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Long Term Care (2)
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This file contains materials on the Social Security Act.
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Sarah C. Massengale Files (Ford Administration)
Sarah Massengale's Health, Social Security and Welfare Files
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The original documents are located in Box 18, folder "Long Term Care (2)" of the Sarah C.
Massengale Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the
United States of America her copyrights in all of her husband's unpublished writings in National
Archives collections. Works prepared by U.S. Government employees as part of their official
duties are in the public domain. The copyrights to materials written by other individuals or
organizations are presumed to remain with them. If you think any of the information displayed
in the PDF is subject to a valid copyright claim, please contact the Gerald R. Ford Presidential
Library.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
FOR RELEASE ONLY UPON DELIVERY
DEPART MELTARE ONY ARTMENT DEPARTMENT ADUCATION
HEALTH.
OF
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
U.S.A.
STATEMENT
OF
M. KEITH WEIKEL, PHD
COMMISSIONER, MEDICAL SERVICES ADMINISTRATION
BEFORE THE
SUBCOMMITTEE ON LONG-TERM CARE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
AND
SUBCOMMITTEE ON HEALTH AND LONG-TERM CARE
SELECT COMMITTEE ON AGING
HOUSE OF REPRESENTATIVES
FORD & LIBRARY 938839
TUESDAY, OCTOBER 28, 1975
Mr. Chairman, I am pleased to appear before these two distinguished
committees to testify on HEW's proposed home health care regulations
which would permit proprietary agencies to participate in the Medicaid
program. I am looking forward to discussing these regulations with
you and to hearing your views, for the Department is vitally interested
in considering a variety of opinions before the revised final regu-
lations are published. As you know, the proposed regulations were
published for comment in the Federal Register on August 21. While
the thirty day comment period was scheduled to close September 20,
because of the quantity and quality of comments we were receiving,
the period was extended to October 7, to give as many different
individuals and organizations as possible a chance to comment.
So far, we have received over 1,000 comments which we are analyzing
at the present time.
In addition, have issued invitations to a wide variety of representative
national and State professional and provider organizations and consumer
groups to discuss first hand all of the issues and questions related
to the proposed amendments to these regulations in order to achieve
the most effective development of the final regulations.
I also welcome this hearing as an opportunity to discuss the proposed
regulations with you and perhaps to clear up some misconceptions as
to how they would work in practice.
- 2 -
The Medicaid program devotes over five billion dollars, or thirty-eight
percent of its expenditures to the area of long-term care. Almost all of
these funds are for institutional care. Over one million Medicaid
recipients spent some time this year in a nursing home, mental or
tuberculosis hospital as a long-term care patient.
Many studies, including the GAO report to the Congress on Home Health
Care Benefits under Medicare and Medicaid, in July 1974, have pointed
to the under-utilization of non-institutional services. While acknow-
ledging that hospital and nursing home care are necessary and essential
elements of a continuum of care, so too, are non-institutional
services for those individuals who no longer require institutional care
or, more importantly, for those who can be maintained in their own
homes, thus delaying or averting the need for institutional care.
The excessive utilization of institutional care has been partly
attributed as well to the fact that Medicare and Medicaid reimbursement
has been more readily available for institutional services, that
alternatives to institutional care did not exist in sufficient quantity
or comprehensiveness, and when they did, their Federal reimbursement
was restricted to skilled care over a limited period of time.
One alternative to institutionalization is a viable home care program.
However, for some time it has been recognized that a clarification of
existing Medicaid home health regulations was necessary if the legis-
lative intent of home health services under Medicaid is to be achieved.
Although it is a mandatory service, there are indications that many
- 3 -
States have not adequately implemented it as a mechanism of non-
institutional care. For instance, reports from 45 States show that
7 had fewer than 100 recipients of such services during fiscal year
1974, and 3 had fewer than 10.
Before going into the details of the proposed regulatory changes, I
would like to address two general but basic issues which are readily
misinterpreted.
First, these regulatory changes are, in a sense, clarification and
definition of the services that were mandated by Congress in the Social
Security Act Amendments of 1967. The law requiring States to provide
home health care under Medicaid does not limit either the source or
type of home health services as in Medicare. In fact, Congress made
it clear that Medicaid should direct its attention to providing
reimbursement for long-term care. Because existing regulations are
either not clear or were too closely patterned after Medicare conditions
of participation, we must now define more clearly what services Medicaid
programs can reimburse, if these services are to reach all individuals
in need of home care. These proposed regulations, therefore, are
considered to be necessary to fully implement the law.
A second general concern expressed is that through these regulations, the
Department is usurping State's rights to establish the dimensions of their
Medicaid program. The example cited is that these regulations would
require States to include proprietary agencies as Medicaid providers. In
fact, the States, or even the Medicaid agencies themselves, may specify
- 4 -
that such agencies are excluded from participation and at least one State
has done so. In addition to meeting Federal criteria for reimburse-
ment, States may also require such agencies to be licensed by the State
and the licensing standards, which are entirely a State responsibility
may, and have been, set at a higher level than Federal regulations. This
is in keeping with the Medicaid statute a State-administered program
which leaves Medicaid participation itself up to the States, as well as
many choices on extent and type of services.
It should also be noted that similar considerations have resulted in
suggested legislative and regulatory changes in Medicare. The proposed
regulations, published in the Federal Register on June 9, 1975, would
permit non-profit and official agencies to contract to buy additional
services from a proprietary agency. Comments, which generally are
favorable to the proposal, are being analyzed at the present time as a
Final Regulation is being prepared. In addition, a legislative change
in Medicare has been recommended by the Department which would repeal the
requirement that proprietary agencies be licensed by the States before
they can participate. These two changes would make the Medicare home
health agency requirements generally consistent with those proposed
under Medicaid.
As these changes develop, both Medicare and Medicaid authorities are
carefully reviewing them to assure that Federal requirements for certi-
fication and reimbursement do not work at cross purposes in the two
programs and that the States and agencies avoid unnecessary duplication
of effort and overlapping responsibilities.
- 5 -
The GAO report identified three major obstacles in Medicaid programs to
full utilization and support of home health services: services covered
varied from State to State; in some States, the patients' eligibility
was more restrictive than the legislation intended; and the States'
payment rates were not adequate. The proposed regulations particularly
address the first two deterrents, and while Social and Rehabilitation
Service does not have the authority to require States to adopt a certain
level of payment for home health care, it has emphasized to them the
importance of realistic payment rates. A recent review of Medicaid
payment methods shows that nearly one-hald of the States already pay
for home health services on the same basis as Medicare, i.e., at
reasonable costs or charges, whichever is the lesser.
With respect to the home care services to be covered, existing Medicaid
regulations have been interpreted by some States as requiring that they
provide only one rather than all three mandatory components of home health
care services: intermittent or part-time nursing care, services of a
home health aide, or medical supplies and equipment. Because of this,
States may not be providing the full extent of home health services
which are available to eligible patients. Under present legislation,
BERALD FORD LIBRARY
however, the scope and extent of home health care services is left to
the States.
Another inhibiting factor affecting expansion of the Medicaid home health
benefit has been the use of the presently limited Medicare definition of a
home health agency. Under current Medicaid regulations, a home health
- 6 -
agency is defined as one which (1) is a participating Medicare provider
or (2) although not a participating Medicare provider, is qualified
to participate in Medicare. Medicare legislation and regulations state
that a home health agency is one which provides skilled nursing services
and at least one of the following services: physical, speech or
occupational therapy, medical social services, or home health aide
services. Agencies, such as visiting nurse associations and county
public health nursing services, which do not provide a second service
beyond nursing, have therefore not been able to participate. It is
estimated that there are 500-700 such agencies throughout the nation,
primarily in rural areas, which provide the valuable service of nursing
care of the sick at home. These agencies, now unable to receive
Federal reimbursement under Medicare or Medicaid, could with adequate
support be built upon and encouraged toward more comprehensive services
through the proposed new regulations.
The new regulations also address the limitation that has resulted
because Medicaid adopted the Medicare restriction on participation of
proprietary agencies, unless licensed by State law. There is no
comparable restriction against proprietary agencies in present Federal
regulations with respect to other Medicaid services. Thus, the proposed
regulation would remove the discrimination in this field which is
based on the motive for existence of a class of providers. Extension
of accessibility to profit-making agencies may improve the possibility
of restraining costs of home health care services, both through their
- 7 -
economic incentives to be efficient and through the competition
engendered by the increased number of participants.
Although eleven States have licensure laws, and therefore proprietary
agencies are eligible for Medicare certification once licensed in these
States, only 43 such agencies are thus certified, principally in two
States, each with 20 agencies, California and Louisiana.
This small number of proprietary home health agencies is at present, the
extent to which participation in Medicaid can be measured. Other
proprietary agencies, already providing needed services in communities
to private paying patients, have been precluded from reimbursement by
Medicare and Medicaid. Although precluded also from even selling their
services to the non-profit or official agency, until recently many have
good existing relationships with such agencies. Even large voluntary
and official home health agencies readily admit they are not meeting
the total needs for home care in their urban communities. One visiting
Visiting Nurses Association recently reported that it estimated it
was reaching between one-fourth and one-fifth of the patients discharged
from the hospital needing home health care services. The same agency
had no estimate of how well it was meeting the needs of those still
in their own homes.
Expansion of existing home health agencies is, of course, highly desirable
to meet these untouched needs. It is equally desirable to attract
additional resources to the community, provided that these resources are
- 8 -
not overlapping, provide quality care, and work in concert with other
related agencies.
This, obviously, is easier said than done, but the Department is even now
considering how over-development of home health agencies can be avoided.
One method being explored is the desirability of including home health
agencies under "certificate of need" requirements. We understand
States such as Florida already have passed certificate of need legislation
to cover these activities.
In the States without licensure laws for home health agencies, an unknown
number of proprietary agencies, in order to participate in Medicare, have
incorporated and have been declared by the Internal Revenue Service
to have a tax exempt status. These agencies are often franchises of
large, nation-wide organizations and are established specifically to
avoid the restriction on participation in Medicare. The agencies show
no profits however. Such agencies show no profit at the end of the year,
often because of their higher administrative salaries, and more spacious,
luxurious quarters, and this in turn is reflected in their cost data.
If the proprietary agency has not chosen this route, they then operate
within the community without the quality controls of State survey,
certification and monitoring of services provided.
GERALD FORD
The legislative intent of Title XVIII has resulted in the specification
that patients require skilled services such as nursing, physical or
speech therapy, in order to be eligible for home health coverage.
Medicaid, by contrast, was never intended to be restricted to home health
services for patients who only require skilled care.
- 9 -
The absence of a secure source of reimbursement for such patients has
affected the development and expansion of agencies which could serve
these kinds of personal care needs at significantly less cost than
institutional care. Obviously, there is need to clarify and improve
the Federal regulations governing this service.
In recognition of these several needs, a revision of the Medicaid
regulation was drafted and published for the purpose of increasing the
use of home care where such care is appropriate and determined by a
physician to be necessary.
In summary, the proposed regulations:
(1) clarify which home health services are required and which are
optional with States. The States must provide nursing services
(RN or LPN as appropriate), home health aide services, and medical
supplies, equipment and appliances suitable for home use. They
may, at their option, provide physical, occupational, or speech
therapy. Any service, whether required or optional, must first
be found necessary by the patient's physician and must be included
in a written plan of care developed by the physician and home
health agency personnel, and reviewed by him as the patient's
condition requires. This revision will assure that all States
will reimburse a basic package, and at the same time encourage
expansion of coverage of other optional services.
(2) clarify which recipients are eligible. Some States have limited
home health care to those who need "skilled" care or those either
- 10 -
leaving or about to enter institutions. No such limitation appears
either in statute or regulation, and it should not, since many
persons need some home care to maintain or recover their health
in order to avoid institutionalization. They should receive home
care before they reach the crisis point of institutionalization.
The revised regulation clearly repeats the statutory requirement
that all "categorically needy'' persons age 21 or over must receive
home health services when determined necessary by the physician
(the categorically needy are generally those eligible for casy
payments under SSI or AFDC). The revision also clarifies that
certain groups chosen by the State to be eligible for nursing home
care must also be eligible for home health services, and that the
State may provide home care to all Medicaid eligibles if it wishes
to do SO. This clarification expands the population eligible
for coverage.
(3) Expand the types of agencies which may participate under Medicaid,
in addition to those certified under Medicare. Under the proposed
expansion, agencies offering the single service of either nursing
or home health aide services as well as proprietary agencies may
be certified for Medicaid if they meet certain prescribed Federal
standards. These changes are intended to make home health services
more available to Medicaid recipients and thus in future years
decrease need for institutional services under Medicaid. The
proposed standards for such agencies parallel those for the Medicare
program whereever possible.
- 11 -
The objection to single-service agencies is that they may provide only
fragmented care for patients who need multiple services. We do not
think this concern is valid, since in all cases a registered nurse must
make an initial home evaluation visit and must supervise the care given
by home health aides. This will provide coordination of care and guard
against fragmentation of services. Allowing single-service agencies
of this type to participate will overcome the current lack of care
for recipients who need only home health aide services and who live
in neighborhoods where multi-service agencies do not exist or are not
willing to participate in Medicaid. While a multi-service requirement
is ideal, there are not now enough such agencies especially in rural
areas to make that realization possible.
This regulation is of particular importance to the rural areas of the U.S.
In half of the counties in this country, there are presently no certified
home health agencies. This regulatory change will permit a sizeable
number of agencies to enter the Medicaid program and to grow as need
is demonstrated. Even before Medicare was enacted, such nursing care
of the sick at home programs proved to be the foundation for building
up services until certification was reached. In Arkansas, Tennessee and
many other States, through a combination of Federal and State monies,
support was given to expand those services geographically as well as
including the second service, so that by the time Medicare was enacted
they were ready for certification. The work is not yet complete, and
there are many communities where the principle provider of health care
is the public health nurse. If this resource of existing home health
agencies is to be fully utilized and expanded, adequate reimbursement
- 12 -
is necessary.
We realize that there is potential for abuse of the program by both
proprietary and non-proprietary providers of home health care services,
just as there is potential for fraud and abuse by proprietary and
non-proprietary providers of all types of services. As some of you
know, as Commissioner of the Medical Services Administration, I have
made the fraud and abuse surveillance effort one of my highest priorities.
To date, we have focused on assisting States to set into place systems
for detection of fraud and abuse in three major areas: nursing homes,
physician services and pharmacies. It is my intention, should the
proprietary provisions remain part of the final regulations, to add
home health services as a fourth major area of surveillance. In
addition, our utilization review requirement will minimize potential
fraud and abuse. The Medicaid statute requires each State to have
a system for the review of the utilization of all services provided
under the State plan. The State must develop appropriate methods
and procedures to carry out the review for each type of care provided.
The Utilization Review regulations which were published on November 29,
1974, require the State to provide for the on-going evaluation, at
least on a sample basis, of the necessity for and the quality and
timeliness of services provided. The State must also establish and
implement a past payment review process which provides for the develop-
ment of provider and recipient profiles and exceptions criteria. This
process is designed to identify questionable patterns of care and
misutilization practices of recipients, providers and institutions.
- 13 -
In conclusion, I would like to emphasize that the regulations we have
been discussing are not final: we have received well over 1,000
comments which we are in the process of considering. I will be
pleased to hear your views and discuss the issues with you.
LIBRAR 85
HEALTH.
FOR RELEASE UPON DELIVERY
OF
DELICATION
SECTITY AND
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
U.S.A.
STATEMENT
BY
STUART H. ALTMAN
DEPUTY ASSISTANT SECRETARY FOR
PLANNING AND EVALUATION/HEALTH
Before the
TASK FORCE ON HEALTH POLICY
HOUSE REPUBLICAN CONFERENCE RESEARCH COMMITTEE
U. S. HOUSE OF REPRESENTATIVES
FORD LIBRARY
Auditorium
Baptist Hospital
2000 Church Street
Nashville, Tennessee
October 24, 1975
MR. CHAIRMAN AND MEMBERS OF THE TASK FORCE:
I am pleased to have this opportunity to discuss with you the
concerns and actions of the Department of Health, Education, and
Welfare in a most important area. At a time when the President
is attempting to reduce Federal outlays and to control inflation in
the general economy, inflation runs rampant in the health sector.
Health expenditures are increasing with few constraints, and the
effects on Federal and State budgets, private insurance companies
and consumers of health services have once again reached crisis
proportions.
Health spending is likely to increase over 17 percent this year
and could reach over$160 billion by 1977. Federal Medicare and
Medicaid expenditures alone will increase from $21.7 billion in
FY 1975 to over $30 billion in FY 1977, an increase of almost 40 per-
cent in two years, due almost entirely to price and utilization increases
rather than growth in the number of program beneficiaries. The Civil
Service Commission has just announced that premiums under the Federal
Employees Health Benefits Program will rise an average 35 percent for
1976. Premiums for private health insurance are expected to go up
comparably. The effects of this premium increase on firms in the private
sector are especially serious during periods of severe economic pressure.
In addition it will cost the Federal government $1 billion in lost tax
revenues.
2
To understand the political and economic environment which has
fostered this situation as well as to gain some insight into the
types of policies that both the Congress and the Administration can
implement, it would be useful for us to discuss the basic structure
of this industry, its past performance, and current Federal efforts
to contain the rise of health care costs.
The Structure of the Health Industry
The health industry lacks much of the discipline of the competitive
market and is in many respects geared to spending money. In part,
this situation results from the following characteristics:
-- Widespread insurance coverage for hospital care has
reduced the cost-consciousness of both consumers and
providers and has provided incentives for patients to
be treated on an inpatient as opposed to an outpatient basis.
-- The reimbursement methods employed by both public and
private payors provide incentives for hospitals to continually
expand and physicians to increase fees.
-- Restrictive laws and licensure practices have prevented the
widespread use of new categories of manpower.
-- The physician, who is generally reimbursed on a fee-for-service
basis, rather than the consumer, often makes the ultimate decision
on the number and types of services provided and whether the
patient will be hospitalized.
3
-- Consumers lack information about the quality, efficacy,
price or even the nature of the product that they and/or
their physician-agents are buying.
Consequently, the health industry has evolved into one in which payment
is guaranteed for virtually any expenditures incurred; consumers and
providers are not conscious of the real costs of the resources being
consumed; and public and private third-party payors pump seemingly
endless streams of money into the health system with little understanding
of the effects on health status.
I would like to emphasize that while inflation has always been a
problem in the health industry, it has been exacerbated by the tremendous
growth of the health sector and the availability of large amounts of
public and private funds. These are relatively recent phenomena due in
large part to the growth of insurance coverage.
Health Cost Inflation
The enactment of Medicare and Medicaid in 1965 represents the
largest single extension of insurance benefits in history. Immediately
after their introduction, both per capita health expenditures and medical
care prices rose rapidly. Per capita personal health expenditures
which had been increasing at an annual rate of 6.4 percent between 1950-
1966, jumped to an annual rate of increase of 12.1 percent between 1967-
1970. While some of this increase can be attributed to increased utilization
of services, over half of this increase in expenditures was due to increases
in medical care prices.
4
From 1960-1966, the charge for a semi-private room increased at
a 6 percent annual rate. With the introduction of Medicare and
Medicaid, this rate jumped to 14.6 percent, over three times the
rate of increase in the overall Consumer Price Index. The rate of
increase in average expense per patient day, a more inclusive
measure of hospital costs, also doubled. In fact, hospital and
physician price increases have exceeded increases in the overall cost
of living in every period except during the 1971-1974 Economic Stabilization
period.
Current Efforts to Contain Health Cost Inflation
In the late 1960s and early 1970s the Congress and the Administration
began to discuss modifications in the Medicare and Medicaid programs
to address the problem of rising medical costs. Out of these discussions
came a series of amendments to Titles XVIII and XIX of theSocial Security
Act which were designed to limit uncontrollable increases in Federal
spending for medical care. I would like to spend a few moments discussing
two of these provisions, since they represent the major component of the
Federal government's ability to deal with inflation in the health
industry at the present time. The provisions are (1) hospital cost limits
and (2) physician fee index. While an effective utilization review
program /. PSRO must be a cornerstone of any cost containment program, I
will not discuss this area myself, since Dr. Van Hoek is also with us today.
5
Hospital Cost Limits
As a partial remedy for some of the previously discussed incentives
for inefficiency that are inherent in retrospective cost reimbursement,
Section 223 of P.L. 92-603 gave the Secretary of Health, Education and
Welfare authority to limit prospectively our reimbursement of provider
costs where these are judged to be unreasonably high. Both the Congress
and the Department felt that the most equitable approach was to compare
the costs ofproviding care in similar hospitals. In particular, hospitals
that provide similar types of services and experience similar expenses of
doing business were to be grouped together. After extensive investigation
it was found that three measures were the most appropriate for classify-
ing hospitals into groupings of similar institutions; the bed size of
the hospital, its geographic location, and State per capita income. In
all, hospitals were divided into 70 groupings.
Medicare per diem payments were limited to the 90th percentile of
the distribution of routine per diem costs within each group, plus 10 percent
of the median cost in the group. Limits were initially set at this fairly
high level so that hospitals would have time to adjust to the new provision
of the Medicare law and to allow for any lack of precision in the initial
classification system. We estimated that only 4.5 percent of all hospitals
would exceed the limit. It is important to point out that since these
limits are set prospectively, all hospitals may potentially come in under
the limits. To improve the equity of the regulations, sole community
providers were exempt from the limits, and exceptions were to be allowed
6
for the costs of atypical services or of circumstances beyond the
control of the hospital.
We have nowissued a new schedule of limits which is effective
for cost reporting periods beginning on or after July 1, 1975. The
hospital classification system has been modified slightly and reduced
from 70 to 32 groupings. We have also lowered the group limits to the
80th percentile plus 10 percent of the median cost.
We project that approximately 11 to 12 percent of all hospitals
potentially could be affected by these limits--hopefully, fewer if
those potentially over the limit respond by reducing their costs.
Although a few hospitals will have large amounts of reimbursement
questioned, most will be only slightly over the limits. It should be
emphasized that it is not the intention of the Department, nor do we
believe of the Congress simply to limit Federal spending. It is our
hope that these controls can be helpful in reintroducing some financial
constraint to the almost unlimited increases in costs that we have
experienced in the last decade.
Physician Fee Index.
Congress also enacted as part of P.L. 92-603 a physician fee
index provision to limit increases in physician fees that could not be
justified on the basis of increased practice costs or increases in
productivity. Fee increases that are justified because of higher office
practice costs and increases in the productivity of physicians are fully
allowed and recognized.
7
The physician fee index is being applied to every prevailing
charge in each locality. It will also be applied on a cumulative
basis with FY 1973 serving as the base year, as specified by Congress.
In other words, increases in prevailing charges over the 1973 base year level
cannot exceed the rate justified by the economic index calculated for that
period. The economic index figure for fiscal year 1976 is 17.9 percent.
Thus, any individual prevailing charge that increases by more than 17.9 per-
c ent over its 1973 base level will have its rate of increase limited to
17.9 percent. Prevailing charges that have increased by less than 17.9 per-
cent will be unaffected, and any portion of the allowable increase not used
will be carried forward to future years.
Recently, the rising cost of malpractice insurance has become a major
concern. As you know medical malpractice costs differ widely by both
physician specialty and locality. Unfortunately, there are no reliable
data on malpractice insurance costs at the local or national level. As
a result, malpractice costs are only indirectly captured in the office
practice expense component of the index. The Department is currently working
to refine the index to account for medical malpractice costs directly and
will implement such changes as soon as the appropriate data are developed.
Legislative Initiatives with Implications for the Future
While the 1972 Social Security Amendments are the basis of present
cost containment efforts, two recently enacted legislative measures
have the potential for longer-run relief of the problem of health cost
inflation, the Health Maintenance Organization Act of 1973 and the Health
8
Planning and Resources Development Act of 1974. The HMO Act seeks to
promote efficiency in the health services industry by encouraging the
development within the private sector, of alternatives to traditional
fee-for-service health care. The Health Planning Act addresses the
broader issues of how our health care system is organized at the
community and State level and the extent to which planning can reduce
the duplication and maldistribution of our expensive health care resources.
Health Maintenance Organization Act of 1973
Public Law 93-222, the Health Maintenance Organization Act, was signed
into law in December 1973. This Act (1) provides Federal grant and loan
support for HMO development, and (2) requires employers offering health
insurance to offer an option of a prepaid plan where such plans exist (the
dual choice provision). It is the latter provision which is potentially
more far-reaching.
Health Maintenance Organizations (HMO) represent a major attempt to
restructure the delivery system. Unlike the traditional fragmented fee-
for-service system, the HMO provides both inpatient and ambulatory care within
one organizational structure. The financial interdependence between physicians
and hospitals eliminates the incentive for physicians to overutilize more
costly inpatient hospital services. Evidence exists that significant re-
ductions in inpatient hospital days have been achieved as a direct result
of HMO medical care management. In exchange for a single, monthly prepayment,
HMO enrollees are guaranteed a comprehensive rangeof health care services.
9
There are approximately 170 HMOs serving almost 6 million persons, an
enrollment increase of about 12 percent during the past year alone. The
number of HMOs has increased about 30 percent within the last 3 years.
HMOs have yet to achieve maximum penetration of the health care market
place. This is the result of several major obstacles:
-- The HMO Act requires that all HMOs offer a more comprehensive
benefit package than is provided by traditional health care
insurers;
-- Implementation of the dual choice provisions of the Act has
been delayed;
-- HMOs have thus far had difficulties attracting physicians;
-- Consumers are uncertain about the advantages of HMO membership.
Nevertheless, I believe it is essential that activities such as HMOs have
a chance to compete in our health care system and that we should not stifle
such innovation with overly restrictive Federal or State laws.
The Health Planning and Resources Development Act of 1974
Public Law 93-641 was signed by the President on January 4, 1975.
The Health Planning and Resources Development Act, as its provisions
become implemented over the next several years will hopefully produce
long-run relief from some of the inflationary pressures now inherent in
the structure of the health industry. National guidelines for health
planning are being developed to offer assistance to local communities
in their attempts to better organize their health care resources. In
10
particular we are most concerned with assuring all Americans that they
have access to primary care and that new and more economical types
of health professionals are utilized where appropriate.
Among the many activities of local planning agencies is the require-
ment that they establish local health plans. The local planning agencies
will then review proposed expenditures for new capital and services to
determine if they are consistent with their plans. The results of these
deliberations will be used by the State to regulate the expansion of
our most expensive facilities and services under required certificate-of-need
laws. The Act also provides for experiments in State level rate regulation
designed to encourage reform of the reimbursement system. Currently 26 States
have already enacted certificate-of-need programs and 18 States have imple-
mented some form of health care rate regulation.
Future Directions
It has become increasingly apparent that as health expenditures continue
to rise we must evaluate where the added funds come from and what they buy
us. Increases in health spending are now beginning to come at the expense
of other basic human and social services programs. In addition, as I
pointed out earlier, over half of the increase in health spending has been
going to feed inflation in medical prices, not to buy added services for
society.
Previous government efforts to control health care costs have been
only marginally effective and have fostered an adversary relationship
between the government and health service providers. While we do not
11
actively seek added regulatory powers, it does not appear that
a liassez-faire approach will eliminate the problems.
How, then, can the health system be improved? I believe two
paths are available for reducing the future rate of increase in health
care spending. We should institute more cost-sharing by patients, and
we should restructure the reimbursement system to increase providers's
incentives to use more efficient means to produce health services.
The Department has continuously favored cost-sharing as a means
to make program beneficiaries aware of the true value of the resources
they consume. We have advocated cost-sharing in our comprehensive health
insurance proposal and have introduced legislation to initiate cost-sharing
for Medicare inpatient services. Elimination or modifications in the
provisions in the tax laws that encourage individuals to purchase first
dollar insurance coverage would also be helpful.
But, increases in cost-sharing alone are not adequate. Institutional
providers must also become more cost-conscious and seek to improve
efficiency and productivity. We believe that a restructuring of the
reimbursement system toward prospective, rather than retrospective cost,
payments is the appropriate vehicle to promote efficient market behavior
on the part of the health service providers. I mustadmit, though, that
we still have many unanswered questions about how it should be structured,
but we do feel that the States should play a major role. We particularly
are looking to avoid the creation of any new bureaucracy to oversee the
health financing system.
12
In conclusion let me repeat a comment I made earlier. Spending
for health care has now reached such high levels that it is forcing
government and private groups alike to cut back on expenditures for
other important human and social needs. I am fully aware that some
of the solutions proposed by the Administration to bring a degree
of moderation to increases in health care spending have not met with
universal acclaim. But I would urge you not to limit your deliberations
to whether one or two laws or Departmental regulations are good or bad.
Instead, I would hope that groups such as yours would offer alternative
proposals for reaching the same goal; that is, a balanced spending pattern
for all our human and social needs.
DRAFT
PATIENT ASSESSMENT : VANTAGE POINT - FEDERAL ROLE *
It is timely to place emphasis on patient assessment. This calls
for demonstration and evaluation of alternative methods of caring for
chronically ill and elderly persons. The efforts to develop approaches
to patient assessment stem back as early as 1950 when there were
directed efforts to develop a whole system of long-term care. Later
in 1957 some of us were involved in the early development of the
concept of progressive patient care which looked at the arrangement
of resources and related these to patient needs.
Efforts have also been directed at developing uniform terminology
to describe the patient needs and services to be provided. Most
significant is the collaborative work of four groups:
Dr. Sidney Katz at Michigan State University
Dr. Paul Densen at Harvard University
Dr. Charles Flagle at Johns Hopkins University
Mr. Danehy, then with the Syracuse University Research Corporation,
now with the Hospital Association of the State of New York.
The Introductory Report of the Long-Term Care Study was released
recently and is entitled, "Long-Term Care Facility Improvement Study".
Essentially, this study used, for the first time, the patient
assessment form developed by the Densen group on a national basis.
STATE FORD GRAP,
*Notes by Dr. Faye G. Abdellah from the Consumer/Provider Meeting,
October 14, 1975.
2
We sought at that time to find out if it was possible to get the
information required for assessment of long-term care patients and
we found it to be available, although not always readily accessible.
We made no effort to validate the reliability of the instrument
since that had already been completed by the Densen group.
Significant portions of the patient assessment tool have
application to other acute care settings but our focus in the survey
was upon seeking to use an instrument which would truly access the
patient in that setting. This was a shift from the present survey
process which emphasizes the assessment of the capability of the
facility to provide care rather than looking at the next step as to
whether or not the services were provided, and also an evaluation
of those services. The data in the long-term care study include
information on health status and health services provided including
such things as activities of daily living, impairments in sensory
perception, patient diagnoses, dentition and patient care services
including physician services, nursing, rehabilitation, pharmacy,
nutrition and dietetic and social services.
From the vantage point of the Federal government, the timing to
move in the direction of patient assessment away from the facility
is very critical. The specific goals which we have in the Federal
government are as follows:
1. We are seeking to change the whole survey/certification
process to work toward recording uniform comprehensive
patient assessment data and using these data as an
integral part of the delivery of services. Thus, the
3
information would flow from the individual provider to the State to
the Regional Offices and then to the Federal government. This would
attempt to consolidate the survey effort using one uniform form,
that is the survey agencies of JCAH, Medicare, Medicaid and PHS
would use a uniform form in the survey assessment of long-term care
facilities.
2. We are also seeking implementation of the use of the common
dictionary approach to patient assessment described by the Densen
group by the provider and the State. We feel that the use of common
terminology by all groups is critical even though the form itself
may vary to meet specific needs of that setting. We are also
seeking to set our goals in terms of providing an optimum level
of care for patients and residents rather than maximum which is an
even higher level and we feel unattainable at this time. In providing
the optimum level of care, it is important to make the best use
of scarce manpower and resources available. One advantage of the
patient assessment tool is that it can be used as a management tool
by providers on a daily or monthly basis, so in essence the materials
that the state surveyor would be covering would also be a part of
the management tools used by the provider.
3. We are convinced that the use of the patient assessment
approach is an appropriate way to go in terms of providing an optimum
level of care for patients. Important in this assessment would be
the evaluation of the appropriate placement of patients and residents
4
in the whole system of health care. Since we are seeking to find
and develop a total system of health care delivery for meeting the
needs of the long-term care patient, the nursing home would become
only one component of that system providing an open door policy
so that one might move from home to nursing home back to the
community or back to the home and then to the community. This
would be a much more positive approach rather than only one entry
point to the nursing home where there is unliklihood of return to
the home and community.
4. We are also seeking more realistic community resource alloca-
tion and task assignment within individual facilities. This can
have important implications in terms of planning the staffing needs
and also eventually relating the manpower needs to the cost requirement
and the optimum level of care. We feel this is a much more valid
approach than requiring rigid hours of care such as 2.5 hours of
care proposed by some states and artificial ratios. The emphasis
would be upon first identifying the needs of patients and residents,
second, the manpower requirements to provide these and third, the
allocation of resources and on a cost related basis in provision of
these services.
5. The patient assessment approach from our vantage point
provides a solid basis for policy making in relation to long-term care.
Policies can be determined much more realisticly in relation to
planning and evaluating programs for the chronically ill, including
5
the mentally retarded and the developmentally disabled and the aged.
You recognize as we do the importance of basing long-term care policy
upon valid and reliable data. You are also aware of the importance
of this and its implications for some form of future National Health
Insurance.
6. Critical to the whole effort in terms of achieving an
optimum level of care for patients and residents is the education
and training of health professionals at all levels and others in
the long-term care setting whether in the institution, community,
or the home.
Most of all from the vantage point of the Federal government
we are seeking to reassess the total survey/certification process
and hope to replace the present cumbersome 68 page survey form
designed for acute care settings with a patient assessment approach
designed specifically for a long-term care setting. We have
highlighted and identified this as a high priority for this fiscal
year. We feel that we must work toward having providers and States
and all Regions fully implement the patient assessment approach with
a form considerably modified focusing on patient evaluation or
patient assessment and on the fire safety factors related to the
facility. This should tighten the survey process and provide
additional time for state surveyors and our regional personnel to
provide the needed consultation and technical assistance to the
providers.
6
Thus one could make better use of scarce resources and develop
Federal policies that truly assess the needs of patients and
residents and stress the importance of accountability from providers
for the provision of essential services. The approach we propose
this afternoon interlocks with PSRO, Utilization Review, and Medical
Review. Once the process is provided, this in turn will be related
to outcome measures for the result of the care or services provided.
Thus, we see an important linkage between the process and the
outcome measures as they relate to the provision of care.
We are grateful for your participation here this afternoon.
The message is clear and the timing is right for us in the Federal
government working with you as Providers/Consumers and Association
representatives to achieve a realistic goal of optimum care for
patients and residents in long-term care facilities and settings.
Thank you very much.
WP 9/21/75
Interstate Business:
Troubled Youngsters
By Seth Kantor
Kantor is a reporter in the Washington bureau of the Detroit News.
IN MAINE, an emotionally disturbed teen-
Many are under 12; they may be compelled
aged girl, six months pregnant, is forced
to remain in these often inadequate institu-
into a boxing ring to fight another angry
tions until they are 18.
teen-ager as part of her "treatment" at a
Some are juvenile offenders, wards of
child-care center.
courts. Others, victims of broken homes,
In southwest Virginia, an unlicensed
legally designated as abandoned or neg-
school with children from broken homes
lected, are sent away by welfare agencies
is accused of lending its teen-aged wards
serving as their guardians.
to a businessman for trips around the
country.
Military Dependents
In Texas, disturbed children at a dude
IN SOME CASES, the interstate movement
ranch turned "treatment center" are fright-
represents a desire by courts to banish
ened by fanatical staff members trying to
juvenile trouble makers into somebody
persuade them the end of the world is near.
else's jurisdiction hundreds of miles away.
In each case, the youngsters involved
In many other cases, state and local agen-
are from other states, shipped off at pub-
cies are motivated by economics pure and
lic expense to privately operated facilities
simple; child-care costs are higher in in-
in what has become a booming new "child-
dustrial states than in rural areas.
care" industry.
But 2 out of every 3 of these youngsters
These facilities have been springing up
are supported entirely by federal funds,
across small-town and rural America. Usual-
through the Defense Department's Civilian
ly they have no identifying signs. Often
Health and Medical Program for the Uni-
they score poorly in fire and sanitation
formed Services (CHAMPUS). The program
inspections. Some are run for profit and
was designed to purchase psychiatric care
concentrate on amassing real estate prop-
for military dependents who could not get
erties. Others are designated non-profit
proper care at military hospitals.
institutions but are run haphazardly.
The problem is that CHAMPUS was set up
Among the residents of these centers
strictly as a financial conduit to pay the
are at least 15,000 children sent across
bills, with no control over who goes where
state lines since 1973. The cost of their
or the kind of treatment received. Private
maintenance, not including transportation
psychiatrists and juvenile courts decide
and medical expenses, can be conservative-
where to send CHAMPUS wards. They are
ly put at $120 million over the two-year
dispatched from virtually every state and
period. That cost is borne by the public.
from overseas bases into more than 450
These children are categorized, under a
private facilities with CHAMPUS contracts.
catch-all term, as "emotionally disturbed."
See CHILDREN, Page C5
FORD VIBRARY
HEALTH.
FOR RELEASE ONLY UPON DELIVERY
OF
DEPART ARTMENT DEPARTMENT
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
USA
STATEMENT
OF
THEODORE COOPER, M.D.
ASSISTANT SECRETARY FOR HEALTH
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
Friday, September 19, 1975
FORD LIBRARY
MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
I am pleased to appear before you today to review with you a
number of issues with respect to the Medicare program and the
Department's efforts to insure quality health care through
utilization review and Professional Standards Review Organ-
ization activities.
In his testimony of June 12 before this Subcommittee, former
Secretary Weinberger expressed his deep concern about the
adverse effects of rampant inflation in the health care industry
on both the Federal Budget and Federal health program bene-
ficiaries. As you may recall, the former Secretary specifically
cited the underlying structural characteristics of the health
industry and the faulty design of Medicare and Medicaid reim-
bursement as principal protagonists of this inflationary
situation.
Unfortunately, these inflationary pressures in the the health
care industry still persist. Since Secretary Weinberger's
previous testimony, medical care prices have continued to
rise at rates well in excess of the overall cost of living.
The so-called "temporary" bulge in medical care prices fol-
lowing the expiration of the Economic Stabilization Program
- 2 -
is indeed becoming permanent. Although the ESP controls
expired over 15 months ago, for the first seven months
of the calendar year, the medical care component of the
Consumer Price Index increased at an annualized rate of
11.9 percent vs. a 7.3 percent increase in the overall
CPI.
The effects of these rising medical care prices on
Federal Medicare and Medicaid outlays are becoming quite
apparent. FY 76 Medicare and Medicaid outlays are ex-
pected to exceed $25 billion, an increase of almost
$
billion over FY 75 outlays. Thus, Medicare and Medicaid
outlays increase by billions of dollars each year due to
the chronic inflation in the health care industry
I would like to begin by identifying some of the
Administration's legislative initiatives which should
interest you.
- 3 -
Cost-Control Amendments
In order to control the projected 15 to 18 percent increase in
Medicare outlays in FY 76, to promote more efficient utilization
of medical services, and to protect the elderly against
the catastrophic costs of illness, the Administration
submitted to the Congress the Social Security Cost Control
Amendments. The bill was introduced in the House by
Congressman Staggers and Devine as H.R. 4820 and in the
Senate by Senator Curtis as S. 1720.
The proposal included:
-- subjecting all Part A services to a 10 percent coinsurance
-- allowing the current annual $60 Part B deductible to in-
crease automatically in proportion to future increases
in cash benefits (the dynamic deductible)
-- instituting cost-sharing liability limits of $750 per
spell of illness under Part A and Part B
The 10 percent cost-sharing on Part A, coupled with the
limitations on Parts A and B liability, is designed to
protect Medicare beneficiaries against the catastrophic costs
of illness, while discouraging unnecessary hospitalization.
- 4 -
It would place some additional cost-sharing on beneficiaries
with short stays while providing additional protection
for those with long hospitalizations.
The proposal to make the Part B deductible dynamic can
be viewed in a similar light. Both Social Security cash
payments and the Part A (hospital services) deductible
increase each year to reflect increases in the cost of
living and higher hospital costs, respectively. Yet the
Part B deductible remains fixed. (It was originally set
at $50 in 1965 and was increased to $60 by the 1972 Social
Security Amendments.) Thus, the real value of the deductible
either as a deterrent to unnecessary utilization or as
an initial liability for medical services consumed by
Medicare beneficiaries steadily declines. The dynamic
deductible proposal would more appropriately allow the
deductible to reflect increases in costs of living and
medical care prices.
Unfreezing the SMI Premium
As the Subcommittee is aware the provisions of
Public Law 93-233, which amended Title II of the
Social Security Act to advance the effective date
of an automatic cost-of-living benefit increase from
- 5 -
January of a calendar year to June of the previous
year, had the unintended effect of permanently
freezing the Medicare Part B premium at the July 1974
level of $6.70 per month. Unless this problem is cor-
rected, Federal revenues will be reduced by $297 million
in FY 1977, requiring an additional general revenue con-
tribution to the Federal Supplementary Medical Insurance
Trust Fund of this amount.
Last January, the Administration submitted to the Congress
draft legislation to reinstate the mechanism previously in
effect to permit increases in the Part B premium.
This legislation was introduced in the House as H.R. 4822
by Representatives Staggers and Devine and as S. 1722 in
the Senate by Senator Curtis.
The full Ways and Means Committee has reported similar
legislation as part of H.R. 5970, the "Emergency Health
Insurance Extension Act of 1975." However, the House of
Representatives has not taken action with respect to this
bill, which was reported out by the Committee on Interstate
and Foreign Commerce on May 7.
GERALD FORD LIBRARY
- 6 -
While H.R. 5970 and the Administration proposal are
conceptually similar with regard to unfreezing the SMI
premium, we prefer our approach because it establishes
a more direct relationship between changes in social
security cash benefits and increases in the Part B
premium. We urge the Committee to enact the Administration
proposal.
Coordination Between the Medicare and the Federal
Employees Health Benefits Programs.
We hope that the Congress will give speedy consideration
to legislation which would change the Social Security
Act and the Civil Service laws to provide improved
coordination between the Medicare and the Federal
Employees Health Benefits (FEHB) program. This legisla-
tion is required in order to comply with the provisions
of Section 210 of P.L. 92-603. Earlier this year, the
Department and the Civil Service Commission submitted
draft legislation to the Congress which would implement
this change.
Unless this legislation is enacted before January 1,
1976, payment may not be made under the Medicare program
for any services furnished to a Medicare beneficiary
- 7 -
if that service is also covered under a FEHB plan in
which the beneficiary is enrolled. Even where the FEHB
plan would not make full payment because deductibles and
coinsurance are involved, Medicare would not be able to
reimburse the individual for the amount of the deductibles
and coinsurance so long as the service is covered by the
FEHB plan.
We hope that Congress will act in a timely manner so that joint
Medicare-FEHB beneficiaries will receive the level of coverage
to which they are entitled.
Waiver of 24-Hour Nursing Requirements for
Rural Hospitals
We share the Subcommittee's concerns with respect to
unique problems faced by rural hospitals in attempting
to comply with staffing requirements under Title XVIII.
At the present time, the Secretary of HEW can waive the
24-hour nursing service requirement for some rural
hospitals if these hospitals provide the services of a
registered professional nurse during at least the regular
daytime shift. To be granted a waiver, a hospital:
(1) must be located in a rural area; (2) must be essential
to the adequate availability of hospital services; and
- 8 -
(3) must demonstrate good faith efforts to upgrade its
nursing service so that, over time, full compliance with
the nursing standard can be achieved. This waiver
authority is temporary and is scheduled to expire at the
end of this year.
H.R. 1792, sponsored by Representative Burleson, would
extend the waiver authority for an additional five years.
We believe that such a blanket extension could impede
the progress that has been achieved in improving the
quality of care provided to patients in rural areas. In
1971, several hundred rural hospitals were granted waivers.
Since that time the availability of registered nurses
in rural areas has steadily increased and fewer than
100 waivers are now in effect. Nevertheless, we agree
that those remaining hospitals which need additional
time to come into full compliance with the 24-hour
nursing requirement should be given the opportunity
to do so.
Therefore, we are submitting for your consideration a
draft bill which would provide a modified extension of
the waiver authority and would promote the progress that
has been achieved. Our approach would extend the waiver
- 9 -
for one year, to January 1977, and hospitals granted
waivers would be required to provide registered nursing
service for one other daily shift in addition to the
day shift now required. We have attempted to balance
the Department's concerns for the quality of care furnished
to hospital patients with our recognition of the difficulties
faced by rural hospitals.
Implementation of Regulations
On June 12 of this year, former Secretary Weinberger
testified before this Subcommittee on the Department's
efforts to implement specific cost control provisions
of the 1972 Social Security Amendments. I would like to
review the current status of the implementation of those
regulations:
(a) Termination of 8-1/2 Percent Nursing Differential
On May 23, 1975, the Department published regulations in
the Federal Register which terminated the 8-1/2 percent
inpatient routine nursing salary cost differential.
FORD is LIBRARY 07V839
- 10 -
This 8-1/2 percent routine nursing differential had
originally been instituted by regulation effective with
provider accounting periods beginning after June 30, 1969.
The differential was based mainly on a study conducted
by the American Hospital Association which indicated
that elderly patients required more routine nursing
services than those under age 65.
The Department had reasoned that changes in the Medicare
law, changes in the way services are furnished, and changes
in the way in which Medicare reimburses for routine services
have occurred make the recognition of this differential for
routine nursing services inappropriate. Thus, regulations
were promulgated to rescind the recognition of that dif-
ferential for reporting periods beginning after July 1, 1975.
The American Hospital Association, the American
Protestant Hospital Association, the Catholic Hospital
Association, and the Federation of American Hospitals
filed suit on June 9, 1975, to enjoin HEW from enforcing
these regulations. The plaintiffs contended that:
(1) the regulation would conflict with statutory and
regulatory provisions by causing part of the costs at-
tributable to Medicare beneficiaries to be borne by
non-Medicare patients; and (2) the previous regulation
required additional studies to be undertaken prior to a
revision of the differential, and no such studies were
conducted.
- 11 -
On August 1, 1975, the U.S. District Court for the District
of Columbia declared the regulation invalid. In view of
this decision, which we do not intend to appeal, and which
will increase Federal outlays in FY 76 by $20.0 million and
$175.0 million in FY 77, the Department will shortly undertake
a study having as its objective the development of evidence
bearing on the issue of whether, and to what extent a nurs-
ing care differential is currently justified.
(b) Limits on Reasonable Costs of Hospital Inpatient
General Routine Services.
The 1972 Amendments to the Social Security Act gave the
Secretary of HEW authorization to establish prospective
limits on provider costs that would be recognized as
reasonable under the Medicare program. The regulations for
FY 1975 were published in the Federal Register on June 6,
1974, and established 70 groups of hospitals with prospective
limits set at the 90th percentile plus 10 percent of the
median of routine per diem costs for each group. Providers
whose costs exceeded the limits would be required to justify
the payment for any excess in comparison with peer hospitals
or have their Medicare and Medicaid reimbursements for
routine costs reduced to the group limit.
On May 30, 1975, the fiscal year 1976 schedule of hospital
cost limits was revised and published in the Federal Register,
for reporting periods beginning on or after July 1, 1975. As
you will recall, two changes were made: (1) the hospital
classification system was modified slightly and the number
- 12 -
of groups was reduced from 70 to 32; and (2) the group
routine cost limits were lowered from the 90th percentile
plus 10 percent of the median to the 80th percentile plus
10 percent of the median.
The Association of American Medical Colleges (AAMC) filed
a lawsuit for a permanent injunction against the implementa-
tion of the new hospital cost limits, on the grounds that
the limits make no direct provision for the effect of
patient mix and the scope of services. On July 1, 1975,
the U.S. District Court for the District of Columbia de-
cided in favor of the Government and denied the AAMC's
request for an injunction. When plaintiff filed a "Motion
for Reconsideration" of the court's decision, it was denied.
A formal appeal has not yet been filed.
The new classification system was based on an extensive
statistical analysis. We found that routine costs do not
generally vary with the intensity of services required.
We also learned that patient mix and service complexity
were so highly correlated with bed size that their inclusion
in the classification system would not affect the cost
limits for most hospitals. While we believe that the
favorable decision in the AAMC suit was in part due to the
soundness of our classification system, improving the method
of grouping hospitals remains an ongoing area of analysis
within the Department.
- 13 -
A Complaint for Declaratory Judgment and Injunctive
Relief was filed by the Peter Bent Brigham Hospital in
the U.S. District Court for the District of Massachusetts
on July 11, and by University Hospital on July 29
regarding implementation of the initial schedule of limits
on hospital costs.
The Department is also developing a proposed schedule
of limits applicable to skilled nursing facility inpatient
routine service costs incurred in cost reporting periods
beginning on or after January 1, 1976. These regulations
will be published in the Federal Register in the near
future.
(c) Economic Index Limitation on Increases in
Prevailing Charges for Physicians' Services
As you know, the Department published final regulations
implementing the economic index provisions, Section 224
of P.L. 92-603, on June 16, 1975. These regulations
limited increases in Medicare prevailing charges to in-
creases that could be justified on the basis of an
economic index reflecting increases in office practice
costs and in general earnings level. The index is applied
- 14 -
on a cumulative basis with FY 1973 prevailing charges as
the base. The cumulative index for FY 1976 is 1.179.
Thus, an increase in any FY 1976 prevailing charge greater
than 17.9 percent over the FY 1973 prevailing charge for
that service will be reduced to 17.9 percent, while any
charge that increased by less than 17.9 percent will be
allowed in full and any unused portion of the allowable
increase would be carried forward for use in future years.
Our principal concern at this time is that the application
of the index appears to be causing FY 1976 prevailing fees
in a substantial number of cases. Prior to the application
of the economic index to FY 1976 increases, we had assumed
that such a rollback in prevailing fees from the FY 1975
level would occur in only a very few cases. In order to
evaluate the extent of the problem, we requested that
all Medicare carriers submit data on the prevailing charge
screens in each reasonable charge locality for 18 commonly
performed physicians' services. Reports received to date
covering 153 (approximately 55 percent) of Medicare's
reasonable charge localities indicate that over 15 percent
- 15 -
of FY 1976 prevailing charges are being decreased below
FY 1975 levels as a result of the application of the
economic index limitation. The outstanding reports cover-
ing the remaining reasonable charge localities are expected
to be consistent with these data from the preliminary reports.
The "rollback" problem is essentially due to a change,
required by the law, from the method by which ceilings
on prevailing charge increases were imposed in prior
years and will not reoccur in future updates of prevailing
charge screens.
(d) Utilization Review (UR) and Professional Standards
Review Organizations (PSRO)
As you know, the American Medical Association filed suit
opposing the November 29 utilization review regulations.
Judge Julius Hoffman issued a preliminary injunction on
May 27, 1975, which was upheld on July 22, enjoining the
Department from enforcing portions of these regulations
dealing with review of hospital admissions and with the
structure of the review committee. The Department has
now determined that changes should be made to perfect and
strengthen the regulations. As stated in the Federal
FORD VIBRARY
Register Notice of September 10, these changes are currently
being developed within the Department and the proposed re-
vision will be published in a future Notice of Proposed Rule-
making. The effective date of these provisions is postponed
until after the completion of such rulemaking.
- 16 -
PSRO's were designed as an improved review mechanism
which would replace utilization review activities as
soon as feasible. Congress recognized that there would
be a time lapse prior to full PSRO implementation nation-
wide and passed Sections 207 and 237 of the 1972 Social
Security Amendments in order to strengthen utilization
review nationally and eliminate duplicative review re-
quirements imposed upon hospitals and physicians.
Local, physician-sponsored organizations are established
on a voluntary basis under the PSRO program to assume
responsibility for assuring the medical necessity of
health care provided under the Medicare, Medicaid and
Maternal and Child Health Programs.
Physician support for PSROs has grown considerably over
the past year. To illustrate, although many segments of
of the physician community opposed the PSRO program over
a year ago, we can now report that over 86,000 physicians
have joined PSROs in their local areas. Approximately one
of every four physicians in the nation is a PSRO member.
Of 66 conditional PSROs which complied with the statutory
requirement of notification, only five had 10 percent of
- 17 -
the physicians in the PSRO areas question whether the PSRO
was representative of the physicians in its area. In ad-
dition, we estimate that there are an additional 40 physician
groups that are interested in starting PSROs in their areas.
There are only four States without a planning or conditional
PSRO (Texas, Louisiana, Nebraska, and Georgia).
The implementation of the PSRO program has been and will con-
tinue to be a complex undertaking. However, the most important
factor to successful implementation--physician acceptance
of PSRO--appears to have been met. The issues of coordinat-
ing procedures between the Medicare and Medicaid programs
and the development of appropriate regulatory policies
will continue to receive considerable attention and effort
to assure smooth and rapid implementation.
The Department has examined many proposed bills to
amend the PSRO law.
One amendment would direct the Secretary of HEW to
establish or revise areas after consultation with
professional organizations, such as State and County
medical associations and specialty societies located in
- 18 -
the areas affected and provide opportunity for public
hearing. We would note that professional organizations
were consulted prior to designation of PSRO areas. The
Notice of Proposed Rulemaking for proposed area designa-
tions allowed 45 days for public comment. The Department
has now provided for modification of PSRO areas if operat-
ing experience or changing conditions indicate the need.
Another amendment would authorize the Secretary to enter into
contracts with State medical societies or private, non-profit
organizations designated by them to provide technical
assistance in the creation and operation of PSROs. We feel
that PSRO Statewide Support Centers funded by HEW do serve
this objective. Several State medical societies and other
groups are presently providing technical assistance to local
PSROs in their respective areas.
In addition, the Department feels that we must now examine
how PSROs operate in order to determine the best approach to
any amendment of the statute. Until further operating
experience with PSROs has been gained, we believe that
the PSRO law should be implemented as enacted, although
changes will undoubtedly be necessary at a later date.
I would like to assure you that the Department remains firmly
- 19 -
committed to the continued and rapid implementation of
the PSRO program as the most effective and appropriate
means for assuring both the quality of care and the ef-
fective utilization of health care facilities and resources.
Hemodialysis and Kidney Transplant Provision
Representative Vanik of this Subcommittee and Chairman of
the Ways and Means Oversight Subcommittee, recently held
hearings on Section 299I of the Social Security Amend-
ments of 1972, which made dialysis and transplant services.
available to virtually all patients suffering from end-stage
renal disease. The Congress authorized the Secretary of
Health, Education, and Welfare to develop mechanisms to assure
that ESRD care was both of high quality and cost-effective.
Concurrent with implementation of the interim program
in June of 1973, the Department began to develop long-term
ESRD program policies which were designed to assure that
the program would: provide for the total health care needs
associated with treatment of end-stage renal disease; maintain
and encourage the conditions insuring the availability
and reasonable access to needed resources and service;
assure quality through effective review; promote effective
utilization of resources through the establishment of
minimum utilization rates and contain the costs of
covered services.
- 20 -
The Department published a Notice of Proposed Rulemaking
in the Federal Register on July 1, 1975, which would
establish conditions of coverage that a facility would have
to meet to receive Medicare reimbursement for the delivery
of ESRD services. The proposed regulations require ESRD
treatment facilities to join together into "networks." The
network must organize itself through the establishment of a
Network Coordinating Council which will serve as liaison be-
tween the Federal government and available community
resources. Each network would also establish a Medical
Review Board to review the appropriateness of ESRD patient
care and service. The proposed regulations would also
establish a medical information system and all ESRD facilities
participating in the program will be required to supply data
to this system.
To date, there are a number of identical bills pending before
Congress to modify both the eligibility and cost-sharing pro-
visions of the ESRD program. These provisions would:
(1) begin eligibility for dialysis patients with
the month in which the patient begins training
for self-dialysis in an approved program;
- 21 -
(2) begin eligibility for transplant patients with
the month in which the patient is admitted to
a hospital for transplant evaluation, provided
that the transplant surgery takes place within
the next two months;
(3) extend the final month of eligibility for trans-
plant patients to the 36th month after the
month of transplant;
(4) remove the cost-sharing provisions of the
Medicare law, making the program responsible for
100 percent of the reasonable charge or reasonable
charge for covered services or supplies, for those
patients who are participating in an approved
self-dialysis program or who are self-dialyzing.
(H.R. 7708 by Congressman Carter, H.R. 7618 by Congressman
Quillen, and H.R. 8786 by Congressman Perkins)
1 1 22
The Department favors efforts to encourage the use of home
dialysis and early transplantation under the renal disease
program. We have consistently supported these as preferred
treatment modes, from the standpoint of both therapeutic
benefit and cost savings. While we do support certain
portions of these bills, in general we do not think that
the incentives embodied in the bills are appropriate for
encouraging home dialysis.
Because transplantation should be encouraged as early
as medically and technically feasible for those patients
suited for this form of treatment, the Department does not
oppose allowing Medicare eligibility for renal transplanta-
tion to begin within the month in which the patient is
admitted to a hospital for transplant evaluation, provided
that surgery takes place within the next two months. Extend-
ing full patients' benefits to 36 months following transplanta-
tion would also have long-term medical and cost-savings
justification and we are not opposed to this provision.
Our most serious concern with H.R. 7708 et. al is with the
provisions to remove the normal Part B cost sharing for all
expenses incurred in connection with "home dialysis." When
- 23 1
maintenance dialysis is appropriate and/or preferred,
home dialysis is clearly preferable for reasons of treatment
flexibility and convenience, decreased complications, and
cost savings. Home dialysis is not without serious limita-
tions, however, and there are some considerable barriers to
its greater utilization. These include: medical suitability;
the patient's psychological strength and sense of motivation;
imminence of transplant; family support; space and utility
requirements of the physical setting; accessibility of home
training programs; the financial constraint of uncovered
services and supplies required for the installation and
operation of a home dialysis unit, including such medical
supplies incident to dialysis for which reimbursement is now
denied; patient ignorance of the various treatment options;
the individual physician preference, practice patterns and
decisions and the limitations imposed by the available
technology. Altering patient reimbursement policy will not
affect many of the elements influencing the therapeutic de-
cision, which are not subject to manipulation by financial
incentives or disincentives.
The Department agrees that a more liberal reimbursement of
GERALD FORD LIBRARY
items, services or supplies would be desirable to reduce
- 24 -
patient expenditures and that better coverage might serve
to induce greater utilization of home dialysis. We there-
fore would support expanding coverage to include all supplies
and equipment necessary for home dialysis, subject to the co-
insurance provisions which affect all Medicare beneficiaries.
H.R. 7708 further draws the distinction between patients
as participating in facility dialysis or home dialysis, while
experience shows that there is a great deal of fluctuation
between those foci of care. Severe administrative dif-
ficulties would be created if the Social Security Administra-
tion would be required to identify patients seeking
reimbursement by treatment setting. It is estimated that a
six-month lead time would be required to develop the appropri-
ate tracking capability; considerable administrative costs
would be associated with such a requirement.
In addition, the provisions of the bill applicable to "self-
dialysis" facilities raise serious concern in the Department.
Because there are very few facilities which permit patients
to self-dialyze, this provision invites potential disruption
in the delivery of dialysis services. A facility would be
granted an incentive to reduce or remove the present profes-
sional staffing, call itself a self-dialysis facility, and
command 100 percent of reasonable costs.
- 25 -
Congress has under consideration--as part of an integrated
cost-sharing proposal--a bill, H.R. 4820, submitted by
the Department on behalf of the Administration, which would
place a cost-sharing liability limit in 1975 of $750 per
spell of illness under Part A, with a similar limit on
Part B expenses. Inclusion of such a maximum annual liability
would provide financial protection not only to end-stage
renal disease patients but to all Medicare beneficiaries
who incur large medical bills. This approach to limiting
financial liability, we believe, is far more equitable to
all Medicare recipients.
The Department believes that the waiving of all Part B
cost sharing for home dialysis is medically undesirable
and would give the beneficiary population, already cate-
gorically eligible, a further categorical benefit denied
to the rest of the Medicare population. Removing the
cost-sharing provisions for home dialysis might set a
dangerous precedent, thereby raising serious questions of
equity, considering that there are patients with other
diseases with equally appropriate and technically available
therapeutic alternatives who are categorically excluded
from receiving the same benefits.
On the basis the the above, we recommend that H.R. 7708, et.
al, not be favorably considered as currently written. Amended,
as we propose, the bill when enacted will result in costs of
$16.0 million.
- 26 -
Home Health Care
The Department of Health, Education, and Welfare is
making an extensive review of the broad spectrum of long-
term care, with a view to developing a comprehensive
approach to provision of adequate long-term care services
for persons of all ages. Home health services will be
an integral part of this program, and I would like to
review briefly the Department's efforts to expand these
services.
Under Section 222 of the Social Security Amendments
(P.L. 92-603), the Department is funding research and
demonstration projects using, when medically appropriate,
certain day care and homemaker services as alternative options to
institutionalization in hospitals and skilled nursing fa-
cilities. Through these experiments we hope to determine
whether such coverage would provide quality and effectively
lower long-range costs by reducing the demand for higher cost
institutional care. We also hope to ascertain the costs of
providing various types and groupings of alternative services and
to evaluate alternative eligibility regulations.
The 1972 Amendments should also improve overall admin-
istration of home health benefits in that we are authorized
- 27 -
to establish in advance specific minimum numbers of home health
visits, under Part A, which a patient would be presumed
to require following hospitalization. On July 9, 1975, the
implementing regulations were promulgated for a 30-day public
comment period (later extended) and drew a large number
of responses. I would like to re-emphasize that the
limits set forth in these regulations are only guaranteed
minimums and that other services and additional periods
of coverage may be approved and reimbursed. Implementa-
tion of this authority should reduce uncertainty on the part
of physicians and patients as to whether or not home
health care services would be covered, thereby encouraging
prompt discharge from institutional care to the home
care setting.
Another significant new regulation was proposed in the
June 9 Federal Register which would greatly expand the
ability of home health agencies to provide a large range
of services by allowing such agencies to contract with a
proprietary provider of home health services.
A further change in the rules governing proprietary home
health care providers has been included as part of the
Administration's proposed "Social Security Amendments of
1975," transmitted to the Congress as draft legislation.
Section 302 of this proposal would repeal the requirement
that proprietary agencies be licensed under State law and
subject them to the same licensure requirements as public
- 28 -
and private nonprofit agencies. In this way we hope
to increase the number of participating home health
agencies and make home health services more accessible.
A number of bills have been introduced in the House which
would expand the scope of the Medicare home health
benefit. Most, such as H.R. 4869, introduced by
Representative Pike, seek to encourage the use of home
health services by making these services available to
patients who require less intensive treatment and by
providing an expanded number of home health visits
and services to beneficiaries. We share the concerns
of the sponsors of this and similar legislation that
the costs of hospital and other institutional services
are high and could be reduced in part by the substitution
of appropriate high quality home health services. We
would caution, however, that such substitutions can be
effective only if they are professionally controlled to
prevent misutilization.
We are hopeful that the preliminary results of the exper-
iments now underway under Section 222 will provide a
FORD & LIBRARY RALD
basis for identifying additional, more definitive research
which will provide a sound basis for any proposed changes
in the present home health benefit package.
- 29 -
Prospective Reimbursement
The current reasonable cost system of payment for
institutional services under Medicare--under which the
amount of reimbursement is determined retroactively on
the basis of incurred costs-has been criticized for
failing to provide incentives for cost containment and
therefore contributing to the recent rapid increase in
hospital costs. Prospective, rather than retrospective,
establishment of reimbursement levels appears to have
the potential to restrain hospital costs increases.
Prospective reimbursement facilitates intelligent
financial planning by hospital administrators, and could
have long-range, real impacts on hospital costs.
The Social Security Administration is currently engaged
in a broad and comprehensive research and experimentation
program designed to test several prospective reimbursement
methods.
Preliminary results of our studies indicate that prospective
rate setting systems developed at the State level may offer
a feasible method of moving toward a full-scale prospective
reimbursement system. Since we are currently dealing with
a multiplicity of systems in various States and are basically
- 30 -
in the developmental and experimental stages of the
program, we do not yet have the empirical evidence to
demonstrate that any single system is superior. Rather,
it seems clear that any system which might be developed
for general use at this time must include a high degree
of flexibility. We are intensifying our review and eval-
uation of various prospective rate setting provisions
in two areas: (1) a general provision which would, in
the short range, address the problem of excessive
escalation in hospital costs which has occurred nation-
wide; and (2) systems which could be implemented at the
State level.
Physicians' Services Reimbursement
Reimbursement under the supplementary medical insurance
program (Medicare Part B) for physicians' services is based
on the reasonable charges for such services. The Medicare
carrier is responsible for determining the reasonable charge
for a particular service by taking into consideration the
physician's customary charge, the prevailing charge in the
locality for similar services, and the payment made by
the carrier under its own health insurance plan for comparable
- 31 -
services provided under comparable circumstances to the
carrier's own policy holders and subscribers. Thus, in
effect, Medicare payments are limited to an amount based
on the lower of the physician's customary charge or a
recognized prevailing charge for a given service in the
area in which the physician practices. As you know, be-
ginning in FY 1976, the prevailing charge for a particular
service may increase only to the extent justified by an
economic index.
A Medicare beneficiary may assign Part B benefits to the
physician performing the services who, in voluntarily
accepting an assignment, must agree to accept the "reasonable
charge" as determined by the Medicare carrier as payment
in full for his service (i.e., he must agree to accept
the Medicare payment from the carrier and bill the bene-
ficiary no more than the deductible and coinsurance amounts
related to that charge). The physician's acceptance of as-
signment is not a one-time decision, but, rather, a decision
that can be made with respect to each separate Medicare
claim. Program experience indicates that in cases where
the bill is particularly high or where the beneficiary's
income is low, the physician generally accepts assignment.
When an assignment is not accepted, the beneficiary is
responsible for making up the difference between the charge
recognized by the program and any higher amount the doctor
charges.
- 32 -
The rate of physician acceptance of assignment has
steadily declined from 61 percent of bills in FY 1969
and FY 1970 to slightly less than 52 percent in FY 1975.
The Department is studying alternative reimbursement
methods to determine how the current system might be
changed to provide greater protection to beneficiaries
against excessive out-of-pocket costs and at the same
time to assure fair compensation to the physician.
Coverage of Pap Tests
Several bills currently pending before this Committee,
including H.R. 2764, introduced by Representative Corman,
would expend Medicare coverage to include routine periodic
papanicalaou tests (pap smears). In enacting the Medicare
program, Congressional intent was that it be an insurance
program designed to provide protection against the costs
of "medically necessary" health services. These are the
costs which are unpredictable and, hence, difficult to
plan for. As a result, Medicare does not generally cover
preventive services. However, pap smears are fully
covered when they are medically necessary in the diagnosis
and treatment of a medical condition.
- 33 -
Payment for Physicians' Services When the Beneficiary
is Deceased
Representative Burke has introduced a bill, H.R. 6022,
which would change the present procedures for disposing
of Medicare claims for payment for physicians' services
after the death of the beneficiary. Under the Social
Security Act, where the physician's bill has been paid,
payment is made to the person who paid the bill, or
where the beneficiary paid the bill, to the representative of the
estate, or to the beneficiary's survivors. Where the bill
has not been paid, the Medicare payment may be made only
to the physician if the physician has accepted assign-
ment of the claim--that is, he agrees to accept the
reasonable charge as the full charge for services.
H.R. 6022 would require the Medicare program to pay the
physician ahead of all other creditors, without an agree-
ment to accept the reasonable charge as payment in full.
We would not favor a change in the law which would permit
payments to be made directly to a beneficiary's estate on
the basis of an itemized, unassigned claim where a physi-
cian's bill has not been paid.
- 34 -
Administrative and Judicial Review under SMI
Several bills pending before this Subcommittee would
provide for administrative appeal and judicial review
of Medicare supplementary medical insurance (Part B)
claims in certain cases. Under present Medicare law,
a beneficiary who disagrees with the determination
made on his Part B claim may request a review of that
claim by the carrier. If, after the review, he is still
dissatisfied with the carrier's determination regarding
his claim and the amount in controversy is $100 or more,
he may request a fair hearing by the carrier. There is
no provision in the law for an appeal beyond the de-
cision of the carrier's hearing officer on a supple-
mentary medical insurance claim, nor is there a
statutory right to judicial review of the disallowance
of a Part B claim.
Prior to the enactment of the Social Security Amendments
of 1972 (P.L. 92-603), hearings were held on all Part B
claims in controversy, regardless of the amount. Data
show that during that time approximately 45 percent of
the hearings involved an amount of less than $100 and
that the cost of hearings in cases invoving claims as small
as $5 and $10 usually exceeded $100. The imposition of the
- 35 -
$100 minimum on the amount in controversy in order
to be eligible for a hearing recognized that such
costly procedures were unwarranted where very small
claims were at issue. We believe that current review
and hearing procedures adequately protect the rights
of program beneficiaries and eliminate unwarranted
program costs.
Ambulance Services
From time to time proposals are introduced which would
expand current coverage of ambulance services. Presently,
reimbursement for these services under Medicare is
limited to situations where the use of normal transporta-
tion would endanger the health of the patient and where
the individual is transported to the nearest hospital
with appropriate facilities or to one in the same
locality. Under similar restrictions, reimbursement
can be made when the patient is transported from one
hospital to another, to his home, or to an extended care
facility. The regulations which set forth these conditions
were developed in accordance with the clear intent of the
Congress. We feel that the current regulations provide
an adequate level of coverage for those beneficiaries
in need of ambulance services.
- 36 -
Medicare Reimbursement for Provider Malpractice
Insurance
In general, the Medicare law requires that all payments
to providers be based on the reasonable cost of services
covered by the program and related to the patient care
of Medicare beneficiaries. It is Congressional in-
tent that payments to providers approximate as closely
as practicable the actual cost, both direct and indirect,
or services rendered to beneficiaries of the program.
The rationale is that the costs of services to individuals
covered by the program will not be borne by individuals
not covered and the costs of services to individuals not
covered will not be borne by the program. Accordingly,
Medicare principles of reimbursement recognize not only
direct costs in connection with the rendering of inpatient
services, such as room and board, but also indirect costs,
such as depreciation, interest on indebtedness, bad debts,
educational costs, and medical malpractice insurance premiums.
The Department does not favor direct Federal intervention
at this time with respect to current medical malpractice
problems. Traditionally, the area of medical liability
insurance has been the responsibility of the States. The
diversity among State laws, the great variation in the
scope and intensity of the problem, the responsibility
- 37 -
of the States for hospital and physician licensure, and
the locus of authority for regulation of the insurance
industry are elements which enter into belief that mal-
practice belongs in the realm of State responsibility.
We wish to point out that insurance companies, State
legislators, hospitals and physicians are all actively
involved in seeking solutions to the medical malpractice
problem. A large variety of initiatives are under con-
sideration and proposals are being developed by most of
the interested groups. Our sources of information indicate
that 35 States have already enacted legislation related to
malpractice and various activities and studies are currently
underway in all but two jurisdictions of the United States.
We are currently evaluating Medicare reimbursement policies
to make sure that they are not contributing to the problem.
As part of our review, we are examining the issue of whether
payments for self-insurance should be reimbursed currently.
CONCLUSION
Mr. Chairman, we appreciate the opportunity to present the
Department's views on the topics of interest to the Sub-
committee. My colleagues and I would be pleased to answer
any questions you may have.
HEALTH
CATION PATTENTY AND WELFA NO WELFARE
OF
PRESENTION
EDUCATION
FOR RELEASE ONLY UPON DELIVERY
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
USA
STATEMENT
OF
JOHN B. RHINELANDER
GENERAL COUNSEL
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
HOUSE OF REPRESENTATIVES
Wednesday, September 3, 1975
FORD & GERALD LIBRARY
MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
I am pleased to be here at the request of the Subcommittee
to discuss the Department's implementation of section 1903(g) of the
Social Security Act, which provides for a reduction in federal Medicaid
matching if certain utilization control requirements are not met by
the States.
Since Dr. Weikel's previous testimony, the new Secretary of Health,
Education, and Welfare has taken office and has decided to suspend
imposition of the utilization control reductions of matching funds
pending a review of all reductions or penalties under the Social Security
Act. As you know, the Secretary is aware of the status of the imposition
of the utilization control reductions and has expressed great concern
that imposition of those reductions not be counter-productive to the
purposes which both the Congress and the Department seek to achieve:
better and more economical health care for Medicaid beneficiaries. At
this time, I would like to insert into the record the Secretary's letter
to the Chairman announcing this decision.
While the Secretary thus clearly recognizes that the statute requires
imposition of the reductions when a satisfactory showing of an effective
utilization control program is not made, he is also aware that the statute
mandates no date certain when the reductions must actually be imposed.
Accordingly, he has directed that an intensive study be made of the
problems in this area and of possible alternatives which would better
effectuate the purposes of the various reduction or penalty provisions.
2.
With respect to the utilization control reductions,
this review will focus on several areas of Secretarial concern:
1. Whether the amount of the reduction is disproportionate
to the deficiency in the State's utilization control program.
While the penalty is imposed only with respect to Federal
financial participation claimed for long-term care, the amounts
involved represent a substantial percentage of Federal financial
participation in all State Medicaid expenditures.
The review will accordingly consider, among other things, the desirability
of recommending a lower reduction rate, or a reduction coupled with
financial incentives for those States which have an effective
utilization control program (by means of a bonus or a higher
Federal matching rate).
2. Whether the requirement for a mechanistic application
of a formula reduction is counter-productive. The reduction provi-
sion in section 1903(g) does not distinguish between those States
which are doing little or nothing to control utilization of
medical services and those which are making a substantial effort
but fail to attain a precise adherence level. This failure to
distinguish qualitatively among the States may act as a disincentive
to those States which, even with strenuous effort, cannot expect to
attain required adherence levels for some period of time.
3.
Thus, the review will consider the desirability of recommending
a graduated reduction directly related to State efforts in imple-
menting a utilization control program, or a reduction which the
Secretary has the discretion to suspend when such State efforts
are apparent.
3. Whether the application of the reduction might force
States to reduce the amount, duration and scope of benefits
provided under their Medicaid programs, thus harming the very
people the statute was designed to assist. It would be a small
comfort to Medicaid beneficiaries to know that a statute designed
to assure they were not subject to unnecessary medical procedures
had the effect of assuring they could not obtain some necessary
medical care and services.
Moreover, we are aware of the adverse programmatic impact of
the preliminary injunction issued in the case of American Medical
Association V. Weinberger, a suit challenging the Department's
utilization review regulations. (Utilization review is one of the
statutory components of utilization control.) The court preliminarily
enjoined portions of both the Medicare and Medicaid utilization
review regulations -- but not the same portions, and 42 U.S.C. section
1396b(i) (4) requires hospitals and skilled nursing facilities
participating in both Medicare and Medicaid to have the same utilization
review plan for both programs (in the absence of a specific Secretarial
waiver). State agencies have advised us that the effect of the
4.
apparent conflict between the injunction and the statute is massive
confusion. Hospitals are having difficulty ascertaining which
specific utilization review procedures are currently required and which
may not be imposed. While trial in this case is now set for September 8,
the present confusion would have a serious effect on any utilization
control surveys conducted il the near future.
To sum up, the Department does not question that the present
statutory provision requires, back to its effective date, the imposition
of the reduction for those States that do not make a satisfactory showing
of control over utilization of services. However, a suspension of the
imposition of the reduction in order to give Secretary Mathews an oppor-
tunity to assess the problems in this area and their possible solutions
will result in no loss of the government's legal rights. The Department
has an on-going relationship with all States participating in the Medicaid
program. Each State requests and obtains a grant award each quarter to
operate its Medicaid program. If it is ultimately decided to do so, and
it must be if the statute is not changed, the reduction can be taken
against any grant award at any time.
I welcome your questions.
August 27, 1975
MEMORANDUM FOR:
ART QUERN
FROM:
SARAH MASSENGALE
SUBJECT:
HEW POLICY IN EVALUATING PATIENT
CARE IN LONG TERM CARE FACILITIES
Attached is a memorandum from the Office of Dr. Abdellah,
Office of Nursing Home Affairs (ONHA), about steps being
taken by the Office to change HEW evaluation techniques
of nursing homes and other long term care facilities.
The aim is to change the focus of the evaluation process
to assess care provided to patients rather than capability
to provide care.
A project experiment is underway in Region 4 (Atlanta)
involving 8 states, including Florida. The project,
which was started in early July, is expected to continue
until October. ONHA, working with state officials and
nursing home providers, is striving to develop and test
a patient assessment system for the government evaluators
and for the providers to use as a management tool. ONHA
is encouraged with the acceptance of the experiment in
Region 4.
If the experiment seems to be successful, ONHA would like
to use the system to evaluate patient care throughout the
country. They say that this would best require a change
in the regulations.
not
August 27, 1975
MEMORANDUM FOR:
ART QUERN
FROM:
SARAH MASSENGALE
SUBJECT:
SEW POLICY IN EVALUATING PATIENT
CARE IN LONG TERM CARE FACILITIES
Attached is a memorandum from the Office of Dr. Abdellah,
Office of Nursing Home Affairs (ONHA), about steps being
taken by the Office to change HEW evaluation techniques
of nursing homes and other long term care facilities.
The aim is to change the focus of the evaluation process
to assess care provided to patients rather than capability
to provide care.
A project experiment is underway in Region 4 (Atlanta)
involving 8 states, including Florida. The project,
which was started in early July, is expected to continue
until October. ONHA, working with state officials and
nursing home providers, is striving to develop and test
a patient assessment system for the government evaluators
and for the providers to use as a management tool. ONHA
is encouraged with the acceptance of the experiment in
Region 4.
If the experiment seems to be successful, ONHA would like
to use the system to evaluate patient care throughout the
country. They say that this would best require a change
in the regulations.
not
August 27, 1975
MEMORANDUM FOR:
ART QUERN
FROM:
SARAH MASSENGALE
SUBJECT:
NEW POLICY IN EVALUATING PATIENT
CARE IN LONG TERM CARE FACILITIES
Attached is a memorandum from the Office of Dr. Abdellah,
Office of Nursing Home Affairs (ONHA), about steps being
taken by the Office to change HEW evaluation techniques
of nursing homes and other long term care facilities.
The aim is to change the focus of the evaluation process
to assess care provided to patients rather than capability
to provide care.
A project experiment is underway in Region 4 (Atlanta)
involving 8 states, including Florida. The project,
which was started in early July, is expected to continue
until October. ONHA, working with state officials and
nursing home providers, is striving to develop and test
a patient assessment system for the government evaluators
and for the providers to use as a management tool. ONHA
is encouraged with the acceptance of the experiment in
Region 4.
If the experiment seems to be successful, ONHA would like
to use the system to evaluate patient care throughout the
country. They say that this would best require a change
in the regulations.
Dr Clane 443-6584 Ryder
file
THE WHITE HOUSE
WASHINGTON
August 27, 1975
MEMORANDUM FOR:
ART QUERN
FROM:
SARAH MASSENGALE
SUBJECT:
HEW POLICY IN EVALUATING PATIENT
CARE IN LONG TERM CARE FACILITIES
Attached is a memorandum from the Office of Dr. Abdellah,
Office of Nursing Home Affairs (ONHA) , about steps being
taken by the Office to change HEW evaluation techniques
of nursing homes and other long term care facilities.
The aim is to change the focus of the evaluation process
to assess care provided to patients rather than capability
to provide care.
A project experiment is underway in Region 4 (Atlanta)
involving 8 states, including Florida. The project,
which was started in early July, is expected to continue
until October. ONHA, working with state officials and
nursing home providers, is striving to develop and test
a patient assessment system for the government evaluators
and for the providers to use as a management tool. ONHA
is encouraged with the acceptance of the experiment in
Region 4.
If the experiment seems to be successful, ONHA would like
to use the system to evaluate patient care throughout the
country. They say that this would best require a change
in the regulations.
non
Sarah
what's the latent
FORD is GERALD LIBRARY
on this experiments
HEALTH
AMERICATION
AND
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
SEPTEM
Public Health Service
USA
Rockville, Maryland 20852
August 26, 1975
MEMORANDUM FOR: MISS SARAH MASSENGALE
STAFF ASSISTANT TO THE PRESIDENT
DOMESTIC COUNCIL
Subject: Information Regarding Steps Being Taken by the Office of
Nursing Home Affairs, Public Health Service (PHS) to
include Patient Assessment to Present Facility Capability
for Providing Care
At this point in time Federal regulations and survey procedures
for long-term care facilities are directed toward facility and
structural factors with no attention to the actual care given
an individual resident. It is generally acknowledged that
there must be an expansion or change to incorporate a patient-
oriented approach in assessment of care. The Office of Nursing
Home Affairs, PHS, is providing leadership in bringing about
this change.
There is a growing acceptance of the thesis that appropriate
care for the person with long-term illness must be based on his
physical, social and psychological needs regardless of his health
status. There is also the belief that every individual who appears
to require continuing care should have his needs assessed with
attention to each dimension of need and have a plan of care
tailored to meet the variety of his needs. These can be
accomplished by the use of a system of patient assessment.
The Office of Long-Term Care Standards Enforcement, DHEW, Region
IV, has taken the lead in the crucial area of patient assessment
in long-term care. In May, they sponsored a three-day workshop
at Daytona Beach for regional office personnel, State surveyors
and providers of care within the region. The purpose of the
workshop was to introduce the concept of a system of patient
FORD i LIBRARY GERALD
assessment based on the "Patient Classification for Long-Term-
Care." This classification was developed and tested by research
investigators from Harvard, Johns Hopkins and Michigan State
and is a tool for decision-making comprised of a set of descriptors
and their definitions that form a uniform terminology with which
to assess the status of an individual at one or more points in
time.
2
In the light of the above the aim of the Region IV staff is two-
fold: (1) to serve as a catalyst by assisting providers to
establish a system of patient assessment within their facilities
and (2) to develop and test a patient-oriented abstract form
based on the "Patient Classification for Long-Term Care" and
other management factors that can be utilized by surveyors,
utilization and medical review committees, PSRO groups, and
by the providers of care as a management tool. The former was
given impetus by the three-day workshop and the latter is
currently being developed by the Region IV staff in conjunction
with industry representatives from the National Health Corporation,
National Council of Health Care Services, American Health Care
Association, as well as State agencies, consumers and staff of
the Harvard Center for Community Health and Medical Care. The
Patient Abstract is complementary to the patient assessment tool
presented at the workshop. Currently the Abstract is undergoing
final revisions prior to testing in a limited number of long-
term care facilities.
tage 6. abduld
Faye G. Abdellah
Assistant Surgeon General
Director, Office of Nursing
Home Affairs
wr claire Ryder 443-6584
10/24/75 patunt assessment project , negion 4
working on developing fook
not yet operational
existing assessment tool
Densen tool (Harvard)
for long term care
J - quactional - daily living
socialization
is lengthy
reg 4 - dwelop abstract
for use of abstractor
to determine of quality atype
of care is right (management tool)
observational surveys basid on examination
of patient call
und common language for all to
evaluate - Densen plan ides FORD
Sher ten Donsen form
industry working to develop tool:
GERALD LIBRARY
Tena Nursing home providers
Naki deth Corp (chain offersing homes) (Dr adams Pres)
amer Heth Care assoc (sending Deasen tool
Regional office
to all homes)
have developed abstract Tool -
any tested in Sept
patuat
assessment
will be held disted in Jan
form
tells surveyer now patient is,
what's being done for him
in N.C., Tenn, ga Fla,
in private nursing homes by providers
surveyers: HEW regional + state T providers
will be presented on March to all nursing
home adm inistrators we region of
state nursing home associations
will do print-outs of collect data
- for providers
- for State certification people
Tab heapplied in PSRO, U.R.
eventually Han will Beview own regs etc
to reassess
HEALTH
EDUCA
FOR RELEASE ONLY UPON DELIVERY
OF
DEPART MELTARE ONY PARTMENT DEPARTMENT
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
USA
STATEMENT
OF
JOHN B. RHINELANDER
GENERAL COUNSEL
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
HOUSE OF REPRESENTATIVES
FORD LIBRARY
Wednesday, July 30, 1975
MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
I am the General Counsel of the Department of Health,
Education, and Welfare. I am pleased to be here at the
request of the Subcommittee to discuss the Department's
implementation of section 1903 (g) of the Social Security
Act, which provides for a reduction in federal Medicaid
matching if certain utilization control requirements are not
met by the States.
The Office of the General Counsel in the Department
of Health, Education, and Welfare is a staff office in the
office of the Secretary. It is responsible for furnishing
all legal services to the Secretary, the Under Secretary,
and the various offices and operating components of the
Department. Among the agencies within the Department for
which we furnish legal assistance is the Social and
Rehabilitation Service, which has been delegated authority
by the Secretary to administer the Medicaid program under
title XIX of the Social Security Act.
In the past several years, the litigative functions
of our Office have increased tremendously. We can no
longer do "business as usual" or business in the old way;
we do all business under the scrutiny of the Federal courts.
I am not at all reluctant to defend the Department's
actions in court. However, I am very concerned that the
proper foundation be laid beforehand so that all the many
2.
years which are often required for litigation will not
be for naught. We have no desire to stand in the way of
the fiscal reductions required by section 1903 (g); we do
have a desire to have those reductions applied in a way
that will withstand legal attack.
The delays that the Department has experienced in imple-
menting section 1903 (g) are indeed regrettable, but I want
to emphasize that no legal rights have been lost to the
Government. The provision will be applied with full force
for the entire period since it became effective. The SRS
survey for the last quarter of fiscal year 1974 is currently
being recomputed. When that is done -- and I understand
that it will be done soon --- the reductions will be made for
the entire fiscal year 1974, the first year for which the
reduction provision became effective. Another survey will
be conducted for fiscal year 1975. SRS is examining whether
future surveys can rely in part on self-surveillance by the
states with appropriate sample checks by SRS.
I appreciate that many believe that we are exaggerating
the litigative difficulties which section 1903 (g) entails.
After all, the statute states that unless a state makes a
satisfactory showing, the Secretary shall withhold a per-
Address GERALD FORD
centage of federal funds. Thus, it would seem that if a
state fails to make a showing that satisfies the Secretary,
the burden is on the state to justify its showing in court
3.
and until such time as it is able to do so, the Secretary
may continue to withhold federal funds. While this seems
to me a very reasonable reading of the statute, I can assure
you that it is a most unlikely scenario. Our consistent
experience with cases in which the Department is disallowing
federal funds to a state is that the state suffering the
disallowance immediately seeks a preliminary injunction in
the district court, and that the court -- which is located
in the affected state --- almost invariably enjoins the
Department from disallowing the funds until the matter
has been fully heard on the merits. As a practical matter,
even once the Department announces that it is withholding
funds pursuant to section 1903 (g), it probably will not
actually be able to withhold these funds until after
months of protracted litigation, and only then after having
persuaded the court that the state in question had indeed
failed to make a satisfactory showing that it had an
effective program of utilization controls. It is with this
experience in mind that the concern we expressed in our
memorandum of April 3 regarding the defensibility of the
Department's case in court must be understood. While I can
well appreciate the Subcommittee's frustration over the
additional time spent for recalculation, I believe that
these few months devoted to assuring that the Department
has a defensible case in court, when measured against the
4.
years which I anticipate will be spent in litigation once
the Department imposes these decreases, is time well spent.
I gather that the testimony heretofore given before
this Subcommittee has given rise to much confusion regarding
our legal interpretation of section 1903 (g). I would,
therefore, like to set out our views on the proper inter-
pretation of those aspects of the statute in which the
Subcommittee has expressed interest.
1. The question has been raised whether the Department
may currently impose a fiscal reduction pursuant to section
1903 (g) of the Social Security Act with respect to any
calendar quarter subsequent to June 30, 1973 for which a
state has failed to make a showing satisfactory to the
Secretary. The answer is clearly in the affirmative.
Indeed, we believe that the Department is legally
obligated to take the one-third decrease provided for in
section 1903 (g) if a state has failed to make a showing
satisfactory to the Secretary that it has in operation
an effective utilization control program with respect to
each calendar quarter. If the Department has yet to
determine whether a state's "showing" for a particular
quarter was "satisfactory," it may currently conduct
sample surveys to make this determination with respect
5.
to any quarter since the effective date of the statute
(i.e., the first calendar quarter of fiscal year 1974 to
the present).
2. A second question which has arisen is whether the
Secretary may assume, if he finds that a state has failed
to make a satisfactory showing that it has an effective
program of utilization control for a particular calendar
quarter, that the state did not have an effective program
for prior quarters, and impose the fiscal reduction pro-
vided for in section 1903 (g) for those quarters based
upon this assumption. In our view, the answer is clearly no.
The "showing" which the state must make is "with
respect to each calendar quarter." It is not legally
permissible for the Secretary to assume that a state has
failed to make a satisfactory showing for one quarter
because he knows that it failed to make a satisfactory
showing for the subsequent quarter. The Secretary has
the statutory duty to make a determination for each
quarter whether the state's showing for that quarter
is satisfactory.
Nonetheless, while we do not believe that the
Secretary can make the assumption that has been suggested,
we note that as a practical matter such an assumption is
unnecessary since the fiscal reduction provided for in
section 1903 (g) applies for the entire fiscal year and not
6.
for just the quarter in which the state has failed to make
a satisfactory showing. The statute states that the one-
third decrease shall be made "with respect to amounts paid
for any such care furnished thereafter to such individual
in the same fiscal year " This result occurs "unless
the State agency
makes a showing satisfactory to the
Secretary
with respect to each calendar quarter
"
Thus, if in any one of the calendar quarters, the state
fails to make a satisfactory showing, the full fiscal
reduction applies for the entire year. Under the statute,
a state which makes a satisfactory showing for three
calendar quarters but fails to make a satisfactory showing
for one quarter will suffer the fiscal reduction to the
same degree as the state which makes no showing at all
for the entire four quarters. Thus, for fiscal year 1974
the reductions based on the last fiscal quarter of 1974
will be reductions for the entire first year of the section
1903 (g) process.
3. A third question in which the Subcommittee has
expressed interest is whether the statute requires the
FORD
Secretary to conduct validation surveys for every calendar
quarter. While a survey for every quarter would certainly
LIBRARY
be consistent with the statute, I do not believe that the
statute requires this. In my view, the statute can be
reasonably interpreted as requiring a survey for only one
quarter a year.
7.
Clearly the statute requires each state to make a
"showing" for every calendar quarter, and clearly the
Secretary must make a determination for every quarter as to
whether the state's showing is "satisfactory." It is not
at all clear, however, that in order to make this deter-
mination, the Secretary must make a survey for every quarter.
What the statute says is that the Secretary shall
conduct sample onsite surveys "as part of his validation
procedures." The statute does not state that these surveys
must be made for every quarter, nor does it state that they
must be conducted in every case in order for the Secretary
to make a finding that there has been a satisfactory
showing. Rather, it says that the surveys must be "part
of" the Secretary's validation procedures. The other major
part of the Secretary's procedures is, it seems clear to
us, review of the documentation which the state should be
required to submit as its "showing." In light of the
immensity of the logistical problem involved in conducting
sample surveys, it seems a reasonable interpretation of the
statute that the Secretary may place sole reliance on this
"other part" of his validation procedures -- i.e., review
of the state's "showing" -- for certain quarters, so long
as he employs surveys for some quarters. This inter-
pretation seems especially reasonable since the statute
requires imposition of the reduction for the entire fiscal
8.
year, rather than for just the quarter in which a state
has failed to make a satisfactory showing. Since a
Secretarial finding that a state's program is ineffective
for any quarter within the fiscal year results in
the imposition of the fiscal reduction for the entire year
(regardless of the effectiveness of the state's program in
the other quarters), it would seem reasonable that the
Secretary should have to use a sample survey for only one
quarter a year.
4. A fourth question is whether the Secretary may
impose the reduction provided for in section 1903 (g) in
the absence of a validation survey. In our view the
answer is yes.
The statute requires a state to make a "showing."
This "showing" must be "satisfactory to the Secretary."
If a state has failed to make a "showing satisfactory to
the Secretary," a survey would not be required since there
would be nothing to "validate." The purpose of the survey
prescribed in section 1903 (g) (2) is, in the words of the
Senate Finance Committee, to "assure actual compliance"
with utilization control standards, not to confirm patent
non-compliance.
We believe that reductions based solely on a
state's failure to make a "showing satisfactory to the
9.
Secretary" will stand up in court, even in the absence of a
follow-up validation survey, provided that: (a) the
Secretary clearly prescribes in advance the documentation
a state must submit in order to make this "showing"; (b)
the standards established by the Secretary for this purpose
are reasonable and fully supported by the statute and
regulations; and (c) the Department applies these
standards consistently and uniformly to all states.
5. A fifth question which has arisen is whether
section 1903 (g) mandates a 100% adherence standard. In
our view, it clearly does not.
It is, of course, true that the statute is worded
very rigorously. The substantive criteria are worded in
terms of "in each case" or for "each patient," thus appearing
to suggest that 100% ahderence is required. However, several
points should be noted. The substantive standards which are
listed so rigorously are preceded by the words: "a showing
satisfactory to the Secretary." The statute itself does
not define what form the "showing" must take -- only what
sort of evidence must be part of the "showing" -- thus leaving
this to the Secretary to define. Moreover, the determination
as to whether this "showing" (as defined by the Secretary)
is "satisfactory" is also left to the Secretary. Thus the
statute clearly grants the Secretary broad authority in
GERALD 1948817 R. FORD
establishing the standards to be applied.
10.
The Senate Finance Report accompanying passage of
section 1903 (g) in no way confirms the "100% adherence"
notion. Its constant reference is to an "effective program
of utilization controls," not to a "perfect" program. If
the Congressional intent was actually to mandate such a
draconic result as "100% adherence," it is very curious
that there is no suggestion of this throughout the Committee
Reports.
Indeed, the Senate Report very strongly indicates that
this is not the case. The Finance Committee viewed its
approach for imposing the reduction as one that "would
differentiate between those states which are adequately
controlling utilization and those which are failing to meet
this objective, and would not unfairly penalize those states
which have established proper controls." S. Rep. No. 1230,
92d Cong., 2d Sess. 218 (1972). A literal reading of the
statutory language would not accomplish this result. It
would require the penalty to be imposed on a state with
a 99.9% adherence level to the same extent as a state with
a 0% adherence level. Moreover, such an approach would
violate basic notions of justice and "fair play," and
clearly not be in keeping with the Congressional stricture
against unfair penalization.
In our view, while the statute may well authorize
the Secretary to require 100% adherence, it certainly
11.
does not mandate this level of adherence. The statute
vests broad authority in the Secretary; we interpret this
authority to encompass the establishing of reasonable
adherence standards. It does not seem to me unreasonable
that the Department would choose to adopt a relatively
lenient standard during the first year of the statute's
effectiveness. I would think that as the states become
more accustomed to the criteria in section 1903 (g), a more
rigorous standard would be appropriate for future surveys.
Finally, I understand that the Subcommittee has
requested our comments regarding the report of the Comp-
troller General. While I believe that the Comptroller was
unrealistic in his view that the substantive criteria of
section 1903 (g) are clear, I am in complete agreement with
him that application of the statute is mandatory and that
fiscal reductions may be made back to the effective date
of the statute. There is nothing in our memorandum of
April 3 inconsistent with this view. We did not state
there that the Department need not apply the statute. We
said, instead, that the Department must apply the statute
in a manner that will be legally defensible in court. I
believed then -- and believe now -- that that was wise,
sound, responsible, and unexceptionable legal advice.
12.
Mr. Chairman, this concludes my prepared remarks.
My colleagues will be happy to try to answer any questions
you may have.
HEALTH.
OF
DESICATION.
FOR RELEASE ONLY UPON DELIVERY
DEPART MELTARE ONY PARTMENT DEPARTMENT
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
U.S.A.
STATEMENT
OF
ROBERT VAN HOEK, M.D.
ACTING ADMINISTRATOR
HEALTH SERVICES ADMINISTRATION
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
HOUSE OF REPRESENTATIVES
GERALD FORD LIBRAPY
Friday, July 18, 1975
MR. CHAIRMAN AND MEMBERS OF THE SUBCOMMITTEE:
I am pleased to appear before this Subcommittee today to
discuss with you the subject of unnecessary surgery and the
programs we are implementing to deal with this and related
problems. These programs include, specifically, the
Professional Standards Review Organization (or PSRO) and
the new utilization review requirements issued last
November. These closely related activities represent
significant efforts by the Congress and the Department of
Health, Education, and Welfare to assure that the medical
care delivered to beneficiaries of the Medicare, Medicaid,
and Maternal and Child Health and Crippled Children's
Services programs is of high quality and is provided in a
manner which reflects the most appropriate and efficient
utilization of our nation's health care institutions.
Unnecessary surgery and the quality of medical care have
been of significant concern to the Department for several
years. For example, the studies which were presented to
the Subcommittee this past week, such as the Vermont study
by Dr. Wennberg and the New York study by Dr. McCarthy on
surgical consultations were funded by the Department. We
plan to continue to support such needed investigations and
- 2 -
to thoroughly evaluate them so that their findings can be
utilized to help prevent the provision of unnecessary care.
Most important, however, is the need to take steps to assure
the quality of medical care. We believe that the PSRO
program and the new utilization review requirements are
mechanisms which will significantly help us achieve these
goals.
It is the intent of both the PSRO program and utilization
review to establish effective peer review systems in
hospitals and long-term care facilities to assure that
Federal and State expenditures for Medicare and Medicaid
services are spent on medically necessary, high-quality
medical care. While these programs have frequently been
characterized as cost-containment measures, I should like to
emphasize that they are primarily mechanisms to assure the
appropriateness and quality of medical care. It is through
quality assurance review systems that we can ultimately
affect the costs of medical care. These are the systems
that assess and reduce such factors as unnecessary surgery
and medically unnecessary admissions. PSROs will use
explicit, areawide medical care criteria in their review
systems. These criteria will include, for example,
- 3 -
indications for surgery, and it is through the use of such
written criteria that the system may affect the amount and
quality of care delivered. By reducing the volume of
unnecessary services, we thereby reduce the expenditures
for medical care and provide higher quality care.
While both PSRO and utilization review have the same intent,
and they share many common characteristics in the conduct
of peer review, they differ significantly in their approach
and organizational arrangements for carrying out such
review. PSRO introduces new approaches to the concept of
utilization review which should significantly improve the
quality and effectiveness of such review for the Medicare,
Medicaid, and Maternal and Child Health programs. In
particular PSROs carry out review as voluntary community-
or area-wide physician organizations, whereas utilization
review is carried out under the auspices of an individual
hospital or nursing home.
As physician organizations, PSROs are given authority by
legislation to make decisions for the Medicare and Medicaid
programs on issues of medical necessity and the appropriate-
ness of care which are binding for payment purposes. Under
the U.R. system such final decision-making authority is
- 4 -
vested with the Medicare intermediaries and Medicaid
fiscal agents. Giving physicians the responsibility as
well as the authority to review care in an organized
fashion should significantly improve the quality of care
and the efficiency with which health services are
delivered.
We are all aware that the costs of the Medicare and
Medicaid programs have escalated considerably over the
past several years. In fiscal year 1970, the Department
was spending about $10 billion for the Medicare and
Medicaid programs. By fiscal year 1975, the Federal costs
for these programs are estimated to run about $20 billion
and are expected to continue to rise. This, of course,
does not include the additional $6.0 billion which the
States are spending as their share of the Medicaid program.
We are aware too of the high cost associated with surgery-
related services financed through the Medicare and
Medicaid programs. For calendar year 1974, we estimate
that about $4.7 billion, or 38 percent of Medicare's
benefit expenditures, were spent for services related to
surgical cases (see attached insert). Under Medicaid,
the proportion for surgical patients ranges between 30-40
percent of the total hospital payments.
- 5 -
We are also well aware of the variations across the country,
both in length of stay and surgery rates. For example, of
all Medicare discharges in a recent study, 29-31 percent
had surgical services during the hospital stay. In the
Northeast, a surgical procedure was recorded for 34-36
percent of the discharges; in the South, the proportion
with surgery (25-27 percent) was the lowest among the
regions (see attached insert).
For Medicare patients involving surgery who were discharged
from short-stay hospitals in the United States during the
Study period, the average length of stay was 13.6 days.
Among the four Census regions marked differences were
found in length of stay, ranging from 10.7 days in the
West to 15.5 days in the Northeast. We know that the
length of the hospital stay is closely related to the
condition for which the patient is hospitalized, and when
we look at the data for discharges, with and without
surgery for specific diagnoses, we find similar variations
across the country.
It is not possible to identify the actual dollar costs
associated with the incidence of unnecessary services or
extended length of stay, but one can speculate that it
BERALD FORD VIBRARY
- 6 -
may be considerable in view of the large expenditures
under Medicare and Medicaid.
As I mentioned earlier, the Department has had a continuing
interest in, and concern about, the incidence of unnecessary
surgery, especially as it affects the cost and quality of
health care programs which we administer, and we funded
a number of studies on this subject. One of these HEW-
funded studies was conducted by Dr. Eugene McCarthy of
Cornell University. I understand that Dr. McCarthy
testified yesterday regarding his findings on the effects
of screening by consultants on recommended surgical
procedures. He found that 24 percent of all procedures
recommended were not confirmed. His findings are
significant, but we need to address several questions
which must be answered before the full value of the
surgical screening program can be established. The
primary issue is to determine how many of the patients,
whose operations were not confirmed, later had an operation
for the condition screened and how many required continued
medical treatment. The Social Security Administration
is now funding this followup study on a contract basis
(see attached insert).
- 7 -
Another HEW-funded study of utilization patterns was
conducted by Dr. John Wennberg of Harvard who also
testified here earlier this week. This study revealed
significant differences in rates of hospital admission
and in rates of certain surgical procedures in different
areas of the State of Vermont. Tonsillectomy rates
varied widely from one locale to another, and did not
appear to be related to the incidence of tonsillitis,
but rather to physician preferences.
These are the types of utilization and quality issues
that prompted the enactment of the PSRO Amendment and
the strengthening of the utilization review require-
ments. These peer review systems are clearly one of
the best vehicles for addressing the problem of
unnecessary services. Experience has indicated that
systematic, well defined physician review systems
such as these can deal with a major segment of the
dilemma.
- 8 -
The PSRO program was based upon the experience of a number
of review organizations, most of which were formed during
the late 1960's. In Utah, for example, the Utah Medical
Care Foundation, a State-wide physician organization which
had been conducting hospital utilization review, had reduced
the average length of stay in hospitals by about one-half
day. In Colorado, Oregon, and Sacramento, California, other
physician organizations achieved similar results. The average
length of stay was generally reduced, and the qualify of medical
care was not adversely affected. Given the high cost of hospital
care, a half-day savings can be very beneficial. In addition,
the review systems addressed the problems of appropriateness
of hospital and nursing home admissions, and also addressed
such issues as the necessity of services such as elective
surgery. It was organizations such as these which were proto-
types for PSRO's. They were community-wide physician review
organizations, which were able to improve upon the existing
institutional-based utilization review activities of the
Medicare and Medicaid programs.
- 9 -
Most of these review organizations became operational in the
late 1960's, when the utilization rates and costs of the
Medicare and Medicaid programs were escalating. There was
also some dissatisfaction with the effectiveness of the exist-
ing institutional-based utilization review committees, as
they did not seem to be having any significant success in
controlling unnecessary utilization. State Medicaid programs
were concerned, as was the Federal government, and we all
were seeking appropriate remedies to these problems. The
effectiveness of the community-wide physician organizations
in improving utilization rates had become increasingly ap-
parent, as I indicated earlier, and their experiences
eventually became the basis for the PSRO legislation.
The PSROs were authorized by the Social Security Act Amendments
of 1972 (P.L. 92-603). The legislation called for the
establishment of a voluntary network of physician organiza-
tions, located within geographically designated PSRO areas,
to review for payment purposes the medical necessity, appropri-
ateness and quality of institutional care for Medicare,
Medicaid, and Maternal and Child Health beneficiaries. The
legislation authorized but did not require the review of
ambulatory care by PSROs. The statute required that each
PSRO have as members a substantial number of thephysicians in
the PSRO area, defined as 25 percent.
- 10 -
The requirements for such extensive physician involvement
reflect the basic premise of the PSRO program. That is
to say, effective utilization review requires broad physician
commitment and participation because without it effective
peer review is not possible.
One of the most significant features of the PSRO statute, as
I mentioned earlier, is that it transfers from the Medicare
fiscal intermediaries and the State Medicaid agencies to the
PSROs the authority to make final determinations of medical
necessity and appropriateness for payment purposes. Under
the existing system, for example, hospital utilization review
committees make recommendations to fiscal agents about the
medical necessity of the services rendered. The fiscal
agents may overturn these recommendations and deny payment.
Under the PSRO system, the physicians in the PSRO make these
decisions against explicit criteria, standards, and norms.
We believe that this approach offers significant potential
for more effectively controlling unnecessary services and
encouraging appropriate use of hospital and nursing home
facilities.
A PSRO management information system is being developed which
includes three major components: the first set of informational
- 11 -
requirements is designed to assist PSROs to collect the data
they will need to manage and assess their own performance. In
addition, Federal reporting requirements specify data which
PSROs must submit to the Department so that we can assess
performance and compare PSRO effectiveness. We are also de-
veloping, with the National PSRO Council, an evaluation plan
and we will be conducting special studies of the PSROs.
Another key component of the Management Information System
for PSRO is the use of the Uniform Hospital Discharge Data
Set--commonly referred to as UHDDS. The Department will soon
implement, through Medicare and Medicaid, the UHDDS which
will require each hospital to file uniform medical care data
for all Medicare and Medicaid discharges. This data set
will enable PSROs to develop hospital and physician profiles
and practice patterns which can be reviewed and assessed to
identify problem areas requiring correction by the PSROs, the
institutions, or the physicians. This uniform hospital data
set represents a significant Departmental initiative to obtain
a consistent set of core medical data for peer review and
planning purposes.
The legislation requires that PSROs review hospital and nursing
home care; develop and maintain profiles of physicians,
hospitals, and patients; and most significantly, requires
that area-wide norms, criteria, and standards be used in the
- 12 -
review of care. These norms, criteria and standards are
to be developed by local physicians in the area, based upon
accepted practice patterns. Physicians are encouraged to
participate widely in all activities of the PSRO program,
including the development of the criteria and the actual con-
duct of the review.
The legislation also requires that PSROs delegate review
functions to a hospital if the hospital demonstrates to the
PSRO that it has effective utilization review activities.
Assessing hospital review programs thus becomes a major PSRO
activity.
In implementing the PSRO program, we decided at an early stage
that the most appropriate place to begin PSRO review activities
was in the hospitals. The most significant volume of Medicare
and Medicaid services are those of inpatient hospital care.
We have therefore defined a PSRO hospital review system which
we believe will significantly impact on improving the utilization
and quality of hospital care. It includes three integrated
components: concurrent review, medical care evaluation studies
and profile analysis.
Concurrent review involves review of the appropriateness of
all Medicare and Medicaid admissions and of the continued stay
of such patients during the course of their hospitalization.
- 13 -
Review is conducted while the patient is in the hospital.
Medical care evaluation studies are short-term retrospective
studies of the medical and management practices within the
institutions so that aberrant patterns can be identified
and corrected. Profiles of hospitals, physicians, and
patients display trends which can be analyzed by the PSRO
to identify needed changes. Essentially, these profiles will
allow PSROs across the country to conduct studies similar to
the one Dr. Wennberg did in Vermont.
The purpose of this review system is fairly simple--physicians
are to set and apply standards of care, assess performance,
identify deficiencies, and arrange corrective action through
existing continuing medical education programs or other means.
This system should significantly contribute to effective
utilization of services and improve the quality of medical
care.
These same hospital review requirements, except for profile
analysis, are contained in the strengthened utilization re-
view requirements which were published as final regulations
in the Federal Register on November 29, 1974. These new
regulations were specifically designed to be consistent with
the PSRO program in order to facilitate the transition from
U.R. to PSRO, as well as to upgrade institution-based review.
- 14 -
Utilization review has been a condition of participation for
institutions participating in the Medicare program since 1965.
The Social Security Act Amendments of 1967 required. States to
develop processes of utilization review for covered services
under their medical assistance plans.
Basically, States implemented three types of review systems
differing from Medicare's hospital-based requirements. Some,
such as Michigan and New York, used State employees to review
exceptional claims in addition to hospital-based review.
Another alternative, implemented by California, used State
employees and consultants to accomplish all review activities.
California also implemented a preadmission certification re-
quirement. Others, such as Illinois, Maryland and
Massachusetts, contracted with physician organizations to
carry out review activities. These latter groups included
several PSRO prototypes.
These types of improvements in utilization review were not
uniformly applied throughout the country. In order to
strengthen U.R. nationally and to eliminate duplicate review
requirements imposed on hospitals and physicians prior to
full PSRO implementation, the Congress passed Sections 207
and 237 of the 1972 Amendments to the Social Security Act.
These were implemented by the new U.R. regulations. Prior
to these Amendments, Medicare and Medicaid utilization review
requirements were not uniform, and in some areas they were
- 15 -
duplicative, if not conflicting. These Amendments sought
to unify the requirements for Medicare and Medicaid and to
upgrade U.R. during the period of transition to the PSRO
system of review.
Proposed U.R. regulations had been published in January 1974
and generated considerable public interest and comment.
Shortly thereafter the Secretary appointed an interagency
committee to coordinate the development of the final regula-
tions, to assure that Medicare and Medicaid provisions were
identical wherever possible, and to guarantee that the final
regulations were complementary to and supportive of the
Professional Standards Review Organization program.
These new regulations, in our view, when combined with the
evolving PSRO program, form a comprehensive mechanism for
assuring that reimbursement will be made only for high-
quality care. This Administration is fully committed to
the concept of peer review of medical care through the PSRO
program as soon as possible. However, the PSRO program will
not become fully operational nationwide for some time. In
the interim, there remains a need for effective and efficient
peer review. These new U.R. regulations build upon and are
is
FORD
fully congruent with the concepts of the PSRO review system.
GERALD
- 16 -
A number of sources have expressed concern with the capacity
of smaller hospitals, particularly in rural areas, to comply
with the utilization review requirements. PSROs will sig-
nificantly help to assure effective review in rural hospials.
In areas with no PSROs, we must develop specific approaches.
We plan to publish a Federal Register Notice shortly revis-
ing the U.R. regulations to permit remote facility exceptions,
to be granted on a case-by-case basis, which will relax the
time limitations for the performance of concurrent review.
The American Medical Association has opposed the final U.R.
regulations as published on November 29, 1974 on the grounds
that they interfere with patient and physician rights.
Judge Julius Hoffman recently issued a preliminary injunction
enjoining the Department from enforcing portions of these
regulations. We have appealed this ruling in order to reaffirm
the right of the Congress and the Administration to provide
mechanisms for determining what care shall be reimbursed
under Medicare and Medicaid. We feel that physicians and
other qualified medical personnel are best able to make such
determinations and that, through utilization review committees
and PSROs, their professional expertise can be brought to bear
on these often difficult payment decisions. We expect speedy.
action on our appeal and a circuit court decision should be
forthcoming soon.
- 17 -
Mr. Chairman, I should now like to present a very brief
report on the status of the PSRO program. In December 1973,
the Department designated 203 PSRO areas throughout the
country. Thirty-one of these areas were State-wide areas,
and the remaining States included more than one PSRO area.
In June 1974, we designated 14 conditional PSROs to conduct
review; funded 91 organizations for planning purposes; and
supported 13 State-wide support centers to provide technical
assistance to the PSROs. In addition, we funded several
technical resource contracts to develop the needed resources
for the program. One of the most significant of these was
a contract with the American Medical Association to develop -
model sets of criteria for adaptation and use by local
PSROs. Almost all of the major national specialty societies,
including the American College of Surgeons, are participating
in developing these. A draft of the criteria has now been
sent around the country for comment and review.
Many of the original 91 planning groups qualified to become
conditional PSROs during the last several months, and of the
203 PSRO areas designated throughout the country, 121 now
have PSROs in various stages of development. Physician sup-
port has grown considerably over the past year. While
some segments of the physician community opposed the PSRO
- 18 -
program over a year ago, we can report that over 86,000
physicians have joined PSROs in their local areas. We
estimate that there are about 50 additional physician groups
that are interested in starting PSROs in their areas.
In order for the PSROs to assume review responsibility in
a hospital, they must first work out administrative arrange-
ments with the Medicare intermediaries and the Medicaid
agencies. The PSROs are now actively engaged in this process
and will soon begin review on a hospital-by-hospital basis.
There is no doubt in my mind that the implementation of
the PSRO program has been and will continue to be a complex
undertaking. Coordinating procedures must be carefully
worked out with the Medicare and Medicaid programs, including
the existing utilization review systems now in place. We
have spent considerable time and effort in developing appropri-
ate policies to guide this implementation. We are now in the
process of preparing regulations on a number of subjects,
including confidentiality of data, reconsiderations and
appeals for patients, physicians, and hospitals, hospital
review, and the coorelation of PSRO activities with the
Medicare and Medicaid programs.
- 19 -
In addition, we have devoted considerable time to developing
data and informational requirements which will help each
PSRO carry out its review responsibilities and help the
Department monitor and evaluate the performance of individual
PSROs. To this end, the PSRO management information system
described earlier is being developed.
Concluding Remarks
In conclusion, Mr. Chairman, may I repeat that we share your
concerns about unnecessary surgery and about the need for
effective mechanisms to avoid it. We believe that the new
utilization review requirements and the PSRO program will
constitute such an effective mechanism.
Our nation's health programs are in need of effective
quality assurance systems and we believe that the physicians
of this country will be able to meet this need through the
PSRO activities in their areas, as well as through involve-
ment in improved utilization review activities.
Mr. Chairman, this concludes my prepared remarks. My
colleagues will be happy to try to answer any questions
you may have.
HEALTH
133
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
USA SEPTRAL
JUL 31 1975
Honorable Carl Albert
Speaker of the House of
Representatives
Washington, D. C. 20515
Dear Mr. Speaker:
Enclosed for the consideration of the Congress is a draft
bill "To amend title XVIII of the Social Security Act to
modify the requirements for coordination between the
Medicare program established by that title and the
Federal Employees Health Benefits program, and for other
"
purposes.
This proposed bill is intended to complement the bill
recently submitted to you by the Civil Service Commission
"To amend Chapter 89 of title 5, United States Code, to
provide for a new Medicare Supplement option under the
Federal Employees Health Benefits Program
"
It
contains amendments to the Social Security Act under
which this new Medicare Supplement option would meet the
requirement for coordination of FEHB and Medicare. The
proposed legislation was recommended by the Department of
Health, Education, and Welfare and the Civil Service
Commission in a joint report which was submitted to the
Committee on Post Office and Civil Service and the
Committee on Ways and Means of the House of Representatives,
and to the Committee on Post Office and Civil Service
and the Committee on Finance of the Senate on February 27,
1975, pursuant to Public Law 93-480. A copy of this report,
which contains a detailed explanation, justification, and
cost analysis of the joint Department of Health, Education,
and Welfare/Civil Service Commission proposal, is also
enclosed.
The CSC-proposed legislation would limit enrollment in the
Medicare Supplement option to situations where the employee,
annuitant, or member of the family is enrolled in an FEHB
plan and is also entitled to both hospital insurance (part A
BERALD FORD LIBRARY
Honorable Carl Albert
2
of Medicare) and supplementary medical insurance (part B) i
the Department's legislation would provide individuals
covered by an enrollment in an FEHB plan who are entitled to
only part A special periods to enroll in part B.
A special part B enrollment period is necessary because many
FEHB enrollees do not have part B insurance since many of
the same health care expenses that would be covered under
part B already are covered under the FEHB plans. The
special enrollment period would be three months in duration--
from September 1 through November 30 of the year prior to
the January effective date of the Medicare-FEHB bill. The
part B coverage would begin January 1 following such
enrollment.
The bill also permits individuals who do not enroll in
part B during the special enrollment period to enroll during
the following general enrollment period (January 1 through
March 31) with coverage to begin the following July. Under
present law, an individual may enroll in part B only twice,
and he must pay an additional ten percent premium for each
full twelve months elapsing between the time he could first
have enrolled in part B and actually does enroll. These
provisions would not apply to a qualified individual who
enrolls in the special enrollment period or the first general
enrollment period following enactment of the bill.
I urge speedy consideration and enactment by the Congress of
the joint Department of Health, Education, and Welfare/Civil
Service Commission legislation.
The Office of Management and Budget advises that enactment of
this legislation would be consistent with the Administration's
objectives.
Sincerely,
/s/ Caspar W. Weinberger
Secretary
Enclosures
A BILL
To amend title XVIII of the Social Security Act to modify
the requirements for coordination between the Medicare
program established by that title and the Federal Employees
Health Benefits program, and for other purposes.
Be it enacted by the Senate and the House of
Representatives of the United States of America in
Congress assembled, That (a) section 1862(c) of the Social
Security Act is repealed.
(b) Effective with respect to items and services
furnished on or after February 1 of the first calendar
year that begins at least 180 days after the date of enactment
of this Act, section 1862 of the Social Security Act is amended
by inserting after subsection (b) the following new subsection:
"(c) No payment may be made under this title with respect
to any item or service furnished to or on behalf of any
individual if such item or service is covered under a health
benefits plan in which such individual is enrolled under
chapter 89 of title 5, United States Code, unless prior to
the date on which the item or service is so furnished the
Federal Employees Health Benefits program under chapter 89
has been modified to provide that--
2
"(1) the government-wide plans described in
paragraphs (1) and (2) of section 8903 of title 5,
United States Code, are required, and any of the plans
described in paragraphs (3) and (4) of that section are
authorized, to make available, to any Federal employee
or annuitant who is, or a member of whose family is,
entitled to benefits under parts A and B of this title,
an option which provides individuals entitled to benefits
under parts A and B of this title with protection
supplementing the protection under this title, which
option may include a requirement that all individuals
entitled to benefits under part A must enroll under
part B; and
= (2) the government will make available for any
employee or annuitant who elects the option described
in clause (1) a contribution equal to 100 percent of the
subscription charge for that option, subject to the
limitation imposed by paragraph (1), subsection (b) of
section 8906 (b) of title 5, United States Code. =
Sec. 2. (a) Notwithstanding the provisions of section 1837
of the Social Security Act, any individual who is, during the
special enrollment period as determined under subsection (c),
(1) enrolled in or eligible to enroll in a Medicare
supplement option under chapter 89 of title 5, United
States Code, and
3
(2) entitled to Hospital Insurance Benefits for
the Aged and Disabled under part A of title XVIII of
the Social Security Act,
may enroll in the program of Supplementary Medical Insurance
Benefits for the Aged and Disabled established by part B of
title XVIII of the Social Security Act during the special
enrollment period or the first general enrollment period, as
determined under section 1837(e) of that Act, following the
special enrollment period.
(b) (1) The provisions of section 1837(b) and 1839(d) of
the Social Security Act shall not apply to enrollment in the
program of Supplementary Medical Insurance Benefits for the
Aged and Disabled under subsection (a) of this section.
(2) Notwithstanding the provisions of section 1838 of
the Social Security Act, the coverage period of an individual who
enrolls in the program of Supplementary Medical Insurance Benefits
for the Aged and Disabled under the provisions of this Act during
the special enrollment period shall begin on the following
January 1.
(c) The special enrollment period referred to in the
preceding subsections of this section shall begin on September 1
of the calendar year preceding the first calendar year that begins at
least 180 days after the date of enactment of this Act and shall
end on the following November 30.
Joint DHEW-CSC Report
on
Improved Coordination Between Medicare
and the Federal Employee Health Benefits Program
to the
Committee on Post Office and Civil Service
and the
Committee on Ways and Means
of the
House of Representatives
and to the
Committee on Post Office and Civil Service
and the
Committee on Finance
of the
Senate
Required by Public Law 93-480
To Effectuate Section 1862(c) of the Social Security Act
on January 1, 1976 Rather Than July 1, 1975
INDEX
Subject
Page
I Legislative Background
1
II Present Method of Coordinating Medicare and FEHB Benefits
2
III Problems With Present Method of Coordination
2
IV Problems With Implementing Section 1862(c)
3
V Results If The 1862(c) Exclusion Goes Into Effect
4
VI Joint DHEW-CSC Recommendation to Provide Supplementary
5
FEHB Coverage
VII Explanation of Recommendations
bas
6
VIII Recommendation
8
bas
,I
REPORT ON PLANS FOR IMPROVED COORDINATION BETWEEN MEDICARE AND THE FEDERAL
EMPLOYEES HEALTH BENEFITS PROGRAM (FEHB)
I. Legislative Background
Section 4 of Public Law 93-480 (approved October 26, 1974) requires that
a joint DHEW-CSC report on the steps being taken to better coordinate
the FEHB and Medicare programs by adjusting Federal employee health benefit
plans so that they complement the protection provided under Medicare be
submitted to Congress by 3/1/75, in order to retain the 1/1/76 effective
date of section 1862(c) of the Social Security Act (42 U.S.C. 1395y. (c)).
If the report is not submitted by 3/1/75, the effective date is moved up
to July 1, 1975.
Section 1862(c) (as amended by P.L. 93-480) reads as follows:
" (c) No payment may be made under this title with respect to
any item or service furnished to or on behalf of any individual
on or after January 1, 1976, if such item or service is covered
under a health benefits plan in which such individual is enrolled
under chapter 89 of title 5, United States Code, unless prior to
the date on which such item or service is so furnished the
Secretary shall have determined and certified that such plan or
the Federal employees health benefits program under chapter 89 of
such title 5 has been modified so as to assure that --
"(1) there is available to each Federal employee or annuitant
enrolled in such plan, upon becoming entitled to benefits under
Part A or B, or both Parts A and B of this title, in addition to
the health benefits plans available before he becomes so entitled,
one or more health benefits plans which offer protection supple-
menting the protection he has under this title, and
"(2) the Government or such plan will make available to such
Federal employee or annuitant a contribution in an amount at
least equal to the contribution which the Government makes
toward the health insurance of any employee or annuitant
enrolled for high option coverage under the Government-wide plans
LIBRARY
established under chapter 89 of such title 5, with such contribution
being in the form of (A) a contribution toward the supplementary
protection referred to in paragraph (1), (B) a payment to or on
behalf of such employee or annuitant-to offset the cost to him of
his coverage under this title, or (c) a combination of such
contribution and such payment."
The intent of section 1862(c) as expressed by the Committee on Ways and Means
of the House and concurred with by the Committee on Finance of the Senate
"
was:
to assure a better coordinated relationship between the FEHB
program and Medicare and to assure that Federal employees and retirees age
2
65 and over will eventually have the full value of the protection offered
under Medicare and FEHB.
II. Present Method of Coordinating Medicare and FEHB Benefits
While FEHB plans and Medicare duplicate some types of covered expenses,
duplicate benefits are not paid. Instead, FEHB benefits supplement those
paid by Medicare. For Federal employees and annuitants who have hospital
insurance (Part A) and/or supplementary medical insurance (Part B) of
Medicare as well as a FEHB plan, supplementation has, since the start of
the Medicare program, been achieved through an antiduplication provision
in the FEHB plan, i.e., typically, the plan pays its benefits in full or
in a reduced amount which, when added to the benefits paid by Medicare,
reimburses up to 100 percent of allowable expenses. Thus, the FEHB benefits
"wrap around" Medicare benefits
Because, by law, Medicare pays its benefits without regard to other
insurance (i.e., Medicare is primarily liable) , the "wrap around"
supplementation operates with relative simplicity: No determination
as to whether a person has Medicare is required until a claim for benefits
is filed. At that time, the claimant indicates whether he has Parts A
and/or B of Medicare; and if he does, supplementary benefits are paid
under the FEHB plan up to 100 percent of allowable expenses.
Since FEHB plans' benefits are reduced by the amount of Medicare benefits
that are also payable, there is a substantial savings to the FEHB program.
For 1976, it is estimated that these savings will be about $235,000,000 or
about 10.4 percent of the total FEHB premium. As time passes, the dollar
amount of these savings would become larger as the number of FEHB people
entitled to Medicare increases, and the cost of health care goes up.
The savings effected by a FEHB plan because of its nonduplication of
Medicare benefits result in a lower standard premium for all employees
and annuitants enrolled in that plan and for the Government.
III. Problems With Present Method of Coordination
While this arrangement for coordinating Medicare and FEHB benefits has the
advantage of simplicity, the equity of the system has come into question.
1/Excerpt from House Report No. 91-1096 Social Security Amendments of 1970,
Report of the Committee on Ways and Means on H.R. 17550, p.25.
2/The one exception to this rule is payment made under a workmen's
compensation plan (see section 1862(b) of the SSA).
3
Although FEHB benefits are not paid to the extent that Medicare benefits
are paid for the same services, FEHB annuitants and employees who are covered
by Medicare pay the same FEHB premium as those who do not have Medicare
coverage. Thus, although such employees and annuitants pay the full
premium that is charged for comprehensive FEHB coverage, these employees
and annuitants receive only complementary benefits.
Also, it is generally not advantageous for employees and annuitants under
FEHB plans to enroll for Part B of Medicare because many of the same health
care expenses that would be covered under Part B already are covered under
the FEHB plans. Those persons who do not enroll do not get the benefit
of the Federal general revenue contribution which is available to all
persons who enroll in Part B. Effective January 1, 1976, for each Part B
enrollee the Federal contribution will be at least $8.30 per month.
In recognition of these problems, a recommendation that Federal workers be
covered under Medicare (with present Federal retirees being deemed insured
with the cost being met by the Government, as employer) and the FEHB
program provide its annuitants who are also eligible for Medicare with
health insurance coverage which complements Medicare was included in the
1969 report by SSA to the House Committee on Ways and Means and Senate
Committee on Finance entitled "Relating Social Security Protection to
the Federal Civil Service."
IV. Problems With Implementing Section 1862(c)
Based on an analysis of the feasibility and effect of modifying the FEHB
program in accordance with the specifications in section 1862(c), DHEW and
CSC conclude that on balance the modification described in that section of
the law would be disadvantageous not only to Federal employees and annuitants,
but also to the Government. Some of the reasons for this conclusion are
as follows:
A. The Civil Service Commission actuarial estimates are that if, as
section 1862(c) implies, the premiums for the supplemental plans were
based solely on the health experience of the aged and disabled who are
entitled to Medicare, rather than on the health experience of all FEHB
enrollees, a FEHB option to supplement Part B alone would offer the same
benefits as now for a higher premium. An option to supplement Part A
alone would offer the same benefits for about the same premium. Stated
differently, an option to supplement when an individual has only Part A
appears unnecessary, while an option to supplement when an individual has
only Part B would disadvantage those FEHB enrollees who subscribed to it.
B. Section 1862(c) requires that the Government's full standard
contribution to FEHB coverage (as calculated annually under 5 U.S.C. 8906)
be applied to pay the beneficiary's premium for the supplemental FEHB option,
4
his Part B premiums or both, but does not provide for crediting any portion
of the Government FEHB contribution toward the premium of the employee's
or annuitant's spouse (or child) who may be covered under a FEHB family
enrollment but not under Medicare:
C. Twelve additional options would be needed under each of the 46 plans
participating in the FEHB program to supplement (a) Part A of Medicare,
(b) Part B of Medicare, and (c) Parts A and B of Medicare, each for four
family groupings: (1) for self only enrollees, (2) families where all
family members are covered by Medicare, (3) families where only the enrollee
is covered by Medicare, and (4) families where only the dependents are
covered by Medicare--making over 500 additional options. Thus, the FEHB
program would be greatly complicated.
V. Results if the 1862(c) Exclusion Goes Into Effect
One possible response to the difficulties of instituting the FEHB options
as specified in section 1862(c) is to take no action to make complementary
coverage available under the FEHB program. If this were to occur, then on
January 1, 1976, Federal employees and annuitants covered by the FEHB
program will be excluded from Medicare coverage which duplicates that
provided by FEHB. SSA has determined, based on advice from its Office of
the General Counsel, that the exclusionary language of section 1862 (c)
relates to coverage, not payments, and thus, would prohibit Medicare from
making any payment for items and services covered under a FEHB plan in which
the beneficiary is also enrolled, even though FEHB would not pay for such
items and services. This occurs primarily when deductibles and coinsurance
are involved.
From the standpoint of the FEHB plans, this alternative would be relatively
simple to administer. A FEHB plan would pay its benefits in full (subject,
of course, to any deductibles and coinsurance) without regard to whether
the beneficiary is also covered by Medicare; and Medicare would not make
any payment for items and services covered under the beneficiary's FEHB
plan even though the employee or annuitant did not receive payment for such
items or services by reason of such deductibles and coinsurance.
This result would not only frustrate the intent of the Congress in enacting
section 1862(c), but it would also result in a serious disadvantage to dually
entitled beneficiaries by depriving them of a substantial part of their
Medicare protection. In addition, beneficiaries would have larger out-of-
pocket expenses as they would have to pay FEHB deductible and coinsurance
amounts. Furthermore, it would also cause serious administrative problems
for the Medicare program. For example: (1) many inquiries would be
received from Medicare beneficiaries injured by the denial of Medicare
benefits for FEHB covered services, for which no payment or only partial
payment was received under the latter program, (2) it would be necessary
5
for SSA to develop and apply policies for implementing the FEHB exclusion,
i.e., for determining whether items and services are covered under the
particular beneficiary's FEHB plan, and (3) the Medicare carriers and
intermediaries would have to stay abreast of the benefits offered by 114
or more FEHB plan options in order to avoid paying for FEHB covered services.
The elimination of Medicare coverage for dually entitled individuals would
result in increased premiums for all FEHB employees and annuitants, and
the Government. The Government contribution to FEHB coverage for 1976 would
be increased by $127,000,000 and enrollees would have to pay an additional
$108,000,000. These increases would be offset to some extent by corresponding
decreases in costs to the Medicare program and to beneficiaries who would
cancel their Part B enrollment and thus save the Part B monthly premium.
Those options which contain the greatest proportion of enrollees who are
individuals covered by Medicare would require the largest rate increases.
Therefore, those individuals who are intended to be helped by section
1862(c) would be hit with the highest proportionate rate increase. In
addition, persons who currently have Medicare and a low option FEHB plan,
which together generally pay 100 percent of covered expenses, would need
to consider changing to a high option in order to get relatively similar,
although lesser, protection. (Whether or not such persons switched to a
high option plan, they might also want to cancel their enrollment in Part B
of Medicare, since they would generally derive very little benefit from
such coverage.) This accounts for the additional cost to the Government
and enrollees in the event section 1862(c) goes into effect.
VI. Joint DHEW-CSC Recommendation to Provide Supplementary FEHB Coverage
Both DHEW and the CSC believe that the modification of FEHB program in
accordance with section 1862(c) would not be in the best interests of dually
entitled FEHB Medicare beneficiaries, and would create expensive and
unnecessary administrative problems. Therefore, the two agencies are
developing a legislative proposal to amend section 1862(c) that would
(1) permit the desired coordination between Medicare and the FEHB program;
(2) provide supplemental FEHB coverage at no cost to employees, annuitants,
and their families as long as the premiums for such coverage do not exceed
the maximum dollar amount the Federal Government may contribute to the
health insurance premiums for high option self and family enrollees; and
(3) eliminate or minimize administrative complexity. Such an approach
would best serve the interests of all parties.
Specifically, the proposal would require the following legislative changes:
A. Federal Employees Health Benefit Act
(1) Section 8903 of title 5 U.S. Code should be amended to permit
any plan participating in the FEHB program, and require all Government-
wide FEHB plans, to offer "Medicare Supplement" health insurance options
6
which would provide coverage for all employees, annuitants, and members
of their families, where the employee or annuitant or a member of the
family is also entitled to Parts A and B of Medicare.
(2) Section 8906 of title 5. U.S. Code should be amended to provide
that for purposes of this proposal, the 75 percent limitation on the Federal
Government contribution shall be removed; and further provide that the
Federal Government shall pay 100 percent of the premium for the Medicare
supplement plan where an employee, annuitant, and/or member of the family
is enrolled in Medicare Parts A and B, subject however to the maximum
dollar amount the Federal Government may contribute to the health insurance
premiums for all employees and annuitants.
B. Medicare Benefits Under the Social Security Act
(1) Title XVIII of the Social Security Act should be amended to provide
for employees and annuitants who are presently entitled to Part A of
Medicare a special one-time enrollment period to enroll in Part B of
Medicare. During this special enrollment period the two-time Part B
enrollment limitation and the 10 percent premium increase required for each
full 12 months elapsing between the time this individual could first have
enrolled and actually does enroll shall not apply.
(2) Section 1862(c) of the Social Security Act should be amended to
permit approval of the "Medicare Supplement" option for FEHB employees
and annuitants by the Secretary of Health, Education, and Welfare.
C. Effective Date for Legislation Described in Both A and B
The first January that begins no less than 6 calendar months after the
month of enactment.
D. Timing of Enactment
Legislation should be enacted by the Congress before July 1, 1975, in
order to permit implementation of the CSC-DHEW recommended substitute
provision by January 1, 1976. However, if this cannot be accomplished,
it is recommended that section 1862(c) be amended to postpone its
effective implementation date from January 1, 1976 until January 1, 1977.
VII. Explanation of Recommendations
A. Federal Employees Health Benefits Program
The FEHB program (chapter 83 of title 5, United States Code) would be
amended to offer a new "Medicare Supplement" option, in addition to the
option or options it already offers, and require the removal of the 75
percent limit on the Government's contribution to premiums for the new
supplement. As long as the premium for the "Medicare Supplement" option
does not exceed the dollar amount the Government contributed to high
option premiums, removal of the 75 percent limit would require the Govern-
ment to pay the full premium for this option, with no cost to the enrollee.
Current CSC actuarial estimates indicate that the Federal Government's
standard (now 60 percent of the average high option premium of the 6
largest FEHB plans) contribution to premium would be more than sufficient
7
to pay the full premium of a "Medicare Supplement" option both for self-
only enrollees who have Parts A and B of Medicare, and family enrollees
who have Parts A and B of Medicare or whose family members have Parts A
and B. However, if experience proves that the cost of this complementary
coverage is greater than the amount that can be contributed by the
Government, the beneficiary would pay a small amount toward the premium
in future years. At least for the first year the only premium such an
enrollee would have to pay for himself and/or his family would be the
prevailing rate for Part B of Medicare.
This option would permit self-only and family enrollments. It would be
open for enrollment only to a person who had Parts A and B of Medicare
or whose spouse or child had Parts A and B. Under a family enrollment,
all eligible family members, including those without Medicare, would be
covered by the option.
For an individual who has Medicare, the option would supplement Parts A
and B, up to 100 percent of expenses for covered services, as heretofore,
i.e., the option would reimburse for all regular high option benefits of
the plan which are not provided by the Medicare program. For an individual
(enrollee, spouse, or child) without Medicare, the option would provide
regular high option benefits of the plan.
This Supplemental Plan would be consistent with congressional intent in
passing section 1862(c), and provide additional advantages to employees,
annuitants, and family members because it (1) recognizes and retains
FEHB's family coverage provisions, (2) résults in a lower premium cost
(for the first year at least, an enrollee would pay only Part B premiums),
and (3) eliminates the need for each FEHB plan to develop a myriad of
options.
Under this proposal, the new "Medicare Supplement" would not be available
to persons enrolled in only one part--Part A or Part B--of Medicare, as
is currently required by section 1862(c). (See section IV A for a
discussion of the reasons for not providing such coverage.) An individual
covered by Medicare under Part A or Part B only would, as at present, have
available to him insurance coverage in one of the regular options of the
plan subject to the plan's antiduplication provision, resulting in most
cases in the person receiving 100 percent reimbursement for covered services
with Medicare being the primary insurer.
The new "Medicare Supplement" option would be experience-rated separately
from the other regular options in the Plan. Experience-rating the Medicare-
subsidized group of enrollees separately results in redistributing
$52,000,000 which would have been paid by enrollees in the new "Medicare
Supplement" option in the absence of such a rating process: $39,000,000
would be paid by the Government and $13,000,000 would be pafd by non-
Medicare enrollees, in the form of higher insurance premiums.
8
B. Medicare Benefits Under the Social Security Act
(1) A special enrollment period is necessary for FEHB employees
and annuitants because these individuals either did not enroll for or
cancelled their Part B insurance as retaining this coverage was not
advantageous when they did not have the opportunity to obtain supplemental
and nonduplicative FEHB coverage.
(2) Authorizing the Secretary of HEW to approve the FEHB Medicare
supplement would perpetuate congressional intent as now incorporated in
section 1862(c) to assure effective coordination between the FEHB plans
and Medicare.
C. Effective Date
It is clear that CSC and DHEW would need time, once enacted, to implement
the proposed legislation. In recognition of this implementation time,
the DHEW and CSC recommend an effective date which would be on the first
January that begins no less than 6 calendar months after the month of
enactment. This would allow CSC and DHEW time to notify all eligible
employees and annuitants of the new supplement and to allow for an
enrollment period in the FEHB "Medicare Supplement" and in Medicare Part B.
VIII. Recommendation
The Civil Service Commission and Department of Health, Education, and
Welfare jointly recommend the substitute provision described in item VI
of this report as being an effective way to coordinate FEHB and Medicare.
Estimated Impact of FEHB/Medicare
Coordination Options
(Calendar 1976 incurred costs, $ in millions)
Federal Costs
Medicare
net of
FEHB
SMI premium
Total
1. Section 1862(c) coordination
$ 49
$ 9.
$ 58
2. FEHB primary to Medicare
$127
$-264
$-137
3. HEW/CSC proposal
$ 39
$ 9
$ 48
Enrollee Premiums
FEHB enrollees
Medicare
Without
With
SMI
FEHB
Medicare
Medicare
Total
Enrollees
Rebate
Total
1. Section 1862(c) coordination
$ 13.
$-52
$-39
$ 7
$-10
$-42
(Percent change)
(1.6%)
(-100%)
(-4.5%)
2. FEHB primary to Medicare
$100
$ 8
$108
$-33
-- $ 75
(Percent change)
(12.3%)
(15.4%)
(12.5%)
3. HEW/CSC proposal
$ 13
$-52
$-39
$ 7
-- $-32
(Percent change)
(1.6%)
(-100%)
(-4.5%)
10 L'I
DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
SEP 29 1975
Honorable Carl Albert
Speaker of the House of
Representatives
Washington, D. C. 20515
Dear Mr. Speaker:
Enclosed for the consideration of the Congress is a draft
bill "To amend title XVIII of the Social Security Act to
extend and amend the authority for waiver of the
requirement that hospitals provide 24-hour nursing service
rendered or supervised by a registered professional nurse."
Under current law, a hospital participating in the Medicare
program must provide 24-hour nursing service supervised by
a registered professional nurse. However, the Secretary of
Health, Education, and Welfare is authorized to waive this
requirement for a rural hospital if he finds that (1) there
is a shortage of hospital services in the area, (2) the
failure of the hospital to qualify for participation in
Medicare would seriously reduce the availability of hospital
services in the area, and (3) the hospital has made a good
faith effort to comply with the requirement but is unable
to do so because of the lack of qualified nurses in the
area. A hospital that is granted a waiver must provide
nursing service rendered or supervised by a registered
professional nurse during at least the regular daytime
shift. This waiver authority was enacted in 1971 as a
temporary provision and is scheduled to expire at the end
of this year.
In 1971 several hundred small rural hospitals were granted
waivers. Since that time the availability of registered
nurses in rural areas has steadily increased and fewer than
100 waivers are now in effect. We believe that extension
of the waiver authority in its present form is unnecessary
GERRITO FORD VIRBARY
Honorable Carl Albert
2
and would impede our efforts to improve the quality of care
provided in rural hospitals. At the same time, we recognize
that some of the hospitals which currently have waivers
may require additional time to come into full compliance
with the 24-hour nursing care requirement. The enclosed
bill would therefore extend the authority to grant waivers
for one year, until January 1, 1977, but require hospitals
which are granted waivers for that year to provide nursing
service rendered or supervised by a registered professional
nurse during both the regular daytime shift and one other
regular shift. If this proposal is enacted, the Department
will evaluate, during 1976, the need for further extension
and modification of the waiver authority.
I urge speedy consideration and enactment of this legislation
by the Congress.
We are advised by the Office of Management and Budget that
there is no objection to the presentation of this draft bill
to the Congress from the standpoint of the Administration's
program.
Sincerely,
/s/ David Mathews
Secretary
Enclosure
A BILL
To amend title XVIII of the Social Security Act to extend
and amend the authority for waiver of the requirement
that hospitals provide 24-hour nursing service rendered
or supervised by a registered professional nurse.
Be it enacted by the Senate and the House of
Representatives of the United States of America in Congress
assembled, That, effective January 1, 1976, section 1861 (e) (5)
of the Social Security Act is amended by--
(1) striking out "January 1, 1976" and inserting
in lieu thereof "January 1, 1977", and
(2) inserting "and one other regular shift"
immediately after "the regular daytime shift".
HEALTH
EDUC
DEPARTMENT
DEP RTMENT OF HEALTH, EDUCATION. AND WELFARE
USA
JUL 2 1975
Honorable Carl Albert
Speaker of the House of
Representatives
Washington, D. C. 20515
Dear Mr. Speaker:
Enclosed for the consideration of the Congress is a draft
bill, "To amend the Social Security Act to improve the
old-age, survivors, and disability insurance program, the
supplemental security income program, and the program of
health insurance for the aged and disabled."
This draft legislation contains a series of Administration
proposals for improvements in various programs established
by the Social Security Act.
Title I of the bill contains five amendments to the old-age,
survivors, and disability insurance program.
Section 101 would improve the social security protection of
agricultural employees. Under current law, coverage of
agricultural employees, including many migrant workers, is
subject to a restrictive coverage test which prevents many
workers from getting social security credit for part or all
of their farm employment. Under this test, a worker's
earnings from a farm employer are generally not covered
unless during the year he is paid cash wages of at least
$150 by the employer or works for him on at least 20 days
for cash wages determined on an hours of work or other time
basis.
When this coverage test was included in the law in 1956 it
took into account that many farmers at that time were
unaccustomed to recordkeeping and might find it difficult to
make reports for social security purposes of wages paid to
relatively short-term employees. Since the 1950's, major
changes have taken place in agriculture. Many farms keep the
same kinds of records as nonfarm businesses do and there is
no longer justification for preventing many of the workers
FORD
who are employed by such farms from getting social security
credit for their work.
Honorable Carl Albert
2
Under the proposed legislation, social security coverage of
agricultural employees of farms which have substantial
expenditures for farm labor--$2,500 annually--would no longer
be subject to a coverage test and thus would be determined on
the same basis as coverage of employees of nonfarm businesses.
While this change would cover about 90 percent of the wages
paid to all farm workers, it would affect less than 20 percent
of farm employers. The present coverage test would continue
to be applicable to all farms which have annual expenditures
of less than $2,500 for agricultural labor. The bill also
contains a provision which is designed to improve the reporting
for social security purposes of the wages of migrant farm
workers who are furnished to farm operators by labor contractors
by treating such workers as employees of the farm operators.
Section 102 of the bill would exclude from social security
coverage the distributive share of income or loss from the
trade or business of partnership which is received by a limited
partner.
The Department has become increasingly concerned about situations
in which certain business organizations solicit investments in
limited partnerships as a means for an investor to become insured
for social security benefits. In these situations the investor
in the limited partnership performs no services for the
partnership and the social security coverage which results is,
in fact, based on income from an investment. This situation
is of course inconsistent with the basic principle of the
social security program that benefits are designed to partially
replace lost earnings from work.
These advertisements and solicitations are directed mainly
toward public employees whose employment is covered by public
retirement systems and not by social security. Such advertising
could debase the social security program in the public view
and cause resentment on the part of the vast majority of
workers whose employment is compulsorily covered under social
security, as well as those people without work income who
would like to be able to become insured under the social security
program but cannot afford to invest in limited partnerships.
The inquiries received by the Social Security Administration
Honorable Carl Albert
3
requesting info mation as to the legality of gaining coverage
based on earnings from limited partnerships indicate a growing
public awareness of the inconsistency of covering this form of
nonwork income.
Section 103 would permit States to terminate social security
coverage for State or local policemen or firemen who are also
covered under a staff retirement system without affecting the
coverage of other public employees.
Social security coverage for employees of the States and
their political subdivisions is available only through
agreements between the Secretary of Health, Education, and
Welfare and the individual States. Each State decides what
groups of eligible employees will be covered, subject to
statutory requirements which assure retirement system members
a voice in any decision to cover them under social security.
Coverage was first made available to persons in positions
covered under State or local retirement systems through a
provision of the Social Security Amendments of 1954. The
Congress, at the request of policemen and firemen groups,
continued the exclusion from coverage of policemen and firemen
in positions under a State or local government retirement
system. Since that time, the Social Security Act has been
amended to permit persons in twenty-one States, as well as
Puerto Rico and interstate instrumentalities, who are in
policemen's or firemen's positions under a retirement system
to be brought under social security coverage on much the same
basis as other retirement system members. In addition, firemen
in the twenty-nine other States and the Virgin Islands who are
under a retirement system may be covered under social security
if special conditions set forth in the law are met.
The social security law permits termination of coverage of
State and local government employees, but only on a "coverage
group" basis. A "coverage group," as defined in the Social
Security Act for purposes of coverage terminations, consists
of all of the employees of a State or of a political subdivision
of the State such as a city or a county. Thus, the coverage of
policemen or firemen cannot be terminated unless the coverage
Honorable Carl Albert
4
of all other employees of the State or the political subdivision
is also terminated. It appears that in some instances
policemen and firemen who wish to have their coverage
terminated have been unable to accomplish this because other
covered persons in the same political subdivision do not wish
to have their coverage terminated. In other cases the coverage
of the policemen or firemen has been terminated, along with
the coverage of persons other than policemen and firemen,
including those who did not wish to have their coverage
terminated.
The bill would permit a State to terminate the social security
coverage of all employees in policemen or firemen positions, or
both, which are under a retirement system without disturbing the
social security coverage of other employees of the same
political subdivision. It also contains provisions which would
permit a State which acts prior to January 1, 1977, to reinstate
the social security coverage, with no break in continuity, of
employees other than policemen and firemen whose coverage had
been terminated by an action taken for the purpose of
terminating the coverage of policemen or firemen if a majority
of the employees involved desire to again come under coverage.
We believe that it is generally undesirable to remove employees
from social security coverage. Termination of coverage causes
workers and their families to lose social security protection
already acquired, or diminishes such protection. In other
cases the termination of coverage prevents people from acquiring
social security protection, or improved protection. These
results seem especially unfortunate in the case of persons who
are unwillingly removed from coverage as the result of actions
by one segment of their coverage group. The practical effect
of the bill would be to prevent the loss of coverage for some
State and local employees which would otherwise occur when
policemen and firemen act to have their coverage terminated,
and to restore coverage to State and local employees whose
coverage has already been involuntarily terminated.
Section 104 would increase the rate of interest, now 6
percent, charged on late payments by the States of amounts due
the Secretary under agreements providing social security
coverage to State and local employees. Public Law 93-625
Honorable Carl Albert
5
increased the interest rate on late payments of social security
taxes to the Department of the Treasury from 6 percent to
9 percent, subject to adjustment on the basis of changes in
the prime lending rate. This section would apply the same
interest rate established under the provisions of Public Law
93-625 to late payments by the States under coverage agreements.
Section 105 of the bill would provide general authority for the
President to enter int bilateral agreements, generally
known as totalization agreements, with interested countries to
provide for limited coordination between the United States
social security system and the social security system of the
other country. The Congress would be kept fully informed of
all developments in the course of the negotiation of any
agreement under this authority. In addition, all would be
submitted to the Congress in accordance with the requirements
of Public Law 92-403.
Totalization agreements would ameliorate both of the major
problems which arise from the lack of coordination between
our social security system and the social insurance systems of
other countries by filling major gaps in protection of those
who work under our social security system and the system of
another country and by eliminating dual coverage of the same
work.
An advantage of the totalization approach over other approaches,
such as an exchange of credits, is that it is designed to allow
each cooperating country to carry out its responsibilities
virtually independently. The countries exchange information
on covered earnings and earnings credits and provide other
administrative assistance, but otherwise each country makes
its determinations and computations independently and pays any
resulting benefits directly. There is no need for an interchange
of funds or balancing of accounts.
Totalization is a well-established means of providing limited
coordination between the social security systems of various
countries. Totalization arrangements have been established
by a number of countries in Europe as well as by some other
countries. The principle of totalization was endorsed by the
International Labor Organization in 1935 and adopted by the
European Common Market in 1957.
Honorable Carl Albert
6
On April 7, 1975, the Italian Government enacted into law a
U.S.-Italian totalization agreement. This agreement was
negotiated under the authority of article VII of the
Supplementary Agreement to the Treaty of Friendship, Commerce,
and Navigation of September 26, 1951, between the two
countries, and was signed on May 23, 1973. Enactment of
section 105 of the bill would permit us to begin implementation
of this agreement. A totalization agreement with the Federal
Republic of Germany has been agreed to by technical
negotiators and is being reviewed by both governments.
Discussions have been initiated by several other countries
which are interested in entering into totalization agreements
with the United States.
Enactment of sections 101 through 104 would have a negligible
effect on the cost of the social security program. Enactment
of section 105 would have no cost until such time as a
totalization agreement was approved and became operative. The
cost to the United States social security program of a
particular agreement would, of course, depend upon the number
of persons having employment in each of the two countries and
on the terms of the agreement.
Title II of the bill contains three amendments to the
supplemental security income program established by title XVI
of the Social Security Act.
Section 201 would amend the provisions of the supplemental
security income program concerning the treatment of gifts and
inheritances received by beneficiaries. Unearned income in
excess of $240 a year received by a supplemental security
income beneficiary results in a dollar for dollar reduction
in benefit payments. Under current law gifts and inheritances
are considered unearned income, and this has created a hardship
for beneficiaries who received a gift or inheritance that cannot
be readily converted into cash. Their benefits are reduced and
they cannot use the gift or inheritance as an alternative source
of funds to meet their living expenses. Section 201 would
eliminate this hardship by permitting the Secretary to issue
regulations providing that gifts and inheritances not readily
converted into cash are not income. Gifts and inheritances
which were not considered income would be subject to the
provisions of the SSI program applicable to resources.
Honorable Carl Albert
7
Section 202 would amend title XVI to eliminate the definition
of the term "child" and all uses of that term. A child is
defined in title XVI as an individual who is (1) under the age
of eighteen or a student under the age of twenty-two, and
(2) neither married nor the head of a household. Five
provisions of the supplemental security income program are
affected by this definition. First, subject to limitations
prescribed by the Secretary, the income of an individual does
not include any earned income if he is a child regularly
attending school. Second, the income of an individual does
not include one-third of the support payments received from
an absent parent if the individual is a child. Third, the
income of an individual does not include amounts received
for providing foster care to a child who is not eligible for
supplemental security income benefits. Fourth, the disability
standard applicable to a child under the age of eighteen is
somewhat different from the standard applicable to other
individuals. Finally, the income and resources of an individual
are deemed to include the income and resources of a parent in
the same household if the individual is a child under age 21.
In the Department's view there is no reason for making the
applicability of any of these five provisions turn on whether
an individual who meets the applicable age requirement is
neither married nor the head of a household, nor, in some
cases, on whether he is a student. The bill would therefore
provide for determination of the applicability of these provisions
solely on the basis of age and student status.
Section 203 would authorize the Secretary to pay supplemental
security income benefits for a period of up to three months
pending a determination that an individual is blind if he is
presumptively blind when he applies for benefits. Such
authority currently exists with respect to individuals applying
for benefits on the basis of disability.
Enactment of title II would have a negligible effect on the
cost of the supplemental security income program.
Title III of the bill contains amendments to the Medicare
FORD
program established by title XVIII of the Social Security
Act.
LIBRARY
Honorable Carl Albert
8
Section 301 would amend section 226 (f) of the Social Security
Act, which establishes the time limitations for Medicare
eligibility on the basis of chronic kidney failure. Under
that subsection eligibility begins with the third month after
the month in which a course of renal dialysis begins and ends
with the twelfth month after the month in which dialysis is
terminated or the individual has a renal transplant. The bill
would add to these limitations an additional provision limiting
entitlement to retroactive Medicare benefits on the basis of
chronic kidney failure to the twelve-month period preceding
the filing of an application for those benefits. This
limitation would be consistent with the limits on retroactive
entitlement applicable to other OASDI and Medicare beneficiaries
and is necessary for efficient administration of the chronic
renal disease program.
Section 303 would modify the State licensure requirements
applicable to proprietary home health agencies participating
in the Medicare program. Public home health agencies and
private home health agencies which are nonprofit organizations
exempt from taxation under section 501 of the Internal Revenue
Code are required, as a condition of participation in the
Medicare program, to be licensed under any applicable State
or local licensure law or to meet the standards for such
licensing. In contrast, private home health agencies which are
not nonprofit organizations must be licensed under State law.
Because only ten States have home health agency licensure laws,
proprietary agencies in forty States are precluded from
participating in the Medicare program.
Many of these proprietary agencies provide services of the
highest quality and Medicare beneficiaries should have access
to their services. To achieve this result, this section of the
bill would repeal the requirement that proprietary agencies be
licensed under State law and subject them to the same licensure
requirements as public and private nonprofit agencies. The
Secretary's authority to prescribe additional standards and
requirements for proprietary home health agencies would not be
affected.
Enactment of title III of the bill would have a negligible
effect on the cost of the Medicare program.
Honorable Carl Albert
9
I urge speedy consideration and enactment of these amendments
by the Congress.
The Office of Management and Budget advises that enactment of
this draft bill would be consistent with the Administration's
objectives.
Sincerely,
/9/ Caspar W. Weinberger
Secretary
Enclosure
A BILL
To amend the Social Security Act to improve the old-age,
survivors, and disability insurance program, the
supplemental security income program, and the program of
health insurance for the aged and disabled.
Be it enacted by the Senate and the House of Representatives
of the United States of America in Congress assembled, That
this Act may be cited as the "Social Security Amendments of
1975".
TITLE I--PROVISIONS RELATING TO THE OLD-AGE, SURVIVORS, AND
DISABILITY INSURANCE
IMPROVED COVERAGE OF AGRICULTURAL WORKERS
Sec. 101. (a) Section 209 (h) (2) of the Social Security
Act and section 3121 (a) (8) (B) of the Internal Revenue Code of
1954 are each amended by striking out "Cash remuneration paid
by an employer in any calendar year to an employee for
agricultural labor" and inserting "Cash remuneration paid
in any calendar year to an employee for agricultural labor by
an employer who has total expenditures in such calendar year
2
for cash remuneration of employees for agricultural labor of
less than $2,500," in lieu thereof.
(b) (1) Section 210 (j) of the Social Security Act and
section 3121 (d) of the Internal Revenue Code of 1954 are
each amended by striking out the period at the end thereof
and inserting "; or" in lieu thereof.
(2) Section 210 (j) of the Social Security Act is
further amended by inserting at the end thereof the following
new paragraph:
II (4) any individual who performs services for
remuneration as a crew leader or who is furnished by a
crew leader to perform agricultural labor, as provided
in subsection (n) . "
(3) Section 3121 (d) of the Internal Revenue Code of
1954 is further amended by inserting at the end thereof the
following new paragraph:
" (4) any individual who performs services for
remuneration as a crew leader or who is furnished by
a crew leader to perform agricultural labor, as provided
in subsection (o) . "
(c) (1) Section 210 (n) of the Social Security Act is
amended to read as follows:
3
" (n) The term 'crew leader' means an individual who
furnishes individuals to perform agricultural labor for
another person, other than an individual who is engaged in
the business of providing farm management or farm machine
services, as defined in regulations of the Secretary, and
furnishes one or more individuals to perform agricultural
labor as part of such business. Such individuals furnished
by the crew leader to perform agricultural labor for another
person shall be deemed to be employees of such other person.
A crew leader shall, with respect to services performed in
furnishing individuals to perform agricultural labor for
another person and services performed has a member of the crew,
be deemed to be an employee of such other person. "
(2) Section 3121 (o) of the Internal Revenue Code of
1954 is amended to read as follows:
"
(o) For purposes of this chapter, the term 'crew leader'
means an individual who furnishes individuals to perform
agricultural labor for another person, other than an individual
who is engaged in the business of providing farm management or
farm machine services, as may be defined in regulations prescribed
by the Secretary or his delegate, and furnishes one or more
4
individuals to perform agricultural labor as a part of such
business. Such individuals furnished by the crew leader to
perform agricultural labor for another person shall be deemed
to be employees of such other person. For purposes of this
chapter and chapter 2, a crew leader shall, with respect to
services performed in furnishing individuals to perform
agricultural labor for another person and services performed
as a member of the crew, be deemed to be an employee of such
other person. "
(c) The amendments made by this section shall be
effective with respect to wages paid after December 31, 1975.
EXCLUSION FROM COVERAGE OF CERTAIN LIMITED
PARTNERSHIP INCOME
Sec. 102. (a) Section 211 (a) of the Social Security Act
is amended by--
(1) striking out "and" at the end of paragraph (9) ;
(2) striking out the period at the end of paragraph (10)
and inserting in lieu thereof "; and"; and
(3) inserting after paragraph (10) the following
new paragraph:
11 (11) There shall be excluded the distributive
share of any item of income or loss of a limited partner,
5
as such, other than guaranteed payments described in
section 707 (c) of the Internal Revenue Code of 1954 to
that partner for services actually rendered to or on
behalf of the partnership to the extent that those
payments are established to be in the nature of
remuneration for those services."
(b) Section 1402 (a) of the Internal Revenue Code of
1954 is amended by--
(1) striking out "and" at the end of paragraph (10) ;
(2) striking out the period at the end of
paragraph (11) and inserting in lieu thereof "; and" ; and
(3) inserting after paragraph (11) the following
new paragraph:
" (12) There shall be excluded the distributive
share of any item of income or loss of a limited partner,
as such, other than guaranteed payments described in
section 707 (c) to that partner for services actually
rendered to or on behalf of the partnership to the
extent that those payments are established to be in the
nature of remuneration for those services."
(c) The amendments made by this section shall apply
with respect to taxable years beginning after December 31, 1975.
6
TERMINATION OF COVERAGE OF
POLICEMEN AND FIREMEN
Sec. 103. (a) Section 218 (g) (1) of the Social Security
Act is amended by striking out "either" after "Secretary", by
striking out the period at the end of subparagraph (B) and
inserting in lieu thereof "; or", and by inserting after
subparagraph (B) the following new subparagraph:
" (C) with respect to services of--
" (i) all employees included under the agreement
as a single coverage group within the meaning of
subsection (d) (4) which is composed entirely of
positions of policemen or firemen or both;
" (ii) all employees in positions of policemen
or firemen or both which are included under the
agreement as a part of a coverage group within the
meaning of subsection (d) (4) ; or
" (iii) all employees in positions of policemen
or firemen or both which were included under the
agreement as a part of a coverage group as defined
in subsection (b) (5) and which were covered by a
retirement system after the date coverage was extended
to such group,
7
but only if the agreement has been in effect with
respect to employees in such positions for not less than
five years prior to the receipt of such notice."
(b) Section 218 (g) (3) of that Act is amended by adding
at the end thereof the following sentence: "If any such
agreement is terminated with respect to services of employees
in positions of policemen or firemen as described in
paragraph (1) (C), the Secretary and the State may not
thereafter modify such agreement so as to again make the
agreement applicable to services performed by employees in
such positions."
(c) Notwithstanding any provision of section 218 of
the Social Security Act, any agreement with a State under
that section may, if the State so desires, be modified at any
time prior to January 1, 1977, so as to again make the
agreement applicable to services performed by employees,
other than employees in policemen's or firemen's positions,
in a coverage group with respect to which the agreement was
terminated by the State prior to the enactment of this Act if
the Governor of the State, or an official designated by him,
certifies that the following conditions have been met:
8
(1) the majority of such employees have indicated
a desire to have their coverage reinstated, and
(2) the termination of the agreement with respect
to the coverage group was for the purpose of terminating
coverage for those employees in policemen's or firemen's
positions or both.
Notwithstanding the provisions of section 218 (f) (1) of the
Social Security Act, any such modification shall be effective
as of the date coverage was previously terminated for those
members of the coverage group who meet the conditions prescribed
in section 218 (f) (2) of that Act.
INCREASE IN INTEREST CHARGED IN CONNECTION WITH LATE
PAYMENTS UNDER AGREEMENTS FOR COVERAGE OF
STATE AND LOCAL EMPLOYEES
Sec. 104. Section 218 (j) of the Social Security Act
is amended by striking out "the rate of 6 per centum per annum"
and inserting "an annual rate established under section 6621
of the Internal Revenue Code of 1954" in lieu thereof.
INTERNATIONAL AGREEMENTS WITH RESPECT TO
SOCIAL SECURITY BENEFITS
Authorization for International Agreements
Sec. 105. (a) Title II of the Social Security Act is
amended by adding at the end thereof the following new
section:
9
"INTERNATIONAL AGREEMENTS
"Purpose of Agreement
"Sec. 232. (a) The President is authorized to enter into
agreements establishing totalization arrangements between the
social security system established by this title and the social
security system of any foreign country, for the purposes of
establishing entitlement to and the amount of old-age,
survivors, disability, or derivative benefits based on a
combination of an individual's periods of coverage under the
social security system established under this title and the
social security system of such foreign country.
"Definitions
" (h) For the purposes of this section
=
(1) the term 'social security system' means, with respect
to a foreign country, a social insurance or pension system which
is of general application in the country and under which
periodic benefits, or the actuarial equivalent thereof,
are paid on account of old age, death, or disability.
10
" (2) the term 'period of coverage' means a period
of payment of contributions or a period of earnings based
on wages for employment or on self-employment income, or
any similar period recognized as equivalent thereto under
this title or under the social security system of a country
which is a party to an agreement entered into under this
section.
"Crediting Periods of Coverage; Tax Exemptions;
Conditions of Payment of Benefits
" (c) (1) Any agreement establishing a totalization
arrangement pursuant to this section shall provide that--
" (A) in the case of an individual who has at least
6 quarters of coverage as defined in section 213 of this
Act and periods of coverage under the social security
system of a foreign country which is a party to such
agreement, periods of coverage of such individual under
such social security system of such foreign country may
be combined with periods of coverage under this title and
otherwise considered for the purposes of establishing
entitlement to and the amount of old-age, survivors, and
disability insurance benefits under this title;
11
11
(3) employment or self-employment, or any service
which is recognized as equivalent to employment or self-
employment under this title and the social security system
of such foreign country which is a party to such agreement,
shall, on or after the effective date of such agreement,
result in a period of coverage under the system established
under this title or under the system established under the
laws of such foreign country, but not under both, and shall
set forth the methods and conditions for determining under
which system such employment, self-employment, or other
service shall result in a period of coverage;
=
(c) where an individual's periods of coverage are
combined, the benefit amount payable under this title shall
be based on the proportion of such individual's periods of
coverage which were completed under this title; and
" (D) an individual who is entitled to cash benefits
under this title pursuant to such agreement shall,
notwithstanding the provisions of section 202 (t), receive
such benefits while he legally resides in the foreign
country which is a party to such agreement.
12
"
(2) To the extent that any such agreement provides that
any period of coverage under this title shall not be such a
period of coverage because it is a period of coverage under
the laws of a foreign country which is a party to such agreement,
no employment or self-employment taxes shall be imposed with
respect to such period of coverage under the laws of the
United States.
"
(3) Any such agreement may provide that the benefit paid
by the United States to an individual who legally resides in the
United States shall be increased to an amount which, when added
to the benefit paid by such foreign country, will be equal to
the benefit amount which would be payable to an entitled individual
based on the first figure in (or deemed to be in) column IV of the
table in section 215 (a) @
11 (4) Section 226 shall not apply in the case of any
individual to whom it would not be applicable but for this
section or any agreement or regulation under this section.
"
(5) Any such agreement may contain such other provisions,
not inconsistent with this section, as the President deems
appropriate.
13
"Regulations
" (d) The Secretary of Health, Education, and Welfare
shall make rules and regulations and establish procedures
which are reasonable and necessary to implement and administer
any agreement which has been entered into in accordance with
this section. "
Relief from Taxes
(b) (1) Section 1401 of the Internal Revenue Code of 1954 is
amended by adding at the end thereof the following new
subsection:
" (c) During any period in which there is in effect an
agreement entered into pursuant to section 232 of the Social
Security Act with any foreign country, the self-employment
income of an individual shall be exempt from the taxes imposed
by this section to the extent that such self-employment income
is subject under such agreement to taxes or contributions for
similar purposes under the social security system of such
foreign country."
(2) Sections 3101 and 3111 of that Code are each amended
by adding at the end thereof the following new subsection:
= (c) During any period in which there is in effect an
agreement entered into pursuant to section 232 of the Social
Security Act with any foreign country, wages received by or
14
paid to an individual shall be exempt from the taxes imposed
by this section to the extent that such wages are subject under
such agreement to taxes or contributions for similar purposes
under the social security system of such foreign country."
(3) Notwithstanding any other provision of law, taxes paid
by any individual to any foreign country with respect to any
period of employment or self-employment which is covered under
the social security system of such foreign country in accordance
with the terms of an agreement entered into pursuant to
section 232 of the Social Security Act, shall not, under the
laws of the United States, be deductible by, or creditable
against the income tax of, any such individual.
TITLE II--PROVISIONS RELATING TO THE SUPPLEMENTAL
SECURITY INCOME PROGRAM
EXCLUSION OF CERTAIN GIFTS AND INHERITANCES
FROM INCOME
Sec. 201. Section 1612 (a) (2) (E) of the Social Security
Act is amended by inserting ", except that the Secretary may by
regulation provide that gifts and inheritances which are not
readily convertible into cash are not income" immediately after
"inheritances".
ELIMINATION OF DEFINITION OF CHILD
Sec. 202. (a) Section 1614 of the Social Security Act
is amended by striking out subsection (c).
15
(b) (1) Section 1612 (b) of that Act is amended by--
(A) striking out "a child who" in clause (1), and
inserting "under the age of 22 and" in lieu thereof;
(B) striking out "a child" in clause (9), and
inserting "under age 21" in lieu thereof; and
(c) striking out "a child who is not an eligible
individual" in clause (10), and inserting "an individual
who is not an eligible individual or eligible spouse" in
lieu thereof.
(2) Section 1614 (a) (3) (A) of that Act is amended by
striking out "a child" and inserting "an individual" in lieu
thereof.
(3) Section 1614 (f) (2) of that Act is amended by striking
out "a child".
AUTHORIZATION OF INITIAL PAYMENTS TO PRESUMPTIVELY
BLIND INDIVIDUALS
Sec. 203. Section 1631 (a) (4) (B) of the Social Security
Act is amended by--
(1) inserting "or blindness" immediately after
"disability" each time it appears therein; and
(2) inserting "or blind" immediately after
"disabled" each time that it appears therein.
16
EFFECTIVE DATE
Sec. 204. The amendments made by this title shall be
effective July 1, 1975.
TITLE ITI--PROVISIONS RELATING TO MEDICARE
LIMITATION ON RETROACTIVE ENTITLEMENT TO MEDICARE BENEFITS
ON THE BASIS OF CHRONIC KIDNEY FAILURE
Sec. 301. (a) Section 226 (f) of the Social Security
Act is amended by inserting before the period at the end
thereof the following: ", but in no case shall entitlement
to hospital insurance benefits under part A of title XVIII or
supplementary medical insurance benefits under part B of that
title begin earlier than twelve months before the month in
which an application for such entitlement is filed by or on
behalf of the eligible person".
(b) The amendment made by this section shall be
effective with respect to items and services furnished after
June 30, 1973, to individuals with respect to whom a
written request for entitlement under title XVIII of the Social
Security Act on the basis of chronic kidney failure has not
been filed before the date of enactment of this Act.
17
MODIFICATION OF REQUIREMENT FOR STATE LICENSURE OF
PROPRIETARY HOME HEALTH AGENCIES
Sec. 302. (a) Section 1861 (o) of the Social Security
Act is amended by striking out "it is licensed pursuant to
State law and" in the matter after clause (6).
(b) The amendment made by this section shall be
effective with respect to home health services for which
payment is made under title XVIII of the Social Security Act
provided after June 30, 1975.