California Health Committee testified, who have no way of getting a program in place without having a Federal program that enforces it, as he testified today? What is your response to that?

Mr. GOLDBECK. In response to that, I cannot definitively know whether he is right or wrong. Similar testimony was provided in the case of Illinois, as recently as 8 months ago, and they now have passed such a law. The history prior to the acceptance of the Maryland law, and the Massachusetts law, contain similar kinds of negative prognostications. Perhaps he may be completely right, I don't know, but it does seem possible for some States to pass these laws. California is its own unique case, perhaps, and Congress should not make its policy just to help one State.

Senator NELSON. OK. Go ahead.

Mr. GOLDBECK. Continuing along then, I would state that we have had cost escalation for the past 20 years because we designed a system without a policy and with all its economic incentives pointed directly at cost escalation.

To be specific, our system was not designed for health care but rather for medical repair; our system was not designed with anybody's rights in mind, but rather to provide a high-priced service for those who could afford it and charity for some of those who could not; our system was based on a set of values and myths which today are being challenged but nonetheless had great influence over the costs we are now paying:

Provider education has been structured to ignore economics and relative cost effectiveness;

Consumers have been supposed to be incapable of comprehending their own bodies and medical options available to them;

Purchasers of insurance was supposed to simply trust the providers, something not expected in the buyer-seller relationship with any other product. (In fact, many providers still take umbrage at the concept of their service being considered a product.)

Management and labor are just now recognizing that they have a common interest in the objective of cost containment, and in many if not all of the methods. I would refer you to the Labor-Management Group report recently issued on this very subject.

The public is just awakening to the fact that more care does not necessarily equal better health.

The patient, not the physician, pays the costs of defensive medicine. used in an attempt to preclude malpractice judgments, a topic addressed earlier this morning.

We must also note that the health care industry, now one of the three largest in the Nation, does not operate in a vacuum.

General inflation, totally unrealistic demands by us, the patients, voluminous Government regulations and programs, and the often cited impact of third party payments all help drive up the cost.

Adding to all these forces are a mixture of technological and value pressures:

Medical technology, of which we are seeing only the tip of the proverbial iceberg, is labor-intensive and gets used with little regard to need.

We have been a society which says sex education is sinful and one million pregnant teenagers is acceptable; which says health education should be an elective; which says mandatory seat belts are a violation of our human rights.

I would parenthetically add, those are the kinds of values that we express, and cannot be fully amended by any legislative approach. Finally, inexorably pushing costs even higher is and will be the aging of our population.

In short, we are just now fully recognizing that the imperative of limited resources which faces our whole Nation will also force us to ration health care more explicitly and at the very time when we are publicly committed to expand its utilization.

While understandable, it is in my view unfortunate that the dialog on cost containment goes on giving the impression that success can be achieved at no cost.

It is time to recognize that, if we are serious, and regardless of whether the approach is regulatory or market oriented, there can be no carte blanche wage passthrough, facilities will be put out of business, restrictions will be imposed on the free selection of providers by the individual, self-destructive lifestyles and products will have to be much more rigidly controlled, and many people in the delivery system will lose their jobs *** not just future wage increases.

To do otherwise is to either deny that the system has all the waste and duplication with which it has been charged, or to suggest that the public really would prefer health care cost increases rather than pay the price necessary to achieve future savings.

In our search for better cost controls, we must be open to the possibility that some of the answer may not be found in regulation.

System changes like HMO, PSRO, and health planning take time and have growing pains. So do changes in reimbursement policy in public and private programs. Time spent on these developments is not a symbol of defeat and must be granted if the original premise for each of these efforts is to be given fair evaluation.

In effect, I am asking what is cost containment? Is it not far more than squeezing hospitals?

And, must we not take the broad approach if long-term success is the real objective?

I am concerned that many of the assumptions upon which current cost control proposals are based do not realistically access where this country is headed.

Where are we headed? Toward:

An era of unparalleled technological opportunity which will challenge our deepest values and ethics *** and capacity to pay.

An increasingly health conscious and educated population ever less willing to acquiesce to the whims of providers.

Major purchasers of care who are no longer going to sign blank checks and who are rapidly becoming the most informed and powerful of health consumers.

Increasing use of incentives and innovative programs to alter personal behavior.

Increased use by employers of their purchasing power to gain control over local delivery systems.

Recognition that investments in health promotion will pay off in productivity gains-something the Congress must recognize as an even greater goal than cost containment.

I would like to start from the position that no sector of our society should shoulder the blame of our current cost problems-and none can escape their share of that blame either.

We need to understand that employment benefit plans are a reflection of what the public, the employees, and their unions want.

This is equally true of the Federal employees health benefits program, medicaid, medicare, and so forth.

Industry, at least those companies with which we work, does recognize the need to change its own programs as well as to support other forms of cost containment.

Just a few weeks ago we strongly supported Senate action to extend certificate-of-need over the purchase of expensive equipment in physicians' offices and other nonhospital settings.

That is not an action taken by a group shirking its broad responsibility to cost containment. Further, we did and still do support the concept of a limitation to revenues available for new capital investment in new facilities.

Basically, industry's cost containment efforts fall into two categories: Those which the company can do in-house and those which involve new relationships with the external medical and health care systems. I would stress that all of these actions, a lits of which is attached, are predicated on the assumption that there is considerable waste in the current system.

Ultimately, it will be the convergence of a multiplicity of shortterm efforts with the long-term development of a true health system based upon an evolving health policy that will produce, on the national scale, adequate health care for all, at a publicly understood and acceptable cost.

During the past 2 years, we have been collecting the cost containment efforts and results from a variety of companies. The result has been an outpouring of data, experiences, and opinion.

Separately, this information reflects rather small gains by individual employers. Collectively, the information reflects a series of very healthy trends of considerable significance.

The last point raises the issue of localizing cost containment to reflect specific conditions. Just as many supporters of proposition 13 have learned that cutting taxes also means cutting services they may want continued, so, too, sweeping cost containment regulations come with no guarantee that only the waste-or even the waste-will be what is cut.

No message was more clearly articulated to the National Health Insurance Advisory Committee during its 1977 factfinding travels. Localization is one of the prime motivations for the upsurge in employer support for HSA's.

There are many technical approaches which can be taken as we move haltingly toward a more cost-conscious medical care delivery system. Since any cost containment will have its opponents and will cause some sacrifice, we believe its potential should be measured against several basic principles or criteria:

1. It must treat all payers equally in order to avoid cost shifting which would diminish if not totally void the purported savings.

2. It must change the economic incentives which help determine provider behavior rather than just limiting resources for specific units of service.

3. It must assist in reordering our priorities toward prevention and healthy lifestyle promotion rather than further locking into place the current overemphasis upon acute care.

4. It must openly acknowledge its impact upon other segments of the economy such as employment, minority and women's upward mobility, urban infrastructure, and welfare.

5. Precisely because the health sector interacts so strongly with other segments of the economy, we must stress that no "quick-fix" or cheap cost-containment effort will have a lasting, positive impact. As indicated earlier, I agree that this was a direct reaction to the threat of Government intervention. I am talking about the voluntary effort. And I would be the last one to suggest that all the recent downturn in the rate of cost inflation can be attributed to VE. However, in several individual areas, the VE does seem to be having a very positive result and is setting in place a coalition for long-term action. which did not previously exist.

The question of VE is not, I would submit, has it already been successful but rather whether or not those who are philosophically opposed will ever give it a chance to succeed or fail on its own.

I find it disturbing when Members of Congress attack the VE for the alliance it represents, yet do not even question the attempts by some labor unions to organize a boycott of the VE.

Our values again are challenged. If all the VE efforts are ruled out. due to their antitrust implications, then we are deciding that antitrust is a higher value than cost containment.

We cannot have it both ways. No major industry could cut waste, increase efficiency, lessen the rate of its cost escalation, meet increasing public demands and increased utilization, honor increased Government regulation-simultaneously-and not have a cooperative effort among that industry's principal participants.

We cannot expect the hospital industry to do what no other industry could do."

Rather than creating a self-fulfilling prophecy of failure, it would be our position that the VE be given every possible chance to succeed. If it does not, we are quite sure Congress has sufficient authority to take whatever steps are necessary.

Senator NELSON. I take it that you are saying you would support congressional action in making it mandatory if the voluntary effort does not succeed?

Mr. GOLDBECK. If the voluntary effort does not succeed, our group would indeed be in support of Federal intervention unless there is some quirk in the system in the interim that would make it unreasonable.

I cannot tell you exactly the details of that Federal intervention. It is not possible to answer that, but we certainly do not in any way reject the possibility that intervention would be necessary; yes, sir. I would add if the wage passthrough is made mandatory at the State level, almost all of the savings incurred in a number of State programs will be wiped out, and there will be many of the State efforts that will not be able to possibly reach the necessary levels that the guidelines you are talking about would set.

Further, that if your bill was to pass, and during the next 2 to 3 years, for example, the controls were imposed on medicaid and medicare, but not on the private sector programs and payers, then that, too, would be a very strong driving influence to help defeat the possibility that the voluntary effort would succeed on the State level. Of the cost saving that would take place, the public programs would look

quite good, and the costs would be picked up on the other side. On the system's perspective, there would be little if any savings.

Senator NELSON. I think the main problem with the Talmadge bill is that it only applies to medicare and medicaid.

Mr. GOLDBECK. In conclusion then, I would simply comment we are watching an industry in convulsions. As one of the forces most recently and strongly intervening in the reshaping of our health system, employers must mix their pleasure at the changes in progress with the caution that we not move so far or so fast as to destroy the best parts of the world's truly premier medical system.

Where the new health system and the old medical system clash, the benefit of the doubt should go to health. However, in the long run, it will be how well we move forward together that measures our success. Thank you, and I will be pleased to respond to any questions. Senator NELSON. Thank you very much, Mr. Goldbeck. [The prepared statement of Mr. Goldbeck follows:]