Summary of H.R. 6575

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Material Information

Title:
Summary of H.R. 6575 as reported by the Subcommittee on Health and the Environment : including information on the need for cost containment legislation and background data on hopistals and hospital costs
Physical Description:
v, 79 p. : ill. ; 24 cm.
Language:
English
Creator:
United States -- Congress. -- House. -- Committee on Interstate and Foreign Commerce
United States -- Congress. -- House. -- Committee on Interstate and Foreign Commerce. -- Subcommittee on Health and the Environment
Publisher:
U.S. Govt. Print. Off.
Place of Publication:
Washington
Publication Date:

Subjects

Subjects / Keywords:
Hospitals -- Cost control -- United States   ( lcsh )
Hospitals -- Rates -- United States   ( lcsh )
Genre:
federal government publication   ( marcgt )
non-fiction   ( marcgt )

Notes

Statement of Responsibility:
prepared by the stagg for the use of the Committee on Interstate and Foreign Commerce, U.S. House of Representatives.
General Note:
Reuse of record except for individual research requires license from LexisNexis Academic & Library Solutions.
General Note:
CIS Microfiche Accession Numbers: CIS 78 H502-1
General Note:
Reuse of record except for individual research requires license from Congressional Information Service, Inc.
General Note:
Chiefly tables.
General Note:
Issued Jan. 1978.
General Note:
At head of title: 95th Congress, 2d session. Committee print. Committee print 95-35.

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 022487110
oclc - 03723437X
Classification:
lcc - KF49
System ID:
AA00024040:00001

Full Text


95th Congress COMMITTEE PRINT { O COMMITTEE 2d Session iRINT 95-35






SUMMARY OF H.R. 6575, AS REPORTED BY THE SUBCOMMITTEE ON HEALTH
AND THE ENVIRONMENT
INCLUDING

INFORMATION ON THE NEED FOR COST CONTAINMENT LEGISLATION AND BACKGROUND DATA ON
HOSPITALS AND HOSPITAL COSTS




PREPARED BY THE STAFF
FOR THE USE OF THE

COMMITTEE ON INTERSTATE AND
FOREIGN COMMERCE
U.S. HOUSE OF REPRESENTATIVES








JANUARY 1978%.'.



U.S. GOVERNMENT PRINTING OFFICE 21-357 0 WASHINGTON : 1978















COMM1-%ITTEE ON INTERSTATE AND FOREIGN COMMERCE
HARLEY 0. STAGGERS, West Virginia, Chairman
JOHN E. MOSS, California SAMUEL L. DEVINE, Ohio
JOHN D. DINGELL, Michigan JAMES T. BROYHILL, North Carolina
PAUL G. ROGERS, Florida TIM LEE CARTER, Kentucky
LIONEL VAN DEERLIN, California CLARENCE J. BROWN, Ohio
FRED B. ROONEY, Pennsylvania JOE SKUBITZ, Kansas
JOHN M. MURPHY, New York JAMES M. COLLINS, Texas
DAVID E. SATTERFIELD III, Virginia LOUIS FREY, JR., Florida BOB ECKHARDT, Texas NORMAN F. LENT, New York
RICHARDSON PREYER, North Carolina EDWARD R. MADIGAN, Illinois
CHARLES J. CARNEY, Ohio CARLOS J. MOORHEAD, California
RALPH H. METCALFE, Illinois MATTHEW J. RINALDO, New Jersey
JAMES H. SCHEUER, New York W. HENSON MOORE, Louisiana
RICHARD L. OTTINGER, New York DAVE STOCKMAN, Michigan
HENRY A. WAXMAN, California MARC L. MARKS, Pennsylvania
ROBERT (BOB) KRUEGER, Texas TIMOTHY E. WIRTH, Colorado PHILIP R. SHARP, Indiana JAMES J. FLORIO, New Jersey ANTHONY TOBY MOFFETT, Connecticut JIM SANTINI, Nevada
ANDREW MAGUIRE, New Jersey MARTY RUSSO, Illinois
EDWARD J. MARKEY, Massachusetts THOMAS A. LUKEN, Ohio DOUG WALGREN, Pennsylvania BOB GAMMAGE, Texas
ALBERT GORE, JR., Tennessee BARBARA A. MIKULSKI, Maryland
W. E. WILLIAMSON, Chief Clerk and Staff Director KENNETH J. PAINTER, First Assistant Clerk ELEANOR A. DINKINS, Assistant Clerk WILLIAMI L. BURNS, Printing Editor

PROFESSIONAL STAFF
ELIZABETH HARRISON CHRISTOPHER E. DUNNE
JEFFREY H. SCHWARTZ WILLIAM M. KITZMILLER
BRIAN R. MON1IR MARK J. RAABE
KAREN F. NELSON THOMAS M. RYAN
Ross D. Ai,,
ROBERT HENLEY LAMB, Associate Minority Counsel

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Tabl e of Contents


GENERAL BACKGROUND
Page
I. Need for Legislation I

A. Description of the Problem 1

B. Causes of Hospital Cost Escalation 1

C. The Effects of Rising Hospital Care Costs 3

D. Previous Efforts to Moderate Hospital Cost Increases 4

II. Relationship to Existing Law 7

SUMMARY OF H.R. 6575, AS AMENDED

I. Title I Transitional Program of Control on Hospital Revenues 9

A. General Approach 9

B. Application of the Limit 9

C. Basic Limit of the Federal Program 10

D. Volume Load Adjustment 10

E. Modification to Exempt Increases in Non-Supervisory Wages 11

F. Other Adjustments and Modifications 11

G. Exception to Limit 12

H Disclosure 12

1 Enforcement 13

J. Incentive Payments for Good Performance 13

K. Exemption for Hospitals in Certain States 13

L. Other Medicare-Medicaid Provisions 14

II. Title II Limitation on Capital Expenditures 15

A. Capital Expenditure Limit 15

B. Supply and Occupancy Standards 15

C. Consistency between Certificate of Need and Section 1122 16
Review Programs






IV


Page
D. Sanctions 17

E. Program Coverage 17

F. Implementation Process and Timetable 17

G. Review of Federal Hospitals 18

III. Title III Program to Assist and Encourage the Discontinuance 19
of Unneeded Hospital Services

A. Nature and Duration of Program 19

B. Guidelines for Hospital Services 19

C. Planning Agency Role 19

D. Priority for Approval by Secretary of Hospital Application 19

E. Discontinuance or Consolidation of Entire Hospital 20

F. Discontinuance of Identifiable Service Unit 20

G. Conversion of Identifiable Part of Facility 20

H. Revenue Base of Applicant Hospital or Other Affected Hospitals 21 I. Depreciation of Facility or Equipment Acquired or Constructed 21
With Payments

J. Incentive Payments to Health Systems Agencies 21

K. Authorization 21

L. Penalty for Non-Compliance 21

M. Study of Program 22


DATA ON HOSPITALS AND HOSPITAL COSTS

I. Explanatory Note 23

II. List of Tables 24

A. Overview (Tables 1-7) 26

B. Expense Per Day and Per Admission (Tables 8-11) 34

C. Payroll Data (Tables 12-18) 40




v


Page
D. Utilization Data (Tables 19-21) 52

E. Capital Data (Tables 22-27) 58

F. Impact of H.R. 9717 (Tables 28-33) 70





















Digitized by the Internet Archive in 2013
















http://archive.org/details/summaryofhr6575a00un it











GENERAL BACKGROUND


Need for Legislatlon--..The Problem of Rapidly Rising Hospital Care Costs


Description of the Problem

During the past 25 years, national health expenditures have increased not only in aggregate terms and on a per capita basis but also as a percentage of the gross national product. In 1950, national health expenditures amounted to $12 billion, or 4.5 percent of the GNP. Preliminary estimates for fiscal year 1976 indicate that health expenditures amounted to $139.3 billion, or 8.6 percent of the gross national product. Expenditures for hospital care are the largest component of national health expenditures, reaching an estimated $55.4 billion in fiscal year 1976 (or about 40 percent of total expenditures).

Expenditures for hospital care have risen annually at double-digit
rates for a decade. During fiscal year 1965, the year prior to enactment of medicare and medicaid, expenditures for hospital care amounted to nearly $13.2 billion. Within 5 years, the annual outlay had almost doubled to $25.9 billion, and by fiscal year 1976, expenditures had more than quadrupled to $55.4 billion. The average annual increase from 1965 to 1976 was 13.9 percent; adjusted to reflect constant prices in the general economy, the average annual increase was still 8.6 percent. If this rate of increase continues, total spending on hospital care alone could exceed $100 billion by 1981. The following table presents the annual increases in hospital care expenditures since fiscal year 1950.

TABLE I-(PENDITURES FOR HOSPITAL CARE, SELECTEDnFSCAL YEARS M157
Tom Asul



195t3.2&I 97------- --------------- ------------ 291 12.3
1972------. - - --32.7 12.4
X52 10.7
1974----.------- 41.0 13.3
35 41. 17.6



Causes of Hospital Cost Escalation

A number of explanations have been offered for the intense and sustained inflationary trends in hospital costs over the years. For example, it has been argued that spiraling costs are attributable to increases in the demand for hospital care, and to the response by hospitals to this demand. Because private insurers and public third-party payments (for example, medicare and medicaid) finance the overwhelming proportion of the care rendered in community hospitals, the actual net costs of care for most

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patients at the time of hospitalization are very small. The patient and his agent, the physician, therefore, can elect the most expensive (and, presumably, the best) care available --- more expensive than they might elect if the third-party payment programs did not exist. Comprehensive prepayment enables hospitals to provide more amenities, more technology, more staff, et cetera --- the very inputs which drive up the costs of hospital care. In short, the facilities can greatly increase the costs of care without significantly increasing the direct financial burden on patients. This process may even be self-reinforcing: The high cost of care creates pressures for even more comprehensive thirdparty protection and the expanded coverage, in turn, enables hospitals to produce ever more costly care.

Another explanation of the nature and origin of hospital inflation focuses attention on the methods currently used to reimburse or pay hospitals for care rendered patients under third-party programs. Hospitals are reimbursed according to either the costs they incur in delivering patient care or the prices or charges they assign for different units of service they supply to patients. The predominant method of reimbursement, used by medicare and medicaid, and most Blue Cross plans, is cost-based reimbursement. Cost reimbursement involves determinations, in accordance with established cost principles, of the actual costs incurred by the facility in the rendering of patient care. Payments are made at periodic intervals based on estimated operating costs with retroactive adjustments made for each accounting period.

This retrospective cost-based reimbursement mechanism has come under increasing criticism in recent years and has been cited as one of the contributors to the inflation in health care costs. Specifically, this method of paying for hospital care is viewed as inflationary:
(1) Because it fails to set effective limits on the costs to be reimbursed; and (2) because it fails to offer incentives for efficient performance or, alternatively, to create disincentives for inefficient operation. It has been observed that most cost-based systems contribute to hospital inefficiency and wasteful expenditures (and, thereby, to hospital inflation), because such systems virtually guarantee payment for costs that (a) are not determined in the usual competitive marketplace, (b) are virtually unregulated by public authority, and (c) are not effectively controlled by the facilities themselves. It is also argued that cost-based reimbursement contains disincentives to contain costs, since any reductions in cost only result in reduced income to hospitals from third parties which pay on a cost-basis.

Reimbursing institutions on the basis of charges, or the price established by them for different hospital services, has also been criticized. Charges for certain services may be entirely unrelated to the actual costs of producing such services. Cost increases are easily countered by changes in the charge structure of an institution. There are







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often few, if any, external pressures (including pressure from third parties that pay on a charge-basis) on facilities to economize or resist cost increases in their operations.

Still another explanation-for hospital inflation attributes escalating costs to uncontrolled capital expenditures and certain advances in medical technology. Hospitals in a single community often
duplicate highly specialized and expensive services and equipment. Idle capacity is expensive because its overall costs are spread among fewer users, and because it may create pressures to provide excessive
or unnecessary services. Advances in medical technology have made it possible to treat patients with an array of high-cost therapies (for example, cobalt therapy, renal dialysis equipment), not previously available. These advances are costly for a variety of reasons. The
capital acquisitions are themselves costly, and they require specialized personnel to staff new equipment and services.
This duplication results in excess hospital capacity. Studies have
estimated that there is a national excess of at least 100,000 acute hospital beds. The Congressional Budget Office estimates that to reduce the bed to population ratio to 4 per 1,000 by 1982 would require closing approximately 130,000 beds. This excess capacity adds substantially to hospital costs.
The American Hospital Association estimates that an unused bed costs about 50 percent as much as an occupied bed. Similar excess exists among other hospital services particularly highly specialized services.

Increasing labor costs have also been cited as a source of hospital cost inflation. It has been noted that hospitals are employing larger and
larger numbers of personnel to produce services for patients, and that wages for such personnel have increased at rates above those received by other workers in the economy as a whole. In addition, there appear to be few
opportunities for improved productivity in a highly labor intensive industry, such as the hospital industry, for new capital Investment in the hospital frequently does not lead to a reduction in the hospital labor force. On the contrary, such investment often requires the hiring of even more hospital employees.

Though there is no single, overall explanation of hospital inflation, each of the aforementioned theories has contributed to a partial understanding of the cost control issue. Some of these theories, as well as a number of others, have also provided theoretical bases for previous efforts to moderate or limit hospital costs.

The Effects of Rising Hospital Care Costs

Public opinion polls indicate that rising health care costs are among
the top three domestic concerns of the American people -- even ranking ahead of rising energy costs. This concern reflects a fundamental fact -- rising health costs add significantly to burdens on the taxpayer, on the wage earner, and on those consumers who lack adequate health insurance protection. The dramatic increases in private health insurance premiums in recent years cut





















21-357 0 78 2




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into most workers' take-home pay. Indeed, Americans today must work more than I full month of every year just to pay for their health care. It takes about
2 weeks' wages to cover hospital costs alone. Higher health insurance premiums paid for fully or in part by employers drain off money that could be provided to workers in the form of higher wage increases or pension benefits.

For the 18 million individuals in this country without any health
insurance, the 19 million*additional individuals with very inadequate insurance policies, and the 115 million people without major medical insurance coverage, rising health care costs -- especially spiraling hospital costs -- pose the direct threat of financial ruin, and a lifetime of indebtedness.

Rising health care costs have also hampered the ability of Federal and State governments to meet other pressing social problems. For example, between 1966 and 1978, the HEW health budget increased from $3 billion to $44.5 billion. Of this increase, $37.3 billion has gone to pay for benefits under medicare and medicaid, with only $4.2 billion left over for expansion of other governmental health activities beyond their 1966 level. The rapid increases in hospital costs have als6 made-it necessary for many States to make serious cuts in ambulatory care services under medicaid.



Previous Efforts to Moderate Hospital Cost Increases

The problem of spiraling hospital costs has not gone unnoticed on either the Federal or State levels. Many of the theories mentioned above as to the causes of hospital cost inflation have provided bases for previous efforts to constrain increases in provider costs. The programs discussed below represent the major examples of past and current efforts to hold down the ever-increasing costs of hospitalization.

1. Economic stabilization program --- The economic stabilization
program (ESP) blushed a series of economy wide wage and price controls which
were designed to reduce inflation by about one-half in the economy as a whole. The program began with a freeze on wages and prices in August 1971 -- phase I. The freeze was replaced in December 1971 with control programs for each major sector of the economy -- phase II -- including health.

For the health care industry, phase II consisted of a ceiling of 6 percent per year -- adjusted for changes in volume of services -- on increases in price and revenues per inpatient day for institutional providers of health care such as hospitals. Within the overall 6 percent ceiling, a 1.7 percent increase in expenditures for new technology was provided. In addition, separate ceilings were applied to wage-related expenses -- 5.5 percent -- and to nonwage expenses -- 2.5 percent. Noninstitutional providers, such as physicians and dentists, were allowed a 2.5 percent increase per year in their prices. The effect of the phase II controls was approximately a 50 percent decline in increases in hospital room and board rates and a 25 percent decline in cost per adjusted patient day and cost per adjusted admission.






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Phase III, which lasted from January 11 to June 13, 1973, was an
extension of phase II for many areas of the economy, including the health
care industry. On June 13, 1973, another freeze on the prices of all commodities and services began and lasted until July 1, 1973, when it was superseded by phase IV. Phase IV covered many industries including
health until April 30, 1974, when ESP authority expired and the program
ended.

For the hospital care industry, phase IV included a limitation of
7.5 percent on increases in hospital charges and costs per inpatient admission, with adjustments for volume of services, and a 6-percent
increase limit on outpatient charges per procedure..

The phase IV controls differed from phase II in their emphasis on the total
cost of a hospital stay, also called an admission, rather than the individual price per day. In addition, phase IV treated separately increased costs due to
new and approved capital expenditures andseparated controls on inpatient and outpatient services.

Before ESP went into effect, the annualized rates of increase in prices of
medical care and of hospital charges (semiprivate room) exceeded that of prices in the economy as a whole. During the various phases of ESP (August 1971 to April 1974), not only were the rates of increase for medical care and hospital
charges reduced, but the rates of increase dropped below prices in the economy as a whole. In the post-ESP period, after the controls were lifted, the rates
of increase for medical care and hospital charges rose above the pre-ESP levels and once again exceed prices in the economy as a whole.

2. Hospital reimbursement limits under Medicare and Medicaid the 1972
amendments to the Social Security Act authorized the Secretary of HEW to establish prospective limits on the costs to be reimbursed under the medicare program. The Secretary was given broad discretion in the selection of the institutions and kinds of costs to which the limits are applied and in the method of setting the limits.

Under present policy, costs limits are established each year for the routine cost portion of hospital costs essentially, the cost related to bed and board. Individual hospitals are assigned to one of various groups, depending on the hospital's size and the per capita income of the area where it is located. The cost limit for hospitals in each group is set by a formula that establishes the limit high enough to permit the routine cost of well over 80 percent of the hospitals to be covered in full.

In fiscal year 1975, the first full year of implementation, approximately 345 hospitals were reported to be in excess of the limit by a total of $36 million. Fiscal year 1976 data are not 'yet complete, but thus far 334 hospitals have been reported to be in excess of the limit; it is expected the total will increase above the fiscal year 1975 number when all reports are in.

The objective of the costs-limits provision is to establish ceilings that reasonably prudent and cost-conscious hospitals can be expected to live within. Any by setting the limits in advance, it was intended that high-cost hospitals could, if they wished, undertake the cost reduction measures to avoid loss of reimbursement. Where a hospital exceeds the limit and wishes to make up the lost income by imposing a special charge on the patients, the patients must be advised of the situation in advance.






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3. Federal Experimentation and State Programs The Social Security Administration is conducting a range of research and experimental activities relating to reimbursement and is attempting to control cost's under experimental authorities included in the Social Security amendments of 1967 and 1972, and section 1526 of the National Health Planning and Resources Development Act of 1974. The 1972 amendments authorized a broad program of experimentation in prospective reimbursement and other alternative reimbursement and ratesetting methods.

Under its authority, the Social Security Administratiory evaluated State and local systems which were already operating without Tederal funding, and began supporting demonstrations, evaluations, and developmental projects in other States. In addition to evaluations of ongoing activities, the Social Security Administration is funding a number of demonstration and developmental activities to gather further information on ratesetting systems.

A recent American Hospital Association survey identified 25 rate regulation programs, including several Blue Cross prospective reimbursement plans. Budget review was the principal method used but often in combination with other methods. A total of 2,070 hospitals and 1,407 nursing homes participate: in the programs surveyed. In addition to the 25 programs currently in effect, the survey identified 13 States as contemplating some form of program.

4. Review of Capital Expenditures and New Institutional Health
Services In an effort to assure that only those health service and facilities tFa-tare needed are developed, states as early as 1964 enacted certificate of need laws. Such laws require health planning agencies to review and determine tfie need for new hospital facilities and services. A positive finding of need is required before a facility can be licensed under such programs. Currently 36 states have such laws.

In 1972, Section 1122 was added to the Social Security Act. It allows States to enter into an agreement with the Secretary of HEW to review capital expenditures made by health care facilities. If a capital expenditure was found not to be in conformance with a health planning agency's plans, standards or criteria, then the Secretary would withhold depreciation, interest and return on equity related to the capital expenditure as part of federal reimbursement under Title V, XVII and XIX. 37 States currently review capital expenditures under a Section 1122 agreement.




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Relatonship to Existing Law


Titles XVIII and XIX of the Social Security Act reimburse hospitals on the basis of reasonable costs. This has meant in most cases the retrospective payment of the actual costs incurred by a hospital in the provision of services. Title I would establish limits on revenues on a per admission basis for most hospitals in the nation.

TItle XV of the Public Health Service Act requires that States
establish certificate of need programs and section 1122 of the Social Security Act provides that States may enter into agreements with the Secretary to review capital expenditures. Both these programs seek to control the expansion of health services and facilities by assuring that only those services which are needed are offered or developed. TItle Il of the bill adds to the specifications of both these review programs. It provides a dollar limitation on hospital capital expenditures and requires that hospital *supply and occupancy standards be used In carrying out review.

Sections 1501 of the Public Health Service Act requires the
Secretary of HEW to issue guidelines concernirni national health planning policy. The guidelines are to include "standards respecting the appropriate supply, distribution, and organization of health resources." The guidelines are to be considered as health system agencies (lISA) develop their health system plans. Title III of the bill builds upon these requirements, requires that the HSA use the guidelines to identify excess hospital capacity in their areas and include in their plans recommendations for reducing it, and makes payments available to hospitals that reduce capacity on a voluntary basis.









HOSPITAL COST CONTAINMENT ACT OF 1977;
SUMMARY OF RRt 65753 AS AMENDED


General Summary

The bill is divided into three titles. Title I would establish a transitional hoSDital cost-containment program to constrain the rate of increase in inpatient hospital costs through a series of limitations on revenues and through incentives to reduce costs. Title IT would establish a system-of limitations on capital expenditures designed to encourage efficient distribution of hospital facilities and services. Title III would establish a time-limited program to provide funds to assist in the closing or merging of unneeded or underutilized facilities or services. The bill would also provide for the development of permanent reforms in order to increase the efficiency, effectiveness and quality of health, care in the United States.
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Tttle I Transitional Program of Controls on Hospital Revenues

A. General Approach

Beginning January 1, 1978, most acute-care and specialty hospitals would be subject to a limit on increases in their revenues from inpatient services. The revenue increase limit would apply to increases in payments by each third- arty cost payer (for example, medicare, medicaid, and Blue Cross and to increases in charge-based payments by private health insurance companies and self-pay patients. The application of the limit would be on a per admission basis, and adjustments would be made to take account of admissions changes.

Hospitals in those States which have effective cost containment programs approved by the Secretary would be exempt from the Federal plan and covered by the State program in its place.


B, Application of the Limit

Under the Federal cost containment program, the rate of increase tn each hospital's inpatient revenues from average charges imposed or costs paid by each government or nongovernment cost payor would be limited to a fixed percentage increase over revenues allowed in the previous accounting year.

In the first year of the program, the hospital's accounting year beginning on or after January 1, 1978, the limit would be applied to an estimate of revenues for the preceding accounting year. The estimate would be derived by: 0.) starting with the revenues received in the accounting year established as a base year for purposes of the program, which would be the accounting year ending in 1976,
(ii) deriving an average rate of increase in costs experienced by that hospital, which would be the higher of (a) the 1976 increase over 1975 or (b) the average of the 1976 increase over 1975 and the 1975 increase over 1974, except that the amount allowed could not exceed 15 percent or be less than 9 percent, and (iii) compounding the amount of increase for the years in the transition period between the accounting year ending in 1976 and the accounting year beginning in 1978 (generally, a 2-year period, unless the hospital accounting year is simultaneous with the calendar year). However, the maximum increase allowed in the first year of the program over the revenues from the base accounting year ending in 1976 would.be the adjusted limit for the accounting year beginning in 1978 plus either 15 percent, if there is one year in the transition period, or 30 percent if there are two.

For succeeding years of the program, the allowed increase in revenues would be applied to the revenues allowed in the previous year, before adjustments were made for admissions changes.





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These constraints on inpatient revenues would apply to all hospttals which have an average length of stay of 30 days or less, except psychiatric hospitals, Federal hospitals, hospitals which derive more than 75 percent of their income from one or more health maintenance organizations, and hospitals which, in two out of the last three previous accounting years, had fewer than 4,000 admissions per year and were sole community providers located outside an SMSA.


C. 'Basic Limit of the Federal Program

The Secretary of HEW would-promulgate a basic limit on increases in inpatient hospital revenues, which would reflect general price trends in the economy, and would be equal to 1 1/2 times the percentage increase in the GNP deflator. This l mit would be published quarterly, and the limit published most recently-before the beginning of the ftospital's accounting year would apply for that hospital (although if the announced limit increased by more than 1 percentage point during the hospital's accounting year,, the higher figure would be used).

The Secretary would be required to develop and provide to
Congress by March 31, 1979, an index that reflects the prices of the components of hospital costs,, with recommendations concerning whether this index should be substituted for the limitation derived from the GNP deflator.


D. Volume Load Adjustment

The basic limit would be adjusted to take into account major
changes in a hospital's patient load. Generally, no revenue adjustment would be made if the hospital's volume,, since the.base accounting year, had increased by less than 2 percent or decreased by less than 10 percent. Increases or decreases in volume outside these limits would result in allowable revenue increases or decreases, respectively, at the rate of one-half of the allowable per-admission revenue limit for each admission above or below the limit. The full amount of allowable revenue per admission would be deducted for decline in volume belew 15 percent, and no recognition would be given to increases in volume above 15 percent except as expressly provided under the excepttons process.

These limitations would be slightly less stringent for small
hospitals which do not meet the conditions for complete exeMDtion from the program. Additionally, hospitals in growth areas would receive increases in revenue for all increases in admissions of less than 15 percent; they would not be required to absorb the costs of the first
2 percent of the increase.





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Hospitals which contract to provide services to an HMO would have their base year admissions adjusted to reflect the increased admisslons expected from the HMO's population; termination of an arrangement with an HMO would result in a downward adjustment. Also, a hospital which has increased admissiQns because of an approved shared service arrangement or the closing of another facility in the area could have its base year admissions adjusted upward.


E. Modification to Exempt Increases in Non-supervisory Wages

A hospital could elect to pass-through wage increases for nonsupervisory workers, and be allowed the actual amount of increases for that portion of their costs represented by non-supervisory personnel wages. Increases in revenue tQ.cover the remaining portion of their costs would continue to be subject to the limit. The proportion of costs represented by non-supervisory wages would be determtned on the basis of the base year. Once a hospital elects to use the pass-through, it would required to use it in succeeding years.

The Secretary would be required to report by March 31, 1979, on the experience with the pass-through, the effect of the pass-through on wages, and his recommendations for mandating or discontinuing the pass-through. If he recommends discontinuance, the pass-through would go out of effect if the Congress did not act within six months.


F. Other Adjustments and Modifications

If a hospital has been in operation less than three years before the base year, its base year revenue figures can be adjusted to account for the effect of its newness. A hospital in existence less than three years before the program starts uses as a base year the year immediately preceding entry into the program.

If a hospital discontinues a service,, revenue attributable to that service would be removed from the base year revenues, except when the service is discontinued because the hospital has entered into an approved shared services agreement with another hospital.

If a cost payer significantly increases coverage, or there are shifts among payers which result in a sizeable revenue loss for a hospital, the revenue limit would be adjusted to offset the change.













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G. Exceptions to Limit

The Secretary would have authority to grant an exception to the
inpatient hospital revenue increase limit otherwise applicable in certain cases where (1) a hospital's volume load had increased by more, than 15 percent, or (2) the hospital had undertaken major chances in facilities or services approved by the State health planning and development agency, provided the hospital could also demDnstrate a relatively poor financial position. In determining the financial situation of the hospital, the Secretary would require a current ratio of no more than 2 to 1. Restricted and designated grants, gifts and income (whether restricted by the donor or the hospital board), and depreciation funds required to be held in reserve as a condition of a loan, would be excluded from consideration in determining the current ratio.

A hospital with increased admissions of 15 percent or more or a substantial change in capacity because it is in a growth area, or a hospital with. a substantial change in capacity because another hospital in the area has closed, would not be required to meet the current ratio test to get an exception. A hospital that is a sole community provider found necessary by the HSA would be eligible for an exception solely on the basis of financial need if its current ratio falls below 2 to 1.

Any hospital granted an exception would be subject to an operational review of its effectiveness and efficiency by HEW, whose report would be made public. After taking into account any comments by the health systems agency or PSRO operating in the area where the hospital is located, the Secretary could make recommendations for improving the efficiency of the hospital, and continuance of the exception would be contingent on the hospital's implementation of his recommendations.


H. Disclosure

Each hospital would be required to submit to its health systems agency a semiannual report reflecting its rates for the 30 most frequently used hospital services; an annual report describing its ownership, management, and financial status; and copies of all cost .reports submitted to cost payers. All such reports would be made available to the public by the health systems agency.





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I. Enforcement

Reimbursement above the cost-containment limit would be disallowed under medicare and medicaid. Excess revenues paid by any other cost payer or received by a hospital would be subject to a 15O-percent tax on both the hospital and the payer. A similar tax on excess charge revenue would be imposed on a hospital unless the hospital placed the excess amount in escrow until it had incurred a shortfall in allowable charge revenue equal to the amount of excess previously acquired. (The tax and escrow requirements would not be applied on excess revenue from charges in the first year of the program if the hospital met the 2-year limitation by the end of the second year of the program.)

Provision is made for penalties for hospitals which fail to disclose required information, or which seek to reduce costs by altering admission practices to exclude patients unable to pay the
full cost of their care.



J. Incentive Payments for Good Performance

If a hospital holds its costs per admission below the allowed
increase in revenue per admission, it would be eligible to receive an incentive payment.

The incentive payment allowed would be 50 percent of the difference between the allowed revenue per admission and the Cost per admission for each. admission reimbursed on a cost basis, except that it could not exceed amounts which the hospital can demonstrate will be used:

(a) to finance the hospital 's outpatient deficit
(b) to reduce long-term debt
(c) to fund uses which the Secretary determines will not add to
operating costs-and are in the public interest



K. Exemption for Hospitals in Certain StatesThe Secretary would exempt from the provisions of the Federal program hospitals in States that have an effective program of hospital cost containment. In order to qualify for an
exemption, the State program would have to aooly at least to those hospitals covered by the Federal program, demonstrate a capacity to contain inpatient revenue increases for all hospitals in the State





14


within a range of not less than the rate of increase in the GNP deflator nor more than 120 percent of the basic inpatient hospital revenue increase limit, have cooperative arrangements with health planning agencies and PSRO's in the State, require appropriate disclosure of information, and have satisfactory provision for recovery of any excess revenues. A State agency would be required to be responsible for administration of the program. A State program could not subject hospitals receiving 75 percent of their revenues from an HMO to controls unless it demonstrated to the Secretary that it was necessary to include such hospitals for effective cost containment.

Federal grant monies would be available to support State cost containment plans which meet the basic requirements for an approved State system and which also meet other prescribed requirements, including:

(al use of a commission on hospital budgets or designated State
agency which approves hospital budgets prospectively,

(b) provision that a hospital will receive the benefits of cost
efficiencies, and

(c) provision for certain administrative, appeals, and enforcement mechanisms.


L. Other Medicare-Medicaid Provisions

Common audits of hospitals by Medicare and Medicaid would be required.

Commissions, finders fees, and rental or lease arrangements which are percentage based would not be allowed for medicare and medicaid reimbursement. Amounts paid on a percentage basis to hospital based physicians under medicare and medicaid would be limited to reasonable maximum amounts.

The Secretary of HEW would be given the authority to require use
of all or part of uniform accounting systems for hospitals if, and only if, he determines after two years of experience with uniform reporting systems that uniform accounting is necessary to assure comparable data.

Small rural hospitals could use beds in the facility on a swing basis as long-term care beds or hospital beds, as needed.






15



Title 11 Limitation on Capital Expenditures

A. Capital Expenditure Limit

The bill requires the Secretary to annually establish a capital
expenditure limit which may not exceed $2.5 billion or a greater amount which reflects the yearly increases in the cost of construction. The limit would apply to all hospitals with an average length of stay with less than 30 days except Federal hospitals, psychiatric hospitals and
hospitals with 75% of their revenues from health maintenance organizations. The limit would be apportioned to the States in the first year on the basis of population and in subsequent years taking into account variations among the States in the cost of construction, population patterns and growth, the need for health facilities and equipment and for modernization of existing facilities, the ratio of historical costs to population, and other factors judged to be important. The Secretary of HEW would be required within two years to report to the Congress whether the amount of the hospital capital expenditure limit is adequate and include in the report recommendations for changing the limit as well as the factors which should be included in apportioning the limit to the States.

The capital expenditure limit would be implemented on a Stateby-State basis through a State's certificate of need program or a program established pursuant to section 1122 of the Social Security Act. Both these programs require that a proposal for a new hospital service, facility or capital expenditure over $150,000 be reviewed and approved prior to its development or obligation. In approving projects under those programs, a State would be prohibited from approving projects for an amount greater than its apportioned capital limit.

Fifteen percent of the limit (a retained sum) would be retained by the Secretary for use by hospitals which serve regional or national patient populations. Such hospitals would require certificate of need or section 1122 approval and would then forward their applications to the Secretary for approval under this retained sum. If at the end of the fiscal year there is a balance in the retained sum, it would be apportioned to the States on the basis of significant unmet health needs.

An additional 4 percent, initially $100 million, would be available for projects for hospital management and information systems which are cost savings and promote the more efficient use of hospital resources.


B. Supply and Occupancy Standards

The bill requires the Secretary to establish a national supply ceiling of no more than 4 beds per 1,000 population and a national occupancy standard not less than 80 percent. It, however, provides that the Secretary may promulgate a different ceiling or standard for






16


any health service area which has special characteristics or which meets special requirements established by the Secretary. States would not be allowed to approve new hospital beds for health service areas which had a number of hospital beds in excess of the supply ceiling or an occupancy below the occupancy standard exception under three circumstances:

(1) if hospital beds in the area are permanently closed, up to
one-half the number of the beds closed could be approved,

(2) hospital beds for a health maintenance organization could
be Approved following a determination by the State health planning and development agency that the existing supply
of hospital beds cannot appropriately meet the HMO's needs,
and

(3) if an appropriate subpart of health service area meets the
supply ceiling and the occupancy standards, the replacement
of existing beds would be allowed to correct deficiencies that are causing facilities to be out of compliance with
applicable fire and safety codes.


C. Consistency between Certificate of Need and Section 1122 Review

Changes are proposed to both the requirements of title XV of
the Public Health Service Act dealing with an acceptable certificate of need program and those under section 1122 of the Social Security Act. The changes would allow both programs to operate using the same procedures and criteria in the review of capital expenditures and new health services and facilities. Both programs would be placed on the same basis by requiring the State agency to approve a service, facility or capital expenditure prior to its being offered, developed or obligated. The requirement that the Secretary make a determination on each of the projects reviewed under section 1122 would be deleted as would the appeal mechanism at the HEW level. In its place, a provision is added which would assure that due process and appeal rights would be protected under a State's Administrative Procedure Act. The Secretary would simply accept decisions made by a State health planning and development agency.

The capital expenditure threshold for both review programs would be established at $150,000. The health planning agency would be required to annually review the progress of a project's development once a certificate of need or 1122 approval had been granted and assure that the progress was adequate.






17


The health systems agency would be provided an opportunity to make recommendations on each proposal reviewed. Prior to action on a certificate of need or 1122 application, a health planning agency would be required to consider the efficiency and appropriateness of the existing health services in the area similar to those that are being proposed. Hospitals would be required to include in the capital expenditure plan currently required under the Social Security Act all capItal expenditures for which they will seek approval in the next year.

The bill would extend from 90 days to one year-the period of
time allowed for review of certificate of need and section 1122 applications and other reviews required under Title XV would allow health systems agencies and State agencies to carry out one or two review cycles each year in which projects would go through a two step process. First, the determination of need would be made; then projects would be ranked in priority order and the capital limit would'be applied.,


D Sanctions

In States without a certificate of need program, Medicare and
Medicaid reimbursement to hospitals undertaking capital expenditures wIlicK were not approved by the State health planning and development agency would have their reimbursement related to that capital expenditure reduced by 10 times the amount of depreciation, interest, and return on equity. Federal tax exemption on State obligations would be withdrawn for any bond issued to finance unapproved capital expendiltures or expenditures which result in a bed supply in excess of the prescribed standards.


E. -program Coverage

The bill adds home health services, (these were previously covered
under section 1122) to the requi red coverage under both certificate of need and 1122 review programs. The coverage of health maintenance organizations is modified to bring it in line with that required of other facilities or organizations.


F. Implementation Process and Timetable

Following the enactment of this Title, the 1122 reimbursement sanction would be applied to new services, facilities or capital expenditure






18


without certificate of need or 1122 approval. HEW and the States would be given a short period of time to revise existing review programs to conform with the requirements of this title. Until changes were madeand State programs found to be acceptable to the Secretary of HEW, approvals under existing programs would not be recognized for
full Federal reimbursement. The likely impact of this policy would be that no review activities would be carried out in the States until their programs were brought into conformance with the requirements of Title II.

G. Review of Federal Hospitals

Health planning agencies are given an opportunity to review and comment on the development of or change in institutional health services undertaken by the Public Health Service or the Indian Health Service. If State health planning development agencies, after considering the recommendations of a health systems agency, object to a proposed use of Federal funds and the funds are so used, the Secretary shall report to the State agency and to the Congress his reasons for using the funds over the State agencies' objections.







19



Title III Program to Assist and Encourage the Discontinuance
of Unneeded Hospital Services

A. Nature and Duration of Program.

Within six months of the date of enactment, the Secretary of
HEW will establish a program which will provide financial assistance to hospitals which consolidate duplicative hospital services or discontinue unneeded hospital services. The program will last 48 months. Any hospital in operation on the date of enactment of Title III may participate in the program. The Secretary will approve or disapprove their applications for assistance.

B. Guidelines for Hospital Services.

Within one year of the date A enactmentthe Secretary of HEW, after consulting with and soliciting recommendations and comments from all entities listed in section 1501c of the Public Health Service Act, will promulgate national guidelines respecting the maximum appropriate supply of hoEpital services and the minimum appropriate rate of use of those services. The guidelines will be applied in each health service area, but the Secretary may promulgate a different guideline for an area which has special characteristics or which meets special requirements established by the eecretarv.

C. Planning Agency Role.

The health systems agencies and the state planning agencies will describe in their respective health plans the actions required by hospitals to reduce unneeded hospital services. Their plans must comply with the guidelines promulgated by the Secretary.

The state planning agency, after consideration of the recommendation of the health systems agency, will recommend a hospital's application to the Secretary. The Secretary may not approve an application which a state planning agency recommends not be approved. A state planning agency, after consideration of the recommendation of the health systems agency, must approve any service which will be developed with incentive or conversion payments made under this program (even if review is not presently required).

Not later than one year before expiration of the program, the state planning agency, after consideration of the recommendation of the health systems agency, will designate the hospitals which must discontinue services in order to bring each health service area into compliance with the guidelines promulgated by the Secretary.

D. Priority for.,tpproval by Secretary of Hospital Application.

The Secretary will give priority to applications which assist health service areas in meeting the guidelines promulgated by the




















21-357 0 78 4






20



Secretary or which result in the greatest reduction in hospital. revenues within a health service area.

E. Discontinuance or Consolidation of Entire Hospital.

Hospitals which discontinue providing all inpatient health
services may apply for a debt payment and incentive payment. The debt payment will cover the lesser of the outstanding debt attributable A.0 the acquisition of equipment and facilities or the unexpensed depreciation attributable to the equipment and facilities. The incentive payment, which may be no more than $500,000, may be used
(1) to develop other health services in the community served by the hospital, (2) if the applicant hospital has merged with another hospital, to prepare that hospital to serve patients of the closed facility, or (3) for the cost associated with the termination and retraining of and securing employment for employees of the closed facility.

Any service developed with the incentive payment must be
determined to be needed by the state planning agency after consideration of the recommendation of the health systems agency.

F. Discontinuance of Identifiable Service Unit.

A hospital which discontinues an identifiable service unit, and which has not entered into a formal consolidation agreement (described in section Ill (d)(3)(B))respecting those services with another hospital, may apply for an incentive payment which may be no more than $200,000. The hospital may also be reimbursed under Titles XVIII and XIX for losses incurred in the sale of equipment or facilities used in providing the discontinued service unit.

A hospital which receives this incentive payment may not
receive the benefits authorized by section 113(b) for a hospital which discontinues a service unit under a formal consolidation agreement with another hospital.

G. Conversion of Identifiable Part of Facility.

A hospital which converts underutilized beds or facilities in an identifiable part of its hospital into ambulatory long-term or other services, and which has not entered into a formal consolidation agreement (described in section 111(d)(3)(B)) respecting those services with another hospital, may apply for a conversion payment of 50% of the reasonable cost of such conversion.

A hospital which receives this incentive payment may not
receive the benefits authorized by section 113(b) for a hospital which discontinues services under a formal consolidation
agreement with another hospital.






21



H. Revenue Base of Applicant Hospital or Other Affected Ho-Tital-s-.

The revenue base of the applicant hospital will be reduced by
the amount of revenue which was generated by the discontinued service.

If a hospital in the same area has an increase in admissions or must expand its facility to provide services to the additional admissions it will be allowed additional revenue so that its financial position will not be impaired.

I. Depreciation of Facility or Equipment Acquired or Constructed
With Payments.

If a hospital uses an incentive or conversion payment to acquire a facility or equipment or to construct a facility, the historical cost of such facility or equipment (flor determining depreciation
for reimbursement purposes) will not include the amount of the payments so used.

J. Incentive Payments to Health Systems Agencies.

If a hospital receives an incentive payment (under E or F), the HSA for the area in which the hospital is located will receive an incentive Payment equal to 10% of the applicant hospital's incentive payment. The payment may be used by the HSA only to make grants and contracts in accordance with the Public Health Service Act for Drojects and programs within the community served by the hospital which discontinued services.


K. Authorization.

The authorization for the fiscal year ending September 30, 1979 is $200,000,000 and for each of the next three fiscal years i*s $250,000,000.

L. Penalty for Non-Compliance.

Any hospital designated by the state planning agency, after consideration of the recommendation of the health systems agency, as having unneeded services which has not discontinued such services upon the expiration of this program will have its reimbursement under Titles V, XVIII, and XIX reduced by 5%. A hospital sodesignated may apply to the Secretary for an extension of up to two years.

Review of the state agency's designation shall, upon the request of the hospital so designated, be under an appeals mechanism consistent with state law governing the practices and procedures of administrative agencies.






22



M. Study of Program.

The Secretary will make a study of the first 25 applications approved under this program and report the results of the study to Congress with his recommendations for any revisions in the program, including any revision in the authorization of appropriations for such program.











DATA ON HOSPITALS AND HOSPITAL COSTS


EXPLANATORY NOTES


These data on hospitals and hospital costs have been prepared for the use of the Committee in its consideration of H.R. 6575, as amended and reported by the Subcommittee on Health and the Environment.

The Subcommittee reported language has also been introduced as a new bill, H.R. 9717, so that it would be generally available to the public. For purposes of distinguishing between the original Administration proposal (H.R. 6575) and H.R. 6575 as amended by the Subcommittee, charts and tables throughout the pamphlet use the designation H.R. 9717 to refer to the Subcommittee bill.

These data expand, correct and update information previously contained in the print of the Subcommittee on Health and the Environment used in the Subcommittee's consideration of hospital cost containment. The tables have been provided to the Committee by the Department of Health, Education and Welfare, and in most instances, are based on data originally collected by the American Hospital Association.

All tables refer to "community hospitals", the type of hospital
subject to the provisions of the bill. The American Hospital Association divides all hospitals in the United States into five major categories:

(1) Federal

(2) Nonfederal psychiatric

(3) Nonfederal tuberculosis and other respiratory diseases

(4) Nonfederal long-term general and other special

(5) Total nonfederal short-term general and other special

The last category contains the vast majority of all hospitals. If hospital units of institutions, i.e., college infirmaries, prison infirmaries, etc.,are excluded (about 100 in total for the entire U.S.), the category "community hospitals" remains. The hospital units of institutions are not counted as community hospitals because they are not open to the general public.
(23)






9A



LIST OF TABLES



OVERVIEW

1. Distribution of national health expenditures,, FY 1976 Chart.

2. Trends and projections of total and inpatient community hospital expenditures, FY 1967-82.

3. Sources of funds for community hospital expenditures, FY 1976.

4. Trends and projections of Medicare and tledicaid expenditures for inpatient community hospital expenditures,, FY 1967-82.

5. Comparison of increases in hospital prices and the overall Consumer Price Index, selected periods Chart.

6. Selected characteristics of community hospitals, 1976.

7. Number of community hospitals, by size of hospital,, type of ownership, and state, 1976.


EXPENSE PER DAY AND PER ADMISSION

8. Trends and projections of the increase in the GNP deflator and in inpatient expense per day and per admission for community hospitals,
fiscal 1967-82.

9. Factors affecting the increase in community hospital daily costs, 1966-76 Chart.

10. Amounts and percentage increases in inpatient expense per day and
per admission for community hospitals, by state, 1976.

11. Percentage increase in inpatient expense per admission for community
hospitals, by size of hospital,. type of ownership, and state, 1976.


PAYROLL DATA

12. Payroll, nonpayroll, and total expense per inpatient day for community
hospitals, by type of ownership and state,, 1976.

13. Payroll and nonpayroll expense as a percentage of total expense
per inpatient day for community hospitals, by type of ownership
and state, 1974-76.

14. Trends in payroll and nonpayroll expense per inpatient day for
community hospitals, 1963-76 Chart.

15. Comparison of trends in nonsupervisory employee hourly earnings,,
hospitals and all private sector nonagricultural employees, 1969. 16. Weekly wages for different occupations in the hospital sector,
selected cities and years.

17. Average incomes of hospital-based physicians by payment method and
specialty, 1975 Chart.

18. Trends in the number of employees per patient in community hospitals
Chart.






25



UTILIZATION DATA

19. Average length of stay and occupancy rate in community hospitals,
by state, 1976.

20. Occupancy rates in community hospitals by Health Service Area,, 1975. 21. Percentage increase in admissions for community hospitals, by size of
hospital, type of ownership, and state, 1975-76.


CAPITAL DATA

22. Total and plant assets for community hospitals,, by state,, 1976 and 1975. 23. Percentage increase in total and plant assets for community hospitals,
by size of hospital, type of ownership, and state, 1975-76. 24. Growth in community hospital beds per 1,.000 population,
1950-76 Chart.

25. Community hospital beds per 1,000 population, by state,, 1976. 26. Community hospital beds per 1,000 population,, by Health Service Area,
1975.

27. Capital spending in community hospitals, by state,, 1976 and 1975. IMPACT OF H.R. 9717

28. Estimated savings under H.R. 9717f by source of funds,, provision,
and year, effective January 1, 1978.

29. Estimated expenditures for inpatient community hospital care,
with and without cost containment, by source of funds, 1981 Chart. 30. Hospitals covered and exempted by H.R. 9717, 1976. 31. Distribution of community hospitals by ranges of percentage change
in the number of admissions, by size of hospital., 1975-76.

32. Number of counties and community hospitals qualifying under growth
area definition in Section 113(d) of H.R. 9717F by state for 1975. 33. Expected hospital capital expenditures under H.R. 9717, by state,,
fiscal 1981.





26


OVERVIEW


Table l.--Distribution of National Health Expenditures, FY 1976








$139.3 billion



p\ Other



it? 0, Hospital Care
7 i1e"9 C 40%

'Drugs &.Drug Sundri es e o c Phys ici ans'
'Io Services
19%





Source: Health Care Financing Administration, Department of
Health, Education, and Welfare







27



TABLE 2. TRENDS AND PROJECTIONS OF TOTAL AND INPATIENT COMMUNITY HOSPITAL EXPENDITURES,
FY 1967-82




Total Hospital Expenditures Inpatient Community
Hospital Expenditures


Fiscal Amount Percentage Amount Percentage
Year (in billions) Increase (in billions) Increase


1967 16.9 10.6

1968 19.4 14.8 12.4 17.0

1969 22.4 15.5 14.6 17.7

1970 25.9 15.6 17.2 17.8

1971 29.1 12.4 19.6 14.0

1972 32.7 12.4 22.3 13.8

1973 36.2 10.7 24.7 10.8

1974 41.0 13.3 28.0 13.4

1975 48.2 17.6 33.0 17.9

1976 55.4 14.9 39.2 18.8

1977* 66.0 19.1** 47.0 19.9**

1978 76.5 15.9 54'.5 16.0

1979 88.2 15.3 63.0 15.6

1980 101.0 14.6 72.7 15.3

1981 115.0 13.8 83.5 14.9

1982 129.9 12.9 95.2 14.0



Figures for FY 1977 and all subsequent years are projections.

The level of these percentage increases is a result of the effect of the transition
quarter between the old and new federal fiscal year period; they thus reflect the
presence of five quarters of inflation.


Source: Health Care Financing Administration
Department of Health, Education, and Welfare





1k
CIO
160


Table 3.--SOURCE OF FUNDS FOR HOSPITAL EXPENDITURES, FY 1976


Total hospital Inpatient community hospital

Source of funds Amount Percentage Amount Percentage
(in distribution (in distribution
billions) billions)

Total .......... $55.4 100.0 $39.2 100.0

Private ............ 25.0 45.1 21.2 54.1
Health insurance. 19.4 35.1 18.3 46.7
Philanthropy and
industry ........ .7 1.2 .3 .8
Out-of-pocket .... 4.9 8.9 2.6 6.6

Public ............. 30.4 54.9 18.0 45.9
Federal .......... 21.4 38.6 14.3 36.5
Medicare ....... 12.8 23.1 12.0 30.6
Medicaid ....... 2.7 4.9 2.2 5.6
Other .......... 5.9 10.6 .1 .3

State and locai... 9.0 16.2 3.7 9.4
Medicaid ........ 2.2 4.0 1.8 4.6
Other ........... 6.8 12.3 1.9 4.6


Source: Health Care Financing Administration Department of Health, Education,
and Welfare






29



TABLE 4. TRENDS AND PROJECTIONS OF MEDICARE AND MEDICAID EXPENDITURES FOR
INPATIENT COMMUNITY HOSPITAL SERVICES, FY 1967-82





Medicare Medicaid


Amount Percentage Amount Percentage
(in billions) Increase (in billions) Increase


1967 $2.4 $ .9

1968 3.4 41.7 1.4 55.6

1969 4.2 23.5 1.6 14.3

1970 4.5 7.1 1.9 18.8

1971 5.2 15.6 2.3 21.1

1972 5.9 13.5 2.6 13.0

1973 6.4 8.5 2.7 3.8

1974 7.5 17.2 2.9 7.4

1975 9.9 32.0 3.5 20.7

1976 12.0 21.2 4.0 14.3

1977* 14.3 19.2** 4.9 22.5**

1978 16.7 16.8 5.5 12.2

1979 19.5 16.8 6.1 10.9

1980 22.8 16.9 6.9 13.3

1981 26.4 15.8 7.8 12.5

1982 30.4 15.2 8.7 12.5


Figures for FY 77 and all subsequent years are projections.

The level of these percentage increases is a result of the effect of the transition quarter between the old and new federal fiscal year period; they thus reflect the
presence of five quarters of inflation.

Source: Health Care Financing Administration
Department of Health, Education, and Welfare








30












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34



EXPENSE PER DAY AND PER ADMISSION

Table 8.--Change in the GNP Deflator and Inpatient Expense Per Day and Per Admission for Commiunity Hospitals, fiscal 1967-82



Expense per inpatient day Expense per inpatient admission

Percent increase Percent increase GNP deflator-over previous over previous increase over
Fiscal year Amount year Amount year previous year

1967 ......$49.46 13.3 $409.04 21.2 3.?

1968 ....... 55.80 12.8 471.30 15.? 3.6

1969 ....... 64.26 15.2 539.25 14.4 4.7

1970 ....... 73.73 14.7 610.10 13.1 5.5

1971. ...... 83.43 13.2 675.01 10.6 5.1

197? .......94.87 13.7 749.47 11.0 4.6

1973 ...... 102.44 8.0 799.03 6.6 4.4

1974 ...... 113.55 10.8 885.69 10.87.

1975 ...... 133.81 17.8 1030.34 16.3 10.8

1976 ...... 151.79 13.4 1168.82 13.4 7.0

1977* ......181.57 15.4 1382.86 14.5 5.3

1978 ...... 207.42 14.5 1570.93 13.6 6.0

1979 ...... 236.26 13.9 1775.15 13.0 5.5

1980 ...... 267.68 13.3 1995,27 12.4 4.9

1981 .......300.87 12.4 2224.73 11.5 4.1

1982 .......336.68 11.9 2469.45 11.0 3.1


*Note: (1) New Federal fiscal year period begins.
(2) Figures for FY 77 and all subsequent years are projections. Sources: Hospital historical trends--American Hospital Association
Hospital projections--Health Care Financing Administration,
Department of Health, Education, and Welfare GNP projections--Office of Management and Budget






35



Table 9.--FACTORS AFFECTING THE INCREASE IN COMMUNITY HOSPITAL DAILY COSTS, 1966-76 $152





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44



TABLE 14. TRENDS IN PAYROLL AND NONPAYRDLL EXPENSE PER INPATIENT DAY FOR
COtMINITY HOSPITALS, 1963-76 $80

Payroll Expense $75 Nonpayroll Expense $70 $65




$60 $55



$50 $45 $40




$35 $30 $25




$20 $15



$10 ...,.. .
62 64 66 68 70 72 74 76
Year

Source: Office of the Deputy Assistant Secretary for Planning and Evaluation/Health
Department of Health, Education, and Welfare







45



TABLE 15.--COMPARISON OF TRENDS IN NONSUPERVISORY EMPLOYEE HOURLY EARNINGS, HOSPITALS AND ALL PRIVATE SECTOR NONAGRICULTURAL EMPLOYEES, 1969-76







Private
sector nonYear agricultural
Hospitals industry Ratio



Hourly earnings-nonsupervisory employees:
1969 $2.57 $3.04 84.5
1970 2.79 3.22 86.6
1971 2.96 3.44 86.0
1972 3.08 3.67 83.9
1973 3.22 3.92 82.1
1974 3.45 4.22 81.8
1975 3.83 4.54 84.4
1976 4.18 4.87 85.8

Annual rates of increase (percent):
1969-70 8.6 5.9 --1970-71 6.1 6.8
1971-72 4.1 6.7
1972-73 4.5 6.8
1973-74 7.1 7.7 --1974-75 11.0 7.6
1975-76 9.1 7.3

Average 1969-76 7.2 7.0




Source: Bureau of Labor Statistics, Employment and Earnings, March 1977








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51 TABLE 1~--IRENDS IN NUMBER OF EMPLOYEES PER PATIENT IN COMI4JNITY HOSPITALS






3.1
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1960 1970 1976
Source: Based on data from the American Hospital Association.







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IMPACT OF H,R. 9717
7';
Table 28.--Estimated Savings under H.R.-9717 By Source of Funds, Provisions and Year, Effective January 1978
(in millions)




Special Incentive
Limitation Provisions provisions

f Reducing
Wage Net of Good under- Total
Gross pass- Capital Small limita- perfor- utilized net
Savings through projects hospitals tions mance capacity savings


Total FY 1979 $ -5490 $1140 $560 $465 $-3325 $+250 $-I00 $-3175

Public
Federal
Medicare -1720 350 180 180 -1010 45 -1055
Medicaid 255 50 25 15 165 5 170
Other
Programs 55 10 5 5 35 35
General
Revenue +250 + 90 + 340

State & local
Medicaid 225 50 25 15 135 10 145
Other 275 60 25 20 170 10 180

Private -2960 620 300 230 -1810 -120 1930

Total FY 1980 $ -8720 2140 840 785 r4955 + 65 -370 5260

Public
Federal
Medicare -2950 670 290 325 -1665 -145 1810
Medicaid 390 100 40 30 220 20 240
Other
Programs 85 20 10 5 50 5 55
General
Revenue + 65 +110 + 175

State & local
Medicaid 350 90 30 30 200 20 220
Other 415 105 35 35 240 25 265
Private -4530 1155 435 360 -2580 -265 2845

Total FY 1981 $-12800 3290 1310 1050 -7150 -700 7850

Public
Federal
Medicare -4450 1050 450 450 -2500 -270 2770
Medicaid 575 155 60 40 320 35 -35
Other
Programs 120 30 15 10 -65 -10 75
General
Revenue +125 125

State & local I
Medicaid 505 135 50 40 280 -30 310
Other 590 160 60 40 330 -40 370

Private -6560 1760 675 470 -3655 -440 4095







71



Table 28. --Estimates Savings under H.R. 9717 By Source of Funds, Provisions and Year, Effective January 1978

continued

(in millions)




Total FY 1982 S-17400 4630 1850 1415 -9505 1090 L10595

Public
Federal
Medicare -6170 1500 640 600 -3430 420 -35
Medicaid 780 220 80 65 415 50-465
Other
Programs 160 45 15 10 90 10 -100
General
Revenue 140 140

State & local
Medicaid 685 190 75 55 365 45 410
Other 790 220 90 55 425 60 485

Private -8815 2455 950 630 -4780 645 5425



Source: Office of the Actuary, Department of Health, Education, and Welfare.

Table 29.--Estimated expenditures for inpatient community hospital care, with and
without cost containment, by source of funds, 1981.
(in billions) $83.5


$75.6 .0





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23.6





Medicaid 7.8
7.1

--Other 4.8
4.5Governmental....




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