 2: Provincial Government Spending 
on Health Care Per Capita Versus Hospital Waiting Lists 

(Time between booking of treatment and treatment) 




BC MAN ONT NB NS 

AB SASK QUE NFLD PEI 

H Average Waits for Treatment ^ Per Capita Expenditure on Health 

Source: Per capita health care expenditure from "Public Finance Historical 
Data. 1965/66 - 1991/92." Statistics Canada (cat. 68-512). 



276 




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287 

Chairman Stark. Thank you very much. 
Dr. MacKillop. 

STATEMENT OF WILLIAM J. MACKILLOP, M.D., HEAD OF RADI- 
ATION ONCOLOGY, KINGSTON REGIONAL CANCER CENTER, 
ONTARIO CANCER TREATMENT AND RESEARCH FOUNDA- 
TION, AND DIRECTOR OF THE RADIATION ONCOLOGY RE- 
SEARCH UNIT, QUEEN'S UNIVERSITY, KINGSTON, ONTARIO, 
CANADA 

Dr. MacKillop. Mr. Chairman, thank you for the opportunity to 
tell you about how we provide care for cancer patients in Canada. 

I am a radiation oncologist; that is a cancer specialist who uses 
radiation to treat cancer, and I practice in the city of Kingston in 
the Canadian Province of Ontario. 

Radiotherapy is an important form of cancer treatment. It cures 
some patients and provides valuable pain relief for others who can- 
not be cured. 

To do its job of killing cancer cells, radiation has to be focused 
precisely on the cancer, which is often deep in the patient's body. 
It takes a great deal of skill and care to make sure that we hit the 
cancer without damaging the normal tissues around it. 

Safe, effective radiotherapy relies heavily on complex, expensive 
equipment and requires a team of highly-trained physicians, physi- 
cists, and technologists. 

Fifty years ago, the Ciovernment of Ontario recognized the enor- 
mous value of radiotherapy and created a cancer foundation to 
make radiation treatment available to all Ontarians. 

The decision was made to focus the expensive equipment and ex- 
pert staff in a few strategically located cancer clinics, which would 
provide high-quality care for everyone in the surrounding region. 
Over the years, these clinics expanded their role by adding pro- 
grams of surgery and chemotherapy, and each of the centers devel- 
oped its own research program. 

This created a publicly-funded, Provincewide network of com- 
prehensive cancer clinics which now provide care to all the resi- 
dents of Ontario. 

All of the staff, including the doctors, are effectively salaried, and 
all the operating funds for the regional centers come from the On- 
tario Cancer Foundation, which in return receives its money di- 
rectly from the Provincial Health Ministry. All serxnces to patients 
are provided without direct charge. Most of the Canadian Provinces 
now have similar cancer foundations. 

Let me tell you about the strengths of the system. There are no 
financial barriers to access, and the cost to the patient is not, 
therefore, a consideration in the choice of treatment. 

The system is highly efficient. We do not have duplication of ex- 
pensive facilities, and all components work at close to full capacity. 
People like me do not do any paperwork that is not directly related 
to patient care. Doctors are allowed to get on with the business of 
looking after patients. 

We provide high-quality patient care, and the equitable distribu- 
tion of resources by the Cancer Foundation means that similar 
services are available right across the Province. Our large centers 
concentrate a tremendous amount of specialized skill and experi- 



288 

ence in one place. Radiation oncologists work in group practices, 
and this gives us the opportunity to develop special expertise in 
specific types of cancer. We work in teams with medical oncologists 
and surgeons, and we usually manage not to be competitive with 
each other. 

This system of ours in which all doctors have hard ceilings on 
their incomes and in which they work closely with one another is 
probably responsible for the relatively conservative Canadian ap- 
proach to cancer treatment. 

We have found, for example, that Canadian doctors who treat 
larynx cancer, including the surgeons, are far more likely to rec- 
ommend radiotherapy to conserve the voice box than their Amer- 
ican colleagues. 

We have also found that Canadian doctors are less likelv than 
Americans to recommend radiotherapy or chemotherapy for pa- 
tients with advanced and incurable lung cancer and are much more 
likely to recommend supportive care instead of active treatment. 

Despite its many advantages, our system is far from perfect. 
Many patients have to travel long distances for radiotherapy. To 
some extent, this is inevitable in this vast country of ours, but in 
planning the distribution of cancer centers, concerns about quality 
of care and efficiency have taken priority over concerns about con- 
venience. 

There are now long waiting lists for radiation treatment at many 
cancer centers in Canada. This was unheard of a decade ago, but 
the incidence of cancer has doubled in the last 20 years, and unfor- 
tunately the cancer system has not expanded fast enough to keep 
up with the increase in demand for radiation treatment. This is a 
matter of great concern to us. 

The message for you, I think, is that managed systems must be 
well-managed, or they may become a liability. 

Mr. Chairman, I have described some of the strengths and weak- 
nesses of the Ontario cancer system, which operates on the single- 
payer model. In general, Canadians seem well satisfied with the 
service we have provided over the years. The cancer center in 
which I work provides care for more than 2,000 new patients each 
year, but it has not been faced with one malpractice suit against 
any member of its medical staff since it was established in 1947. 

Our system has much to recommend it in spite of its recent dif- 
ficulties. 

Thank you, Mr. Chairman. 

[The prepared statement and attachment follow:] 



289 



STATEMENT OF DR. WILLIAM J. MACKILLOP, HEAD OF RADIATION 
ONCOLOGY, KINGSTON REGIONAL CANCER CENTRE, ONTARIO CANCER 
TREATMENT AND RESEARCH FOUNDATION, AND DIRECTOR OF THE 
RADIATION ONCOLOGY RESEARCH UNIT, QUEEN'S UNIVERSITY, KINGSTON, 
ONTARIO, CANADA. 



Mr. Chairman and members. Thank you for the opportunity to tell you about how 
we provide care for cancer patients in Canada. 

I am Dr. William Mackillop. I am a Radiation Oncologist, that's a medical 
specialist who uses radiation to treat cancer, and I work for the Ontario Cancer Foundation 
in the city of Kingston in the Canadian province of Ontario. Let me begin by giving you 
a few words of background about radiation treatment, and then I will outline for you what 
I see as the strengths and weaknesses of our system. 



RADIATION ONCOLOGY IN CANADA 



Radiotherapy is an important form of treatment for cancer. It can cure some 
diseases like cancer of the cervix even when patients are beyond hope of cure by surgery. 
In other diseases it is a useful alternative to a surgical procedure which would leave the 
patient with a permanent disability: cancer of the larynx, for example, can be cured by 
surgery or radiation, but the surgical option may mean that the patient will lose his ability 
to speak. Radiation is also very effective in relieving pain in patients with advanced and 
incurable cancer. While radiation is certainly not useful in every case, it plays an 
important role in the care of about 50% of all patients. 

To do its job of killing cancer cells, radiation has to be focussed precisely on the 
cancer which is often deep in the patient's body. It takes a great deal of careful planning 
with sophisticated equipment to make sure that we hit the cancer without damaging the 
normal tissues around it. The radiation treatment itself is usually given by skilled radiation 
therapists using large modern x-ray machines. The whole process relies heavily on 
complex, expensive equipment and requires the support of a team of highly trained 
physicians, physicists and technologists. 

Fifty years ago, Ontario recognized the enormous value of radiation treatment, and 
created a Cancer Foundation to make radiation treatment available to everyone in the 
province. The decision was made to focus the expensive equipment and expert staff in a 
few strategically located cancer clinics which would provide high quality radiation therapy 
for everyone in the surrounding region. Over the years these clinics expanded their role 
by adding programs of surgery and chemotherapy, and each of the centres developed its 
own research interest. This created a publicly funded, province wide network of 
comprehensive cancer centres which now provide care to all the residents of Ontario who 
require cancer treatment. In Ontario, which is twice the size of Texas, we have just nine 
cancer centres. All the staff, including the doctors, are effectively salaried, and almost all 
the operating funds for the regional centres come from the Ontario Cancer Foundation, 
which in turn receives its money directly from the provincial health ministry. All services 
to patients are provided without direct charge. 

Most other Canadian provinces now have similar cancer foundations. 



THE STRENGTHS OF THE SYSTEM _^___ ___^ 

I would like to tell you about the strengths of the system. 

1) There are no fmancial barriers to access, and cost to the patient is not a 
consideration in the choice of treatment. 

2) The system is highly efficient. We do not have duplication of expensive 



290 



facilities and all components of this system work at close to full capacity. 

3) We provide high quality patient care, and the equitable distribution of 
resources by the Cancer Foundation means that similar services are available right across 
the province. Our large centres concentrate a tremendous amount of specialized skill and 
experience in one place. Radiation oncologists work in large group practices, and this gives 
us the opportunity to develop special expertise in specific types of cancer. We work in 
teams with medical oncologists, and surgeons, and we usually manage not to be competitive 
with each other. 

4) This system of ours, in which all doctors have hard ceilings imposed on their 
incomes, and in which they work closely with one another, is probably responsible for the 
relatively conservative Canadian approach to cancer treatment. We have found, for 
example, that Canadian doctors who treat larynx cancer, including surgeons, are far more 
likely to recommend radiotherapy to conserve the voice box than their American colleagues 
(Figure 1). We have also found that Canadian doctors are less likely than Americans to 
recommend radiotherapy or chemotherapy for patients with advanced lung cancer, and 
more likely to recommend supportive care instead of active treatment (Figure 2). 



THE WEAKNESSES OF THE SYSTEM 

Despite its many advantages, our system is far from perfect. 

1) Many patients have to travel long distances for radiotherapy. To some extent, 
this is inevitable in our vast country, but in planning the distribution of cancer centres, 
concerns about quality of care and efficiency have taken priority over concerns about 
convenience. 

2) There are now waiting lists for radiation treatment at many cancer centres 
in Canada. This was unheard of a decade ago. Our population is aging, and cancer is a 

disease of the older person: As a result, the incidence of cancer in Canada doubled in the 
last twenty years and, unfortunately, the cancer system did not expand fast enough to keep 
up with the demand for radiation treatment. This is a matter of great concern. 

We radiation oncologists are responding by looking closely at the way that we treat 
patients. Just as in other areas of medicine, there are variations in the way doctors use 
radiotherapy and we are seeking to find the most effective and efficient ways of using the 
resources available to us today. Governments across Canada are also responding by 
expanding facilities and training more staff, but it will take some time before the supply of 
radiation treatment will catch up with demand. In retrospect, it is clear that we did not 
monitor the situation as closely as we should have, and that we did not respond rapidly 
enough to early signs of strain in the system. The message for you is that managed systems 
must be well managed. 



CONCLUSION 

Mr. Chairman, I have described some of the strengths and weaknesses of the 
Ontario cancer system, which operates on the single payer model. In general, Canadians 
seem well satisfied with the service we have provided over the years. The cancer centre in 
which I work provides care for more than 2,000 new patients per year but it has not been 
faced with one malpractice suit against any member of its medical staff since it was 
established in 1947. In spite of its recent difficulties, our system has much to recommend 
it. I would be pleased to answer any questions that you may have about it. 



291 



Proportion of Doctors Who Recommended Radiation 

for Moderately Advanced Cancer of The Larynx 

(T3,No,Mo, Glottic) 



El Otolaryngologists ■ Radiation Oncologists 



100 




Ontario Massachusetts New York 

Figure 1 



From O'Sullivan, Mackillop, et al, Radiotherapy and Oncology, 1994. 

Treatn^ient Recommended for Patients with Advanced 
Lung Cancer (Stage lllb, Squamous Carcinoma) 



100 




m Canada ■ USA 






Radiotlierapy Chemotherapy Surgery 

Figure 2 



Supportive 
Care Only 



From Palmer and Mackillop, Radiotherapy and Oncology, 1990. 



292 

Chairman Stark. Thank you. 

Mr. Smedley, perhaps you could define for me, on page 4 you 
suggested only 40 percent of the 10 million pre-Medicare retirees 
have any — and I am quoting — "business-provided health insur- 
ance." How do you define "business-provided health insurance"? 

Mr. Smedley. It was written by staff, Mr. Chairman. I would as- 
sume that would be a private business. 

Chairman Stark. Well, I would hope that you could review that. 
Our figures show — and I am sure the ones that CBO is using — that 
only 25 percent are uninsured, which would mean that 75 percent 
have some health insurance as early retirees. 

Mr. Smedley. I will check that, Mr. Chairman. 

Chairman Stark. Please do. 

Mr. Smedle:y. I think vour figure sounds very, very 

Chairman Stark. Well, whatever the figures may be, if I take 
yours, you are suggesting that those 40 percent or 4 million people 
should have, in effect. Uncle Sam pick up their costs. 

Now that is an interesting idea, but it costs $8 billion a year, and 
the major corporations are committed to paying that. 

What rationale do you have to suggest that for those 40 percent 
who have business-provided health insurance, what earthly reason 
is there to let General Motors and Greneral Electric off the hook 
and ask the rest of the taxpayers to kick in $8 billion a year? 

Mr. Smedley. I will be happy to answer the question, Mr. Chair- 
man. 

First on the question of the differential in figures, it may be that 
the 75 percent comes — that many of those people buy tneir own 
health insurance. 

Chairman Stark. That may well be. But I am just taking your 
figures. 

Mr. Smedley. It is not — this is business-provided. 

Chairman Stark. Let us take your figures. 

Mr. Smedley. That is where the 40 percent comes from. 

Chairman Stark. Let us take your figures. Of the 40 percent 
with business-provided health insurance, why should we pick up 
what is now arguably an obligation of the companies, $8 billion? 

Mr. Smedley. Well, let us — in any universal system, which I 
think you strongly advocate as well as we do, that you want to 
cover everybody 

Chairman Stark. I do. 

Mr. Smedley. Now we have had the precedent when the Medi- 
care law, which you are so interested in expanding, if I remember 
correctly, we passed that law, and because some of the employers 
were covering retirees with health insurance, you did not make 
them continue to cover costs that Medicare covered. That is a 
precedent, a very good past precedent, which could be carried for- 
ward. 

If some employers cover their employees with retiree insurance — 
they have been more socially conscious or perhaps through a collec- 
tive bargaining agreement — but other employers simply dump their 
employees on the national health care system 

Chairman Stark. I agree. 

Mr. Smedley. Why should we have the differential treatment? 
Why should we treat 



293 

Chairman Stark. Well, I agree with you, but 

Mr. Smedley. Why should General Motors not be a better em- 
ployer? 

Chairman Stark. Why should they not got into the universal 
plan? Why do we single out these people to get a special plan that 
other people would not get. 

I am with you. Fine, put them into whatever the national plan 
is. I am with that. But I would think one would require a mainte- 
nance of companies, but if we do not, I see no reason to take this 
little group and give them a special deal. 

I agree with you that everybody should have coverage. If they 
lose their job, they lose their job; they get coverage. 

You may not have figured out, but I would ask you to have your 
staff reread the President's bill. Any one of these early retirees who 
happens to have a spouse who is working anyplace else where they 
offer health insurance would not qualify for Medicare. As a prac- 
tical matter, there are some of us who might live to be 100 before 
our spouses would be old enough for us to get Medicare — absolute 
lunacy in terms of destroying Medicaie. 

Further, if you like Medicare and if you research the President's 
system, you will see that in the President's plan is a formula to de- 
stroy Medicare, to deplete the resources of its trust fund far more 
rapidly than they are now and, in fact, to offer financial incentives 
to people not to join, particularly young people coming onto Medi- 
care. 

If you wanted to privatize Medicare tomorrow, with these two 
combinations, you could not figure out a better way to disband the 
system. And I would urge those of you who, I think, blindly accept 
the President's plan, to read it a second time. There are those of 
us who do share your goals, but who question this plan that was 
conceived in secret over the past year, without the input of either 
the UAW or any decent union and without the input of Congress 
or without the input of all but one or two Jackson Hole — trained 
health experts. It is somewhat disconcerting to see people who 
ought to be on the right side of social issues buying into a pig in 
a poke. 

And I commend you to return to your staff and ask them to 
please reconsider. 

Mr. Thomas. 

Mr. Smedley. I will do that, Mr. Chairman. We will look at the 
President's bill, read it very carefully a second or third time, and 
I would say that as long as we have the same goals, knowing that 
you are a reasonable man, I am sure that we can come to some rea- 
sonable solution to the problem to deal with the early retirees, of 
which we have a large number in our membership, to deal with 
them fairly. 

Chairman Stark. I understand that. Thank you. 

Mr. Thomas. Thank you, Mr. Chairman. I commend the chair- 
man's statement. Folks who preach ought to walk a mile in some- 
body else's shoes. 

Chairman Stark. Just give me your proxy. 

Mr. Thomas. No, I do not give you my proxy. I just praise you, 
that is all. Praise is cheap; proxies are expensive. 



294 

I apologize to the panel. We were over voting. There was a mixup 
with the voting panel, and one of my secondary responsibilities is 
running the shop a little bit, and so we were trying to work on the 
computer glitch that would not allow the members to see their 
vote. They recorded their vote, but they were not allowed to see it. 

I want to talk to the Canadian doctors only, because I am not 
familiar with the Canadian system as I would like to be, and I as- 
sume you are probably far more familiar with our system, so that 
if I asked you some comparative questions, you would be better 
able to make the comparison than would I, based on my knowledge, 
and try to quiz it. 

And, of course, one of the concerns we have is the cost controls, 
and we are toying with various mechanisms to determine how we 
can control costs. One one of the things that I was concerned about 
with the single-payer model is that you either have the benefit 
package drive the costs, or you limit the costs, and that determines 
the benefit package. 

And I guess, Dr. Walker, we can get into this by saying: From 
your history and perspective on Canada, when you cap budgets, 
how does it most often manifest itself in the Canadian structure? 

Mr. Walker. Well, first of all, the budget caps are, themselves, 
manifested in four different ways. There are caps on the hospital 
care system and the physician care system. The hospital care sys- 
tem is capped in three different ways. 

Hospitals typically get an operating budget. They get a separate 
budget for special surgeries, and they get a separate and third 
budget for the acquisition of capital. So from a hospital's point of 
view, the capping of their expenditures can be therefore manifest 
in three different consequences. Either they have to curtail their 
general operations; they have to curtail specific operations; or they 
have to curtail acquisition of technology when the budgets are in- 
sufficient to cover all of their costs. 

The fourth budget cap, of course, is on physicians' fees. 

Mr. Thomas. Historically has it not been a prioritization or a 
hierarchical ranking of those most often? It would seem to me that 
instead of cutting into ongoing structured arrangements, the tech- 
nology would be an easy one to forego. 

Mr. Walker. Well, I guess one thing that is evident from the 
data — and I think you would find this from talking to profes- 
sionals — is that there does not seem to be any sort of coherent ap- 
proach. Choices are made in the content of the political system. 
And if there is more political pressure, as you heard from somebody 
in the first panel, if there is a shortage of bypass surgeries and 
there are stories in the newspapers about that, then the politicians 
respond by getting the bureaucrats to allocate more money in that 
area and so on. 

Mr. Thomas. OK. 

Mr. Walker. So it really is 

Mr. Thomas. It depends. 

Mr. Walker. It depends. 

Mr. Thomas. Like the way we do liver transplants here. If you 
can get in the newspaper or on the media, you have a chance of 
getting one. And if you do not, you do not. 



295 

Mr. Walker. There is, however, a very, I think, special effect 
here on technology acquisition, because in the process of making 
their cost allocations. Governments in Canada do say things like: 
Well, is the technology proven? You know, are we sure that this is 
a cost-effective procedure? Are we sure that it is medically effective 
and so on? 

And so there is a kind of wait-and-see attitude built into the Ca- 
nadian system, and typically, of course, as you may imagine, what 
we are waiting to see is how it works out in the United States. In 
other words, we do not acquire technologies very often until they 
have been proven to be clinically and cost effective in the United 
States first. 

Mr. Thomas. Well, we are finding out that that is part of the 
problem in pharmaceuticals. We are the only ones who are on the 
cutting edge. And I guess if you are in a race and there is some- 
body in front of you, you can pace yourself to try to get in front 
of them. 

But for so many areas, we are running against the clock, and the 
question is whether or not you are going to continue the commit- 
ment to excellence, regardless of any kind of a comparative ar- 
rangement. 

Ajid if we fall under the same system, maybe each other is 
watching each other to see who goes first, it is Alphonse/Gaston, 
and nobody goes through the door, and I think then that clearly in- 
dicates that you get a quality reduction that would otherwise be 
present, and as you indicated oftentimes with the choices that are 
made by administrators or politicians, one of them, I assume, 
would be inevitably waiting to get some kind of an elective proce- 
dure, as we heard. Waiting is rationing in whatever form you want 
to look at it. 

Just briefly to Dr. MacKillop, if I might, Mr. Chairman, obviously 
there is more and more emphasis on this whole question of cancer 
and cancer treatment. I noticed the headline on the USA Today 
newspaper was 'The Boomers Cancer Risk Tops Grandparents." It 
is moving in on heart disease. The question of how you treat can- 
cer, early detection, radiation, chemotherapy, surgery. 

In your analysis of the United States versus Canada, clearly 
there may be preferences for particular choices, but in your experi- 
ence, are there any choices that seem to be dictated by the struc- 
ture rather than either by the physician's first choice or what 
might be best for the patient, which I think is probably the most 
damaging thing that anybody can say about a structure? 

Are you familiar with any structural definitions of what you do, 
rather than 

Dr. MacKillop. I can only speak from personal experience and 
from two surveys that we have carried out that have compared 
practice in Canada and the United States. 

The first is in a disease which is cured by radiotherapy or sur- 
gery, carcinoma of the larynx. And we have asked practitioners in 
the United States and Canada and across the English-speaking 
world about what choices they make and what recommendations 
they make for their patients. And we have observed that practition- 
ers in the United States much more frequently elect an operative 



296 

procedure that involves sacrifice of the larynx and natural speech 
than practitioners in Canada. 

It is not, I think, a matter of certainty why that arises, but I 
think in Canada decisions are made by teams of practitioners who 
have no financial interest whatsoever in the medical decision that 
is made. 

My sense is that a system in which doctors' incomes do not de- 
pend on the level of their technical activity allows them to exercise 
their clinical judgment without some of the restraints that are in- 
herent in your system, and it produces different practice. 

In patients with incurable cancers, I think Canadians are also 
more conservative in their recommendations for patients than 
Americans. And to some extent, I think that that has been condi- 
tioned by your public rather than by your medical profession. 

It seems to us that Americans are willing to accept any risk for 
the most meager of benefits for treatment of a cancer. We know 
that in your society third, fourth, and fifth line chemotherapy for 
patients with breast cancer is essentially standard treatment and 
has become part of the sad ritual of dying from this disease in the 
unfortunate women who cannot be cured of it. 

There is no evidence from any outcome study or from any ran- 
domized clinical trial that third, fourth, or fifth line chemotherapy 
offers any benefit either in terms of survival or in terms of quality 
of life above a policy of supportive care. 

I understand that to some extent fear of legal action for doing 
anything less than the maximum drives some of our colleagues in 
the United States to do more than they really judge to be appro- 
priate. 

Mr. Thomas. Well, I guess the easiest way to determine where 
you would go, given your knowledge and expertise, is to say that 
if you are where you are now, and you had a colleague diagnose 
you in terms of some kind of cancerous situation, say the larynx 
or in the throat or in the neck, would you stay in Canada to be op- 
erated on, or would you go someplace else? 

Dr. MacKillop. If I could have prompt care in Canada, I would 
be very comfortable with the services offered by our system. 

I happen to work in a community in eastern Ontario where we 
are not greatly constrained in our choices by a shortage of supply 
of either operating room time or radiotherapy time. 

In metropolitan Toronto, in our biggest city, the delays which are 
imposed on some patients before they can start radiation treatment 
would make me think twice, I think, about whether I would be 
willing to wait for several weeks before starting radiotherapy treat- 
ment. And clearly as someone in the profession and with a signifi- 
cant income, I could buy myself around that problem by seeking 
care in the United States if that situation arose. 

I should emphasize that this is a relatively recent problem in mv 
own particular discipline of radiation oncology, and I do not think 
it arises through capped budgets, but through very poor forward 
planning. 

Mr. Thomas. My concern is the growing need, not just for elec- 
tive procedures, but need in terms of the cancer area. 

Finally you indicated with some sense of pride — and in this coun- 
try, it would be miracle, not just pride — that you have never been 



297 

sued for malpractice. I have got to believe that there is some kind 
of a different structure that we are dealing with Canada in terms 
of malpractice; one, in terms of the attitude of people toward others 
in terms of suing, and second, what you can get out of suing and 
your chances of winning in the system. 

I would think that perhaps some of the practices that you out- 
lined that were not practiced in Canada would, in part, be because 
of the fact that there was very little fear of having a malpractice 
suit brought against you and the relatively poor chance of success 
beyond just basic economic damages that would be received, which 
mean, I guess, if you are nodding your head, that means yes, that 
you would think that one of the ftindamental things that we should 
do is examine our malpractice structure and make some changes 
there. 

Is that a fair statement? 

Dr. MacKillop. Well, I think you should perhaps examine your 
relationship with your patients and find out why they so often seek 
recourse to this very adversarial form of resolution of dispute. I 
think it reflects 

Mr. Thomas. Not just doctors with patients. Anybody with any 
professional relationship with anybody else in the United States 
would have to ask themselves that question, because we sue every- 
body for anything and for nothing. 

Ms. Nichols. Mr. Thomas, could I add one point to this? 

Mr. Thomas. Sure. 

Ms. Nichols. Which is just that it is important to note that one 
of the main reasons that victims of medical negligence in this coun- 
try turn to the courts for restitution, rather than in Canada, al- 
though we do have different legal systems, is because they need 
coverage of their medical bills. 

So under a single-payer system, a universal system, many people 
might not go to the courts who otherwise do. It is one way of taking 
care of that problem. 

Mrs. Johnson. Would the gentleman yield? 

Mr. Thomas. Well, there is a whole downside to that. But I will 
let my colleague jump in, because I think she wants to take off on 
that. Go ahead. 

Mrs. Johnson. I think this is a very important point. And you 
are right. There is no reason to sue in Canada to get reimburse- 
ment for medical costs. 

On the other hand, it is also true in Canada that you cannot get 
reimbursement for pain and suffering and that cases do not go to 
juries and that you cannot sue on the basis of paying the lawyer 
later, as you can here. 

So our whole system encourages suits, particularly if there is a 
possibility of an emotionally-based award, and that is a cost driver. 
I do not think anyone adequately or can honestly estimate the 
amount of cost associated. But if you talk to people in the business, 
it certainly has altered the way we practice and how we think 
about diagnosis and treatment. 

But both of the 

Mr. Thomas. Would the gentlelady yield briefly? 

Mrs. Johnson. Yes. 



298 

Mr. Thomas. So that I could make a unanimous request of the 
chairman that this, the Fraser Institute's Forum, which is a bul- 
letin published, I believe, 12 times a year — the 1993 third edition 
had a Critical Issues Bulletin on "Waiting Your Turn, Hospital 
Waiting Lists in Canada," and ask unanimous consent to put it in 
the record, Mr. Chairman. 

Chairman Stark. Without objection. 

[The preface to the bulletin follows. The entire publication is 
being retained in the committee files:] 



299 




SER FORUM 



1993 



CRITICAL ISSUES BULLETIN 



Waiting Your Turn: 
Hospital Waiting Usts in Canada 

3rd edition 



by Joanna Miyake 
and Michael Walker 




300 



Special Issue Fraser Forum, 1993 



Preface 




Michael Walker 

W HE FRASER INSTITUTE HAS 
1 long had an interest in the 
1 health care system and in pro- 
viding information about it to those 
concerned about establishing an 
appropriate public policy frame- 
work for the delivery of this vital 
service. 

The Fraser Institute has published 
three books dealing with Canada's 
health care system.' While each au- 
thor approaches the subject from a 
different perspective and from a 
different analytical orientation, all 
are concerned with the impact of 
economic arrangements regarding 
health care on the quality and quan- 
tity of health care services delivered 
to Canadians. Our interest was par- 
ticularly piqued several years ago 
by my discovery that in the United 
Kingdom, local governments actu- 
ally produced publications listing 
hospital waiting lists for a selection 
of operations as a guide for health 
care consumers. The intent in pub- 


lishing the lists was to improve the 
efficiency of the National Health 
Service by ensuring that health care 
consumers were aware of the hos- 
pitals which had the shortest wait- 
ing times. Since the lists were much 
longer than could be justified by the 
desire to avoid unused capacity or 
to permit patients to have enough 
time to arrange their affairs prior to 
admittance to hospital, the un- 
avoidable conclusion was that 
waiting was being used as a 
method for rationing health care in 
the U.K. 

About the same time, anecdotal ev- 
idence began to emerge suggesting 
that hospital waiting lists were 
starting to become significant in 
Canada. However, there were no 
systematic measurements of the ex- 
tent of waiting. Those partial wait- 
ing list measurements which were 
made by hospitals eind by govern- 
ment departments were regarded 
as politically sensitive and they 


Ake Blomqvist. Tlie Health Care Business, 1979; Ronald Hamoivy, Canadian 
i Medicine, A Study in Restricted Entry, 2984; and Malcolm C. Browr., Caring for 
1 Profit, 1987. 



301 



Critical Issues Bulletin 



were not made generally available. 
Some preliminary measurements 
made by The Fraser Institute indi- 
cated that waiting was much more 
prevalent in the 1990s than it had 
been in the late 1960s. At the same 
time, there was increased concern 
about the cost to the government of 
continuing to supply the level of 
health care services that had been 
the norm. The health policy issue 
associated with these two develop- 
ments is the possibility that waiting 
lists or queues are being used as an 
alternative to rising prices; they re- 
strain health care expenses in a sys- 
tem where prices have been 
systematically eliminated and nei- 
ther physicians nor patients have 
the slightest economic incentive to 
consider the costs of their decisions. 

The current Critical Issues Bulletin is 
the Institute's third attempt to doc- 
ument the extent to which queues 
are being used as a means of adapt- 
ing to the conflict between limited 
budgetary allocations and unlim- 
ited demand for free health care. 



The study, conducted by Joanna 
Miyake and myself with the assis- 
tance of Steven Globerman, has 
been enthusiastically supported bv 
The Fraser Institute, but the work 
we have undertaken has been inde- 
pendently conducted. The views 
expressed in this study, therefore, 
may or may not conform with the 
views of the members and Trustees 
of The Fraser Institute. 

The Institute is pleased to offer the 
results of the research to the public 
for consideration and debate in the 
hope that more attention will be 
focused on the issue of hospital 
waiting lists and on improving our 
measurements of and knowledge 
about this aspect of health care pro- 
vision in Canada. The fact that the 
provincial governments across the j 
country are mounting projects to j 
produce "official" hospital waiting 
lists is a concrete indication that our | 
work has been useful in stimulating j 
appropriate concern about this 1 
public policy issue. 



302 

Mrs. Johnson. Thank you. 

Dr. MacKillop and Dr. Walker, both of you have brought some 
very interesting material before us and have a great deal of re- 
search experience to offer as well. 

Dr. MacKillop, do you have any specific information about com- 
parative waiting times for radiation treatments in Canada and the 
United States? 

There are a number of questions, so if we could be brief that 
would be helpful. 

Dr. MacKillop. I do have such information. We have recently 
carried out a survey of waiting times, absolute waiting times, in 
Ontario using the electronic database of the Cancer Foundation, 
which demonstrated that — and I will take on example of carcinoma 
of the larynx — that the waiting time for treatment between diag- 
nosis and initiation of treatment with radiotherapy doubled from 
about 2 weeks in the early 1980s to just over 4 weeks in the begin- 
ning of the 1990s. 

I have not accessed similar information in the United States, but 
I have surveyed heads of departments at the 26 radiotherapy cen- 
ters in Canada and at 75 comparable comprehensive cancer centers 
in the United States listed by the International Union Against 
Cancer, the UICC, and our observations confirm what I think we 
realized on an anecdotal basis, that patients in Canada in general 
wait longer for radiotherapy than they do in the United States. 

Mrs. Johnson. Significantly longer? 

Dr. MacKillop. Significantly longer, such that the waiting times 
that you have currently in the United States are similar to those 
that obtained in Ontario at the beginning of the 1980s, such that 
you start patients on treatment about 10 days — that is the median, 
the average, the central value — about 10 days after a patient is re- 
ferred to a Radiation Oncology Department, and in Canada that is 
30 days. 

And in other diseases such as carcinoma of the prostate, the dif- 
ference is wider, the median value in the American departments 
being 2 weeks, and the median value in Canadian departments 
being 6 weeks. 

However, one must recognize that the median is the central 
value, and that means that in 50 percent of those departments, 
people wait a shorter time, but in 50 percent they wait a longer 
time. 

All of the differences in five disease sites that we explored are 
significant and of a similar order of magnitude, a doubling or a 
three times as long wait in Canada as compared to the United 
States. 

Mrs. Johnson. Thank you. I think particularly in radiation ther- 
apy, that is a very significant issue that does raise quality issues. 

How does the standard of care available to cancer patients in 
Canada compare today with the situation 5 years ago or 10 years 
ago? In other words, when you look at the pace or the evolution of 
care in terms of cancer in Canada — and I think you are probably 
generally familiar with those issues as well in America — can you 
make any comment about pace of evolution, base of change in diag- 
nosis and diagnostic and treatment capability? 



303 

Dr. MacKillop. I cannot comment on the American situation, 
because I do not have any special expertise. 

But the Canadian system has been beleaguered by the lack of re- 
sources to provide prompt care. The quality of care, I believe, with- 
in our very tightly organized cancer system where all of us work 
essentially in academic environments, in teaching hospitals associ- 
ated with universities, I think the quality of care is good. The au- 
dits that I have carried out would confirm that, and there is the 
opportunity for continuous peer review in that environment, and I 
have great confidence in the quality of care. 

Access, I believe, has deteriorated over the last 5 years. Our gov- 
ernments, our Provincial governments, have been investing now in 
further capital equipment and new facilities. We have also started 
to train more radiation oncologists, medical physicists, and radi- 
ation therapists. 

But there is a long lag time associated with training people. 
Eventually one has to train people to train people. And I think that 
it will probably be the end of the decade before we catch up and 
are able to offer an adequate supply of quality service to match the 
increasing demand. 

I do not think a similar situation obtains in the United States. 

Mrs. Johnson. In other words, one of the unintended con- 
sequences of budget caps is that it retards the ability of a system 
to reorient itself toward new treatment modalities, to new illness 
patterns, because it makes it harder to mobilize the resources to 
move in a new direction at the same time you are providing serv- 
ices in the old direction. 

Dr. MacKillop. I think that is true. But I think that the re- 
straints on resource allocation that have afflicted our discipline 
happened in an era of great prosperity in Canada in the 1970s and 
the 1980s, and I think it is not correct to dignify that as if it were, 
in fact, a policy decision. 

Mrs. Johnson. Well, that is very interesting. 

Dr. MacKillop. I believe that it was a failure of forward plan- 
ning, and I do not know whether that represents a lesser problem 
or a greater problem. But the lack of trained staff and capital 
equipment in the system now reflects policy decisions made 10 and 
15 years ago in an era in which Canada was spending money like 
a drunk man. 

Mrs. Johnson. So it was not a lack of resources; it was a lack 
of an ability to forward plan. But when you combine that with a 
lack of resources, you could get a very much more significant lag. 

Dr. Walker, would you like to comment? And, also, you have 
some excellent charts in your testimony that you did not really go 
through. Would you mind quickly walking us through your charts? 

Mr. Walker. I would be happy to, Mrs. Johnson. But I do want 
make the point, just for correcting the record, as I was listening to 
Dr. MacKillop when he summarized his comments at the last point, 
he misspoke, I am sure, when he said that waiting times in the 
United States are three times longer than in Canada. He meant 
just the opposite. 

Chairman Stark. The record will show that Dr. Walker's charts 
will be included in the record. 



304 

Mr. Walker. There are some interesting charts in here. And for 
the most part, you can — I will leave them as read, but I think that 
from the point of the deliberations of this committee, the second 
chart in the separate page of charts called "Probability of Waiting 
by Income Group" is a particularly interesting one that you are free 
to focus on. It is beyond the presentation in the back. The charts 
are in order. "Total Waiting by Specialty for Canada." The next one 
is "Probability of Waiting by Income Group." 

Do you find that chart? 

Chairman Stark. Have you ever tried that in the United States, 
Doctor? You do not have a piece of paper big enough to show how 
long the people under $10,000 in this country would wait. That bar 
would go all the way up to the ceiling of this room, because they 
never get treatment. 

How do you deal with that in Canada? • 

Mr. Walker. Well, no. What this is, is the probability that peo- 
ple of different incomes will wait. 

Chairman Stark. I am telling you that the probability of some- 
body who is poor in this country is 100, that they will not get any 
care. 

Now what do you in Canada do about that? 

Mr. Walker. Well, Mr. Stark, this is very interesting, and it is 
frequently said to me now. However, at the institute are scientists 
and we like to try and document things. 

Chairman Stark. Aha. 

Mr. Walker. So when people say to me that there are waiting 
lists of this kind, I say to them that when we try to do comparable 
waiting list surveys in the United States, we could not get people 
to understand what we were talking about in terms of measuring 
these waiting times. 

When we told them we wanted to know their waiting times for 
different surgeries as we measure them in Canada, they basically 
said that there were not any waiting times. And when people 
say- 



Chairman Stark. I do not know 

Mr. Walker. Excuse me. 

Chairman STARK [continuing]. Whether you are smoking, but you 
are inhaling. 

Mr. Walker. Excuse me. Excuse me, Mr. Chairman. When peo- 
ple talk about waiting times, very often it is anecdotal evidence 
that they are referring to. 

Chairman Stark. Oh, I bet it is. 

Mr. Walker. And what we have here is as close as you can get 
to actual measurements of this phenomenon. So I do not have any 
comparable 

Chairman Stark. Let me — let me 



Mr. Walker. I do not have any comparable measurements 
that 

Chairman Stark. Thank you. Doctor. 

Let me ask Dr. MacKillop for a moment. Doctor, do you know 
of — you are a medical doctor, Dr. MacKillop? 

Dr. MacKillop. Yes, I am, sir. 



305 

Chairman STARK. How often do you hear about women in Can- 
ada giving birth to children without being able to see a physician 
or some kind of trained paraprofessional? 

Dr. MacKillop. I do not, Mr. Stark. 

Chairman Stark. Come to Oakland. I will give you a long list of 
women who are just unable to receive that treatment because they 
are poor. 

And also can you think of many cases of people who accept, I 
suppose — who are getting a lot of snowy weather like we nave 
here — but in waiting times, you schedule appointments, or your pa- 
tients have to schedule appointments to see you in your practice, 
I presume? 

Dr. MacKillop. Yes, sir. 

Chairman Stark. And many of your patients work? 

Dr. MacKillop. Yes. 

Chairman Stark. And so as between the time they can find a 
day to get off from work and get to see you — I suppose we all have 
some waiting built into our world. I mean, do you have to make 
appointments? Dr. Walker would not, but do you have to make ap- 
pointments to see your barber? 

Dr. MacKillop. In Canada? 

Mr. Walker. [Laughing.] 

Chairman Stark. That is all right. Doctor. We only have so 
many hormones, and those guys who want to waste them growing 
hair, let them go ahead. But I am just suggesting that 

Mr. Walker. We follicularly challenged people who are use to 
such barbs. 

Chairman Stark. OK But I just guess I am saying that there 
are waiting times built into our normal schedules — what I think I 
heard earlier is that it would be a fair summary to suggest that 
in Canada the decisions as to waiting and/or rationing, if that is 
what you want to call it, are clinical decisions, for the large part 
made by the medical community. 

Is that a fair statement? 

Dr. MacKillop. Can I respond to that, Mr. Stark? 

Chairman Stark. Yes, please. 

Dr. MacKillop. We distinguish, as you do, between waiting 
while something is done and waiting for something to happen, and 
we acknowledge in our discussions with patients that it is often 
very important to wait while we complete our investigations, to 
wait while we have the opportunity to discuss with them the costs 
and benefits of treatment, before make a decision and implement- 
ing it. 

But there is a real problem in the management of cancer, which 
is a time-dependent disease. I think this is a distinct issue from 
waiting for a hip replacement, where you can make the case, as the 
British do, that time for a sober second thought before undergoing 
this potentially life-threatening procedure is not a bad thing. I do 
not think one needs 13 months for that second thought, but you 
can make such a case. 

That type of case cannot be made in a time-dependent disease 
like cancer, which is characterized by growth and by spread to 
other parts of the body, because in every cancer, which is localized 
and curable, comes a moment when it undergoes the transition to 



306 

become an incurable tumor which will inevitably kill the patient, 
and even when that moment comes you cannot tell. It is something 
that is discovered later. 

Now, in Canada, we have been very challenged bv this problem 
of waiting lists for radiation therapy, and the issues nave been very 
real to us. Major institutions in Canada, the Princess Margaret 
Hospital, our premier cancer institute, which by anybody's reckon- 
ing, is one of the top six cancer treatment centers in the world, 
closed its door to all new referrals, except for emergencies for 6 
weeks in 1989, because its waiting list had grown so long. 

Chairman Stark. That is a resource problem, is it not, doctor? 
In other words, were the good burghers of this community willing 
to pony up a few dollars in taxes and you could buy additional 
equipment, perhaps even attract other professionals, then the peo- 
ple in that community would have the access to this treatment. Is 
that a 

Dr. MacKillop. I think you are again absolutely right. 

Chairman Stark. You see, in my neighborhood, we have got so 
much extra equipment lying around, but we will not let the people 
in who cannot pay. So we have this interesting situation where we 
have got an embarrassment of the same equipment and resources 
you wish you had, and we have people standing out in the streets 
and we say I am sorry, we will not treat you if you do not have 
the money. 

Dr. MacKillop. If I may respond, I do not think that our system 
is beyond repair, Mr. Chairman, but there are issues here. It was 
not through a desire on the public's part not to spend the money, 
nor indeed a conscious decision of the bureaucracy not to allocate 
the money. There was a problem of planning. We made planning 
errors that left the management of the system- 



Chairman Stark. In the management of the system- 



Dr. MacKillop [continuing]. Bad management, and I believe 
also a failure of governance. You refer to the people in your com- 
munity, and I think that is one of the important issues that you 
are discussing today, is to give the people ownership of their new 
medical system, whatever that may be, and that is a problem for 
us in Canada. Our Cancer Foundation has a board of political ap- 
pointees located in the city of Toronto. That is not a board that has 
been extremely responsive to the grass roots concerns of the com- 
munity. 

So while you are correct that if the community had been able to 
tell the bureaucracy that it wanted the money spent, the bureauc- 
racy would have spent it, but we had no mechanism for this. Our 
community did not have the lines of communication that would 
have permitted it to have expressed that wish. 

Chairman Stark. Let me ask one more question, if the gentle 
lady will let me conclude. 

Mrs. Johnson. Yes. 

Chairman Stark. The earlier witness suggested that a good bit 
of the cost I believe in Canada is generated by Americans coming 
into Canada to receive treatment. I think, if I recall, that was Ms. 
Priest who suggested that. 

Just as a practical matter, I suspect that if I came to Canada — 
I guess I can drive across a number of bridges without even being 



307 

stopped — then I am, for all practical purposes, an undocumented 
alien, I gather. I do not know whether Canada would let me go to 
work or not. Frankly, I do not know what I would do there, but let 
us assume that I could wait tables or find suitable employment for 
a person of my intellect and ability. And I came to your practice 
or your surgery, I presume I would receive treatment. Would I 
have to identify myself to you in any particular way, if I were in 
pain, let us say? 

Dr. MacKillop. You would receive emergency services without 
checking documentation. Before you got near me, I think you would 
probably have some check to make sure that you were an insured 
Canadian. 

Chairman Stark. But if I were not, how would the system dis- 
pense with me? 

Dr. MacKillop. We would bill you after the fact. You might pay, 
Mr. Stark, or you might not, but we would send you a bill. 

Chairman Stark. You would send a bill and you have the secret 
police or somebody who would come down here after me and I 
would still get invited to the Canadian Embassy to meet with your 
folks? 

Dr. MacKillo[». We do not follow up on any defaulting pay- 
ments. 

Chairman Stark. Is that a matter of great political concern in 
Canada, that you are being cheated by us Americans who are 
sneaking in there to get medical care? 

Dr. MacKillop. We have started to hear about it occasionally. I 
do not believe it is a significant political issue. 

Chairman Stark. Ms. Nichols raised that issue for us in her tes- 
timony, and — are you a lawyer, Ms. Nichols? 

Ms. Nichols. Yes. 

Chairman Stark. You are suggesting, I gather, that the Presi- 
dent's plan in dealing with undocumented aliens is shortsighted. 
Are you familiar with Article 8 of the Constitution? 

Ms. Nichols. Yes, sir. 

Chairman Stark. What constitutes being a prisoner? 

Ms. NiCHOi^. Excuse me? 

Chairman Stark. What constitutes punishment or being a pris- 
oner? Do you have to be actually in the jail to come under the pro- 
tections of Article 8, which guarantee medical care only to the likes 
of Haldeman, Ehrlichman and Ollie North, because not giving them 
medical care would be cruel and inhumane punishment? If an ille- 
gal alien is detained, is that sufficient to put them under the 

Ms. Nichols. I am not certain. 

Chairman Stark. You ought to look that up. We may have a so- 
lution, and then we could ignore the President's shortsightedness. 

Ms. Nichols. Or if you failed to buy individual coverage under 
the Chafee bill, maybe you would be jailed and then covered. 

Chairman Stark. I have always suggested to people who are un- 
insured that they just drive through Los Angeles, and when they 
are stopped, hit a policeman, they will need more medical care 
than they ever dreamed possible, out they will get it courtesy of 
the County of Los Angeles. It is the only small elite group in this 
country where there is guaranteed medical care under our Con- 
stitution. 



308 

Did you want to inquire further? 

Mr. Walker. Mr. Stark, you did raise several questions in your 
comments that are answered in fact from Canadian data. You 
raised, for example, the issue of a woman who is in a low-income 
group not getting access to appropriate prenatal care, and so on, 
and as a result may be having high infant mortality rates and that 
kind of thing. 

It is very interesting to look at the Canadian data in this respect. 
A study which was done by an employee of the government of Brit- 
ish Columbia in infant mortality amongst different income groups 
in Canada. We find that the infant mortality rate amongst the 
group experiencing the highest incidence of poverty in Canada is 
double the infant mortality of the income group having the least 
amount of poverty. This is the way they do the income quintiles in 
the census. 

I think that kind of information ought to lead you to challenge 
whether or not you are in fact going to solve some of these kinds 
of problems. We also have identified in Canada the fact that the 
people who need health care do not seek it, and this has nothing 
to do with the fact of whether the care is available or not. In the 
case of these infant mortality statistics, it is not that the care is 
not available to low-income people in Canada. The fact is they do 
not seek it. 

Chairman Stark. Doctor, comparing the Indian population of 
Canada and its location with the Indian population of the United 
States — and I presume by that you mean Native Americans 

Mr. Walker. I am not comparing 

Chairman Stark [continuing]. Drawing conclusions about the im- 
poverished rate of infant mortality 

Mr. Walker. No, no, no. 

Chairman Stark [continuing]. Is akin to putting wings on pigs 
and watching the sea boil. 

Mr. Walker. That is a political task, Mr. Chairman. Economists 
do not do that. 

Chairman Stark. I thank you for your questionable contribution 
to the art of research. I appreciate it. 

Mrs. Johnson. 

Mr. Walker. Mr. Chairman, you have completely distorted my 
evidence, with all respect. What this data shows is not Indian ver- 
sus non-Indian. It shows infant mortality in the city of Vancouver 
and Victoria, two of Canada's most well-developed urban areas, 
with the highest quality access to Canadian health care. 

The point is that you, as a concerned observer ought to wonder 
why it is that we have this same great disparity in infant mortality 
rates between low- and high-income Canadians, in spite of the fact 
that we have a single-payer system, with all of its supposed bene- 
fits. 

The Indian population is another issue which is also included in 
this data, but does not in any way detract from the data for Van- 
couver and Victoria, which are urban, you know, quite comparable 
situations. It would be appropriate, for example, to compare this 
with say Seattle not just the Indian population. 

Chairman Stark. Mrs. Johnson. 

Mrs. Johnson. Thank you, Mr. Chairman. 



309 

Dr. Walker, your chart entitled "Infant Mortality Rate in Van- 
couver and Victoria," does describe exactly what you have just told 
us very vividly, that in fact the infant mortality rate amongst your 
poorest population is double that amongst your more affluent popu- 
lations, and in fact your national health care plan has not been 
able to address what we consider to be one of the serious problems 
we face. And it is even a more serious problem for us, because our 
out-of-wedlock birth rate is so much higher than yours. 

I would also like to mention your infant mortality chart compar- 
ing infant mortality among non-Indian and Indian populations in 
Canada and the United States, and I just want to ask if I am read- 
ing it correctly. The impression it gives is that the infant mortality 
among Indian and non-Indian populations in the United States is 
roughly the same, relatively close, and 

Mr. Walker. With the Indian infant mortality rate being below 
the average for the overall population. 

Mrs. Johnson. That is a good point. The infant mortality rate is 
actually lower among the Indian population in America than it is 
among the non-Indian population. Whereas, in Canada it is more 
than twice as much among the Indian population and the non- 
Indian. 

Mr. Walker. That is right. 

Mrs. Johnson. So I think it does really raise a number of issues. 
I would ask you to go back to your probability of waiting by income 
group chart, because while the issue of waiting is not quite the 
same in America as it is in Canada, our ability to document it is. 
And it is certainly true that a poor person who goes to an emer- 
gency room gets exactly what they want immediately. 

So we do not have good research on the extent to which our poor 
people are not getting care because they are not going, but we do 
have some very good demonstration projects, one in my own home 
town about the necessity of actually having people go out and bring 
people in for prenatal checks, because even though there is no 
transportation barrier, no day care barrier, and so on and so forth, 
still the prenatal checks are not something that some women are 
concerned about. 

So I think there are a lot of different issues here, but I want to 
understand your chart better. If you would please go over it, I 
would appreciate it. 

Mr. Walker. By the way, the data upon which this is based is 
collected by our central statistical agency in Canada called Statis- 
tics Canada, and this is drawn from a sample of 12,000 Canadians 
interviewed by Statistics Canada, and the question is asked of 
them, have you waited for any health care treatment any time dur- 
ing the year, and they also collect statistics from them on the fam- 
ily income. 

So what we have been able to do then is to take this individual 
survey data, it is not some sort of average, we have been able to 
take this sample of 12,000 people and simply rate them according 
to their income. 

Now, the interesting thing that the chart shows is that there is 
very little to distinguish the waiting times experienced by people 
between no income and $60,000 a year. There is some variation, 



310 

there is some up, some down, but basically the probability is about 
8 percent that they would be denied or have to wait for health care. 

When we look, however, at the two upper-income groups from 
$60,000 to $80,000 and $80,000 and above— and these categories, 
by the way, are chosen by Statistics Canada, not by us — what we 
find is that there is a dramatic difference in the amount of time 
that these people wait. They wait, roughly speaking, half as long 
as the other income groups wait. 

This ties in with research that we have been doing in connection 
with our waiting list survey and with the research that has been 
done at other institutions, and that is that there is in fact not 
equal treatment of people in the Canadian health care system. 

The first reason there is not equal treatment is if you have the 
income like, for example, the Premier of the Province of Quebec, 
who recently found himself with a malignant melanoma, and you 
cannot get interleukin-2 in Canada, the protocol for this particular 
disease is not defined so that you can get interleukin-2 in Canada, 
he was able to go to Bethesda, Md., and get his treatment, because 
he can afford to do that. So that those who have income in Canada 
who face these waiting list problems can opt out. 

We find from a study that was done at the University of British 
Columbia on the phenomenon of waiting times that there also is 
queue jumping, and that the queue jumping tends to be related to 
status; if you are a minister of government or if you are well con- 
nected to the medical fraternity in some way you will be able in 
fact to jump the queue. 

What they found was that 80 percent of the queue jumping that 
they could identify was for nonmedical reasons. That is to say only 
20 percent of people are moved up in the queue, so that they do 
not have to wait for medical reasons, 80 percent are moved up in 
the queue for some other reason. And we think that those other 
reasons are correlated with income, you now, the probability that 
you are going to be well-connected and have high income are fairly 
closely related. 

What we are observing in this chart is the fact that high-income 
Canadians are in fact able to avoid, in one way or another, the 
problems that are experienced by the average in the population. 

Mrs. Johnson. Thank you. That is a very interesting expla- 
nation. I appreciate your testimony. 

Chairman Stark. Mr. Thomas. 

Mr. Thomas. Thank you. I apologize once again. I had to go off 
to a leadership meeting dealing with health and the Republican 
Party. 

Ms. Nichols, while I was gone, you made some comment, and I 
would prefer to hear it from you, about the Chafee bill vis-a-vis 
what happens to people who do not have insurance, since I am the 
principal sponsor of the bill on this side of the Capitol. Apparently 
you said something about people would be arrested? 

Ms. NiCHOi^. Mr. Thomas, I was being somewhat glib, but what 
I was referring to 

Mr. Thomas. I could not tell, the way in which it was delivered. 
I was just talking about the content. 

Ms. NlCHOi^. What I was referring to was that, as I understand 
it, the principal claim that your bill has to being universal coverage 



311 

is an individual mandate, which means that everybody must buy 
coverage for themselves in order for us all to have coverage. 

It has always been a question on my part, I consider tnat not to 
be universal coverage and not to be in the interest of the consum- 
ers, and I wonder how is that enforced. If you do not buy universal 
coverage, do you then go to jail where you can get free health cov- 
erage? I was making a joke, but there is an underlying very strong 
concern that I have about your proposal. 

Mr. Thomas. Well, the answer is in the bill, and if you read the 
bill, you will find out. We do not set up a punitive system, we set 
up an incentive system. What we do is we provide vouchers for the 
tax system beginning at 90 percent of poverty through the year 
2005, to 240 percent of poverty phasing out. 

We make all the changes that most other people believe are es- 
sential in bringing about a rational system, not the least of which 
is the malpractice reform, which we clearly see as the difference be- 
tween Canada and the United States, on bringing frivolous suits 
with enormous amounts of money being passed around the system 
that have no relationship to economic damages or even non- 
economic damages, but have more to do with the litigiousness of 
society and the trial lawyers. 

We make all of the antitrust changes, we make the administra- 
tive reforms, we make the insurance reforms so that small group 
folk can come together, and we have voluntary purchase coopera- 
tives. After having done all of that through the year 2005, we re- 
quire a premium to be paid if someone chooses not to buy insur- 
ance, not because of poverty, because we have a buy-down proce- 
dure for that, but because they simply choose not to do it, and not 
because it is not innovative, because we have the medisave plan, 
as well, if you just want to go catastrophic and take care of your 
preventive care. 

We say when that when you go in for the services without any 
form of insurance, you are required to pay 120 percent of the actual 
costs, because society is going to get out of you the protective as- 
pect of insurance either by paying when you get that service di- 
rectly, or by getting insurance. And the first couple of times you 
go in and pay 120 percent of actual cost, you probably are going 
to shop around for low-cost insurance. 

It is as universal coverage as the President's plan or as Con- 
gressman McDermott's plan, in terms of truly reaching universal 
coverage. So no, we do not throw anybody in jail if you do not have 
insurance. We simply require you to pay the societal cost of not 
having the insurance, and it is subject to adjustment from 120 per- 
cent to some other appropriate percentage, so that you will under- 
stand that it makes sense to buy insurance. But before we require 
someone to buy insurance, we make all the changes in the system 
that not only makes it attractive and reasonable, but easy to do 
that, as well. And that is in the bill. 

In terms of this jumping the queue, any study on doctors vis-a- 
vis doctors? You indicated that only about 20 percent of the reason 
for jumping the queue was medically related, and the other 80 per- 
cent are nonmedically related. The fact that you are a doctor that 
needs some medical service, is that a medial or a nonmedical rea- 
son to jump the queue? 



312 

Mr. Walker. Well, I think the implication is that that is a 
nonmedical reason, of course, but you being a physician in the sys- 
tem, you have better contacts than somebody else would have, for 
example. It is also true that people who live in urban areas that 
are near major centers are more likely to get treated than those 
people who are in rural areas where they nave less good access, 
and so on. 

While I have the microphone, may I have the opportunity to just 
make a mention about the people who are waiting. There is an im- 
plication, and the chairman raised it, that people who are waiting 
are not really needful of care. You know, it is sort of an optional 
kind of thing. 

A recent study — which is also included in your charts here — a 
study completed by the Institute for Clinical Evaluative Studies, 
which is funded by the Ontario Government, found that of those 
people who are waiting for hip surgery, it is not untypical for them 
to wait from 7 to 13 months in severe pain for this procedure. It 
is not unusual for people to have had severe disability in terms of 
mobility and be waiting for 7 to 13 months. 

So I think we do need — perhaps Dr. MacKillop's comments about 
waiting for intervention for cancer therapy has made the point bet- 
ter than I can, and that is that we have to dispel the notion that 
somehow this waiting does not involve any real costs to the people 
involved, that this is just somehow ethereal stuff that really does 
not matter. 

These people for the most part are in pain, they are at the very 
least in psychological pain, often in physical pain, and this is a real 
cost to the people involved and it is something that really needs to 
be focused on, if you are considering adopting this kind of system. 

Mr. Thomas. Beyond that, doctor, I think tnere are a number of 
elective procedures which, if put off, can in fact result in someone 
doing more damage to themselves than would otherwise be the 
case. Off the top of my head, I could think of cataract surgery, 
which not only would provide a better quality of life for that year 
or more that you are waiting, but that in fact if you are somewhat 
elderly and still feel that you can get around — if you have a broken 
hip you are down, it is painful, but you are down — ^but if you have 
cataracts and you move around, you could wind up with that bro- 
ken hip, by virtue of not having the timeliness benefit. 

So there are a number of down-side exposures that occur any 
time when you are waiting, and waiting is rationing and it is al- 
ways in the eye of the beholder, primarily. But when you begin to 
have statistical numbers show up, as you have, in terms of eco- 
nomic relationship, you have some concern. 

Let me ask one last question. It has a bit to do with your system, 
again, which I am not as apprised of as I would like to be, and I 
am trying to. For example, in the President's offering — which is ob- 
viously not now reality, but it has to do in part with this business 
of choice or limiting freedom of choice — under the President's plan, 
you cannot go out and pick up insurance outside of the alliance 
structure, that basically your choice will be within that framework. 
As Senator Gramm said, based upon a Wall Street Journal article, 
that this really does limit the freedom of choice that Americans 
would have under the President's system. 



313 

Is there anything comparable to that in Canada, in terms of a 
closed buying system or choices denied by virtue of the structure 
that is there? 

Mr. Walker. Well, it is a very important aspect of the Canadian 
system that the purchase of insurance for those things which are 
covered under the comprehensive program is outlawed in Canada. 
In other words, a Canadian may not buy insurance for those proce- 
dures, and this I think turns out to be a crucial features of the Ca- 
nadian system. I must say until Mr. Gramm raised it in the Wall 
Street Journal, I had missed it in the U.S. plan, but it is a crucial 
point. Because what it means is, it means that the only health care 
that is going to be available to anybody is the health care that is 
made available to everybody. 

Obviously if you cannot provide insurance for procedures, then 
any provider of those procedures who is trying to provide more 
than is available under the comprehensive program is not going to 
be economically successful. What we have found in Canada is that 
there are in fact no options to the government provided plan. In 
other words, while ostensibly you have choice, the fact that you are 
unable to insure yourself, to implement that choice means that 
there is in fact no choice. 

By the way, there is a distinction to be made here between the 
Canadian and the U.K. system or the English system in this re- 
gard. That is that in the U.K. system they are permitted to pur- 
chase insurance under the British United Provident Association 
and a number of other plans. They are able to purchase insurance 
for services that are covered by the national health service, and 
about 11 percent of the population of the United Kingdom in fact 
get surgeries and things done in British United Provident Associa- 
tion hospitals, and that option is not, as I say, available to us in 
Canada. 

The onlv option we have — and this option has just recently be- 
come available — is to purchase insurance for treatment in the Unit- 
ed States. There is a new insurance plan, operated by the Canada- 
American Health Insurance Corporation out of Winnipeg, which 
provides Canadians with the opportunity to buy insurance for cov- 
erage in the United States. Evidently, under the plan which is 
being proposed down here, that opportunity would be denied Amer- 
icans. 

Mr. Thomas. Under the President's plan. 

Another reason, Ms. Nichols, that we made the changes in our 
bill in terms of voluntary purchasing cooperatives. As opposed to 
my friend Dr. McDermott, I do believe that, under the proper struc- 
ture, the insurance industry can be verv creative in packaging var- 
ious alternatives, and it seems to me that we do not know enough 
about what should or should not be done in closed systems to not 
allow for some kind of a private sector marketplace check on what 
could be offered. 

If in fact purchasing cooperatives and closed purchasing coopera- 
tives are the way of the future, I think they ought to earn it in a 
real world setting, rather than having them anointed by govern- 
ment imposing them on the structure, and I frankly believe a little 
competition, fair, equal competition with insurance changes that 
are absolutely necessary would prove the merit of the purchasing 



314 

cooperatives far more than a government imposed one, as the 
President does under his alhances, or even as Cooper-Grandy does 
under their current structure. I believe you ought to earn the 
changes, rather than having them awarded to you. 

I vield back my time, Mr. Chairman. 

Chairman Stark. Mr. McCrery. 

Mr. McCrery. Thank you, Mr. Chairman. 

I want to ask Dr. Walker and Dr. MacKillop a couple of ques- 
tions. Before I do, I just want to make a couple of comments mDOut 
some of the things I have heard. 

I think it is important for this subcommittee and our full com- 
mittee and the Congress to consider the question of why people in 
this country do not get medical care in some instances, and I think 
it is too easily answered by some in this House that the problem 
is only that they cannot afford it or they do not have access. 

To give you an example, in my home State of Louisiana, which 
bv most measures is not as rich as the chairman's home State of 
California, the burghers must find a way, contrary I suppose to the 
chairman's State, to provide service for people who cannot afford it. 

In my State, if a woman wants to get her child immunized, she 
need only go to any public health center, a charity hospital, and the 
charge is $5. If she says she cannot afford the $5, the $5 fee is 
waived, and yet the immunization rate for children in my home 
parish or county was, before a recent effort, less than 50 percent. 
So there is obviously some reason other than access and afford- 
ability that those folks are not getting the proper care, and we 
ought not ignore that. 

Thanks to a recent effort to advertise that and to get people to 
take their children, we are now up over 50 percent. Hallelujah. 
More efforts like that need to be done. 

Also, we have heard a lot of testimony, be it anecdotal, about 
why people from Canada go to the United States to get medical 
care. In most instances, it is because they are on a waiting list or 
they just cannot get that particular procedure or that particular 
drug or medicine in Canada, and so they come to the United 
States. That implies, at least to me, that the quality of health care 
in the United States generally is higher than that in Canada, at 
least with respect to some procedures and medications and treat- 
ment. 

Now, we have had some testimony here today that we have this 
stream of Americans flowing into Canada to get health care. We 
have not heard any reasons why they are going, but I suspect that 
many of them, not most, if not all, are going because it is free, be- 
cause they can get the health care free, they do not have to pay 
for it. I would submit that is a totally different situation and we 
ought not necessarily emulate Canada's system to stop that prob- 
lem. 

Dr. Walker, one of the issues that has been raised in the debate 
is the effect that changes in the health care system as proposed by 
the President or by Mr. McDermott, the single-payer system, will 
have on research and development in the field of health care. Do 
you have any insights, based on your experience in Canada? 

Mr. Walkkr. Mr. McCrery, this is a very difficult area, because 
we find that the data, for example, measuring amount of research 



315 

effort and so on is not very satisfacto^. We do know that certainly 
there is not as much research activity done in Canada as there is 
in the United States, even on a proportionate basis, but there may 
be many reasons for that. 

One of the things, however, that does come out in comparing the 
Canadian and United States systems which I think bears on this 
issue is the technology which is available in the two systems. I 
draw your attention to the chart. I have provided a technology com- 
parison in the charts that I have given you, and it shows the avail- 
ability of different kinds of technology in Canada per million people 
and in the United States per million people. 

What you are really struck by is the fact that there is an enor- 
mous gap between the amount of technology that is available to the 
average Canadian and the amount that is available to the average 
American. Now, by inference, as an economist, I said to myself, 
well, if this is the way the market for technology is in the two 
countries, and since ultimately it is the market for technology that 
drives research and it is the market for new medical technologies 
which drives the soft research, if there is not the market for the 
technology, why do the research. It does not seem to me to make 
much sense and does not seem to stand up to reason that people 
will continue to invest large amounts of money in the development 
of new technologies which they know will not be adopted. 

I think what you have to address in your own deliberations on 
this question is to ask yourself the question, if you adopt a Cana- 
dian style system, whether it is the kind that Mr. Clinton wants 
or it is the kind that Mr. McDermott wants, what is going to hap- 
pen to the demand for high-tech modalities and high-tech equip- 
ment and what will be the implication of that on the research that 
you are doing in your country. 

I think, frankly, that if the United States does adopt our system, 
that you will in fact find yourselves getting very much the same 
kind of technology that we have now eventually, and that this is 
going to have a devastating impact on the amount of research that 
is done. Because we in Canada typically do not adopt technology 
until it has been proven out in the United States. We look to the 
United States and say, well, is it cost effective, is it clinically effec- 
tive. And having seen that evidence from your activities, we then 
adopt it, and that is why we have this lag in adoption of these new 
and advanced technologies. 

Mr. McCrery. Thank you, doctor. 

Just one question for Dr. MacKillop. We have heard references 
to the budget limitations in Canada in the health care system. Can 
you just tell us how those budget limitations that have been re- 
ferred to affect the way that you practice medicine? 

Dr. MacKillop. I can only tell you about the way I practice med- 
icine and people in my discipline of cancer medicine practice medi- 
cine. I cannot make general statements. 

As I mentioned, I do not think that the status of my discipline 
of radiation oncology in Canada relates to the current fiscal crisis 
in Canada, but we have a limitation on resources imposed by a 
more limited investment than was appropriate in radiation oncol- 
ogy in the 1970s and in the 1980s. As a result of that, we do not 
have as many facilities with as much equipment or as many 



316 

trained staff as we believe are necessary, and that I believe has 
had an influence on the way that radiotherapy is practiced in Can- 
ada. 

I have audited the management of the commonest form of the 
commonest disease, nonsmall cell lung cancer, and I have audited 
the management of all patients in the Ontario Cancer Foundation 
over a period of 10 years, between 1982 and 1991. We found that 
across the whole system — although there was variation amon^ the 
different cancer centers — across the whole system we were giving 
about 30 percent less radiotherapy to that group of patients in 
1991 than we were in 1982 counted as the number of treatments 
per patient. There were big changes in some centers dropping to 
half of the former level of radiotherapy utilization and in some 
other centers the rate remained constant. 

I have to tell you, Mr. McCrery, that we looked at the effect that 
this might have had on the outcome of the disease, and we looked 
at that in terms of survival as a fundamental measurement, and 
also in terms of probability that that patient would require further 
treatment to the same part of the body at a later date, as an indi- 
rect measure of quality of life, re treatment being an indicator of 
progression of the disease or occurrence of the disease. 

And we found no difference whatsoever in the survival from this 
disease associated with the large decrease in resource utilization. 
We are talking about 15,000 patients, and the power to detect dif- 
ferences would have been very high. We found that the median sur- 
vival over the two 5-year periods that we studied remained con- 
stant to within a week, and there was an eerie similarity in the 
percentage surviving 1, 2, and 3 years. 

So I think that the resource constraints did alter practice, and 
I think that it looks as if my profession chose to cut down radio- 
therapy utilization in a circumstance in which we already had 
great doubts about the utility of intense radiotherapy utilization, 
and we have been able to achieve as a result quite massive savings 
at no expense in terms of quantity of life and no change in quality 
of life that we can detect in this type of audit. 

I should indicate that we do not have good measures of quality 
of life based on a retrospective analysis of an electronic database. 
But if you look at the way that we practice lung cancer medicine 
now and compare that with the United States, we use far fewer re- 
sources and we produce the same results I believe in terms of 
quantity of life, and there is nothing to say that we do not produce 
equally good quality of life on our side of the border. 

Mr. McCrery. I appreciate that. Dr. MacKillop, but what you 
are telling me is that the methodology was driven by a lack of re- 
sources that was driven by the budget, and after the fact you stud- 
ied the results and found that there was no significant difference 
in outcome. But would you say that you got lucky on that one? 

Dr. MacKillop. I think there was insight and intuition, but I 
would say you are exactly right, we were lucky on that one, but, 
my goodness, you are not so lucky, because in the United States 
you continue to practice the same over-expense over-treatment of 
patients in this disease that we used to 10 years ago. 

Mr. McCrery. That is something we could possibly learn from 
you, and I am hopeful that we will start to study outcomes more 



317 

and develop practice guidelines and things that we can use to use 
our resources more efficiently. But I am not sure that I would pre- 
fer your system, which imposes methodologies on our practitioners 
through budgetary considerations, and we have to hope that we get 
lucky in each and every circumstance in the health care field. 

Mr. Walker. May I just add a footnote to this commentary? The 
issue of whether it is budget caps or whether it is management 
seems to me is just the same problem looked at from a different 
perspective. Dr. MacKillop was looking at it from the point of view 
of his one area, and very important area, of expertise, and he sees 
it simply as the bureaucracy not responding quickly enough to get 
the resources to them to keep up with the demand for cancer treat- 
ment. 

But you see, viewed in a broader context, those bureaucrats and 
those people who are acting too slowly are operating within a po- 
litically determined allocation of overall budget, and one of the rea- 
sons why they are moving slowly is because their budget room is 
being taken away from them by some other competing political pur- 
pose. 

I think that the lesson that Americans need to learn from the 
Canadian system is that when you move away from the current 
system that you have — where there is some politics involved in the 
allocation of resources, but it is basically driven by economic and 
market considerations — that when you move to a single-payer sys- 
tem, all of the resource allocation decisions will effectively become 
determined at a global level by politics. 

What you need to ask yourselves is, is there anything about the 
way in which your political system currently makes decisions and 
allocates resources that leads you to believe that this is going to 
be a superior way of allocating resources, and, in particular, adapt- 
ing to changing medical needs. 

Because as Dr. MacKillop has pointed out, everything was fine 
in Ontario 10 or 15 years ago, it is the increased incidence of can- 
cer causing a need for a change in the allocation of politically deter- 
mined resources that has caused the problem. You know, you are 
all much more expert in political matters than I am and perhaps 
you could enlighten us on that issue. 

Mr. McCrery. I appreciate your responses, and thank you all for 
coming today. 

Thank you, Mr. Chairman. 

Chairman STARK. If there are no further questions, I want to 
thank the panel very much, and the meeting is adjourned. 

[Whereupon, at 1:45 p.m., the hearing was adjourned.] 

[Submissions for the record follow.] 



318 



STATEMENT OF JACK SHEINKMAN 
AMALGAMATED CLOTHING & TEXTILE WORKERS UNION 

The Amalgamated Clothing and Textile Workers Union is acutely aware 
of the health care crisis in America. When we organize a non-union plant, we 
usually find workers and their families with no insurance, inadequate insurance 
or unaffordable insurance. We have members in inner cities in die North and 
rural areas in die South who have trouble finding a doctor despite the fact that 
they have a health plan. Escalating health care costs threaten the 
competitiveness of our companies, strain the collective bargaining system and 
dominate government budgets at all levels. The current regressive system of 
health care financing puts our firms and their domestic plants at a serious 
disadvantage in the global economy, threatening our members' very livelihood. 
Effective health care reform must come to grips with all these dimensions of the 
health care crisis. 

Therefore, ACTWU is guided by three fundamental principles as we 
evaluate proposals for reform: 

1. The need to provide comprehensive, quality health care for everyone. 
Employed and unemployed. Young and old. Rich and poor. 

2. The need to eliminate waste in the health care system and effectively 
contain costs. The plan must reduce administrative waste and put a lid on rising 
medical costs. 

3. The need to share the financial burden of health care equitably. That 
means progressive public financing, where coiporations and wealthy individuals 
pay more than small employers and wage earners. 

The American Health Security Act, HR 1200, is the only bill that fuUv 
satisfies these needs. It moves away from the employer-based insurance system 
toward a national social insurance system. It takes all the administrative waste 
from thousands of separate insurance plans and puts that money into a 
comprehensive benefit package that includes long-term care. It provides 
meaningful cost containment through an intemationally proven method of 
bargaining with providers. It addresses isssues of quality control without 
micromanaging health care professionals and without compromising patients' 
freedom to choose their doctors and hospitals. It provides funding and 
incentives to get more doctors into inner cities and rural areas. It assures public 
accountability of the health care system. 

ACTWU is delighted to support this legislation for all these reasons. But 
we are particularly concemed about competitive issues and equitable financing 
in health care reform. HR 1200 fully addresses these issues as well. 

Equitablv Financed Universal Coverage Is Needed 

ACTWU members, like millions of working Americans who now have 
insurance, are suffering the consequences of a health care system in which some 
employers get away with providing little or no insurance for their employees 
and dependents. Tliis system puts socially responsible companies at an imfair 
and serious competitive disadvantage. And that means lost wages and lost jobs 
for insured workers. ACTWU firms with insurance are also paying more than 
companies in other countries with less expensive universal health care systems. 



319 



As low wage workers in the textile and apparel industry who are 
representative of low wage workers in general, ACTWU members are also 
concerned that universal health care be progressively financed, like their own 
union plan, using a percentage of payroll formula. The overall current health 
care financing structure is highly regressive for companies and workers. Health 
care reform needs to reverse that pattern so that universal coverage does not 
create new competitive problems for companies or severe hardship for workers. 

HR 1200 would create a universal health care system with equitable 
financing. This would eliminate the unfair competitive advantage held by those 
firms who deny health insurance to their workers. Such a system would also 
bolster U.S. comp)etitiveness with those countries that have affordable universal 
coverage. 

Current System Distorts Competitiveness 

Through our experience in collective bargaining and organizing, the 
Amalgamated Clothing and Textile Workers Union is confronted daily with the 
competitive distortions that result from some companies providing health 
insurance for their workers while others do not. Non-imion firms often provide 
partial or no coverage or require co-payments on coverage for dependents that is 
prohibitively expensive. For example, before they unionized, single mothers 
making curtains for K-Mart at the S. Lichtenberg Company in Georgia were 
taking home $150 a week. The company charged them $68 a month if they 
wanted to cover their children under an insurance policy with a $500 deductible. 
After paying for food and shelter, almost none of the 530 workers were able to 
buy family coverage. In their first union contract, the company and workers 
joined the national ACTWU health plan with an affordable "community" rate, 
no premium payments by workers and a $200 deductible. Hundreds of children 
became protected by health insurance for the first time. Now the company has 
to find other ways to compete with curtain firms that have the non-insuring 
edge. 

There are many ways that insuring firms are hurt by those who don't 
insure their workers. First, the non-insuring firms have lower operating costs 
and can underbid firms with insurance. Second, the insuring firms end up 
covering the spouses and dependents who work for non-insuring firms. This 
includes wives who work in retail stores and husbands or college students who 
work for small businesses. (About 65% of retail employees and 31% of firms 
with 10 or fewer woricers had no company insurance in 1992.') Third, cost 
shifting by health care providers means that insuring firms actually pay the bills 
of employees of non-insuring firms. (About 30% of private insurance hospital 
bill payments cover nonreimbursed expenses of other patients.^) Finally, to the 
extent that the government pays the bills of the uninsured, all taxpayers, 
including insuring companies, pick up the tab for non-insuring firms. 

HR 12(X) would remove the competitive edge currently enjoyed by those 
firms that foist their workers' health care bills onto other companies and 



' Employee Benefit Research Insiitutc, EBRI Issue Brief (EBRI tabulations of 1993 Current Population 
Survey), January 1994. 

' Economic Policy Institute, "The Impact of the Clinton Health Care Plan on Jobs, Investment, Wages, 
Productivity, and Exports", 1993. 



320 



taxpayers. Given the countervailing profit incentives, nothing short of a 
mandatory universal system can guarantee that all employers make a fair 
contribution to coverage and that all workers and their dependents are insured. 
This will take care of 85% of the currently uninsured who are the employees 
(and their dependents) of non-insuring firms. It also follows in the footsteps of 
mandatory Social Security contributions by virtually all employers. 

We negotiate health plans with hundreds of small businesses. So we feel 
obUgated to counter the hysteria that is being whipped up against mandatory 
employer contributions by some small business organizations. These are the 
same groups that said increasing the minimum wage would close businesses and 
kill jobs. But the actual minimum wage increases in 1990 caused no job loss .^ 
Now they're saying that mandatory premiums, no matter how small, will close 
businesses and kill jobs. They're wrong this time, too. Small business can 
afford insurance if it's equitably financed. 



Equitable Financing is Kev to Equitable Emplover Mandate 

While we feel very strongly that all firms should provide insurance for all 
their employees, we know that charging the same flat premium to every 
company could create new competitive problems. It could threaten the viability 
of some labor-intensive, low-profit-margin firms from apparel companies to 
retail stores. It would also continue to put U.S. firms at a competitive 
disadvantage internationally. 

ACTWU negotiates contracts in both U.S. and Canada. We can cite 
many of examples of a single payer system providing the same or better 
coverage for less. In 1992 Levi Strauss paid premiums equal to 19% of its 
Florence, Kentucky plant payroU but paid an amount equal to only 4% of its 
Stoney Creek, Ontario (Canada) payroll for similarly comprehensive health 
insurance. For textile company Courtalds PLC the difference was 22% 
(Alabama) vs. 6% (Ontario); for two Hathaway shirt plants of the Wamaco 
Company the difference was 12% (Maine) vs. 4% (Ontario). A similar cost gap 
exists between the largest U.S. men's suit manufacturer, Hartmarx, and its 
Canadian competitor. Peerless, which is exporting almost 300,000 suits to the 
U.S. annually. Canada's pre-eminence as the largest exporter of men's wool 
suits to the U.S. is helped in part by Canada's less expensive national health 
insurance. 

Charging the same high flat premium to all workers threatens the already 
tenuous living standards of low-wage workers. Currently, workers can't afford 
to buy insurance once they've paid for food and shelter. How will they feed 
and house tiieir families if the premiums become mandatory and their incomes 
remain the same? The high price and unfair distribution of health care costs in 
the current system is the engine that drives firms and individuals to drop 
coverage. HR 12(X)'s payroll premium would solve this problem. 



'Ibid. 



321 



Current Health Care Financing Is Regressive 

The current financing of health care is extremely regressive. A 
recent study found that low-income families pay over twice the share of income 
for all health care expenses as high-income families.'' As a share of income, 
low-income families spend four times as much as high income families for 
premiums, even though many poor families are uninsured and don't pay any 
premiums. Out-of-pocket spending is even more regressive, with low-income 
families spending nine times what high-income families spend even though poor 
people can't afford to spend much at all on uncovered bills and deductibles. 

The only portion of health care financing that is equitable is the portion 
covering programs that are paid for through personal and corporate income taxes 
at the Federal and state level. But other taxes, such as sales taxes, hit low- 
income families harder. 



The Fairest Financing Method Is Also the Simplest 

The majority of health care is funded through premiums and out-of-pocket 
spending~the two most regressive forms of financing. Fortunately, the most 
equitable method for financing health care, a payroll premium by firms and 
workers, is also the simplest to administer. 

Traditional insurance premiums are flat doUar amounts that by their nature 
are a greater burden for low-income people. This burden is made even heavier 
by having different rates based on family size~the more mouths you have to 
feed, the higher your insurance premium. Under the current system, contingent 
workers-part-timers, temporaries and independent contractors-pay higher 
individual premiums than employees in group plans even though they often have 
lower incomes. Finally, smaller firms pay higher rates than larger ones. 

HR 1200 provides the most equitable and simplest solution to financing 
health care: transforming per capita premiums into a progressive payroll 
premium structured like Social Security. The combination of a 8.4% payroll 
premium for companies (4% for smallAow wage firms) plus a 2.1% payroll 
premium for workers would cover the costs now covered by regressive flat 
premiums and out-of-pocket payments. 

These 8.4% and 4% payroll premiums are fair to a wide range of 
companies and workers. It represents significant savings for most companies 
that now insure their workers and a reasonable cost for those that do not. It is 
in line with amounts paid by our competitors in the developed nations. It 
automatically covers most contingent workers. 

The Clinton plan creates a hybrid premium in the form of a flat rate with 
a payroll payment maximum of 7.9% for companies and 3.9% for individuals. 
These caps, along with the subsidies for small businesses and the very poor, 
make premium financing less regressive than the current system. But it creates 
a system that is much more cumbersome than a progressive payroll premium. 
This hybrid premium would require several billion dollars each year in 



* Edith Rasell, Jared Bemsiein, and Kainan Tang, "The Impact of Health Care Financing on Family 
Budgets," Economic Policy Institute, 1993. 



322 



unnecessary administrative costs to determine employment status, family 
structure, employment status of dependents, and which firms and individuals are 
eligible for how much of a subsidy. While simplicity is supposed to be one 
principle of the Clinton plan, its financing is much more complex than it needs 
to be. 

Cost Sharing Is Not Justified 

The other highly regressive component of health care financing is out-of- 
pocket expenses, including deductibles, co-payments for premiums, uninsured 
portion of bills, and uncovered services (often drugs and mental health care). 
People with low incomes can't afford to buy the health care they need. Yet 
they pay almost a nine-times larger portion of their income out-of-pocket than 
high-income famiUes for the health care they get. Furthermore, a single 
catastrophic illness can propel even middle-income families into bankruptcy due 
to uncovered bills. 

Increasing out-of-pocket burdens have been advanced as a cost 
containment measure and a means to reduce imnecessary use of medical 
services. But, it is not clear that America overuses health care compared to our 
international competitors. Americans go to the doctor less and stay in hospitals 
a shorter period of time than consumers in every other major industrialized 
country. These nations get more services for less money despite universal 
coverage and little oi ..o cost-sharing. 

What is clear is that co-payments and deductibles discourage 24% of 
people with insurance from seeking the care they feel they need.' What is also 
clear is that low-income people in America have worse health when they are 
subjected to cost-sharing. Americans who can't afford to go to a doctor put it 
off till they land in a hospital emergency room where more expensive heroic 
measures have a much lower chance of actually providing a cure. 

Many union and non-union workers do not currently pay a portion of 
premium costs. Our imion has seen too many families in unorganized plants 
"choose" not to have coverage simply because they couldn't afford it. As a 
result, we have insisted that our largest national tailored clothing and cotton 
shirt and jeans contracts have fuUy-employer-paid insurance. 

HR 1200 uses payroll premiums to fully fund health care without any 
deductibles or co-payments for insurance or for medical services. This is 
similar to systems among our international competitors. Cost contairunent and 
the problem of inappropriate care are addressed without creating financial 
barriers to necessary services. We feel this bill incorporates the best way to 
finance health care and the most effective cost containment mechanism. 

HR 1200 provides a free choice of provider and does not force woricers 
into managed care and HMOs. Under the Clinton plan, we are concerned about 
how large a gap there will be between HMO, PPO and fee-for-service 
premiums. We fear the creation of a Medicaid-type second tier system of 
HMOs with low quality care and no middle-class constituency. 



' Mark D. Smith, Drew E. Alunan, Robert Leiiman, Thomas W. Moloney, and Humphrey Taylor, "Taking 
the Public's Pulse on Health System Reform", Health Affairs. Summer 1992, p. 130. 



323 



Any New Taxes Should Be Fair 

Payroll premiums fall only on wages and salaries and do not impact non- 
labor income such as dividends, interest and rents. Equitable financing of health 
care therefore should include some payments based on total income or non-labor 
income. Excise taxes, such as the proposed cigarette tax, are the most 
regressive taxes of all. A cigarette tax would take a 72 times greater share of 
family income from the lowest 20% of families compared to the top 1 % of 
famihes. While a cigarette tax has some justification as a health measure, it 
must be counter-balanced with less regressive financing provisions. 

Conclusion 

We heartily endorse HR 1200 not only because it would provide equitable 
financing for health care, but also because it would eliminate waste, control 
costs and use resources wisely to provide comprehensive, quality health care for 
everyone. 



324 



TESTrMONY OF THE AMERICAN HEALTH CARE ASSOCIATION 

The American Health Care Association (AHCA) , which represents 
over 11,000 nursing facilities, residential care centers, and 
assisted care facilities, applauds you for holding a series of 
hearings which explore the full range of health care reform 
proposals. We also commend Congressman McDermott for his 
leadership in the health care reform debate and his willingness 
to put forward a solution to the problems which plague our 
current system. However, the AHCA does not believe that the 
American Health Security Act (H.R. 1200) is the proper reform to 
our system and must oppose the legislation based on philosophical 
grounds . 

Background 

The American Health Security Act provides universal health 
insurance coverage for Americans effective January 1, 1995. 
Coverage is provided under a mechanism of global budgets. The 
states administer the program in conformity :with federal 
standards for: budget; minimum benefit packages; guarantee free 
choice of provider; and quality assurance. 

The minimum benefits package covers all inpatient and outpatient 
medical services without limits on duration or intensity except 
as delineated by outcomes research and practice guidelines based 
on quality standards. 

States deliver health care services within a federally set global 
budget. The system is financed 85 percent by the Federal 
government and 15 percent by the states. Federal monies are 
apportioned among the states according to population, demography, 
and anticipated health status differences. For example, states 
with large elderly populations can be expected to require larger 
volume of high intensity services and will receive a higher 
proportion of revenues. States determine how that money is 
allocated among types of providers and will negotiate with 
providers on rates of reimbursement. 

The bill covers services provided in a nursing facility, 
including "post-hospital" and long-term care services. The bill 
does not contain any limitations or caps on nursing facility 
services except that they must be determined to be provided in 
the "least restrictive and most appropriate setting." 

Home care and community-based services are covered for 
individuals unable to perform at least two ADLs . Long-term care 
is financed through a $65 monthly premium on individuals 65 years 
of age or older and above 120 percent of the poverty level. 

The national insurance program would be financed by multiple 
increases in federal tax programs. They include a 7.9 percent 
payroll tax on employers; increasing the existing 1.45 percent 
Medicare payroll tax by 6.45 percent; an increase in corporate 
income tax from 34 percent to 38 percent for businesses with more 
than $75,000 in profits; increases in the personal income tax 
rates from 15%-28%-31% to 15%-30%-34%, with a top rate of 38% for 
families with income over $200,000 and a health premium equal to 
.5% of income; reforms to close loopholes in the tax code; in 
addition to the long-term care premium, a $25 monthly increase 
for Medicare Part B and an increase in the amount of Social 
Security benefits excluded as taxable income from 50 percent to 
85 percent. 



325 



AHCA Position 



AHCA has serious concerns about the quality of long term care in 
a health care delivery system created by H.R. 1200. The 
legislation states that nursing facilities and other providers 
would "negotiate" with the single payer, in this case the state 
as the insurer, who in reality would have sole discretion of 
setting reimbursement rates as it chooses. 

Experience with state Medicaid administration leads us to believe 
that reimbursement rates will fall short of the level necessary 
to provide quality care to our residents. In 1991, Medicaid was 
the primary payer for 70% of nursing facility residents, yet only 
provided 48% of those facilities' reimbursement. Massive cost 
shifting to the private sector is the reason residents can 
receive quality care. 

Philosophically, the bill is contrary to AHCA' s Quality Care for 
Life proposal. Quality Care for Life is based on the premise 
that families are fundamentally responsible for planning and 
providing their own future long-term care needs and that 
government should limit its role to providing assistance to 
individuals who have low income. The bill does neither. It 
would negate any private long-term care insurance market by 
establishing a single government run insurer. Furthermore, the 
government's role would extend to providing coverage for all 
Americans . 

There are some positive aspects to H.R. 1200. The AHCA is 
pleased that coverage for long-term care services is more 
generous than any health care reform proposal currently before 
Congress. All Americans in need of services would be eligible 
for home, community or institutional long-term care. We are also 
pleased that there appears to be no cap or arbitrary 
qualification for institutional care. 

We commend the authors of this legislation for their recognition 
that long-term care services must be included in any 
comprehensive health care reform effort. However we must 
maintain our position that health care reform must be a 
private/public endeavor allowing for limited government 
participation. 

Mr. Chairman, thank you for the opportunity to provide this 
statement . 



326 



TESTIMONY OF GENE BRACEWELL 
SHRINERS HOSPITALS FOR CRIPPLED CHILDREN 

Shriners Hospitals for Crippled Children has seventeen orthopaedic hospitals and three bums 
institutes in the United States. If offers medical and surgical care to children, wholly free of charge. In 
addition to patient care, each Shriners Hospital is affiliated with major medical centers and teaching 
institutions to train physicians and nurses and other alUed health care professionals. Over two hundred 
resident physicians receive training in pediatric-orthopaedics and bum care annually at Shriners Hospitals. 

All care at Shriners Hospitals for Crippled Children is financed from its endowment and by 
voluntary contributions from the general pubUc and the nearly 700,000 Shriners. Over $2.25 billion has 
been expended to date in the provision of health care to children. In 1993, 96% of Shriners Hospitals' 
operating budget was expended on patient care and research. Shriners Hospitals neither seeks nor accepts 
federal or state financial assistance for any of its U.S. hospitals. 

The mission of Shriners Hospitals has always been to provide optimum and compassionate care for 
special categories of childhood illnesses free of charge. Recognition of the need for specialized hospitals 
for the treatment of children with polio and other crippling diseases prompted the founding of Shriners 
Hospitals in 1922. In the early 1960's there was only one bums institute in the United States, and it was 
military; so Shriners established three bums institutes for children. Presently under construction is a 
fourth, which will share a new facihty with one of Shriners' orthopaedic hospitals. 

We believe Shriners Hospitals makes the largest single contribution to the care of disabled children 
in the United States on a continuing basis. The annual operating budget of Shriners Hospitals 
($304 million for 1994) has exceeded the entire federal contribution to the Children with Special Health 
Care Needs (CHSCN) Title V state programs in each of the last five years. 

Unlike other non-profit hospitals which, according to the United States General Accounting Office, 
provide anywhere from 2.7% to 7.9% uncompensated care, Shriners Hospitals provide 100% 
uncompensated care. Shriners Hospitals have always encouraged the treatment of those children whose 
parents or guardians are not finpjicially abie to meet the costs of treatment without substantial hardship. 

To avoid any unintended adverse effects to our charitable institution and its free programs to 
children, Shriners Hospitals for Crippled Children suggests that the following provisions be included in any 
health care reform legislation adopted by the United States Congress: 

1 . A definition of "charitable provider" in terms such as "a provider which fumishes 
medical and/or surgical care wholly free of charge to its patients, and which neither seeks nor 
accepts direct or indirect governmental aid". 

2. A provision [in addition to §50 1(c)(3) of the Intemal Revenue Code] which 
specifically excludes "charitable providers" from the imposition of any provider taxes or other 
taxes levied to support health care reform. 

3. Provisions which specifically exclude "charitable providers" from any proposed 
regulatory, financial or audit provisions (other than those which are directly related to patient 
safety) which are enacted as a part of health care reform, as well as from any provisions which 
would condition charitable tax exemptions on the participation of "community representatives" in 
institutional strategic planning. 

4. Provisions to the effect that the collaboration with public hospitals, agencies or 
other providers in the deUvery of patient care; affiliation with public institutions to provide health 
care education; or the pursuit of research in cooperation with public institutions or agencies 
shall not be considered as the receipt of direct or indirect govemmental aid or support. 

5. Provisions which preserve fiee hospital systems, Uke Shriners Hospitals, so they 
may continue to contribute to children's health care in the future. 

Shriners Hospitals for Crippled Children appreciates the opportunity to submit written comments 
before the Sub-committee on its current and future role in the delivery of charitable health care services to 
the nation's children. 



ALTERNATIVE HEALTH REFORM PROPOSALS, 
INCLUDING H.R. 3080, H.R. 3704, H.R. 3652, 
H.R. 3222, AND H.R. 3698 



THURSDAY, FEBRUARY 10, 1994 

House of Representatives, 
Committee on Ways and Means, 

Subcommittee on Health, 

Washington, B.C. 
The subcommittee met, pursuant to notice, at 10:15 a.m., in room 
1100 Longworth House Office Building, Hon. Fortney Pete Stark 
(chairman of the subcommittee) presiding. 

[The press release announcing the hearing follows:] 



(327) 



328 



FOR IMMEDIATE RELEASE PRESS RELEASE #27 

TUESDAY, FEBRUARY 1, 1994 SUBCOMMITTEE ON HEALTH 

COMMITTEE ON WAYS AND MEANS 
U.S. HOUSE OF REPRESENTATIVES 
1102 LONGWORTH HOUSE OFFICE BLOG. 
WASHINGTON, D.C. 20S15 
TELEPHONE: (202) 225-7785 

THE HONORABLE PETE STARK (D., CALIF.), CHAIRMAN, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, 

ANNOUNCES THE FINAL HEARING OF THE SERIES OF HEARINGS 

ON 

HEALTH CARE REFORM: 

ALTERNATIVE HEALTH REFORM PROPOSALS, INCLUDING H.R. 3080, H.R. 3704, 

H.R. 3652, H.R. 3222 AND H.R. 3698 

The Honorable Pete Star)c (D. , Calif.), Chairman, Subcommittee on 
Health, Committee on Ways and Means, U.S. House of Representatives, 
announced today that the Subcommittee will hold its final hearing in a 
series of hearings on health care reform on Thursday, February 10, 
1994, beginning at 10:00 a.m., in the main Committee hearing room, 
1100 liongvorth House Office Building. This hearing will focus on the 
following health care reform proposals: 

(1) H.R. 3080, the Affordable Health Care Act Now of 1993 

(2) H.R. 3704, the Health Equity and Access Reform Today Act of 
1993 

(3) H.R. 3652, the Health Plan Purchasing Cooperative Act of 1993 

(4) H.R. 3222, the Managed Competition Act of 1993 

(5) H.R. 3698, the Consumer Choice Health Security Act of 1993 

These bills are summarized below in the background section of the press 
release. 

In announcing the hearing Chairman Stark said, "In addition to 
H.R. 3600, the Administration's Health Security Act, a number of health 
reform legislative proposals have been introduced throughout the 
103rd Congress. On February 9, the Subcommittee on Health will hold a 
hearing on single-payer options, including H.R. 1200 and H.R. 2610. 
The hearing on February 10 will take a careful look at several other 
health reform proposals. The Subcommittee wi'll examine the extent to 
which these proposals are designed to achieve the goals articulated by 
the President - namely, universal coverage and verifiable cost 
containment". 

Oral testimony will be heard from invited witneases only . 
However, any individual or organization may submit a written statement 
for consideration by the Subcommittee and for inclusion in the printed 
record of the hearing. 

BACKGROUND ; 

H.R. 3080 (introduced by Messrs. Michel, Archer, Crane, Thomas, 
Shaw, Mrs. Johnson, Messrs. Bunning, Grandy, Herger, Hancock, Santorum, 
Camp, Sundguist, Houghton, et al) would improve access to health 
insurance through small-group market reforms and by requiring all 
employers to offer, but not pay for, at least a standard benefit plan 
to employees. It would require insurance companies to make available 
to small employers standard, catastrophic and medisave plans and would 
encourage small employers to form purchasing groups. Individuals who 
purchase health insurance could deduct up to 100 percent of the cost. 
States would be given the option of allowing Medicaid beneficiaries to 
enroll in private insurance plans, and in such instances, the State 
could expand Medicaid coverage to higher-income individuals within 
current funding levels. H.R. 3080 would expand Community and Migrant 
Health Centers, and other rural health programs, and includes 
administrative and paperwork simplification, malpractice reforms, and 
antitrust reform. 



329 



H.R. 3704 (introduced by Mr. Thomas, Mrs. Johnson, et al) would 
require all citizens and lawful residents to obtain health insurance 
coverage by the year 2005, through an individual mandate enforced 
through the tax system. This bill includes insurance market reforms 
and voluntary, competing purchasing groups within health care coverage 
areas established by States. Employers would be required to offer, but 
not pay for, health insurance coverage, including a standard and/or 
catastrophic health plan. H.R. 3704 would provide vouchers to low- 
income individuals and families to purchase private health insurance, 
with the phase-in of the vouchers (up to 240 percent of poverty by 
2005) contingent upon realization of Medicare and Medicaid savings. 
Individual and employer tax deductions, and individual exclusions, 
would be limited to the average premium of the lowest one-half of 
standard packages in the area. H.R. 3704 would provide funding for 
medically underserved areas, and includes administrative, anti-trust, 
fraud, and malpractice reforms, and a medical savings account option. 

H.R. 3652 (introduced by Mrs. Johnson, Mr. Thomas, et al) would 
require States to establish voluntary purchasing cooperatives. 
H.R. 3652 includes health insurance reforms, including guaranteed issue 
and reissue, guaranteed renewal, and rating restrictions which allow 
for adjustments for age, gender, number of family members, and the 
area. Under this bill, insurers participating in voluntary 
cooperatives would be required to offer at least one plan combining a 
MediSave cash-value annuity or flexible-spending account with an 
integrated catastrophic benefit coverage plan, one managed-care plan, 
and one fee-for-service plan to a participating purchasing cooperative. 
Employers would offer, but not be required to pay for, their employees' 
plans. 

H.R. 3222 (introduced by Messrs. Cooper, Andrews, Grandy, 
Mrs. Johnson, Messrs. Payne, Houghton, Camp, et al) includes health 
insurance market reforms and exclusive, mandatory, health plan 
purchasing cooperatives (HPPCs) for individuals and small employers 
with 100 or fewer employees. Under this bill, employers would be 
required to offer, but not pay for, health insurance coverage of 
employees. In addition, individuals would not be required to purchase 
health insurance. H.R. 3222 would repeal the Medicaid program and 
provide Federal subsidies for coverage of low-income families up to 
100 percent of poverty enrolled in the least-cost plan through the 
HPPCs, with additional subsidies provided on a sliding-scale basis 
between 100 and 200 percent of poverty. States would assume full 
responsibility for long-term care. H.R. 3222 would limit employer 
deductions of health pr'emium costs to 100 percent of the lowest-cost 
plan offering a uniform benefit package in an area. The bill would 
provide assistance to safety-net providers in underserved areas, and 
includes malpractice, reform, administrative simplification, and 
antitrust reforms. 

H.R. 3698 (introduced by Messrs. Stes^rns, Hancock, et al) would 
require employers to withhold, but not C(^tribute to, premiums paid to 
an employee's chosen insurer. Qualified insurance plans would have to 
provide specific benefits and cost-shar;lng and could not exclude 
coverage for pre-existing conditions, or cancel or fail to renew 
coverage of enrollees. The bill would require most residents of a 
State to purchase Federally qualified health insurance, or be covered 
under a State program that provides equivalent coverage. Individuals 
failing to purchase, at a minimum, catastrophic insurance by 1997 would 
be subject to a tax penalty. Employers would be required to add the 
value of the coverage they offered as of December 1996 to employee 
wages beginning January 1997. The current tax exclusion for employer- 
sponsored health plans would be replaced by individual tax credits for 
premiums and unreimbursed health expenses and for contributions to 
medical savings account. Federal Medicaid payments to the States would 
be capped, and would be calculated on a capitated basis. However, 
States would be given flexibility to provide acute medical care 
coverage to Medicaid beneficiaries. H.R. 1742 would provide new grants 
to States to provide coverage for low-income uninsured, and includes 
malpractice reforms, paperwork simplification, and antitrust 
provisions. 



330 



DETAILS FOR S0BMI88I0K OF WRITTEN COMMEKTS ; 

Persons submitting written statements for the printed record of 
the Subcommittee's series of hearings on health care reform should 
submit at least six (6) copies of their statements by the close of 
business on Monday, February 28, 1994, to Janice Mays, Chief Counsel 
and Staff Director, Committee on Hays and Means, U.S. House of 
Representatives, 1102 Longwcrth House Office Building, Washington, D.C. 
20515. An additional supply of statements may be furnished for 
distribution to the press and public if supplied to the Subcommittee 
office, room 1114 Longworth House Office Building, before the final 
hearing begins on February 10. 

FORMATTING REODIREMENTS ; 

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the 
printed record, or any written comments in response to a request for written comments must conform to the guidelines listed 
below. Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the 
Committee files for review and use by the Committee. 

1. All statements and any accompanying exhibits for printing must be typed in single space on legal-size paper and may 
not exceed a total of 10 pages. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. Instead, exhibit material 
should t>e referenced and quoted or paraphrased Ail exhibit material not meeting these specifications will be 
maintained in the Committee files for review and use by the Committee. 

3. Statements must contain the name and capacity in which the witness will appear or, for written comments, the name 
and capacity of the person submitting the statement, as well as any clients or persons, or any organization for whom 
the witness appears or for whom the statement is submitted 

4. A supplemental sheet must accompany each statement listing the name, full address, a telephone number where the 
witness or the designated representative may be reached and a topical outline or summary of the comments and 
recommendations in the full statement This supplemental sheet will not be included in the printed record 



331 

Chairman Stark. Good morning. This morning marks the com- 
pletion of a series of hearings on health care reform, and we will 
focus this morning on alternative proposals to the President's plan. 

Yesterday, we focused on the single-payer option, and today, we 
will examine 5 additional bills introduced during the 103d Con- 
gress. They include: H.R. 3080, the Affordable Health Care Now 
Act of 1993, introduced by our distinguished minority leader. Bob 
Michel; H.R. 3704, the Health Equity and Access Reform Today Act 
of 1993, introduced by our distinguished ranking member, Mr. 
Thomas; H.R. 3652, the Health Plan Purchasing Cooperative Act of 
1993, introduced by our distinguished member of the subcommit- 
tee, Mrs. Johnson; H.R. 3222, the Managed Competition Act of 
1993, introduced by Mr. Cooper, a member of the Energy and Com- 
merce Committee, along with Mr. Andrews and Mr. Grandy, who 
are distinguished members of the subcommittee; and H.R. 3698, 
the Consumer Choice Health Security Act of 1993, introduced on 
the House side by Hon. Clifford Steams, and he was joined in that 
effort by Senator Don Nickles of Oklahoma. 

We will examine the extent to which these proposals achieve the 
principal goals articulated by the President: Universal coverage, 
verifiable cost containment, and an equitable way to pay for them. 

In the Chairs opinion, achieving universal coverage means that 
every resident must have a nationally guarantees, portable health 
insurance coverage, supported by adequate and fair financing. We 
will hear a variety of approaches to this problem, and the mem- 
bers, I am sure, will have their own comments on the various bills. 

We did hear a few days ago from the Congressional Budget Of- 
fice, and the bills have not had the luxury or the joy of being vetted 
out by that process. I am sure they will. The Chair, of course, 
would welcome any suggestions by tneir sponsors or advocates of 
how they think they will fair. The Chair is making book on that 
as a matter of fact and would be happy to let you place bets on how 
your particular or favorite bill will be ranked by Mr. Reischauer. 

There are examples of some of these bills. We have, for instance, 
in Tennessee the TennCare bill which was put together by the au- 
thor of the Cooper bill, and we have a chance to see how that is 
working in Tennessee, and I hope we will have testimony to that 
effect. 

We will have discussions of an individual mandate, and I hope 
that, as we hear about individual mandates which the Chair finds 
intriguing, we have a way to provide the individual with the re- 
sources to fulfill that mandate. 

I would just close by suggesting that those of you who, unlike the 
Chair, are lawyers and recognize Article 8, a simple way to provide 
universal coverage is to mandate that every individual have it. If 
they don't have it, put them in jail, and once in jail the Constitu- 
tion requires they get medical care. We thereby have solved the 
whole problem adding the cost to the States, and we will fund it 
through the Senate crime bill which I am sure they are hoping we 
pass in the House soon. 

[The prepared statement follows:! 



332 

OPENING STATEMENT 

THE HONORABLE PETE STARK 

SUBCOMMITTEE ON HEALTH 

February 10, 1994 

Good morning. Today, the Subcommittee on Health completes 
its series of hearings on health care reform, with a focus on 
alternative health reform proposals. 

Yesterday, the Subcommittee focused on the single-payer 
option, H.R. 1200, introduced by our colleague, Mr. McDermott. 
During the hearing today, we will examine five additional health 
reform bills introduced during the 103rd Congress. They include: 

(1) H.R. 3080, the Affordable Health Care Act Now of 1993, 
introduced by Mr. Michel; 

(2) H.R. 3704, the Health Equity and Access Reform Today 
Act of 1993, introduced by Mr. Thomas; 

(3) H.R. 3652, the Health Plan Purchasing Cooperative Act 
of 1993, introduced by Mrs. Johnson; 

(4) H.R. 3222, the Managed Competition Act of 1993, 
introduced by Mr. Cooper, Mr. Andrews and Mr. Grandy; 
and 

(5) H.R. 3698, the Consumer Choice Health Security Act of 
1993 introduced by Mr. Stearns. 

We will examine the extent to which these proposals are 
designed to achieve the principal goals articulated by the 
President - universal coverage and verifiable cost containment. 

To achieve universal coverage, every resident must have 
nationally guaranteed, portable health insurance coverage, 
supported by adequate and fair financing. None of the bills 
before us today comes close to the goal of universal, affordable 
health coverage. 

One of the proposals that has received more attention than 
it deserves is the Cooper/Grandy bill . It does not achieve 
universal coverage -- leaving behind at least 25 million 
uninsured Americans, according to the CBO. It does not control 
the growth in health care spending. In fact, it would increase 
the Federal deficit. 

The Cooper/Grandy bill is far from benign, and does more 
harm than good. It herds the American people into the cheapest 
managed care plan in town. It taxes Americans for choosing their 
own doctor. And, if that's not enough "reform" for one bill, it 
goes on to eliminate the only Federal program that currently 
finances nursing home care for seniors and the disabled. 



333 



One aspect of this bill that has received surprisingly 
little attention is the stealth Cooper/Grandy tax. It's a tax on 
businesses that choose to provide benefits in excess of the 
cheapest health plan. These employers must pay a 34 percent 
excise tax, unless they drop benefits, require higher 
contributions from workers, or eliminate health insurance 
coverage altogether. 

The Joint Committee on Taxation and Congressional Budget 
Office assume employers will cut health benefits to avoid the 
proposed tax, and replace them with higher wages, which, of 
course, will be subject to payroll and income taxes. 

If you want to know what the Cooper plan means for health 
care reform, just look to Tennessee, and see its kindred spirit, 
TennCare, to see how popular and successful this managed 
competition approach will be. It's an equal opportunity 
program -- hated by doctors and patients alike. 

Some say that the Thomas/Chaf ee bill should be considered as 
the basis for compromise. I would agree that the individual 
mandate proposed by the Thomas/Chaf ee bill, is needed to achieve 
universal coverage. However, it is not sufficient to require all 
individuals to purchase health insurance coverage -- unless it is 
affordable to all who are mandated to have it. 

An individual mandate, in the absence of either employer 
contributions or general revenues, is likely to have a minimal 
impact on the majority of the currently uninsured population, 
who cannot afford to purchase health insurance for themselves or 
their familieg. It is like trying to solve the homeless problem 
by mandating that each individual buy a house. 



334 

Chairman Stark. I know that you will have a much more serious 
and sensible suggestion from the distinguished minority leader, 
and I am happy, as soon as we hear from our distinguished rank- 
ing member, to recognize him. 

Mr. Thomas. 

Mr. Thomas. Thank you, Mr. Chairman. 

I hope that, as we listen to these plans, we realize that what we 
should be doing is addressing health care problems and needs in 
1994, 1995 and beyond, and not from the late 1980s. 

One of the things that has occurred out there, without the Fed- 
oral Government moving, are significant changes in the private sec- 
tor and in States, and what we have done is taken a look at what 
we think needs to be done today and tomorrow, not yesterday. 

We have heard some proposals that I think have fundamental 
flaws in them. For example, the single-payer system has the gov- 
ernment running the health care system. Enough said in terms of 
that flaw. The President's plan, as we heard, increases the deficit 
and, more importantly in chapter 5 of the CBO report, contains 
new, untried, novel — but absolutely essential to the success of the 
President's plan — structures which, if they do not work, create a 
fatal flaw in the President's plan. 

So, as we go forward, I think what we need to do is look at these 
ideas, listen to them, and unlike the gentlemen who advocate the 
single-payer, we are more than willing to compromise, accommo- 
date, and work together to solve the health care needs of all Ameri- 
cans. I look forward to these new and novel ideas. 

Thank you. 

Mr. McCrery. Mr. Chairman. 

Chairman Stark. Mr. McCrery. 

Mr. McCrery. Thank you. I look forward to hearing testimony 
from all of our colleagues on the various alternatives. 

I am in the process of drafting my own alternative. I am working 
with the legislative counsel now. I have handed out to a number 
of members this morning a short summary of my plan, and I hope 
to have an opportunity to address the subcommittee later today to 
take any questions that the folks have at this point. 

Thank you. 

Chairman Stark. We are honored to have a number of our 
House and Senate colleagues with us this morning, and we will 
begin with the distinguished Republican leader, Bob Michel, who 
will testify in support of H.R. 3080, the Affordable Health Care 
Now Act. He is accompanied by the principal sponsor from the Sen- 
ate on the same bill, Hon. Senator Trent Lott. 

Why don't you gentlemen lead off any wav you are comfortable. 
Your prepared statements will appear in the record in their en- 
tirety without objection, and we would be happy to have you sum- 
marize or expand on your testimony any way you are comfortable. 

STATEMENT OF HON. ROBERT H. MICHEL, REPUBLICAN 
LEADER, U.S. HOUSE OF REPRESENTATIVES, AND A 
REPRESENTATIVE IN CONGRESS FROM THE STATE OF 
ILLINOIS 

Mr. Michel. Thank you, Mr. Chairman arid members of the sub- 
committee. It is a pleasure and opportunity for us to appear before 



335 

this subcommittee. You certainly have your work cut out for you, 
hearing not only the testimony, but then sifting it all out and, in 
the end, to attempt to come to some kind of consensus on one of 
the biggest issues, of course, that has been confronting the Con- 
gress in many years. 

Since my colleague. Senator Trent Lott, and I are part of a panel 
that will be presenting several other Republican-initiated health 
care reform plans, I think it is important to outline for you the 
overall framework within which Republicans propose to address the 
health care reform issue. 

The fact is. Republicans in both the House and Senate have been 
studying and working on the health care issue for quite some time. 
In the House, we established the leader's task force way back in 
1991, long before the President came into office. The Senate Repub- 
lican task force was established in a similar time frame. 

As a matter of fact, the initial product of our task force, the ac- 
tion Now Health Care Reform Act, introduced in June 1992, was 
similar to the so-called Bentsen bill that was adopted twice by the 
Senate that year, and I think, if my memory serves me correctly, 
had the majority of members of this committee been willing to ac- 
cept some of those reforms in conference, we would, in fact, have 
that in place today with the American people already benefitting 
from those reforms. 

Be that as it may, our Republican proposals this year all reflect 
the strong view of Republicans in the House and Senate that re- 
form of our health system is essential and should be enacted as 
soon as possible. They also reflect our view that there is a right 
way and a wrong way to reform the system and that the direction 
the President proposes to take us, into a massive, dictatorial, gov- 
ernmental-run health care system, is the wrong way to go. 

Rather, our Republican proposals follow the general set of prin- 
ciples adopted by House and Senate Republicans last year, and 
these principles start with a proposition that we believe the health 
care delivery system needs powerful new incentives for change. In- 
dividual responsibility and control are critical. No government-con- 
trolled system can be as responsive, as high in quality, or as cost 
effective as a system that is based on personal consumer choice and 
satisfaction. 

We believe that there ought to be increased access. All Ameri- 
cans should have access to affordable health care for themselves 
and their families. Americans should not fear losing their health 
insurance when they change jobs, move, or suffer serious illness. So 
we believe in portability, and, yes, improving the pathway toward 
eventually achieving universal coverage. We begin by talking about 
access before we can get to the ultimate goal of universal coverage. 

We would like to maintain quality. The American medical care 
and technology are the best in the world. People around the globe 
come to America for the best care. The best research is done in our 
country. Men and women from all around the world come to be 
trained in American medical schools. Reform that jeopardizes these 
resources, in our opinion, is unacceptable. 

We have got to provide choice. Consumers, not the Federal Grov- 
ernment, should choose how they get their care and from whom. 



336 

and as soon as Washington starts dictating health care, Americans' 
freedom to choose will be jeopardized. 

We want to preserve jobs. As we seek to provide all Americans 
with access to health care, we don't want to put Americans out of 
work through increased mandates and taxes on small and inde- 
pendent businesses. 

Then, of course, we ought to have a high degree of flexibility. 
Health care reform should not infringe on innovative plans being 
adopted by a number of our States and by large and small busi- 
nesses. Health care reform must be flexible enough to fit the needs 
of both urban and rural areas. 

It ought to be fair. All Americans should be eligible for the same 
health care deductions. All should be able to deduct their health in- 
surance costs no matter where they work or how they get their in- 
surance. Today, workers in large businesses get most or all of their 
insurance tax-free, while the self-employed can deduct only 25 per- 
cent of their health insurance costs. Indeed, individuals buying in- 
surance outside their job can deduct nothing. 

Then I think we want to encourage individual responsibility. Re- 
form should increase options to enable individuals to take respon- 
sibility for their health care. 

It ought to be financially responsible. I will tell you, the huge 
Federal deficit and the recently expanded tax burden on the Amer- 
ican people mean that any Federal efforts to assist with the financ- 
ing of insurance must be gradually phased in as other government 
savings become available. Adding to the deficit or the tax burden 
is not the way to finance health care reform. 

Finally, I think we must give people information about their 
plans and the cost of services and then let them choose. Moreover, 
we ought to target the factors that drive up costs such as our mal- 
practice system and defensive medicine, the excessive paperwork 
and administrative burden, and the waste, fraud, and abuse in our 
system. 

These, then, are the principles that have guided our deliberations 
and which unite our various ideas. Our proposals may differ in spe- 
cifics, but they all adhere to the fundamental theme that the Amer- 
ican people themselves, through their places of employment, 
through their communities, and within their families should be in 
charge of their health care. 

Republicans are ready and willing to work with the Democrats 
now to develop and pass health reform legislation that truly fixes 
the problems with our health care system. 

I think with what we have heard, particularly in the last week 
or two, that the President's health care plan, as proposed, is un- 
likely to be enacted. 

The proposal Senator Lott and I have introduced can be the basis 
from which a good bipartisan health care reform is crafted. Our act 
is a common-sense approach to health care and focuses on fixing 
the shortcomings, not overthrowing the entire system simply be- 
cause some of the parts are not working. It proposes workable re- 
forms that will make things better for people now and not risky, 
untried concepts that will likely not be implemented until after the 
turn of the century. 



337 

It builds upon and encourages the many reforms already under- 
way at the State and local level and the private sector. H.R. 3080, 
the House version, I might add, has 141 cosponsors, making it the 
bill with the most sponsors of either body in the Congress, and 
when you add in the Senate sponsors, we are up over 150, I be- 
lieve. 

So I would like to turn, then, if I might, Mr. Chairman, to my 
distinguished colleague from the other body. Senator Trent Lott, 
who has joined in support of the basic bill. 

[The prepared statement follows:] 



338 



REPUBLICAN APPROACH TO HEALTH CARE REFORM 
REMARKS BT HOUSE REPUBLICAN LEADER ROBERT H. MICHEL 
WAYS AND MEANS SUBCOMMITTEE ON HEALTH 
FEBRUARY 10. 1994 



I appreciate having this opportunity to appear before the subcommittee 
along wiUi our former colleague, the Senator from Mississippi (Trent Lott), in 
support of the "Affordable Health Care Now Act." 

Since we are part of a panel that will be presenting two other Republican- 
initiated health care reform plans, I think it important to outline for you the 
overall framework within which Republicans propose to address the health 
reform issue. 

The fact is. Republicans in both the House and Senate have been 
studying and working on the health care issue for quite some time. 

In the House, we established our Leader's Task Force on Health way 
back In 1991, long before President Clinton came into ofHce. The Senate 
Republican Task Force was established in a similar time frame. 

As a matter of fact, the initial product of our Task Force, the Action Now 
Heedth Care Reform Act, introduced in June of 1992, was quite similar to the 
so-Ccdled Bentsen bill that was adopted twice by the Senate that year. 

Had the majority members of this committee been willing to accept those 
reforms in conference, we would in fact have health care reform in place tDday, 
with the American people edready benefiting from those reforms. 

The point is that when we have the opportunity to correct problems with 
workable solutions, we ought to move ahead and not delay action in order to 
await the development of grandiose schemes that may never prove doable or 
acceptable. 

Our failure to act In 1992 ought to provide fair wjunlng to us in 1994. 

Our Republican proposals this year all reflect the strong view of 
Republicans In the House and Senate that reform of our heedth care system is 
essential and should be enacted as soon as possible. 

They eiIso reflect our view that there is a right way and a wrong way to 
reform the system, emd that the direction the President proposes to take us, 
into a massive, dictatorial, government-run health care system, is absolutely 
the wrong way to go. 

Rather, our Republican proposals follow the general set of principles adopt* 
by House and Senate Republicans last year. 

These principles start with the proposition that: 

"We believe the health care delivery system needs powerful new 
incentives for change. Individual responsibility and control are critical. No 
government-controlled system can be as responsive, 

as high in quality, or as cost-effective as a system that is based on personal 
consumer choice and satisfaction. 

Reform should: 

1. REDUCE COSTS. Reform must start with putting the brakes on 
escalating health care costs. Such costs should be controlled by 
rel)dng on knowledgeable consumers who actively participate in the 
health care market— not global budgets and government-imposed 
price controls that result in waiting lines, ration health care and 
inhibit technological advances. 



339 



We must give people Information about their plems and the cost of 
services and then let them choose. Moreover, we must target the 
factors that drive up costs such as our malpractice system and 
defensive medicine; the excessive paperwork and administrative 
burden; and the waste, fraud and abuse in our system. 

2. INCRE^E ACCESS. All Americans should have access to affordable 
health care for themselves and their families. Americans ^ h&uld not 
fcEir losing health insurance when they change jobs, move, or suffer a 
serious illness. 

3. MAINTAm QUALITY. American medical care and technology are the 
best in the world. People around the globe come to America for the 
best care. The best research is done in America. Men amd women 
from around the world come to be trained in American medical 
schools. Reform that jeopardizes these resources is unacceptable. 

4. PROVTOE CHOICE. Consumers, not the federal government, should 
choose how they get their care amd from whom. As soon as 
Washington starts dictating health care, Americans' freedom to choose 
will be jeopardized. 

5. PRESERVE JOBS. As we seek to provide all Americans with access 
to health care, we do not want to put Americans out of work through 
increased mcindates and taxes on small business. 

6. ENHANCE FLEXIBILITY. Health care reform should not infringe on 
innovative plans being adopted by states and by large and smedl 
businesses. Health care reform must be flexible enough to fit the 
needs of both urban aiid rural areas. 

7. BE FAIR. All Americans should be eligible for the same health care 
tax deductions. All should be able to deduct their health insurance 
costs no matter where they work or how they get their insuremce. 
Today, workers in large businesses get most or all of their insurance 
tax-free, while the self-employed can deduct only 25% of their health 
Insurance costs. Indeed, individuals buying insurance outside their 
job can deduct nothing. 

8. ENCOURAGE INDIVIDUAL RESPONSIBILITY. Reforms should 
increase options to enable individuals to take responsibility for their 
heedth care. 

9. BE FINANCIALLY RESPONSIBLE. The huge federal deficit and the 
recently expanded tax burden on the American people meem that any 
federal efforts to assist with the financing of insurance must be 
gradually phased-ln as other government savings become available. 
Adding to the deficit or the tax burden is not the way to finance health 
care reform. 

10. BE WORKABLE. Health care represents one-seventh of the U.S. 

economy and is too important to the American people to subject It to 
the major risks that would result if it were turned over to the federsd 
government. Reforms adopted natlonsdly must be built on what 
works." 

These, then are the principles that have guided our deliberations and 
which unite our various ideas. Our proposals may differ in specifics, but they 
all adhere to the fundamental theme that the American people themselves, 
through their places of employment, through their communities, and within 
their fsmiilles, should be In cheirge of their health care. 

At this point, Mr. Chairman, allow me to comment on the legislative 
realities we all face around here. 

You know and I know that the President's bill in its present form is not 
going anywhere. 



340 



E^en if It did have a chance of passing in its present form, it would have 
to be on your side of the aisle. 

Republicans~emd what I like to think of as discerning Democrats— simply 
are not going to accept such a bureaucratic monstrosity. 

The administration says it is going to fight all the way to see the 
President's bill pass In substantial form. 

But you remember—as we all remember— that the administration told you 
last year that a BTU tax was absolutely vital and that the administration would 
settle for nothing less. 

But when many Democrats went unwillingly along with the BTU tax in 
the House, it was unceremoniously dumped in the Senate— and many members 
of your party were left in an uncomfortable— and in some cases untenable- 
position. 

I bring up this bit of recent history as a friendly reminder of what could 
and in all probability wiU happen to any member of the majority who is 
beguiled by the administration's current rhetoric about the absolute necessity 
of passing the President's bill. 

The Administration said the same thing about the BTU tax a year ago 
and your members were left hung out to dry. It can happen again. 

If it is the plan of the leadership in Congress to try and ram through the 
President's government-run health proposal without a serious effort at 
bipartisanship, there almost certainly will be major errors and miscalculations 
that will rebound negatively on those who were a part of that effort. 

For bipeutlsanship to work, It must be undertaken at the beginning of the 
legislative process, not at the end when time to craft a workable proposal has 
run out. 

Republicans are ready and willing to work with Democrats now to 
develop and pass health reform legislation that truly fixes the problems with 
our health care system. 

The proposal Senator Lott and 1 have Introduced can and ought to be the 
basis from which a good bipartisan health care reform bill is crafted. 

The Affordable Health Ceire Now Act is a commonsense approach to 
health care reform. 

It focuses on fixing the shortcomings of our health care system, not 
overthrowing the entire system simply because some of the pjirts are not 
working right. 

It proposes workable reforms that will make things better for people now, 
not risky, untried concepts that will likely not be Implemented until after the 
turn of the century. 

It builds upon and encourages the many reforms already underway at 
the state and local level and in the private sector, not negate these reforms 
through the imposition of a government-run health system imposed from the 
top down. 

H.R. 3080, the House version, has 141 cosponsors, making it the bill 
with the most sponsors in either body of the Congress. When you add in the 
Senate sponsors, we are up over 150. 

Let me turn now to Senator Lott, who Introduced the bill in the Senate. 
He will discuss the specifics of our proposal. 



341 

Chairman Stark. Without objection, we are pleased to see you 
back, Trent. Welcome. Proceed in any manner you are comfortable. 

STATEMENT OF HON. TRENT LOTT, A U.S. SENATOR FROM THE 
STATE OF MlSSISSffPI 

Senator LOTT. Thank you. Republican leader and Mr. Chairman 
and ranking Republican, Congressman Thomas, members of the 
Health Subcommittee of Ways and Means. It is a pleasure to be 
back in my old haunts. As most of you know, I was here for 16 
years. I think I served with all of you but two, but I had forgotten 
what elegant surroundings you have over here on this side. I mean, 
we live in austere poverty over on the Senate side compared to 
this. This is the most beautiful room. 

Chairman Stark. And they are building a new railroad to get 
there. 

Senator LoTT. I don't remember it looking quite this good when 
I was over here. I might not have tried to move across the Capitol 
if it had. 

I am delighted to be here, once again, riding shotgun with my 
good friend, the distinguished Republican leader, Bob Michel. It 
was a great pleasure for me to serve as his whip for 8 years, and 
I really learned to admire him as an individual and admire his 
leadership and his courage. I would like to commend him. 

Particularly, I would like to commend Congressman Denny 
Hastert from Illinois, who was chairman, I believe, a leader of the 
task force that worked on this legislation. He is not able to be here 
today because of an illness in his family, but he did yeoman's work. 
I have talked to him several times, and I want to commend my col- 
leagues in the House for the work that they have done. 

We do have now 13 Senators sponsoring this legislation in the 
Senate. I had looked at all the different plans, and I am satisfied 
that this is the one that is the most commonsensical, most reason- 
able, most responsible, and most affordable now. 

I agree with the leader. The Clinton plan as it was originally in- 
troduced is basically dead. I think that you are going to see more 
and more concerns being raised about the Cooper plan, and we are 
going to have to then move to trying to develop a consensus that 
a bipartisan majority can agree on that will address the real prob- 
lems we have and that we can afford, and I think that is what this 
bill does. 

I am a cosponsor of the Nickles-Stearns plan. I think they have 
got a lot of good ideas. I think there are a lot of other good ideas 
floating around here, and you see a proliferation of other bills and 
good ideas. I think that is good, first of all, but I think it has also 
been driven by the fact that clearly what is on the table from the 
administration is not what the American people want or need. 

The big government mandates, lack of choice, costly proposal is 
not what is going to happen. So we must begin to try to develop 
a basic plan, and I think this is it, and I am delighted to be a co- 
sponsor of this legislation. 

Now, when I go back to my State, the people talk about fun- 
damental concerns and problems. We obviously all agree we have 
problems in the insurance area. We must deal with portability. We 
must deal with access. We must deal with cherrypicking. We must 



342 

deal with the laws of insurance because you have a preexisting ill- 
ness. There are certain insurance areas we all agree we ought to 
do something about that. So we ought to begin from that stand- 
point. 

Most of us agree that there should be medical malpractice re- 
form, responsible reform that would help deal with a serious prob- 
lem in this area that leads to the practice of medicine, that is a 
defensive practice, that leads to a lot of procedures that we don't 
need that drive up the cost. We ought to do that. 

In my State of Mississippi, it is not access to insurance. Our 
problem is access to any kind of medical provider. In rural areas, 
even if you had insurance, you can't get to a hospital, you can't get 
to a doctor, you can't get to a nurse practitioner. You probably can't 
even get to a midwife. So we must address this problem not just 
from the standpoint of the inner cities which we must do and try 
to have reforms there. We have got to make sure that the rural 
areas are considered in this process, and this bill does that. It has 
some significant proposals in the rural health care area. 

So those are iust a couple of the areas that I am going to be 
watching. I do tnink we need incentives, incentives for individuals 
to do the responsible thing, incentives for more doctors to go into 
the general practice, incentives to get health care providers into 
rural or underserved or unserved areas, and I think that there are 
a lot of good ideas that would accomplish that. 

Are we working on House rules or Senate rules? Do I have 5 
minutes or 50 minutes? Don't answer that. 

This bill is paid for. I think that in these times of being con- 
cerned about unfunded mandates and just dumping the cost off on 
the States, you must have a financing provision in your package. 
This does. It phases out Medicare subsidy for seniors with incomes 
over $100,000 individually or $125,000 per couple. 

It would prefund government retirement health insurance cost. It 
would increase the Federal retirement age fi-om 55 to 62 which 
comes to just over $17 billion, and as best as we can estimate, be- 
cause the Joint Committee hasn't responded to our request to cost 
it out, we think it would be about $17 billion. So our package is 
paid for. 

Now, turning to the package, I would just like to quickly run 
through what tnis does. It does require employers without existing 
health benefit plans to offer to eligible employees at least one plan, 
meeting an actuarially defined standards of coverage. It does limit 
preexisting condition restrictions under all employer health benefit 
plans. It does require coverage of essential and medically necessary 
medical, surgical, hospital, and preventive services. It encourages 
the formulation of multiple employer health plans by removing IKS 
regulatory barriers involving geographic limitations and business 
commonality tests which now prevents such groups from using the 
tax-exempt trusts to lower costs. 

I mentioned that it does provide a number of areas of assistance 
in rural health care, including rural emergency medical services 
with $15 million to help get that started. 

On air transport for rural victims, in Hattiesburg, Miss., we do 
have a helicopter service that serves probably about 7 or 8 coun- 
ties. This would really be helpful in some of these rural areas just 



343 

to be able to get to a hospital in 20 minutes instead of 50 or 60 
minutes. It would save a lot of lives. This legislation provides help 
in that area. 

It does provide for increased access to community health services. 
In my State of Mississippi, community health services now do a 
great job, but we need more help in that area, and there is a provi- 
sion for community coordination demonstration grants. 

It does provide for Medicaid program flexibility. The States are 
doing a better job than we are. That is true in innovative ideas and 
new ideas. The Chairman mentioned the Tennessee plan. I mean, 
right now it is in a state of chaos, but they have launched on out 
there into these untried, troubled waters. They are doing some- 
thing, and they can do a lot more if we would give them the flexi- 
bility in Medicaid to come up with new ideas and actually provide 
better help, more help to the poor that depend on this program. 

It allows States to enroll in Medicaid beneficiaries and HMOs 
and PPOs without having to submit to all of the cumbersome waiv- 
er requirements and applications that they now have to have. 

I mentioned it does have medical malpractice liability reform. 
There are various proposals in this area. Senator Gramm of Texas 
has a very strong medical malpractice liability program, but as a 
lawyer and one that used to be on the defense side of the equation, 
this one is reasonable. It is practical. It is not extreme. We can do 
it, and it would help with the problem, and I don't think it would 
run all the lawyers in the world off with its proposals. 

It does have the medical savings account, medisave. I think it is 
a good proposal, but I think that we can work with others. We need 
to strengthen it, provide more encouragement there, but I would 
encourage this subcommittee to look at this medisave proposal. I 
think it is an excellent one. It has the antifraud provisions and 
Medicare plan changes. It has got it all. 

This has been described as the minimalist plan or the incremen- 
tal plan. The people that do that haven't looked at it. This is a 
well-thought-out plan. It is one we can do now. We ought to quit 
fighting over what we disagree on and find out what it is we can 
agree on, do it this spring, and then look to the future. Let's do 
what we can do, and as we go along, as we make savings, as we 
come up with better ideas, we can adopt those. We don't need to 
reinvent health care in America. It is in pretty good shape. We just 
need to deal with some of the problems. We need to try to improve 
it. At the very least, let's begin by doing no harm. 

Thank you, Mr. Chairman. 

[The prepared statement follows:] 



344 

HEALTH CARE REFORM-A PRACTICAL APPROACH 
THE AFFORDABLE HEALTH CARE NOW ACT OF 1993 
A STATEMENT BY SENATOR TRENT LOTT 
FEBRUARY 10, 1994 

Mr. Chairman, I come before you and this Subcommittee on Health of 
the House Ways & Means Committee today, to offer support for the 
legislation H.R. 3080, "The Affordable Health Care Now Act of 
1993." This bill will improve access to health insurance, help 
contain health care costs, and address the areas of health care 
which really warrant reform. This legislation, furthermore, is 
widely supported with 141 cosponsors currently in the House of 
Representatives, and 13 cosponsors currently in the Senate. This 
speaks well of those who crafted the bill. It also reflects how 
well the American public has transmitted its message to Members of 
Congress, because our health system does work. However, we want it 
to work better. 

I have spoken to countless Mississippians and others across the 
country about health care reform. I want to tell you this morning, 
there is a great deal of apprehension, or perhaps I should say 
fear, about what we here in Congress could possibly do to the 
quality of health care delivery, and the existing availability of 
medical treatment. 

Health care reform is a subject which has now captured the 
national spotlight, and tapped the conscience of all Americans. It 
is one of the most difficult problems facing our country today. We 
all need and deserve health care that is affordable and accessible. 



345 



Rapidly increasing costs, however, have made these goals hard to 
reach. I looked closely at the details of a number of proposals 
presented in Congress, and chose to sponsor the legislative 
proposal of Congressman Michel in the Senate. It is S. 1533 
bearing the same title, "The Affordable Health Care Now Act of 
1993." 

It too, is a practical approach. It will expand access to 
affordable group health coverage for employers, employees and their 
families. Also, it will help eliminate job-lock and the exclusion 
of such individuals from coverage due to preexisting condition 
restrictions . 

In addressing health care reform, we must make sure that we do not 
sacrifice quality as we reform the present system. In addition, I 
believe that any plan ultimately approved by Congress, must ensure 
that we retain the positive things about our country's health care 
system, like the individual freedom to choose your own doctor and 
hospital. 

The health care problems we face are very complex and a solution is 
not going to happen overnight. Obviously, we need to do something, 
but any reform must be carefully weighed. He need to have a full 
and thorough debate on all the options facing us. The issue of 
health care is too important simply to rush to judgement. 

I urge you and this Committee to exeunine the merits of this 

legislation, this practical approach to health care reform, and 

favorably report it. Thank you Mr. Chairman, and I ask that my 
remarks be inserted in the record. 



346 

Chairman Stark. Thank you. 

I must say there is very httle in this bill with which I suppose 
anyone could disagree. That is the good news. Unfortunately, the 
CBO in their last scoring indicated that it would have virtually no 
impact on the number of uninsured in the country, and I don't 
think there have been any major changes in the bill since that last 
CBO analysis. 

Now, if there have, the only question that I think I would ask 
you is this. Your Medicaid buy-in really is up to the States. The 
States could shift some money that they get to buy into Medicaid. 
There is the possibility that we could raise more Federal money for 
the uninsured, one way or another, to help the States allow a Duy- 
in, and I want your comments on that. I mean, that would get 
more of the uninsured in the plan. Arguably, we would have to talk 
about taxes or raising some money to do it. 

Let's assume we could find it. Let's assume there is a health 
fairy who is going to put some money under our pillow. Would you 
like to see the Medicaid plan expanded or an alternative which is 
attractive to the Chair is would you be willing to allow at no cost 
to the Federal Government individuals or companies to buy into 
Medicare if we priced it such that it paid the full actuarial cost? 

Mr. Michel. First of all, one of the problems with our current 
system is I think you have got some Medicare/Medicaid recipients 
getting a better level of care than low-income working 

Chairman Stark. Medicare. 

Mr. Michel. Yes. I think we accept that, and what we are at- 
tempting to do here by way of offering the States more flexibility 
is to allow them to assist those up to 200 percent of poverty and 
open up the doors to those currently without insurance. Put your 
thinking caps on, and if there is an opportunity out there in the 
insurance world to utilize that resource, give the States that option 
to do that. 

Now, in saying so, I think we have to be candid to the insurance 
industry and say, "Look, folks, this gives you an opportunity, but 
you have an obligation, too, to try and help us see if there is a way 
in which we can hold costs down by spreading that risk and over 
a bigger pool." 

I don't want to be shifting a burden, more of our mandate or a 
burden from the Federal level on the States. We heard from our 
Governors, and they have had it about up to here on that. As a 
matter of fact, they have their reservation about a section of the 
Cooper plan that puts them in a bind with respect to one of those 
provisions. So at least we offer it as a starting point, and then it 
is one of these negotiable things we would have to work out. 

Senator Lott. I might just say that I think that seniors would 
have some concerns about that proposal. I know that the chairman 
has worked a lot in that area over the years, and that is why you 
would like for us to really, maybe, move, but I get concerned about 
crossing these two. 

Chairman Stark. There would have to be a firewall in the trust 
fund. 

Senator Lott. Yes. 

Chairman Stark. It would have to be a separate section. I just 
used it as a structure. 



347 

Senator LoTT. Right. 

In answer to your question, I do think that this proposal would 
provide more coverage for people without mandates. As long as we 
are saying that we are going to do it for you, employers are not 
going to do it. I think that if we encourage and move the employers 
toward covering more employees, working with them on it, that, in 
fact, they will do that. 

Plus, I do think by these changes we have proposed in Medicaid 
that allow the nonmedical-eligible individuals to buy into the sys- 
tem it would help a lot of people. 

Chairman Stark. Thank you very much. 

Mr. Thomas. 

Mr. Thomas. Thank you, Mr. Chairman. 

I can think of worse criticisms than you are not ambitious 
enough. I think it is pretty obvious that the President's plan was 
a bit too ambitious. 

It is interesting that in today's Washington Post, one Clinton ad- 
viser is quoted as saying, "We are going to have to compromise, 
and we might as well as do it sooner as later." 

We have heard statements from other people supporting other 
plans that they had no interest in compromising because their plan 
was perfect and they didn't want it contaminated with anybody 
else's ideas, in essence. 

My only question in terms of a general one is: If you are being 
criticized as not being ambitious enough, are you willing to sit 
down and talk about options that may be available that will allow 
us to move forward or are you adamant in terms of not wanting 
to talk about compromise at all? Where are you in terms of a will- 
ingness to look at other options? 

Mr. Michel. We all have to start from somewhere, and I am re- 
minded of all of the discussions we had in our Republican task 
force where we were very conscious of not wanting to impose an- 
other new tax. We decided if that is what some provisions were 
going to require, we better trim our sales to the degree that we can 
do the kind of things that don't call for additional taxes and the 
kind of unachievable increased revenue that would bring a whole 
plan down. 

I am looking at our experience in the catastrophic health care 
field several years ago where I thought I was supporting a very 
noble venture, and it was going to be financed with $4 a month 
premium income from Medicare. Of course, we had to get benevo- 
lent by adding things to the degree that we had to have a tax on 
a tax, and within 1 year, we were all embarrassed by having to re- 
peal it. I don't want to repeat that. 

I was here during the Medicaid/Medicare deliberations when we 
were talking about cost projections, and they are nowhere near 
today what we perceived them to be in those times. So we decided 
in our task force that we should be honest, forthright, and candid 
with the American people and say, "Folks, there is a limited 
amount that we can really promise you at this juncture, and we 
don't want to raise your expectations beyond our power and ability 
to deliver what we are talking about." I think, frankly, that has 
been part of the criticism of what the President initially proposed, 
raising everybody's hopes that this was going to be something for 



348 

nothing. When it comes right down to it, it has all got to be paid 
for in some form or manner. 

Senator Lott. If I might respond to that, I think I would describe 
myself as having been just about the biggest flirt in town over the 
past year, as I have flirted with every plan. I have looked at them. 

I started off by saying I am not going to cosponsor any of them. 
I am going to wait for the one I can support. I wound up being a 
cosponsor. Well, Senator Chafee is here. I attended some of his 
task force meetings. I have been interested in the ideas in his plan. 
I am a cosponsor of the Nickles plan. I am a cosponsor of the 
Gramm plan. I even talked several times with Sonator Breaux 
about the Cooper-Breaux plan, seeing if there was a way I could 
go on as a cosponsor, and I finally concluded that I just could not 
for a variety of reasons. 

In the end, I finally settled on this one as being the best one, the 
most reasonable one, the one we can afford and one we can do now. 
This will be the base of the principal alternative to the Clinton 
plan. 

Can we make some changes? Absolutely. I think we are going to 
make some changes in certain areas, and I am willing to work on 
it, but you have got to begin somewhere, and I don't want to begin 
up here at this reinvention of health care and then back down from 
it. I think we ought to begin at what do we need to do now and 
can we afford it, and then if we can make some adjustments on it 
around the edges, I am perfectly willing to work with you. 

Mr. Thomas. That is what I wanted to hear; that we are willing 
to sit down and try to accommodate and compromise to reach a 
conclusion. 

Senator Lott. If I might just say in the end, I think there is 
going to be a Michel-Dole-Moynihan plan. 

Mr. Thomas. Let me say the chairman said that he doesn't be- 
lieve that under the CBOs analysis that we would do anything in 
terms of the uninsured. I think he needs to know that when the 
CBO analyzes this session's version, he will find that, as you cor- 
rectly said. Senator, it is fully funded, and in that fully funded pro- 
gram is money that covers 100 percent of the deductibility for in- 
surance for the self-employed and 100-percent deductibility for 
those people who are not insured and whose employer does not pay 
for their insurance; that if they acquire insurance, they have 100- 
percent deductibility, and it is paid for under your plan. That, I 
think, is a significant response to the question of the uninsured. 

I thank the gentlemen for their testimony. 

Mr. Levin [presiding]. Thank you. 

I guess I am next, so welcome, as always. 

To the minority leader, let me just ask you a few questions. You 
are a person of goodwill. So it isn't always easy to zero in on what 
may be flaws in your proposals, but let me just probe, maybe not 
too gently, but fairly. 

In your testimony, you talk about government-imposed price con- 
trols. In your plan, as I understand it, you have a limit on the an- 
nual premium increase for small employers, a 15-percent limit. 
Now, how is that consistent with your inveighing against govern- 
ment-imposed price controls? 



349 

Mr. Michel. I think, again, what we want to do is pave the way 
for business and industry to do its share and its responsibiHty. I 
think we are trying to touch the conscience of all individuals who 
eventually become employers. Insurance is prevalent in large in- 
dustries and a lot of our small businesses, but there are many out 
there that simply say they can't afford it. 

Now, what we want to do, while we don't mandate that they pay 
for it, that you as responsible employers, encourage them to pro- 
vide some kind of health insurance program. Then, again, turning 
to the insurance industry, 'Tou folks in the industry have an obli- 
gation to provide in every community of this country an oppor- 
tunity for pooling of resources to make that a reality." 

Now, it may be Utopian to think that that can come in a vol- 
untary way, but I think we have already seen some of our business 
and industries moving in this direction, whether or not it has been 
caused by the very debate that we are holding today and have for 
6 months or more now. If so, then I think we are on the right 
track. 

Mr. Levin. But still you impose a limit on what insurance car- 
riers can charge small business. 

Mr. Michel. Yes, we do, and what we would perceive in a basic 
policy of some form is that the 50 commissioners of insurance could 
get together and make a determination among the 50 States what 
is a viable basic policy that ought to help us get through this. 
Then, of course, we would move beyond that and say then the op- 
tion above that is a catastrophic plan or a medisave plan, but there 
ought to be an agreement beforehand among the 50 State insur- 
ance commissioners what we consider to be a basic policy, and 
then, hopefully, what we have prescribed there would fit that mold. 
Now, if it doesn't, well, we will have to make adjustments. 

We are not the only ones moving in these unchartered waters 
and area, and the very fact that, for example, we can't even get our 
plan costed out specifically by CBO to give you real hard-and-fast 
figures, we have done the best we can in the absence of that, but 
as we have also heard this past week, there have been some pretty 
prominent people who thought the costs were going to be such and 
such and find that figure pretty well debunked by others who are 
in positions of authority. 

Senator Lott. Let me answer that. Maybe in the pure sense of 
your question, the answer is yes, if you are trying to get us to 
admit that we are not 100-percent pure as the driven so. Maybe so, 
but the goal there was to try to have some reasonableness, some 
responsible limits on excessive increases. 

Mr. Levin. How about for larger business? 

Senator LoTT. It is not a dollar amount; it is a percentage. 

Mr. Levin. What? 

Senator LoTT. It is not a dollar amount; it is a percentage. So 
the percentage would be applicable to large and small, but, obvi- 
ously, you are talking about a higher amount would be involved for 
the larger ones. 

Mr. Levin. Under your proposal, there is a 15-percent limit on 
premiums for small business, but none for large. 

Mr. Michel. I think, here again, you are going to have a transi- 
tion period over a period of time. I understand the administration's 



350 

plan allows those employers with 5,000 employees or more to go 
ahead and do your thing. Now, I look at my hometown industry of 
Caterpillar, for example, and it has a health care plan that ranks 
in the 96th percentile. It costs the company about $6,000 per em- 
ployee. 

Now, I will tell you, there are not very many businesses around 
the country that can pay that. So you have got to accept that, that 
there are going to be these wide variations, but I am not altogether 
sure the best interests of the country are served by saying, "You 
way up here and you way down here, all have to come to some uni- 
form premium." I would like to see it flexible enough that we can 
accommodate what we have to deal with currently and what we are 
thinking about down the road apiece, whether it is 5 or 10 years 
or whatever. 

Senator LOTT. I understand, also, here that it may be because 
that is where the gyrations occur in that area. You don't have as 
much a fnovement up and down in the bigger business as you do 
in that smaller area. 

Mr. Levin. All right. My time is up. 

Let's see. Mr. McDermott is next. 

Mr. McDermott. Thank you, Mr. Chairman. I simply have one 
question of the two witnesses. I appreciate your quoting the Hippo- 
cratic Oath, the first line of which I used to think was "Primo non 
escero * * *," which is, first of all, do no harm, and I think you 
haven't done any harm. The question is how much good you have 
done in the proposal you have made. 

I want to ask a question that relates to something the President 
has put on the table. I think we can talk about details here end- 
lessly, but there really is a philosophical question that has to be 
answered, and that is this. The President has said that any bill he 
signs has to have universal coverage guaranteed, and I wonder how 
you come down on that issue. Do you think it is a right of citizen- 
ship in this country that you have health care or is it a function 
of something related to your employment or something else? I 
would like to hear your thinking on this issue. 

Mr. Michel. My own personal feeling is I don't see anything in 
the Constitution that guarantees me health care coverage as we 
are talking about it today in specific terms. Now, there will be 
those who will argue that point. I just have a philosophical feeling 
that there are certain basic things guaranteed, life, liberty, and the 
pursuit of happiness. Now, you can stretch that all out and say, 
well, the pursuit of happiness means having the government take 
care of all my doggone needs. Well, I can't get myself around to ac- 
cepting that. 

As for universal coverage, that may be our ultimate goal, but to 
think that it is achievable within the immediate future, I cannot 
conceive that we have got the capability to do that funding-wise. 
In other words, what you are talking about, you are saying 15 to 
20 percent of our population is the real target area, and I guess my 
reluctance to saying let's do it immediately is that when we went 
to that catastrophic health care bill, very limited in scope for the 
terrible things that wipe out your home, property, farm, and every- 
thing else, and when 80 percent of the people found out that, broth- 
er, tney were going to have to pay a little bit more than what the 



351 

coverage was for themselves to provide for those who don't have it, 
they rebel, and that was nominal. 

What we are talking about here in the President's plan is not 
nominal. These are drastic changes, and I think we better be very 
well alert to the magnitude of the problem before we jump over the 
cliff and cannot retrieve ourselves. 

Senator LoTT. If I might respond briefly, I think it was unfortu- 
nate that the President chose to whip out his pen and make that 
kind of statement. We do that in Washington. Other presidents 
have done it, Republican presidents. I have done it. You have done 
it. We draw the line in the sand and say, "Dad gum it, if you cross 
that line, the whole deal is blown up." 

Look, I got one, too. If employer mandates are in there, I won't 
vote for anything because I think it is just fundamentally the 
wrong way to go, but, I mean, I don't think we ought to start off 
by saying what we are not going to do. 

That is why I like this proposal. Let's start off by saying what 
can we come together and agree on, and let's work from tnere. 

In direct answer to your question, I guess, again, it is a fun- 
damental disagreement. It is probably why we are Republicans and 
you are a Democrat. I do believe that every American has a right 
to an equal opportunity to a job, food on the table, a house, medical 
care, great football games, everything. Who pays for all this? What 
about the right of my 26-year-old son to be able to keep some of 
the rewards of the fruits of his labors? He works 60 hours a week. 

Last year in the tax bill, we just raised the tax on the bonus he 
gets which is basically what he really lives on, and now 45 percent 
of his bonus is taken by the Federal Grovernment, and this is not 
just rich people. These are people out there busting it because they 
are given an incentive to work hard. Doesn't he have some rights? 
How much is he as a young entrepreneur going to be asked to pay 
so that everybody can have everything guaranteed to them by the 
Federal Government? So I guess the answer is I agree to the right 
to an equal opportunity, but I just don't think the government 
should and can afford to just say, "We are going to give it to every- 
body. Come on, don't worry about it." 

Mr. McDkrmott. Let me just say I appreciate hyperbole, and I 
didn't think I had promised everything to everybody. We are talk- 
ing specifically about health care. 

I think my real concern — and Mr. Michel you brought up the peo- 
ple that I really worry about — those Caterpillar people. Those are 
people who sat out there and negotiated benefits, and if there is 
some kind of economic downturn, they are out on the streets of Pe- 
oria and Aurora and a lot of other places without a job and no 
health care, and they can be bankrupted. 

I find it hard to think that if we focused on those who don't have 
health insurance now, the debate becomes one kind of debate, but 
if the debate is 80 percent or more in this country who are covered 
by insurance, but could lose it tomorrow and be bankrupted the 
next day by an illness or an injury, it seems to me that then it be- 
comes a much different debate. 

I think for you to say or for people who support you to say that 
they don't care, they want just the opportunity for that Caterpillar 
worker, "He lost his job. Well, that is too bad. I guess we don't care 



352 

what happens to him," I think that is not a political position that 
is sustainable in a democracv. I think that Caterpillar worker 
ought to have the guarantee tnat the President and the CBO said 
is an entitlement. 

I mean, I disagreed with them up to the point that CBO said it 
is an entitlement. They changed the debate when they said that is 
an entitlement. I think those Caterpillar workers ought to have 
that. I am sure we will have a whole other debate on this. 

Mr. Michel. The most urgent problem in our country today is 
not the employees of the biggest companies in this country who vir- 
tually have a guaranteed health plan and, in Caterpillar's case, a 
guaranteed job for 6 years by name. 

These are cases of negotiated contracts which are the envy of 
many people on the outside. 

I don't think that is the problem area for us nearly as much as 
these poor devils out there who really are down and out and with- 
out a job and the wherewithal to keep a family together. 

Senator Lott. If I could also say, I appreciate y our hyperbole, 
too, Mr. McDermott, but what I am worried about, I don't have 
Caterpillar, but I have Engle Shipyard. My father was a pipefitter 
and a shipyard union member, by the way, and I worried that the 
Clinton plan or the single-payer plan is going to shift more costs 
to the business and industry area and perhaps to the individuals 
and people are going to lose their jobs, the low-end people. 

The people out there working for my son, if his costs go up, he 
is going to say, "Gee, guys, I am sorry about you. I would like to 
help you, but this is just the final little straw that pushed you out 
of a job." So I do worry about the jobs that could be lost as a result 
of another mandate on business and industry. 

Mr. McDermott. We will continue this session. 

Thank you, Mr. Chairman. 

Mr. Levin. Mr. Grandy. 

Mr. Grandy. Thank you, Mr. Chairman. 

Mr. Leader, as you know, I was on the Republican health care 
task force that drafted H.R. 3080, and we completed our delibera- 
tions and marked up and finished our work, I think, in September 
of last year. Isn't that correct? 

Mr. Michel. Yes. 

Mr. Grandy. You pointed out that we now have 140 cosponsors 
on this bill — 141. How many of them are Democrats? 

Mr. Michel. I don't see a one. 

Mr. Grandy. Are there any Senate Democrats on the bill, Sen- 
ator Lott? 

Senator Lott. No. 

Mr. Grandy. I guess I would ask how do we get to where we 
want to go if this is exclusively a Republican strategy. I mean, I 
understand the criticisms that have been leveled against the Clin- 
ton plan, and there have been several in front of this committee 
and Energy and Commerce over the last couple of weeks, but I still 
do not understand how we are going to move from an admittedly, 
heavily regulated government-dense health care delivery system to 
a series of market incentives that are embraced in H.R. 3080. 

The reason I explore this line of questioning is because there is 
apparently a new strategy that is now moving at least into some 



353 

of the Republican channels that has been advanced by, I think his 
name is, William Krystal — he used to be with Senator and then- 
Vice President Quayle — who is now advocating that we should de- 
feat the coming Clinton-Cooper compromise. 

Now, the other bill I am involved with is the Cooper bill or the 
Cooper-Grandy bill, depending on what State you are running for 
higher office in, and I was not aware of a Clinton-Cooper com- 
promise. I don't think Congressman Cooper is, but, evidently, Mr. 
Krystal has this to say about our side: 

There are those Republicans prepared to argue that such a result involves no com- 
promise of conviction. That means signing on with cither Cooper or Senator Chafee's 
bill. 

David Durenbergcr, for example, Cooper's only Republican cosponsor in the Sen- 
ate and a cosponsor of the also very similar Chafee bill says that, "Republicans al- 
ready have a winning strategy, and that strategy is managed competition, which he 
calls a comprehensive vision consistent with Republican principles." 

Senator Durenberger is wrong. Managed competition is not a Republican prin- 
ciple. It is massive social regulation, precisely the kind of thing the Republican 
Party should exist to oppose, and for Republicans to acquiesce or participate in its 
enactment would bring us no credit and much shame. 

Did I make a teirible mistake in lining up with Democrats to try 
and build some kind of compromise between where the President 
is and where we are, Mr. Leader? I mean, is Mrs. Johnson wrong 
to be part of this group, and Mr. McMillan who is on the Energy 
and Commerce Committee and the other 26 or 28 Republicans that 
are trying to find some way to get from here to there? I mean, is 
this a sell-out? Tell me. I mean, I am in a very serious Gk»vemor's 
race back home. I need to know this for my political future. Leader. 

I thought that finding some kind of solution here would bring 
credit to this party, just the way helping the President solve the 
NAFTA problem brought not only a dividend to the party, but to 
the country, but I may be wrong here. If there is going to be a 
strategy that moves through our conference that says trash every- 
thing right of Cooper through Chafee and then the Nation will em- 
brace H.R. 3080, I might have to turn in my pass. 

Do these comments embrace your views. Leader? 

Mr. Michel. Let me first take this opportunity to compliment 
the gentleman on his contribution to our health task force. He was 
there every day. The same was true for the gentlelady from Con- 
necticut, Mrs. Johnson, as well as for Mr. McCrery and Mr. Thom- 
as. You are all on the task force and did an outstanding job. The 
task force met for an hour or so over a period of nearly 2 years, 
and the contributions the gentleman from Iowa made specifically to 
the deliberations of that task force were very noteworthy. 

Initially, when we crafted what has turned out to be this basic 
bill, we wanted to get as much support as we possibly could on our 
side. I think there was an inhibition on the part of maybe some 
Democrats who might have thought we have had some good things 
to talk about because it was their President, a Democratic Presi- 
dent carrying the initiative on this from the standpoint of the ad- 
ministration, and that they would be rather reluctant to be pic- 
tured in opposition to their President until they had more time to 
sift it all out. 

We are in a shake-out period right now. The gentleman has a 
great deal of foresight, and I have no criticism of his having said, 



354 

"Look, I am not altogether sure that what we have crafted here 
does everything I would like to see done. I would like to go a step 
or two further. So I am certainly not going to condemn the gen- 
tleman for having reached out as he had to those other tenets in 
which he might feel comfortable, and that is how eventually around 
here you get people moving toward a solution. 

If we were back in the old days when the Speaker would say we 
are going to debate this baby for 2 weeks on the floor, and we are 
going to have an open rule, and we are going to give you all an 
opportunity to amend the base bill, probably through alternatives 
or substitutes with the opportunity for amendment to each, and 
when an amendment is disposed of, you can come back with an- 
other. Through that process, you work your way up to the top of 
the pyramid and achieve a refined product that is basically a con- 
sensus of all the House. Oh, I wish that day would return. That 
would do credit for the institution probably more than anything 
else. Then the gentleman, who does so well on his feet, would con- 
vince members of his position in an effort to attract converts, and 
eventually, we would get the best product. 

Senator LOTT. Let m join in that, if I could, and respond to your 
question. 

Mr. Grandy. Gro ahead. Senator. 

Senator Lott. When I had the pleasure of serving in the House 
and serving as the Republican whip, we won a lot of victories in 
the eighties, and we always had to do it with 40 or 50 or 60 Demo- 
crats. I had a regular daily plan to work with Democrats and in- 
clude Democrats in our strategy. That is how we won on important 
budget votes and tax relief votes. So I certainly agree with that, 
but you begin by getting your own troops together. You don't send 
out scouts and start trying to put a package together until you get 
your own act together, and I think that is what this bill does, H.R. 
3080. 

I will bet you, you can support everything that is in this H.R. 
3080. 

Mr. Grandy. I wrote a lot of what is in that. Senator. Of course, 
I can. 

Senator LoTT. So I think, at some point, we can use this as a 
base, and we can see if there are other things that we can reach 
out and do to improve it. 

I don't know if you were here. Maybe you weren't, but I told you, 
I flirted with everything in town including the Cooper package, but 
I just could not bring myself to support it because there were some 
fundamental things in there I didn't agree with. 

Now, you are talking about cosponsors. I want to also point out 
to you that the Cooper-Breaux package which you have signed 
onto, in the Senate, it only has three cosponsors, only three, one 
Republican and only two Democrats, other than John Breaux. So 
that is not exactly much of a consensus in the Senate. I mean, all 
we got to do is reach out and find one Democrat that will join up 
with us, and I bet we can do that. 

Mr. Grandy. I realize my time has expired. My question was not 
philosophical. It is tactical. I don't understand how we are going to 
get to our objective if we cut off our supply lines and begin trashing 
the one bipartisan effort that now exists anywhere in the Congress. 



355 

I might point out it is also bicameral. Senator Chafee, who is sit- 
ting behind you, knows that we have met regularly with his group 
in an effective way to try and bridge some of the differences be- 
tween our bill, which I think are slight, but nonetheless of concern. 

I may be wrong, but I don't understand how we are going to win 
the day by mustering our troops at the border and try to shoot 
down everything that comes flying our way, but, again, I have not 
been here as long as you gentlemen. So maybe there is something 
that I don't know about grafting a compromise, but I don't think 
it begins with scorched earth. 

Thank you, Mr. Chairman. 

Chairman Stark. Thank you. 

Who is next? Mrs. Johnson. I am sorry. 

Mrs. Johnson. Thank you, Mr. Chairman. Because there are 
many other people to testify, I will keep my comments short. How- 
ever, I did want to comment on the issue of rate constraints in our 
proposal because I don't think it was quite clear to my colleague 
from Michigan that the 15-percent constraints are reafjy between 
groups, and that there are more serious constraints from year to 
year, and that not only does our bill do that, Senator Bentsen's bill 
also does that. 

All of those who have thought seriously about insurance reform 
and the industry have accepted that it is perfectly reasonable when 
you are reforming insurance and eliminating the right to exclude 
for preexisting conditions, guaranteeing that people can buy the 
plan for the same prices as everyone else, guaranteeing that it will 
be renewed, and that you also can guarantee that there will be 
more modest rate fluctuations. 

Certainly, we don't have to deal with this kind of issue with big 
employers. They are big enough to bargain good deals for them- 
selves, and their problems with rate increases have not been the 
problems of the small market. 

That brings me to the question that I want to pose to you gentle- 
men. Both of you made the point that you are proposing very spe- 
cific solutions to the problems that we see. We see the problem in 
the small group market. We don't see a buying problem in the big 
group market. The kind of work that you gentlemen have done rep- 
resents very common sense solutions and very practical and very 
forceful solutions to the real problems as we know them, but I 
think as we go through the details, the overall view of how these 
proposals will interact to control costs has been lost. 

We really have two options before us. One group wants to say 
government will control cost. Government will set prices. We will 
have global budgets. We will take care of this, America. I think the 
big generic difference here is that we think if government changes 
the rules of the game and creates a different interaction of motiva- 
tions and forces that cost will be controlled, and the pieces that vou 
are proposing interact in such a way that costs will be controlled. 

Now, it is true CBO has a hard time with this because, as we 
know, they can't deal with changes in behavior, but I would like 
you to talk a little bit about how your proposal does two things, 
specifically controls costs and specifically increases access. 

Mr. MiCHKL. On the access side of it, as I said, we are not man- 
dating business and industry to pay for their plan, but you have 



356 

an obligation to offer a plan to your employees. There has got to 
be something. 

Mrs. Johnson. So you are going to have to do that educational 
job that everyone needs done for them. Employers are going to 
have to do that. 

Mr. Michel. Right, and not all of them do, obviously, today. So 
it has its leverage there by saying we expect you to consider this 
a part of doing business today as offering some health care plan to 
your employees. 

Now, it has got to work in combination, however, with the insur- 
ance industry out there that we don't condemn out of hand. I want 
to keep the private sector still in the act. That is what it is all 
about, private versus public, but they also have an obligation, too, 
then to dovetail into what we are admonishing the employers to do, 
and they have an obligation then to help those smaller employers 
unable now to afford it, by putting together risk pools to stablize 
the cost of insurance. I think that is the access one. 

On the expenditure side, of course, we have talked here a little 
bit about the doctors playing defensive medicine rather than offen- 
sive medicine, and it comes by way of what has happened by the 
kind of malpractice cases and all the rest, and we would like to 
move in that area much more aggressively, so that we don't have 
our doctors, dentists, and those professionals so burdened with the 
kind of malpractice insurance premiums that they have got to pass 
it onto the consumer. 

Medical malpractice is one, but another one is in the antitrust 
area. I have three hospitals in my home community and a teaching 
school, the Peorie Med School. Our trust/antitrust laws today are 
really standing in the way of a number of our hospitals moving to- 
ward doing the kind of things they say could cut their cost, but 
they are foreclosed because then they would be conniving with the 
neighborhood hospitals. We will take this portion, you take that 
portion, and we will take this one here and fill a void, and unless 
we break that down to give them the opportunity to cooperate with 
one another, it drives up costs, and that is one area where I think 
we could be very helpful. 

Mr. Levin Ipresidingl. Senator, if we are going to finish, so that 
you can leave before the vote, why don't you answer briefiy, if that 
is OK 

Senator Lott. I will try to answer briefiy Nancy's question be- 
cause I think the Leader covered it quite well. 

Just one point. Even though my brother-in-law, who is a suing 
lawyer, wouldn't like it, I do think that we could make significant 
savings with real genuine medical malpractice reform. 

Also in this package is improved access to community health 
services. I talked particularly in my opening remarks about rural 
access. We have got a lot of people who just can't get to it, and I 
think the community health services, the migrant health centers 
would help, as well as some of the rural emergency and transpor- 
tation provisions. 

Then, finally, I do think we improve substantially access by the 
changes that allow employer-purchasing arrangements and chang- 
ing IRS restrictions that now prohibit the ability to do what needs 
to oe done, across State lines, for instance. 



357 

Mr. Levin. If it is all right, Mr. McCrery, why don't you inquire, 
and if you take the 5 minutes, I think we can finish up the panel, 
so, Mr. Leader, you can also go to vote. So Mr. McCrery will take 
5 minutes, and then we will run together to vote. 

Mr. McCrery. Thank you, Mr. Chairman, and thank you all for 
appearing before a subcommittee this morning and giving excellent 
testimony. 

I did work with you, Mr. Leader, on the task force that came up 
with this plan, and as you know, I have not yet cosponsored the 
plan because I have been working on my own, and I kind of want 
to get it introduced first, to put mv marker out there as to what 
I thought was the best approach before I started cosponsoring other 
approaches, but I can assure you, as soon as mine is introduced, 
I will be cosponsoring your bill and probably a couple of others. 

I just want to summarize for the subcommittee the good things, 
the positive things that you do in your bill because I think there 
are many, and they ought not be overlooked. 

You have antitrust reform which can be a powerful incentive to 
control cost in the provider community. You do have rural health 
care incentives which will help get access for folks out in the rural 
areas of our country. 

You have medical malpractice reform. I do disagree with one part 
of your medical malpractice reform, and that is caps on attorney's 
fees. Philosophically, I am just opposed to telling people what they 
can make, regardless of whether they are doctors or lawyers, but 
it is a good medical malpractice reform section. 

You do a lot of insurance reform which gets at some of the prac- 
tical problems that people have in this country for getting coverage. 
For example, you do away with preexisting conditions clauses. You 
guarantee renewability. You limit premium increases for those peo- 
ple who get sick, and you increase the portability of insurance in 
this country. 

You also provide greater access to the system by giving tax de- 
ductibility to the self-employed and not only the self-employed, but 
to individuals who don't have insurance provided by their employ- 
ers. That is a huge incentive for folks to get into the system, get 
into the health insurance system. 

So you have a lot of good things in this bill, and I agree with 
Senator Lott, this is a place where we ought to start. We ought to 
agree that these are thi