Senator SCHWEIKER. Next we will call on a panel of Health Care Providers, Mr. John Alexander McMahon, president, American Hospital Association Board of Trustees; and vice chairman, American Medical Association Board of Trustees; and Mr. Michael Bromberg, director, Federation of American Hospitals. You may proceed however you wish to proceed.

STATEMENTS OF JOHN ALEXANDER MCMAHON, PRESIDENT, AMERICAN HOSPITAL ASSOCIATION; ACCOMPANIED BY LEO J. GEHRIG, M.D., SENIOR VICE PRESIDENT; AND PAUL W. EARLE, VICE PRESIDENT; FRANK J. JIRKA, M.D., VICE CHAIRMAN, AMERICAN MEDICAL ASSOCIATION BOARD OF TRUSTEES; ACCOMPANIED BY ARCHIE JOHNSON, M.D., MEMBER OF AMA'S AD HOC COMMITTEE ON PLANNING AND PRACTICING PHYSICIAN FROM RALEIGH, N.C.; AND HARRY N. PETERSON, DIRECTOR, AMA LEGISLATIVE DEPARTMENT; MICHAEL BROMBERG, DIRECTOR, FEDERATION OF AMERICAN HOSPITALS, A PANEL

Mr. MCMAHON. Good morning, Mr. Chairman.

I think that we can follow the order that you called.
Senator SCHWEIKER. Go right ahead then.

Mr. MCMAHON. Mr. Chairman, I am John Alexander McMahon, president of the American Hospital Association, Accompanying me and providing responses is Dr. Leo Gehrig, our senior vice president, and Paul Earle, executive director of our Voluntary Effort to Contain Costs; Tom Berriman, our outside legal counsel, and Carol Lively, staff specialist on health planning.

We have supported the original enactment of the act, as you know, Mr. Chairman. We supported its implementation and we support its

extension.

I am going to talk about a couple of suggestions that we have to make for amendments of the basic act that are not included in S. 2410. And then, as you urged in your opening statement, we will have some specific comments to make about S. 2410.

On pages 3 through 10, we made reference to the three organizations represented on this panel, the American Hospital Association, American Medical Association, and the Federation of American Hospitals concerning their participation in the voluntary effort to contain health and hospital costs. We intend to keep the committee and all members abreast of all developments in this effort, and if you have any questions at the conclusion of our statement, we will be glad to respond.

Senator SCHWEIKER. Yes; I would be glad to hear a little bit about status reports if you would.

Mr. MCMAHON. I will be glad to, Mr. Chairman.

On pages 3 to 10 of our testimony, we mention a number of amendments that we would suggest to the basic law of Public Law 93–641. I would like to call attention to three in particular. The first one appears on page 4, and it deals with national guidelines for health planning. We think guidelines should serve as a flexible guide to the development of local health plans and objectives. Mandatory Federal

guidelines imposed uniformly by each HSA and in each State, with modifications only through a cumbersome exceptions process, would prevent the development of viable health service plans adapted to local needs.

In order to clarify the difficulty or uncertainty in relationships between local and national authorities, as we believe it was intended in the original law, we propose an amendment to section 1513(b), which will make it clear that the national guidelines be taken into consideration by HSA's in the formulation of health plans, rather than be imposed as inflexible, mandatory rules, to be rigidly followed at the local level.

The next one I would like to call your attention to, Mr. Chairman, is on page 5. We propose an amendment to section 1513 to expand the scope of the requirement for State CON laws to encompass health capital expenditures without regard to ownership or location. We believe that the private offices of health practitioners should be subject to CON review to the extent that those offices are proposing to obtain highly specialized equipment or develop facilities that are typically provided in an institutional setting.

I made reference to the example of a CAT scanner in the testimony. In addition to the application of CON laws as we have described it. and I will insist that it is quite a limited application, we think CON coverage should also apply to such activities as health maintenance organizations, ambulatory surgical centers, extended care facilities, and home health services.

Mr. Chairman, this is a slightly different approach than has been taken in section 141 of S. 2410. We are studying these two approaches, our approach, to do it by definition, and your approach to do it in a slightly different way by dealing with capital expenditures. I cannot tell you at this time what further suggestions we would make because this original suggestion goes to the definition of services, but we are studying the matter, Mr. Chairman, and with your permission, would like to submit a supplemental statement later on when we have finished our study.

Senator SCHWEIKER. I think it would be very helpful.

When would you be submitting it, roughly?

Mr. MCMAHON. I think we can do it within 1 week to 10 days, Mr. Chairman.

On page 7, we mention the third and last specific thing we would like to bring to your attention, having to do with the makeup of the planning agency governing boards.

The underlying philosophy is that health care planning is to be developed through an effective coalition at the local level of consumer and provider representatives. Confusion and ambiguity in the language of the statute regarding representational requirements on HSA governing boards have, in some instances, impeded the achievement of this important goal of the act. Accordingly, we have developed amendments to sections 1503 (b), 1512(b) and 1524(b) that would assure direct representation of hospital administrators on the governing boards of planning agencies, and that would redefine the term "indirect provider" to facilitate selection of interested, informed and effective consumer representatives.

25-122 - 78 pt. 1 - 38

We have done a recent survey, Mr. Chairman, and the preliminary results indicate that only half of the HSA's have representatives of hospital administration

Senator SCHWEIKER. Let me interrupt you on that.

You said you want to redefine the term "indirect provider." Would you elaborate on that?

Mr. MCMAHON. Yes.

Down at the bottom, beginning at the bottom of page 7, we pointed out that we think the definition of indirect provider in section 1531 is overly broad. We believe that the definition misclassifies as providers persons who have only tangential, incidental, or indirect ties to the health system. The definition also includes others, such as insurers, whose roles and responsibilities are those of purchasers. Such persons should be classified as consumer representatives.

Then we have gone on to say specifically we would revise the definition of indirect provider to exclude (1) members of the immediate family of an indirect provider, any individual who receives less than one-quarter of his or her gross income from a health care interest on a direct provider, or certain other health activities, and insurers who do not provide health services to the public, either directly or through affiliates or subsidiaries.

Senator SCHWEIKER. You said about half of the HSA's presently have hospital administrators in their groups?

Mr. MCMAHON. That is indicated by our preliminary survey.

Senator SCHWEIKER. Well, on those that do not, are they having trouble getting their point of view to the board? In other words, there was some testimony here yesterday that normally a board wouldwhether a member of the hospital administration was represented or not-would obviously listen to and have a significant input from the hospital administrator.

And my question really is do you have evidence or specific illustrations that hospitals have been unable to present their point of view when they are not represented on the board? I am not arguing about representation on the board.

Mr. MCMAHON. Yes; indeed. I do not have specific illustrations other than to tell you that the correspondence that crosses my desk indicates strong concern from different parts of the country.

Senator SCHWEIKER. Could you give us some specifics, supply some specifics a little bit later on?

Mr. McMAHON. Yes.

Senator SCHWEIKER. I think specific supplied information is very helpful.

Mr. MCMAHON. We will be glad to do that from an analysis of what information we have because, since 40 percent of total health care expenditures and a much higher percentage of capital expenditures are made by and for hospitals, we think that it is extremely important to have the management of institutions represented on the board.

To go on, Mr. Chairman, I would like to call your attention to page 12 of our testimony where we began the statement of our views on S. 2410. As we indicated in the testimony, we support the broad thrust of S. 2410. We made a few minor suggestions and these are about minor amendments. And I would like to mention one specific one on page 18.

Mr. Chairman, we support the program for voluntary reductions in service and capacity that you set forth in the bill in section 206. This adds a new part G to title XVI to provide three forms of assistance to hospitals as incentives for the voluntary discontinuance of unneeded services and facilities.

We have one minor suggestion, as we indicated at the top of page 19, with respect to the second incentive, but the point I would like to make is that this is a much better approach than compulsory closure with litigation, constitutional issues and political pressures that might result. We think that success can be assured in the modification of excess facilities or services, if the plans are developed voluntarily in conjunction with financial and planning support and with attention to the effects of this on physicians, employees and patients and the future use of facilities that are terminated.

That concludes my brief oral statement, Mr. Chairman. I will be glad to respond at any time, whether at the close of the panel or at the present, depending on your wish.

Senator SCHWEIKER. Let me just ask one or two and then we will go on to the next witness.

The last point that you mentioned, the HEW testified yesterday that they were preparing a selective approach to the problem of reimbursement for unneeded or discontinuing services.

I wonder if you have any comment on that?

Mr. MCMAHON. No; Mr. Chairman. I guess in the light of the events of recent months, we find it difficult to speculate on anything that HEW might do. I would like to have the permission to make comments after we have had an opportunity to see the specifics. I am sure we would have some comments.

We would like to have the opportunity to submit them within a very brief time after you see them yourself.

Senator SCHWEIKER. I have to say that I cannot fault you for that request.

Mr. MCMAHON. We understand your problem.

Senator SCHWEIKER. All right.

I guess we will go on, and save maybe some questions until later. Dr. Jirka?

Dr. JIRKA. Mr. Chairman and members of the subcommittee. I am Dr. Frank Jirka, Jr., vice chairman of the board of trustees of the American Medical Association, and a physician from Chicago, Ill. With me today are Dr. Archie Johnson, a member of AMA's ad hoc committee on health planning, and a practicing physician from Raleigh, N.C., and Harry N. Peterson, director of the AMA legislative department.

We are pleased to have this opportunity to express the views of the association on S. 2410 and other proposed revisions to Public Law 93641, the National Health Planning and Resources Development Act.

Because of time limitations, I will summarize my remarks. I will refer the subcommittee to our full statement for a more expensive discussion of our views, and request inclusion of our full statement in the record of these proceedings.

Before entering into a discussion on provisions of S. 2410, I want to point out that attached to our full statement is a statement of a

number of amendments which we are recommending to Public Law 93-641. The thrust of many of these, Mr. Chairman, is to achieve better the objective of local planning. Let me emphasize, at the outset, our strong support for local planning.

Mr. Chairman, there are three issues we would like to discuss at this time in S. 2410. They are, (1) extension of certificate of need to the physicians' offices; (2) the new definition of institutional health services; and (3) the provisions for the closure or conversion of institutional health services.

We are opposed to certificate of needs under S. 2410. This certificateof-need would be expanded through defining diagnostic or therapeutic equipment, irrespective where located, as an institutional health

service.

At this time there is no evidence that certificate of need for institutional services has successfully met its objectives, or lived up to expectations. We believe that it would be inappropriate to extend this program to physicians' offices. We are very concerned that such an extension could hamper the physician's ability to deliver high quality care to his patients. This could result from a number of factors that may be the outgrowth of extension of certificate of need.

For example, this could retard development of medical technology. In addition, we believe that extension of certificate of need to the physicians' office would not be conducive to providing good medical care, and would not be in the best interest of our patients.

Therefore, we urge you to delete this provision.

A related concern is in another――

Senator SCHWEIKER. Let me interrupt you 1 minute on this point, Doctor. This is a critical point. I know you folks are concerned about it. I share some of your concern.

But I think the problem that we have is how do you, if you want to do something along the line that you are suggesting, how do we prevent, say a group practice operation, or group physicians from pooling their resources, by setting up group offices, and investing in that equipment?

That is the problem that we have. It is not disagreeing to the point that you are making, but to address the point that you are making we have to make sure that we do not have a loophole.

I wonder if you have any suggestions on that, or can you give me any advice on that, to differentiate between the two extremes?

Dr. JIRKA. The converse could be the discouragement of a new practice. I believe it is a myth as to the extent of its occurrence.

Senator SCHWEIKER. Well, I think that it may well not occur at the present time, I think that is true. But every time we pass a law to prohibit certain things, people find their way around the law. I think the concern is about the future.

You may be right about what is occurring now, but I think it is just like the steel situation. I have been very much engaged in the steel pricing system. We are controlling the reference price on steel that is unfabricated; so now everything has to come in here fabricated. As a result the Japanese have found a way to fabricate the material.

I am not saying that is going to happen here, but there is some fear that the people would like to provide the relief that you say is happening, and I guess that is my real concern.