STATEMENT OF THE GEORGIA HOSPITAL ASSOCIATION

TO THE HEALTH SUBCOMMITTEES OF THE HOUSE COMMITTEE ON WAYS AND MEANS
AND THE HOUSE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
ON H.R. 6575, THE HOSPITAL COST CONTAINMENT ACT OF 1977
For the Printed Record

May 25, 1977

Dear Mr. Chairman:

The Hospital Cost Containment Act of 1977 (H.R. 6575 and S. 1391) represents another
in a long series of federal programs/regulations that will undoubtedly become a part
of the problem of rising health care costs, rather than the remedy it is claimed to be.
Since the introduction of H.R. 6575 on April 26, 1977, the Georgia Hospital Associa-
tion has been actively engaged in statewide efforts to receive information and input
on the Association's position. Through four meetings for all member institutions,
the Association has heard from its members and their governing boards as they expressed
their opposition and suggested alternatives to this proposed legislation. We will
present in this statement the statewide opposition viewpoint as well as some viable
alternatives as recommended by hospital administrators and trustees.

The Georgia Hospital Association totally opposes the Hospital Cost Containment Act
of 1977 and urges its withdrawal from further legislative consideration:

It is inequitable and unfair since the Act addresses only the hospital
costs component in the health care delivery system. The economics of
health care show that such a punitive and arbitrary effort would be
unworkable.

The suggested start of October 1, 1977, is unrealistic for such a complex
program. The regulations, not yet written, would be hastily conceived
and short of soundness.

Of the 153 community hospitals in Georgia affected by H. R. 6575 there
are 92 hospitals with less than 100 beds. These are the institutions
generally called "small hospitals". H. R. 6575 would place severe
restrictions on their revenues at a time when they desperately need to
improve their fiscal situations. H. R. 6575 would place many, if not
most, of these hospitals on the brink of insolvency in the first year.

These "small hospitals" are not adequately staffed to administer the
demands of H. R. 6575 and therefore in order to be in compliance would
need to incur heavier costs for additional expertise at a time when they
are under order to "avoid additional expense or suffer a heavy penalty."

The bill penalizes hospitals for increases in bad debts and free care.
The bill applies to gross revenues. Bad debts and free care therefore will
be charged against the hospital's allowable revenues as if they represented
An increase in the
real revenues, when in fact no revenue is realized.

percentage of bad debts or charity patients could cause a hospital to be
out of compliance if, as would be necessary, it increased its revenues to
recoup the costs associated with these additional nonpay charges. Over 100
Georgia hospitals received Hill-Burton funds. Annually these (Hill-Burton)
hospitals provide free/charity care or uncompensated services valued at
about $100 million. The continued provision of free care and/or uncompen-
sated services under the limitations of H. R. 6575 would seriously impair
the fiscal viability of these institutions.

For these reasons and others, we agree with the American Hospital Association that H. R. 6575 is unsound in concept: it unfairly regulates one segment of the economy while the rest goes unregulated; it ignores the reasons for cost increases, the planning process, and the cost-saving implications of existing laws such as P.L. 93-641 and P.L. 92-603; its complexity is such that implementation would require a huge bureaucracy that in itself would increase health care costs; it virtually eliminates medical progress while leading to a reduction in existing services.

We call to your attention and most serious consideration the recent report of the President's Council on Wage and Price Stability (December 1976). It said, in part: "It is all too apparent that right now, with current reimbursement programs and the ubiquitous and often conflicting morass of regulations, that the federal government, instead of being a part of the solution, is part of the problem of rising health care costs. This sorry state of affairs has come about despite the best of intentions of government. To add yet another layer of cost-raising regulations, which would inevitably accompany any federal efforts, would be to compound the existing problem."

Even as H. R. 6575 is under consideration, there looms, for hospitals and others, (1) a sizable increase in federal minimum wage, and the President's suggestion that (2) Social Security taxes apply to all wages, and (3) within a few years that the tax base be increased. This is mentioned to emphasize that all three proposals would force health care costs even higher.

There are numerous sections of the bill that could be attacked as unfair, inequitable, and ill-conceived and it is not our intent to go into detail on each such section. But one we must attack and oppose with strong emphasis is the heavy impact of the bill on the very efficient hospital. This is totally inequitable in that the base year proposal would amount to a penalty for those hospitals that excelled in operating efficiencies that year.

Another intolerable requirement is the demand placed upon most hospitals to prepare their budgets for the next fiscal year (with variable periods) without knowing what their revenue limitations are for that period. This, in itself, would result in involuntary noncompliance and make the hospitals liable for retroactive paybacks and likely penalties, with likely horrendous requirements to establish and monitor a patient escrow account in subsequent years for appropriate fiscal juggling purposes. The exception process in Title I of H. R. 6575 would create further financial hardships for the hospitals, large and small. For example, if a 400-bed hospital in Georgia is denied additional revenue because the GNP deflator increase was less than 1 percent, this could amount to a loss of at least $120,000 (at 3/4 percent increase); a 150-bed hospital could lose at least $75,000; and a small 65-bed

hospital would lose at least $15,000. This represents another major weakness in the proposed legislation that should not be overlooked. It is yet another example of placing hospitals on the brink of insolvency.

An additional example of the impact of this bill upon a Georgia community hospital
if enacted, closely focuses on the absurdity of the bill's control and limits
on the various management prerogatives of the institution.

The letter from this 500-bed hospital in the Atlanta area states:

"We have studied President Carter's Cost Containment Act of 1977 (H.R. 6575/
S.1391) With the assistance of our independent auditors, we have estimated to
the extent now possible how the Act could affect the operations of
Hospital. Some of our initial observations are that:

"Beginning October 1, 1977, inpatient admissions will have to be limited to
21,198 although we now estimate 21,737 admissions. To admit the additional
539 patients forecasted above, the 21,198 would cause a loss of revenue
(income) of approximately $530,000 in fiscal 1978. Since we would be unable
to sustain such a loss, the Authority would be compelled to limit inpatient
admissions to the 21,198. The other 539 patients will have to be sent
elsewhere or put on a waiting list until the next fiscal year.

"While the Carter administration has claimed that this bill would limit
inpatient revenue increases to 9 percent, in our hospital it would limit
them to between 4.9 and 6.8 percent in fiscal 1978, depending on the final
interpretation of the bill. While the hospital could only increase its
revenues by a maximum of 6.8 percent, the May 8, 1977, ATLANTA JOURNAL AND
CONSTITUTION carried an article stating the
requesting a 19 percent hike in rates..."

Company is

The exception process has many other weaknesses such as the requirement that would
force hospitals to liquidate unrestricted investments such as stocks and bonds
and use them to pay costs and that the hospital endowments also be depleted before
it could apply for an exception. This requirement would surely result in lengthy
legal procedures based on government's "confiscation of private property." Further-
more, this requirement would discourage philanthropic gifts to hospitals, and again
place the government in the position of being part of the problem of rising health
care costs rather than the solution to same. The loss of philanthrophy in the
health field would place additional burdens on all payers.

During the conclusion of one of our Association review meetings on H. R. 6575,
a hospital trustee (farmer) summarized his frustrations and feelings on H. R. 6575
as follows: H. R. 6575, if passed, will set the New South back by 20 to 25 years.

ALTERNATIVE CONSIDERATIONS:

Our Association membership has been actively involved in the repeated federal/state/ business and community reforms, revisions, new hopes and objectives which have exploded in the scope and demand for health services from all sectors since the inception of the medicare and medicaid programs.

GEORGIA HOSPITAL ASSOCIATION • 92 PIEDMONT AVE., N.E.

Our membership has a continuing commitment to seek solutions to our state and federal problems of health care costs.

There are no easy solutions or quick answers. To suggest that they will come in five months, or a year, is sheer folly. However, based upon the views of a substantial number of our membership, we wish to stress several major alternatives for reforms that are more promising than H. R. 6575.

PLANNING AND CAPITAL EXPENDITURES:

As others have stated, Title II (as a non-transistional requirement) assumes that the recently instituted planning process will not work.

In less than two years Georgia has established seven Health Systems Agencies with the federal government funding over $2 million for their health planning and resources development purposes. Additionally, the federal government is funding over $19 million in FY 1977 for the operation of State Health Planning Development Agencies. The federal cost/benefit commitment to continue such activities must be reviewed should the constraints under H. R. 6575 be instituted. Why two such programs, with multiple layers of state/federal bureaucracies under a national capital expenditure ceiling? A more plausible alternative would be for the federal government to fully implement and administer Title XVI of P.L. 93-641 for the related planning and capital expenditure programs. If federal and state agencies cannot administer and implement present statutes, H. R. 6575 cannot be viewed as an instant panacea. In short, P. L. 93-641 and P.L. 92-603 must either be made to work or be repealed.

We fully recognize the problems of excess beds and certainly all efforts to convert, mothball, or close unneeded capacity should be carried out. The positive actions included in legislation recently introduced by Senator Herman Talmadge (S.1470) as well as H. R. 7079, introduced by Representative Paul Rogers, would recognize costs associated with conversion or closure of beds and thereby provide an incentive and assistance to institutions taking such actions.

Another approach which promises to assist in the efficient use of existing capacity in our small, rural hospitals is the inclusion in this same legislation of a provision to facilitate the alternate use of acute-care beds for either long-term or acute care patients through a simplified cost reimbursement method and the elimination of certain regulatory requirements which have effectively precluded such mixed use. We support this proposal which we believe can permit rural hospitals to manage their resources more efficiently, as well as provide a more adequate range of care for the communities served:

We also recognize the desirability of limiting the number of new beds where appropriate and dealing with unnecessary expansion of services and the corresponding duplications. On three occasions since our initial efforts in 1973, our Association has strongly supported state Certificate of Need legislation but each year the General Assembly failed to act on this legislation. As established in April 1977, our State Health Planning Agency is to become operational (conditionally) July 1, 1977.

UTILIZATION/PEER REVIEW MECHANISMS:

One action of a three-part alternative proposal to H. R. 6575, as recommended by
the National Council of Community Hospitals (NCCH) in its testimony on May 12,
proposed the initiation of "sanctions that would cause physicians to comply
with PSRO and Utilization Review strictures on admissions and length of stay."
In strengthening utilization peer review, the NCCH further proposed that:

A mechanism would be instituted to provide that when a hospital admission or
portion of a hospital patient stay is found upon PSRO or utilization review
(UR) to be unnecessary, the responsible physician's compensation, from
whatever source, would be reduced because of the improper admission or
unnecessarily long stay.

Such sanctions must be addressed in any hospital cost containment reforms. Association urges that this issue, as proposed by the NCCH, be addressed and instituted by amendments to P.L. 92-603 statutes.

Our

Our member institutions have actively engaged and cooperated in multiple educational and operational UR/peer review efforts. The average length of stay (6.4 days) in Georgia during 1975 was 1.1 days lower than the average for all states in its region and 1.3 days below the national average of 7.7 days.

We propose that equal sanctions for compliance with PSRO and utilization review: mechanisms should be addressed as a relevant issue in any future nationwide health reforms.

CONTROLS ON PAYMENTS TO HOSPITALS:

H. R. 7079 and S.1470 deserve serious consideration as a revised payment mechanism with potential application to all classes of payers or purchasers. As a state lacking any prospective payment or rate-setting mechanism, S. 1470 (with its various exception processes at this time) is a viable alternative. While S. 1470 applies only to medicare and medicaid, it should be extended to include all purchasers of care.

S. 1470 would provide for:

-

A varied classification of hospitals by bed sizes/functions

The separate recognition of various costs such as capital, energy,
insurance, education.