During its month long study, the ad hoc committee had to keep in mind the detailed provisions of the law, the expressed desires of Congress concerning the optimum use of service facilities, and an extremely difficult financial situation. In addition, it was necessary to keep in mind the overriding humanitarian requirement that the medical needs of dependents should be met so far as humanly possible under these conditions.

During its study, the interdepartmental ad hoc committee had available for consideration a considerable amount of detailed information concerning the program that had developed during the late spring and early summer months of 1958. The billing pattern had been analyzed and study of the claims had revealed additional significant information that had a bearing on our costs. Some of this data could be partly or wholly measured; some could not. We discovered that the proportion of married men in the services is increasing concurrent with a decrease in troop strength. There is a substantial increase in the number of dependent wives and children. We discovered that the pattern of medical care was changing and that obstetrical-gynecological cases, as a percentage of all admissions, were steadily increasing from approximately 50 percent early in the program to as high as 70 percent at present. On the average, obstetrical-gynecological cases have cost more than medical or surgical cases. In addition, as you all know, hospital costs continue to rise. of these things we learned-and are still learning- none was predicted, because none was predictable. We learn these things only after the claims come in. And of all After studying this array of interlocking problems, the interdepartmental ad hoc committee on August 6, 1958, proposed the restrictions on the medicare program which ultimately became effective on October 1, 1958.

These restrictions fall into two categories:

(1) those designed to channel dependents into service facilities up to the point where they are used to the optimum extent, and

(2) those designed to slim down or cut back the medicare program so that costs would presumable be brought into line with available funds.

Based on the findings and recommendations of the interdepartmental ad hoc committee, dated August 6, 1958, which were approved in principle by the Secretary of Defense, the Office for Dependents' Medical Care took immediate action to put the changes into effect. We had to keep in mind the nature of

the program, the implementing contracts, and the amount of lead time necessary to put into effect any changes in the program. Dependents have been issued an authorization card showing certain entitlement to care in civilian facilities. They present that card to a physician or hospital; authorized care is rendered; and the bill for payment is submitted to the appropriate contractor. The bills are sent by the contractors to the Office for Dependents' Medical Care for reimbursement. Any changes in the program require changes in the contracts involved and, more importantly, require detailed notification to servicemen and dependents, hospitals and physicians of those changes. Recognizing the requirement for considerable lead time and to effect a smooth transition, the Office for Dependents' Medical Care called a conference of its contractors in Washington on August 8, 1958. At that conference, the proposed changes were outlined to the contractors and their suggestions were obtained. A number of those present expressed some concern over the restrictions to be imposed. The consensus was expressed that, if the changes were necessary, they could be implemented and that they, the contractors, would lend every effort to their successful implementation.

Following the conference with the contractors, the Office for Dependents' Medical Care published a circular letter to them formally outlining the changes in the program and the administrative procedures to be followed in implementing same. This letter was dispatched on August 29, 1958, to become effective October 1, 1958. This interim period of 31 days was the minimum considered necessary to permit the contractors to circularize over 200,000 individual physicians and the many hospitals participating in the program. Concurrent with this action of informing the civilian medical profession, necessary changes in the joint directive of the Secretary of Defense and Secretary of Health, Education, and Welfare, as well as service regulations, were being prepared and promulgated.

The widest possible publicity was given to the changes to become effective October 1, 1958. This was considered necessary to inform, on an adequate and timely basis, service personnel and their dependents of the revisions in the program and the administrative steps they must take to obtain benefits thereunder,

In this connection, on September 8, 1958, the Office of Armed Forces Information and Education, Department of Defense, published and distributed worldwide a "Fact Sheet on the Revised Medicare Program" to accomplish the desired purpose.

On August 15, 1958, the Secretary of Defense wrote a memorandum to the Secretaries of the uniformed services stating that the optimum utilization of the uniformed services medical facilities must be emphasized. This memorandum forewarned the coming of restrictive changes in regulations effecting medicare program revisions outlined above. The substance of the memorandum from the Secretary of Defense was disseminated throughout the uniformed services by command action.

In the interim between the dispatch of the Office for Dependents' Medical Care letter on August 29, 1958, and October 1, 1958, formal amendments of the 55 contracts implementing the program were drafted, negotiated and consummated.

The revised program, as I have previously outlined, became effective October 1, 1958. It now appears that obligations under the program for civilian medical care during fiscal year 1959 will approximate $93,418,000. It includes $354,000 for cost of operating the Office for Dependents' Medical Care but does not include $240,000 for payment of direct claims which is included in project 2430 because of the Army Medical Service management structure. The question naturally arises as to why this figure is not smaller in view of the stringent changes in the program as I have outlined above. There are underlying reasons which warrant some explanation. They are:

(1) The first and most obvious fact is that the revised program could not possibly be implemented and become effective until October 1, 1958. By that time, one quarter of fiscal year 1959 had already expired.

(2) It is not considered good medical practice-nor would it be fair to dependents to require those already under the care of a civilian physician or in a civilian hospital to transfer to uniformed services medical facilities. In general, provisions were made to permit those dependents who had commenced receiving authorized care from civilian sources before October 1, 1958 to complete that care. The only exception to this was that maternity patients residing with their sponsor who had not reached the 15th week of pregnancy were required to seek care from a uniformed services medical facility or to obtain a permit. The great bulk of the patients already receiving care on October 1, were maternity patients who had reached the 15th week of pregnancy. Therefore, it is readily apparent that reductions in the program relating to maternity care would not be fully effective until about April or May of 1959.

(3) Costs of providing medical care are constantly rising. This is true throughout the country and is not peculiar to Medicare. The Press has given much space to this subject in recent months. The average cost of a physician's claim paid under the medicare program for the 6 months' period ending December 31, 1957, was $74.39, as compared with $77.73 for the 6 months' period ending December 31, 1958. This is a 4.5 percent increase. Comparable information for hospital claims paid under the medicare program shows that in December 1957 the average cost for a claim was 108.27, as compared with a December 1958 claim of $117.47. This is an 8.5 percent increase in a 1-year period.

(4) Utilization of uniformed services medical facilities contributes only partially to the reduction in cost of providing care from civilian sources under the program. It is recognized that service facilities must be maintained as part of our defense organization and obviously should be used to the optimum extent. Indisputably, this is sound financial and military policy. While the optimum utilization of some service facilities may be ultimately realized, there are a number of these hospitals which may never be fully utilized insofar as care for dependents is concerned. This arises from the fact that the dependent population in the vicinity served by those hospitals is not large enough to contribute materially to the hospital's workload. On the other hand, there are large concentrations of dependent population in the vicinity of some uniformed services medical facilities which are inadequate to care for all of their needs. Balance between dependent hospitalization requirements and the availability of resources in service hospitals for their care will never be fully attained. Contributing to this result is the fact that dependent populations constantly shift and resources to care for them fluctuate. Also contributing are military crises requiring deployment of troops and their supporting military medical services. For example, during the Korean police action, the Army deployed many physicians from hospitals in the United States to provide necessary tactical medical support. The removal of this medical staff from the continental U.S. Army hospitals reduced their ability to provide dependent medical care.

(5) It was felt that reduction in the scope of care authorized to be obtained from civilian facilities under the program made effective October 1, 1958, went as far as the Medicare Act would permit. There has been some concern expressed by military personnel and their dependents, participating civilian physicians, contractors, and individual military commanders that restrictions in the program may have been too severe. The interdepartmental ad hoc committee was of the view that to go further in reducing care authorized under the program would defeat the purpose of the act, i.e., "to create and maintain high morale." Additionally, the law would not permit application of the restrictions on the freedom of choice to those dependents residing apart from their sponsors.

(6) The number of dependents eligible to participate in the program is increasing, even though reductions have been made in active duty military strength. Statistical studies conducted by the uniformed services show an increase in ratio of dependents to military strength. Causes for this increase include a greater number of career personnel with growing families.

I would like to discuss reactions to changes in the program. There are indications of increasing dissatisfaction and unfavorable criticism on the part of members of the uniformed services and their dependents. Particular heed should be given to the complaints and expressions of those individuals for whom the medicare program was established in the hope and expectation of creating and maintaining high morale. I do not mean to say that the evidence is voluminous, but simply by comparison with earlier reports, it is not too difficult to distinguish in the written, spoken, and implied word that these sponsors and dependents are not particularly happy with the restricted medicare program.

Morale is an intangible that defies specific measurement. How many other unexpressed opinions, unwritten letters, or spoken words lie dormant amid the real feelings of the serviceman and his dependents we have no means of accurately determining. However, only a cursory examination of the critical comments of those individuals who have taken the initiative to voice their feelings leaves little doubt that there are many others of the same mind.

Generally, the restricted program has been well accepted by individual physicians, hospitals, contractors and professional groups. However, there has been some dissatisfaction expressed. For example, five State medical associations have formally issued objections to changes in the medicare program. Four of these associations have indicated agreement to continue in their capacity as contractors. However, no assurance was given that such participation would be extended indefinitely. In at least one instance, continued participation was stated to be contingent upon an amelioration of the situation created by the restrictions of the program. One State medical association terminated its affiliation with medicare, stating that the changes would not be acceptable to that group. Some physicians have objected primarily to the restrictions on the freedom of choice for those dependents residing with sponsors. Furthermore, the limited data now available covering the months since October 1, 1958, are leading all concerned with the program to conclude tentatively that the restrictions of the program are too severe as they relate to authorized types of care and that some badly needed care is not now being provided, particularly in the surgical field. It also appears that the restrictions on authorized types of care have produced some inequities which should be rectified. For example, dependents who are remote from a service hospital are barred from receiving certain types of care from civilian sources which they could obtain if a service facility were available to them. If these tentative findings and conclusions prove to be correct, it appears that the restrictions should probably be modified or lifted. With sufficient appropriation, it would appear that reconsideration of the restrictions should be, and could be, made by the Secretary of Defense with a view toward restoration of certain types of needed care. This reasonable action on the part of the Secretary of Defense would not detract from optimum utilization of service facilities since all dependents residing with sponsors are required to seek care there first before they are permitted to get civilian care at Government expense.

SUMMARY

In summary, the desires of Congress concerning the program were given immediate attention and action by the Department of Defense. In an effort to assure optimum utilization of uniformed services medical facilities, and to effect desired economies, a medicare permit system was instituted, requiring those dependents residing with sponsors to first seek care in uniformed services hospitals. If needed care is unavailable, a permit is issued which allows the dependent to 38515-59-pt. 4-36

obtain authorized care from civilian sources at Government expense. Also, in order to effect even further reduction of costs, the scope of care authorized from civilian sources was restricted to the maximum extent considered feasible within the framework of the Medicare Act. These restrictions were recommended by the Interdepartmental Ad Hoc Committee and were put into effect without delay under the discretionary authority vested in the Secretary of Defense by the act. To obtain the funds necessary to support this medicare program of minimum benefits, it has been necessary to reprogram funds where possible and to request supplemental appropriations in those instances where reprograming was not possible. The fund requirements for fiscal year 1959, including that for operation of the Office for Dependents' Medical Care, is $93,418,000. This requirement was made only after close and careful consideration of

(1) the congressional desires that expenditures should not exceed $70,246,000 for the Department of Defense (not including the $1,660,000 appropriated to the Public Health Service) and

(2) the fact that the restricted medicare program is considered to provide the minimum benefits compatible with the purpose of the act.

In conclusion, we are in agreement with the desires of Congress that(1) we provide adequate medical services to the dependents of servicemen which will fulfill the purposes expressed within the Medicare Act,

(2) we secure and maintain optimum utilization of uniformed services medical facilities, and

(3) we effect every reasonable economy in the efficient operation of the medicare program.

The estimated fiscal year 1959 price of the restricted program based upon the increased numbers of eligible dependents, the experienced rising costs, and the optimum capabilities of the uniformed services facilities to provide care for dependents cannot be maintained within the $70,246,000 if a program compatible with the Medicare Act is to be provided.

The Chairman of the Department of Defense Subcommittees of both the House and Senate Committees on Appropriations were apprized on September 4, 1958, of the steps taken by the Department of Defense to meet the congressional desires concerning the medicare program.