Would the interests which have the most economic investment in the status quo be represented in the planning?

Who would do the regulation?

3. If the escort were to maintain by antitrust a "completely restructured competitive market", it would require that the health care field be shown to be influenced and maintained by the same forces as inffluence and maintain the commodity field to which antitrust has been applied. Also, what are the similarities between the market where antitrust has been sucessfully applied, and the health care field where it is proposed? (How successful was antitrust in the field of oil supply)?

4. McClure says there are five kinds of control (regulation): Price control, quantity control (retrospective and prospective), facility control, manpower control, and total expenditure control. He says that only the last works.

5. It is not clear that regulation as applied to competitive commodity market is desirable in the health care field because it is not clear that the waste of product services which results from the organization which "lost out" in the competition is economically bearable, and should be borne by the health care economy or by the total economy. Example: To develop several heart operating suites in order to determine which hospital manages it better or "competes sucessfully", and then to allow the non-sucessful ones to be "disbanded", "plowed under" or otherwise "wasted" means the investment is "lost" to consumers. If competition works in health care field, then we could afford to keep building more hospitals, and the newest and "best" would take patients from the others. Cedars of Lebanon, Miami closed 54 days after it was dedicated by Pres. Nixon because 500 more beds were a surplus; there was no demand and no competition with other hospital beds.

(i) May 17, 1974 Interim Commission on Health Care Costs, Minn Senate Health Committee

Should there be a mix of planning and competitive enterprise?

This is what there is now, therfore, "should be" is misleading.

This mix is true in other fields than health care, and probably results from more basic factors which influence all economic endeavor and cannot be influenced by legislation affecting health care alone.

How to strike a balance most beneficial to consumers?

Consumers would be benefited by an emphasis on primary care (non-hospi

tal)

(a) Increased accessibility to primary care

(i) Coverage of primary care episodes by the health care dollar already being spent for them

(ii) distribution of primary care manpower geographically more equitably 1. Use of less expensive medical manpower to go to low population or low income areas where economic return on primary care services is lower

(iii) 2. Conversion of medical education to production of more primary care manpower

(iv) 3. Use of primary care medical professionals to approve of medical decisions made by specialists which require additional expenditures of health care dollars (surgery, hospitaliazation etc)

(b) Conversion of health dollars being used to maintain hospital beds and floor space, to use for primary care

(i) License only the beds that occupation data show are used.

(ii) Moratorium on federal subsidy of any construction of beds.

(iii) Medicare dollars only to hospitals which are tied into comprehensive care plans.

(iv) Requirement of use of reserves to maintain non-profit status (use proportion of reserves for conversion to ambulatory)

(v) If convert to ambulatory prepaid comprehensive care, then can be considered for expansion of beds if show need, for licensure of other services, for carrying of interest charges by government (or some such incentives)

Appropriate role of health care planning in local community?

To inform public of the facts re: costs, availability, choices in health care services

To bring together the providers of service and at least representatives of the users of service. . . . to understand problems of each, to try to meet needs of

each, to consider economic problems of each, to indicate to public officials where funds should be expended in the public interest, to iron out controversy with greater understanding.

As a place where gaps in services can be studied and efforts made to find services, from those already in operation, to meet the specific need.

Problem of planning: The implementation should be built into the structure set up for planning. If the planning function is separate from implementation ... If the planners are NOT required to carry out, or assure implementation of any of the plans made, then nothing happens.

There are only changes for the better if the people who control the operation of health services can participate in the planning, and are held responsible to fit into the plans which have been made and agreed upon by the community's representatives.

Problem that at present time, planning funds from federal government do not require any implementation. If all those funds were put into employment at same salaries of people who are actually delivering health care, the funds would be better used. However, if planning and implementing can occur within same organiziation, the federal funds should cover the planning.

Goals of Planning?

Goal of planning should be removing the barriers to health care for every

one.

If not being achieved . . . it is because of separation of planning from iplementation.

How to build incentives for planning and coordination into an operating agency?

1. The results of planning which are desirable: providing range of services for one set amount of funds including health education services for people who use the operating agency's services setting up more economical services; hospitalization on contract drugs/medicines at cost contracting with specialists for definite services Federal could finance planning which resulted in these economies

2. If planning resulted in these economies planning expenses.

If planning does NOT result 75%-50%.

...

federal reimburses 100% for

in these economies, fed. reimburses

What discriminatory pricing practices exist in the medical services market? There are two areas of delivery-financing of medical care which cause unfair and exorbitant prices, and should/could be alleviated:

1. Cost of medical services to welfare recipients (and others whose care is paid by federal and state treasuries) WHEN THE SERVICES ARE DELIVERED BY MEDICAL RESEARCH FACILITIES (Ex. University hospitals and teaching hospitals)

This care is always more expensive because

a. difficult to break out educational costs from medical service itself

b. lack of good bookkeeping when in most parts of the institution, as in a university, it is all charged to education

c. difficult, politically, to get medical care delivered to the welfare recipients who are the only ones as a large group, who go where are told, so accept being used as "educational material" And the medical professions needs this "clinical material". Example of difference in costs:

At GHP, physicians see patients an average of every 15 minutes...

At teaching facility, an examining room is tied up 11⁄2 hours instead of 15 minutes.

(Examining rooms are the unit of production to ambulatory care that beds are to inpatient care.)

2. The use by insurance companies and Blue Cross of experience rating instead of community rating means that the pricing does not have the advantage of spreading the base which community rating does. Blues started out to community rate, but the commercial carriers drove them (forced them) to experience rate, lowering rates for good groups, and forcing Blues in position of having the lower rate only where the experience of the group was bad.

The Federal government could permit insurance companies to be carriers of Medicare ONLY IF THOSE INSURANCE COMPANIES WILL COMMUNITY

35-554-74-pt. 3-5

RATE THEIR HEALTH INSURANCE. That should be an incentive for them to spread the risk, similar to using other federal grants as incentives. See Remarks of Tor Dahl, Extensor Corporation, Minneapolis

What anticompetitive problems are posed by prepaid group practice?

(It is competitive if well-managed, and if community rated because these are key means of controlling costs)

Hospital sponsored HMO's: Problem will be for hospital oriented medical personnel to restrain their tendency of putting people into hospital in order to meet need of hospital to fill beds.

Teaching hospital will have this problem even greater.

Doctor sponsored HMO: To find capable administrative staff to save money so that physicians can practice freely, and learn how to practice ambulatory oriented medicine

Commercial insurers: They have problem of needing to keep their computers busy, so will load on costs of collecting data which is not necessary for delivery medical care to an enrolled population.

Also will have difficulty using and confining themselves to using community rating when accustomed to getting as much premium as need for any group plus a profit.

Also have trouble starting small: Need a huge capital investment which saddles the new hmo with huge expectations unrelated to delivering good, economical accessible medical care.

Blue Cross Blue Shield: Have so many problems with rising costs of their present system, that they never get around to starting an hmo. Are more like the commercial insureres, that they go in where a beginning HMO asks for help. Also need to use computers, and will do it when it is not needed.

When the management considers HMO's "as experiemental" then a lot of costs are loaded on to an operation which are NOT related to the delivery of good care.

Exhibit 4.-Biography of John Andrew Nelson

Born: Jamestown, New York-November 25, 1925.

Married: Onalee Tyrrell-January 27, 1951. Three children-Frederick, Andrew, Laura.

Residence: 21 Countryside Road, Fairport, New York 14450; (716) 385-2736. Education

1947-1951: University of Buffalo-B.A.-Biology.

1955-1956: Columbia University-M.S.-Hospital Administration.

Work Experience

January 1971 to Date: Executive Director, Genesee Valley Group Health Association (Subsidiary of Rochester Area Blue Cross/Blue Shield Plans) 41 Chestnut Street, Rochester, New York 14647, (716) 454-1700.

October 1960 to December 1971: Administrator, Metropolitan Hospital and Health Centers, 1800 Tuxedo Avenue, Detroit, Michigan 48206, (313) 869-3600. Directly responsible to the Board of Directors for the operation of five area clinics and the main hospital of 180 beds. This institution is the provider of health services to the 90,000 members of the Michigan Blue Cross/Blue Shield, Metro Health Plan.

July 1957 to September 1960: Assistant Director, Jefferson Medical College Hospital, 11th and Walnut, Philadelphia 7, Pennsylvania.

January 1955 to July 1957: Administrative Assistant and Resident, Methodist Hospital of Brooklyn, 506-6th Street, Brooklyn, New York 11215. Organizational affiliations

Members: American College of Hospital Administrators, American Hospital Association, American Public Health Association (Fellow), Group Health Association of America (Member Board of Directors), Medical Care Seminar, Medical Group Management Association, Rochester Club.

Publications

Sodeman, William A., M.D., Nelson, John A., Orienting the Medical Student to Medical Care costs. Hospitals, October 1, 1961.

Nelson, John A., Organizing the Prepaid Closed Panel. Medical Group Management, Vol. 17, No. 3: 13-18, March 1970.

Exhibit 5.-Statement of Mr. Nelson

STATEMENT PRESENTED BY JOHN A. NELSON, EXECUTIVE DIRECTOR, GENESEE VALLEY GROUP HEALTH ASSOCIATION, ROCHESTER, N.Y.

Mr. Chairman and members of the committee, my name is John A. Nelson and I am the Executive Director of a new health maintenance organization, the Genesee Valley Group Health Association in Rochester, New York, a subsidiary of the Rochester Area Blue Cross and Blue Shield Plans.

I think the key to creating effective competition in the health care sector rests with the non-profit and commercial health insurance carriers. These structures have the financial reserves and administrative and technical knowhow to develop and promote alternative health care delivery systems. If they withhold their support, they can effectively inhibit independent development of HMO's.

I believe Rochester is a microcosm for testing and developing most of the new health care ideas and concepts of the 1970's, namely innovations in health care delivery services through the introduction of three Health Maintenance Organizations (HMO). Two of the HMO's are prepaid medical group practice plans (the Genesee Valley Group Health Association and the Rochester Health Network) and the third is a foundation for medical care (the Monroe Plan for Medical Care). The latter is defined as an individual practice association by the HMO Act of 1973.

A local community advisory committee on financing and delivery of health care, chaired by William G. vonBerg, President of the Sybron Corporation, recommended in 1970 that the Rochester Area Blue Cross and Blue Shield Plans initiate the development of a comprehensive prepaid medical group practice plan.

This was reinforced by the New York State Governor's Steering Committee on Social Problems on Health, Hospital Services and Cost, chaired by the late Joseph C. Wilson of Rochester and former Chairman of the Board of the Xerox Corporation. This Committee called for creating an option for a "more rational health care delivery system modeled along the lines of the Kaiser-Permanente prepaid medical group plan." Rochester Blue Cross and Blue Shield then proceeded to set up GVGHA despite opposition to this new subsidiary corporation from many of their participating health providers.

The forty year history of organized medicine's covert and overt opposition to prepaid medical group practice has not been absent from the Rochester scene. This resistance in our community has led to the creation of a physicians trade union and the opposition of an entire hospital medical staff whose recommendation not to establish our program at their hospital was finally overruled by the hospital's lay Board of Directors, reflecting the strong support of local industries for the program.

Further momentum came in July, 1971, when Rochester Blue Cross and Blue Shield received a $540,000 federal grant through Blue Cross Association, Group Health Association of America and the National Association of Blue Shield Plans, to develop the Rochester group practice plan in 18 months to prove that such palns could be launched more quickly than had been true historically. This funding accelerated the Monroe County Medical Society's move toward the development of a foundation for medical care.

In addition, the Rochester Health Network, composed of four OEO funded health centers, initiated plans to enroll a working population so that they could become more self-sufficient. Thus, they developed their own prepaid group practice network plan as well.

Since Rochester Blue Cross and Blue Shield has more than an 80 percent market penetration, and no commercial carriers were interested in marketing; and underwriting these other plans, contracts were negotiated by the Medical Society Foundation and the Health Network with Blue Cross and Blue Shield for administrative services and varying degrees of underwriting. Thus, in Rochester, a Blue Cross and Blue Shield member can keep his traditional coverage, or select one of three new options, maintain his Blue Cross and Blue Shield contract but within a new type of health delivery system; that is am HMO. This preserves the portability and convertibility of his insurance. For the first time, the member has options for differnt types of health delivery sys-tems.

However, in recent weeks there are indicators that yet another option may open, and that is membership in a prepaid medical group practice plan offered

by the Metropolitan Life Insurance Company in conjunction with a new medical group practice. It is of interest to note that the physician heading this new medical group practice is also president of the medical foundation plan.

As new HMO's proliferate several questions are raised. A paramount concern deals with duplication of facilities and services. Can we afford the same degree of competition that historically has existed among community hospitals which, until recent years, had little difficulty in passing on "the tab" to third parties like government and insurance carriers?

After fifteen years of active administration of comprehensive prepaid medical group practice organizations, I know that these prepaid programs can be cost effective and maintain a standard of excellence in patient care. Their very existence spurs a change in attitude on the part of the physicians in the traditional system, in some instances, even leading to the establishment of the foundation type plan. I have observed that as prepaid medical group plans acquire sufficient enrollment to maximize economies of scale, their premiums drop below those for traditional health insurance coverage. Thus, they not only provide greater benefits but may ultimately make an impact on the pricing structure of traditional fee-for-service care.

There is, however, a danger of over-saturating a community with competing HMO's. We may need ultimately to devise a franchise system. I must conclude that we need a mix of planning and competitive enterprise to strike the balance most beneficial to consumers.

Secondly, can we really leave this control to comprehensive health planning agencies which, despite their consumer majority vote, are frequently controlled by the health care providers and professionals who quite necessarily have been called on because they have expert knowledge?

While to date our plan has not been restricted by our local and state planning agencies, it is conceivable that provider dominated agencies could effect a control that would not permit the market place development of prepaid medical group practice plans or other types of HMO's.

There is a need to provide state and federal legislation that allows HMO's to construct or buy facilities so that they are not restrained by existing state certificate of need laws and federal laws requiring approval of capital expansion.

At least in Rochester, however, existing federal legislation and sophisticated community pressures have pushed the planning council and Blue Cross and Blue Shield to support and market alternative methods of health delivery.

While the pattern of opposition from the organized medical community in Rochester tended to be covert, it was not so very much different from the historic opposition of several generations of physicians to closed panel prepaid medical group practice plans.

From the 1920's on, courtrooms have been the scene for combating the restraint of trade actions of county, state and national medical associations. In Elk City, Oklahoma, in 1929, a prepaid medical group practice founded by Dr. Michael Shadid, pioneered in legal contests to win the right to offer this type of service.1

The Group Health Association in Washington, D.C., as a result of the repeated denial of hospital privileges for members of their medical group, also initiated legal action. On December 21, 1938, a Federal Grand Jury voted an indictment of the District Medical Society, the American Medical Association, the Washington Academy of Surgery, and various other organizations and physicians for anti-trust violations. The district court convicted and fined the District of Columbia Medical Society and the American Medical Association. On appeal, the action of the lower court was upheld by the United States Supreme Court four years later.

When I was a hospital administrator for the Metropolitan Hospital and Health Center component of the Community Health Association, founded by the late Walter P. Reuther and the United Auto Workers, I had firsthand experience with this same opposition to a prepaid system.

In 1961, when our prepaid plan opened in Detroit, we did not have facilities in our hospital for obstetrical deliveries and care of the newborn infants. The obstetricians in our medical group applied for medical staff privileges at several nearby community hospitals equipped for obstetrical services. Their applications were never acted upon nor processed. There was considerable debate as

1 Shadid, Michael, M.D., Crusading Doctor, Meador Publishing Company, Boston, 1956.