Admiral Rickover cited a company as an example of "how profits can be buried in material cost estimates." Is nothing like this possible for some hospitals? In the case of a defense contractor it is presumed the entire cost should be paid by the Government as a consumer. Is there a similar presumption for "consumers" of hospitals services? Who are the "consumers" of hospital services? Are they only the sick, or do they also include those who never go to the hospital but could if they had to? Yours sincerely, SIDNEY KORETZ. [From the New York Times, Jan. 16, 1964] HARTSDALE, N.Y., December 31, 1963. To the EDITOR OF THE NEW YORK TIMES: Reference is made to your news article wherein it is related that Vice Adm. Hyman G. Rickover is disturbed by the profiteering of defense contractors. While it may well be that contracting procedures may be further improved to eliminate undue profits, it would appear that Admiral Rickover either ignores or is unaware of the provisions of the Renegotiation Act of 1951, as amended. It is my understanding and observation that the provisions of the Renegotiation Act have been, and are being, properly administered in eliminating excessive profits accumulated on defense contracts. I am sure that were it not for the presence of the Renegotiation Act, Admiral Rickover's concern might be warranted. JOHN J. LAKE, Former Chairman, New York Regional Renegotiation Board. EDITOR, THE WALL STREET JOURNAL, WASHINGTON, D.C., January 11, 1964. DEAR EDITOR: You misuse the Consumer Price Index on your front page January 10. You say: "Medical care cost continued to advance in November, reaching 117.5 percent of the 1957-59 average." The Bureau of Labor Statistics, responsible for this index, warns against calling it a "cost of living index." You contribute to the widespread carelesseness in distinguishing between prices or costs on the one hand and expenditures on the other. Expenditures represent a total sum of money paid for a quantity of goods or services consumed, whereas price or cost refers not to a quantity, but to one unit of such goods and services. The Consumer Price Index measures the price change of a "market basket" and it admittedly fails to incorporate factors influencing changes, of which price is only one among others, in true costs in the real world. Prices of modern health services are higher than of former services, not necessarily because costs are higher, but also because we are, getting more for our money, and yet it may not be good enough. There is increasing trouble because more people must be served. We are not necessarily doing as well as other countries is every respect, even when we are improving on our past record. Dr. Robert S. Morison, of the Rockefeller Foundation, cited a study showing Swedish hospitals employing two-thirds the number of people to take care of the same number of patients that American hospitals do. The Health Information Foundation reported in September 1957 "hospitals are today far more productive than they were two decades ago-and there is reason to hope that with continued public understanding and financial support, productivity will continue to increase." But they are not aware of how they befuddle public understanding in 1963, reporting "the rising cost of hospital services," without explaining how this is possible when there is also rising productivity. Spending more for health when you are getting more than your money's worth does not mean higher costs. It is just as necessary to reduce costs in providing for health care as it is in providing for national security, which is also thought of as almost literally priceless. Defense Secretary McNamara has insisted on "program definition" and "cost-effectiveness ratios," claiming we must do "our thinking before we start to bend metal." This applies to health as to defense. To the extent that our medical research is successful, we are likely to spend more, not less on health. Much of the rise through the years in medical care "costs" has actually reflected quality improvements as better and usually more we costly medical techniques have become available. It is a mistake always to lament rising expenditures on health and increasing use of health facilities. Our social objective is surely not to minimize health expenditures but rather to maximize net benefits. Just as we generally approve of investment in factories and machinery-nonhuman capital-to increase productive capacity, so should view health expenditures as investment in human capital. By creating a healthier population, and by extending life, health expenditures make a positive contribution to people's productivity. This is in addition, of course, to the obvious importance of good health for its own sake. Yours sincerely, EDITOR, THE WALL STREET JOURNAL, SIDNEY KORETZ. WASHINGTON, D.C., July 21, 1963. DEAR EDITOR: It's not really a "new concept," as Herbert G. Lawson calls it in your July 19 issue, when insurers give health insurance policies "whether he's sick or healthy" to over-65 applicants. "Premiums are roughly comparable to ordinary health insurance for the elderly, which selects only lower risk individuals." One might forget that no over-65 applicant is "lower risk” in relation to the rest of the population or that the majority of the American people belong to the over-65-year category, in the sense that all individuals who some time in their lives have reached or will reach that age. May I suggest that all health expenditures are health insurance expenditures. Even those for recovery from actual illness lead to exposure to possible future illness. The very success of medicine complicates the situation. When people live longer, the ills to which they are exposed increase. Earlier generations were spared this inconvenience by earlier death. A health expenditure is for a reduction of a probability. Although consumers may not find it easy to choose between a reduction in the probability of becoming ill or dying prematurely and a more tangible commodity, decisions based upon nothing more than probability information are often made. People do decide to spend part of their income on the promotion of their health, and they make other choices as well involving uncertain outcomes, as in gambling. The intangible, uncertain nature of "better health" does not, in itself, preclude people from adjusting their purchases of it optimally, as they tend to do in the case of other, more tangible objects of consumption. Currently, there is a debate going on whether market price, which in other cases serves as a guide in the determination of optimal output, in response to demand expressed by "dollar votes," can do so adequately in the production of better health. Pills can be sold to individuals for separate consumption; also, perhaps, some physicians' services. But better health belongs to a class of goods which cannot be divided into units of which any single individual can be given exclusive possession. They are in this sense indivisible. Such goods have the characteristic that they become part of the environment. In addition, each individual's consumption of such a good leads to no subtraction from any other individual's consumption of that good. Health expenditures, whether public or private, designed to benefit only some people unavoidably help others as well. The latter may not pay a cent, but get the benefit anyhow. There is, in fact, very little relationship between the benefit to any particular individual and the size of his contribution. There is not sufficient incentive for individuals to spend their own money on their own health. But if people knew that their own, inadequate, expenditures must be matched by that of others, making them adequate, they are likely to respond. The debate between those who do and those who don't want this to be voluntary essentially hinges on the question of what to do with the freeloaders. But, in any case, health is like defense, in one respect. Willy-nilly, we are in it together, not separately. Yours sincerely, SIDNEY KORETZ. WASHINGTON, D.C., November 17, 1963. Hon. GEORGE ROMNEY, DEAR GOVERNOR ROMNEY: According to today's Washington Post you favored "a progressive fiscal program designed to eliminate the more glaring inequities of sales taxation while drawing more businesses to Michigan." Alan L. Otten said (Wall Street Jal, Nov. 15) that you are "the kind of man to fight for what he believ He says you are a great admirer of Theodore Roosevelt. I certainly thin! we need more of this Roosevelt's spirit, as Eleanor Roosevelt, also, noted in her last book. Yesterday's New York Herald-Tribune says "Governor Romney has conducted himself with a high sense of fiscal responsibility.' "Fiscal responsibility" is worth aiming for, but only after it is clearly defined. I think it can be done in a way meaningful to both conservatives and liberals, who can then settle their differences more rationally than is now the case. I am curious about the report to the Governor of Michigan from the commission on prepaid hospital and medical care plans, filed on July 9, 1962, with the then Gov. John B. Swainson. To contribute to this, was a University of Michigan study on hospital and medical economics led by Walter J. McNerney. This consisted of 13 projects, and involved an expense of over $380,000. It is reviewed in the September American Economic Review (pp. 838-842) by Frank G. Dickinson, of Northern Illinois University. I think we need a better accounting than is found here, or in Public Health Economics, June 1961 (University of Michigan School of Public Health). In 1960, Mr. William McNary used the prospect of the coming illumination of this study as a reason for others, including the Michigan Legislature, to wait for its completion before moving. Prof. Theodore W. Schultz says health economics is in its infancy ("Investment in Human Capital," American Economic Review, March 1961, p. 9), but really it's only in an embryonic stage if I am to judge by the fact that the University of Michigan study nowhere considers the desirability of cost reduction as a goal. Coming from the manufacture of Rambler cars, you ought to realize the seriousness of this omission. Cost reduction and improved efficiency are two sides of the same coin, I don't have to tell you. Apparently this simple lesson in economics was unknown to those engaged in this study. Fiscal responsibility is a requirement here as well as in government. we had it? Yours sincerely, Have SIDNEY KORETZ. STATE OF MICHIGAN, Lansing, December 18, 1963. Mr. SIDNEY KORETZ, DEAR MR. KORETZ: Thank you for your letter regarding the economic problems involved in the hospital and medical care programs. Your concern regarding costs and efficiency in the area of health insurance is shared by many. It is a serious matter whenever the public's dollar is at stake, whether it be for health insurance or for other services the public depends on. It is my understanding that the University of Michigan study did consider both the cost and efficiency of prepaid health care. The Governor's study commission made recommendations concerning efficiency which were based to a great extent on the University of Michigan report as well as on testimony presented at its hearings. The University of Michigan project was financed by a grant from a private foundation, not by State funds. At the time of the last Blue Cross and Blue Shield rate increase, the commissioner of insurance set forth certain directives concerning the cost or prepaid hospital and medical care. As a result of these directives, Blue Cross does have active committees studying the areas of efficiency and cost reduction for the purpose of making constructive recommendations. While the above comments are somewhat general, they do indicate that the parties responsible for the administration, development, and review of hospital and medical care programs in Michigan have not been remiss in their responsi bility to the public. Despite their best efforts, however, the cost of hospital and medical care has continued to increase. Even though it may be possible to attain maximum efficiency and cost control it is not possible nor desirable to attempt to regulate the public demand for broader coverage and higher utilization of hospital and medical facilities. Your thoughtful letter is very much appreciated. Mr. LEO H. IRWIN, GEORGE ROMNEY. CITY OF NEW YORK, DEPARTMENT OF HEALTH, FLUSHING-CORONA HEALTH DISTRICTS, Chief Counsel, Committee on Ways and Means, DEAR MR. IRWIN: We would like to submit the following statement based on our experiences in dealing with the medical needs of people over 65 in the area covered by the Corona-Flushing Health Center. Although the center covers the entire population of Corona, Elmhurst, Jackson Heights, Flushing, and Bayside, the largest number of requests (close to 100 cases this year) come from white, self-sustaining families whose incomes have always been adequate for ordinary needs. However, expenses incurred by the chronic illnesses and disabilities often associated with the years past 65 are beyond their means. The idea of applying to the department of welfare for the help they need with these expenses is so distasteful to them, even if they should be eligible financially, that they refuse to apply. In most of the cases coming to our attention, the income of these families was slightly above the minimum required for assistance. In spite of that, the income was, in the overwhelming majority of cases, not enough to cover the costs of home aids, nursing home care, and equipment such as wheelchairs, braces, and other prosthetic devices. DIFFICULTIES INVOLVED IN FORCING CHILDREN'S LIABILITY UNDER LAW Application of a stringent means test through the department of welfare works serious hardship in many cases. A skilled man in his early seventies, who had had a successful business up until a few years before coming to our attention, was living on a social security allowance, for himself and his wife, of $180 a month. His savings had been wiped out by several amputation operations so that he was not able to buy two artificial legs which he needed to get around and reestablish his business. He refused to apply for medical aid for the aged when he was told by the department of welfare he would have to take his three married children to court to force them to pay. All three children were just able to manage their own affairs and although they might have been able to contribute something, could not carry the whole expense. In another situation, a family was asked to use the money they were using for their children's college education to pay for the grandfather's prosthesis. RECOMMENDATIONS 1. The minimum amount of income permitted under the law should be raised to permit a standard of living above the mere subsistence level which is now in effect. 2. The means test as it is applied under department of welfare rulings works great hardship in many cases and excludes the people whom the law was intended to help. A department of welfare type eligibility should not be required. 3. Children of the aged applicants should not be expected to penalize their own families and jeopardize their children's future by being required to liquidate their savings to meet the needs of the aged parent as a primary obligation. We hope the committee will give some consideration to the need for an extended and more meaningful program for medical aid to the aged. Sincerely yours, ANN P. KENT, M.D., District Health Officer. о |