History of SSA During the Johnson Administration 1963-1968

METHODS TO BRING DOWN THE COSTS OF MEDICAL CARE

Various methods have been used to help bring down the costs of medical care, including conferences, task forces, surveys and advisory councils.

The Gorham Report

In August 1966 the President requested the Secretary of Health, Education, and Welfare to study the reasons behind the rapid rise in price of medical care and to offer recommendations for moderating the rise. In response to this request, the Department of Health, Education, and Welfare reportedto the President on medical care prices. {70}

The report, submitted to the President on February 28, 1967, was prepared by William Gorham, Assistant Secretary for Program Coordination with the assistance of staff of the Office of Research and Statistics in the Social Security Administration. The Foreword to the report acknowledges the assistance of the "Social Security Administration, especially Ida Merriam and her staff."

The report identified the causes of the long-run upward trend in pricesand the acceleration in the rate of increase in medical care prices during 1966 and early 1967. The report estimated future price movements and
recommended Government action to moderate the price rise and to encourage a more efficient use of medical resources.

The "Report to the President on Medical Care Prices" also recommended that statistics on medical prices should be improved and that statistics on indexes of medical productivity should be developed. The recommendation was that "The Department of Health, Education, and Welfare, in cooperation with the Department of Labor and others, should continue to monitor and attempt to explain medical price behavior." The Office of Research and Statistics of the Social Security Administration is working with the Bureau of Labor Statistics in the Department of Labor for improvement in statistics on medical care prices and productivity.

National Conference on Medical Costs

One of the recommendations included in the report was that the Department of Health, Education, and Welfare should call a national conference on medical costs to include leaders of the medical community and concerned public representatives "to discuss the implementation of the recommendations of this report and cooperative efforts to improve medical care services and control medical costs." On June 27-28, 1967, a National Conference on Medical Costs was held in Washington, D.C. The Social Security Administration played a leading role in the National Conference on Medical Costs. The staff of the Social Security Administration assisted in the development of the attached Chart Book distributed at the Conference. The charts depicted the trend in medical care prices, presented the components of the medical care dollar, and outlined the factors affecting increased costs. The staff of the social Security Administration was also employed as reporters for the various panels of the Conference.

Conference on Private Health Insurance

Following this June conference, the National Conference on PrivateHealth Insurance was organized to bring together leaders of major private health insurance organizations, purchasers of health insurance, providers
of health care, and State regulators of health insurance. The Conferencewas held on September 28-29, 1967, in Washington, D.C. Each participant was aware of the urgency of the problem of increasing health care costs and each came prepared to discuss what private health insurance could and should do about the problem.

The National Conference on Private Health Insurance was sponsored by the U.S. Department of Health, Education, and Welfare and organized by theSocial Security Administration. The purpose of the conference was "toexplore ways of broadening the coverage of private health insurance plans to include more alternatives to hospital care and to suggest ideas for model State laws to encourage or require comprehensive health insurance
coverage." {71}



Regional Conferences

The first of a series of regional conferences called for by Secretary Cohen to provide forums for productive discussion on experiments and demonstrations relating to health care costs was held in KansasCity on June 26-27, 1968. More than 100 regional leaders from the health community, the insurance industry, organized labor and the general public attended this conference. Regional Commissioner E. Albert Kreek, Social Security Administration, organized and arranged for the conference which emphasized "medical costs." Other conferences, to be held in Atlanta, October 3-5, Cleveland, October 16-18, Boston, October 31 to November 2, and Denver, November 18-20, 1968, will emphasize different aspects of the cost problem.

Study of Prices of In-Hospital Medical and Surgical Services for the Aged

Acceleration in the rate of increase in medical care prices beginning in 1966 has aroused considerable interest and concern as to the nature and extent of the increases. Particular attention has been focused on the relationship between the accelerated increases and the Medicare program.

In September 1965, prior to the effective date of the Medicare program, the Social Security Administration arranged with the Bureau of Labor Statistics to collect prices for three surgical procedures (cholecystectomy, prostatectomy, and fractured neck of femur) and two in-hospital medical
services (myocardial infarction and cerebral hemorrhage) that are important to older persons though not necessarily limited to them. It was believed that the fees for such services might be sensitive to the new Medicare program and hence would provide baseline data to assess the impact of the program on physicians' fees. Prices are collected for these five procedures but are not incorporated in the regular sample of the CPI.

The collection of prices for the in-hospital medical and surgical procedures together with the expansion of the sample of general practioners reporting for the regularly priced items in the CPI was begun in September 1965. The expanded survey includes more than 700 general practitioners and internists who are currently providing fee quotations on the in-hospital medical services along with the quotations on officeand house calls. Nearly 1,300 physicians account for the fees reported for the surgical procedures.

A detailed analysis has been made of the nature and extent of the changes during 1966 and 1967 in the prices for the five in-hospital medical and surgical procedures significant for the aged and of the office and house visits. {72}

Task Force on Prescription Drugs

During the first year of Medicare an estimated 72 million aged persons received covered services with sufficient charges to meet the deductibles for the hospital insurance program and/or the supplementary medical insurance program. But, as President Johnson noted in his "Message to Congress on Aid for the Aged" on January 23, 1967, "Medicare does not cover prescription drugs for a patient outside of the hospital." He stated further, "We recognize that many practical difficulties remain unresolved concerning the cost and quality of such drugs. This matter deserves our promptattention. I am directing the Secretary of Health, Education, and Welfare toundertake immediately a comprehensive study of the problems of including the cost of prescription drugs under Medicare."

On May 31, 1967, the HEW Task Force on Prescription Drugs was established and Mr. Robert M. Ball, Commissioner of Social Security, was appointed a member. The Social Security Administration also provided substantial staff assistance in the development of the report. {73}

The SSA staff members assumed a major role in the preparation of the report which examined many of the problems associated with adding out-of-hospital prescriptions to Medicare benefits. Considerable research was undertaken to deal with the questions related to the problems of drug costs, methods of reimbursement, and techniques of utilization review. The various Federal, State, and private drug insurance programs currently in effect were examined in depth. Studies of reimbursement focused on methods of compensating vendors for overhead expenses, the factors that influenced differences in overhead expenses, and the methods of achieving greater efficiency in the distribution system.

The Social Security Administration will continue the research already initiated in the following areas related to prescription drug insurance: experience and methods of operations of leading drug programs will be reviewed; a further examination will be made of the various questions related to methods of reimbursement including possible goals and economic implications, ability of alternative methods to maximize these goals, administrative problems and expenses associated with different systems. Feasibility studies are planned to determine the most efficient procedure for claims processing under a Federal drug insurance program for the aged.

Medicare Today

Looking back on two years of operations, {74} President Johnson noted that 20 million Americans 65 and over, some 10% of the Nation's population, are protected by Medicare; that Medicare had paid $8.4 billion in benefits toward the hospital and medical bills of these Americans. This covered 10.6 million hospital stays and 640,000 admissions to skilled nursing homes; that some 485,000 elderly Americans had been able to receive care at home from a home health agency; and that forty-five million bills had been submitted for medical services under the supplementary medical insurance program, with $21 billion being paid out for these services. {75}

Footnotes (Footnote numbers not same as in the printed version)

{70} A copy of this report, entitled "A Report to the President on Medical
Care Prices," is attached.

{71} A summary "Report on the National Conference on Private Health Insurance" was issued by the Commissioner of Social Security, to the Secretary of Health, Education, and Welfare. Attached is acopy of the Report.

In addition, a special report of several Conference papers prepared as background for discussion at the Conference was issued by the Social Security Administration. Attached is a copy of the report, "Private Health Insurance and Medical Care: Conference Papers."

{72} Two attached articles have been prepared reporting the findings. "Trends in Medical Care Prices" by Dorothy P. Rice and Loucele A. Horowitz,Social Security Bulletin, July 1967, described in detail the trends in
medical care prices since World War II, with special reference to their growth since the end of 1965. Data on prices were presented for the various medical services and supplies that comprise the medical care price component of the CPI. Data from the special study of 1966 prices of the five in-hospital medical and surgical services especially important to aged persons were also presented. This article was followed by another entitled "Medical Care-Price Changes in Medicare's First Year" by Loucele A. Horowitz., Social Security Bulletin, January 1968. The latter article examined the medical care prices during July 1966 - June 1967, with attention directed toward the behavior of prices of the five special procedures. A continued analysis will be made of the
price changes for these physicians' services as the data become available.

{73} The attached memorandum from Dr. Phillip R. Lee, Assistant Secretary for Health and Scientific Affairs, to Mr. Ball, dated June 5, 1967, requested the assignment of Mr. Donald Rocker, Social Security Administration, to serve as staff member of the Task Force. Additional SSA staff members were assigned as noted in the June 8, 1967, memorandum to Dr. Lee from Mrs. Ida C. Merriam, Assistant Commissioner, Office of Research and Statistics, SSA.

{74} For the most recent statistics, see Appendix G, Exhibit 6.

{75} Commissioner's Bulletin, Number 79, July 1, 1968.