Mr. BENNETT. The diminution in the number of people you are allowed is really academic because you are not anywhere near meeting it. The 3,500 they cut you doesn't make much difference because you are not meeting what they have allowed you; correct? Dr. SMITH. Yes, sir, that was cut as the Armed Force strength went down. Mr. BENNETT. But that is not the reason for the shortage of doctors? Dr. SMITH. No, sir; I am talking about the shortage as it exists today. On a relative basis, less capability per retiree family has been available with each succeeding recent year. At the same time, as an overall percentage of effort, total care to retirees in military facilities has grown by 28 percent in inpatient services and by 14 percent in outpatient services between 1973 and 1976. The fourth subset of care, the CHAMPUS program, is a solid program of benefits for both active-duty and retired families. Last year, in supplementing in-house care, it spent nearly $600 million in helping to pay for a broad set of services involving about 3 million claims. Nonetheless, beneficiaries, especially retirees, were sometimes dismayed at their rising health costs. CHAMPUS uses a medicare approach to paying bills, derived from a profile of what most providers have charged in the patient's locality. If the patient incurs an inordinantly high charge, he makes up the balance. Sometimes he understands neither the arithmetic nor the fairness of CHAMPUS decisions. When this decision was made, it was made in response to trying to control the cost of the program. But in essence, it didn't change the cost of the program. It just cost-shifted it. It took it out of the CHAMPUS program and shifted it over to the beneficiary. So it is costing the beneficiary more to pay for his medical care than it did when we were on a 90th percentile. That has been a cause of an erosion of benefits, probably the most serious one that we have had. We do have a memorandum in the Defense Department at the present time which seeks to return to the 90th percentile. That has been hung up in the controller's office for some time. Mr. TREEN. Would you have the dollar figure of that difference? Dr. SMITH. Yes, sir; the dollar figure would amount to about $10 million. Mr. TREEN. To go from 75 to 90 percent? Dr. SMITH. Yes. Mr. BENNETT. Is that done by statutory change or regulation? Dr. SMITH. That was done in order to comply with the requirement that we pay in accordance with medicare. Mr. BENNETT. So it was done by law or regulation? Dr. SMITH. It was done by regulation. Mr. BENNETT. In other words, they reduced from 90 to 75 percent coverage by regulation? Dr. SMITH. From 90th percentile to 75th percentile, but they also went from a current profile to a profile which averages from 1 to 2 years behind current profiles. Medicare will update in July 1977 on the basis of the profiles in 1976, but that is an average. So you are already 1 year behind. Then they don't update for another year so by the time you get to 1978, you are still on the 1976 profile. Mr. BENNETT. You mean the law didn't give a 90- or 75- or 80-percent figure, you just did that out of regulations? Dr. SMITH. The medicare law prescribes that as the payment profile for that program. Mr. BENNETT. What does the CHAMPUS law say? Dr. SMITH. It is not in there. Mr. BENNETT. You can go down to 5 percent, then, couldn't you? Dr. SMITH. No. That was done in response to-I don't want to say instructions, but at least strong suggestions from the Appropriations Committee that this would be an appropriate way to reduce it. Mr. BENNETT. It still has to be done by regulation or law. It can't be done by the Appropriations Committee suggesting that it be done. The question is whether it is done by law or regulations. Dr. SMITH. The Deputy Secretary of Defense issued the regulation. Mr. KAZEN. Mr. Secretary, why do you have to tie CHAMPUS to medicare? Dr. SMITH. I don't believe we should tie it to medicare. Dr. SMITH. It was done by the Deputy Secretary in order to control the costs of the program. But I think that that was, in my own judgment, an inappropriate way in which to proceed toward the control of the costs of the program. I think it is more effective to control utilization to see that you deliver only that which is medically necessary. Mr. WHITE. If the Secretary will suspend for a second, why don't we hold clarifying questions until the Secretary has completed? Mr. BENNETT. I am sorry. Mr. KAZEN. I am too, but we lose what we are trying to get afterwards. Dr. SMITH. I will be happy to discuss that question. Mr. WHITE. We will get to it. Proceed, please. Dr. SMITH. Now, in addition, CHAMPUS payments are sometimes slow, good intent notwithstanding. We are trying to correct that by improving the management and the manner in which we conduct our business. Neither provider nor patient likes a delay in his payments. In five Western States last fall we had a misadventure with a claims processor, from which we are just now recovering. Despite that setback, we believe in competitive bidding on contracts because it lessens program overhead, it gets the attention of the contractors and encourages better service from contractors. We are, in addition, heavily emphasizing communications with and assistance to providers in utilizing benefits and filing claims. This effort starts with CHAMPUS itself as well as our contractors. To better define and standardize CHAMPUS benefits, we lately published a revised CHAMPUS regulation, the first complete revision in 10 years. We have markedly intensified our campaign to increase beneficiary and provider knowledge about the program. We are making other moves designed to improve management, control cost and assure better value received for the outlays of patient and government. Concurrently we are trying to assure full use of military capability. At congressional direction, we instituted a 40-mile certificate of non availability rule in February 1976. So far we have not been able definitively to assess the effect of the rule. Military workloads have not shifted in any significant measurable way. What we can tell is that it has effectively reminded patients of the supplemental character of CHAMPUS and that beneficiaries have not been uniformly happy with it. We have tried to minimize our hassle to patients as we recognize more clearly where lack of availability if not transient and as we found it professionally imprudent to upset continuity of care relationships between physicians and patients. Our capability in-house is mainly limited by physician staffing. This situation seems likely to continue for the next 3 to 4 years when scholarship students begin to enter our work force in quantity. However, health professional scholarship students are uneasy about their tuitional tax status and this is influencing the number of applicants we are having for the program. Present physician shortfalls would be significantly higher except for variable incentive pay, authority for which requires renewal during this session. Uneasiness about pay matters is a distraction to our work force. With attractive pay scales, the military departments have had better retention and have been able to recruit more successfully since 1974. Four hundred and twenty-five physicians have been recruited this year most successfully in primary care but with little or no success in the specialties I mentioned. Foreign medical graduates have composed 8.6 percent of the recruited group and represent 6 percent of current physician staffing. Selectively, specialties are becoming undermanned, most seriously in radiology, pathology, and internal medicine. Overall we are 709 physicians short of authorizations. Some of the gap in primary care can be bridged by physician extenders and nurses, and has been. But extenders can't substitute across the board, especially for medical specialists. Workload in inpatients since 1974 has decreased by 18 percent and in outpatients has increased by 2 percent. Local hospital commanders have selectively had to curtail services for space available patients by priority-retirees and their dependents first. I believe they have done so prudently and reluctantly. Facility modernization, accelerated under Secretary Laird's tenure, has proceeded more slowly than scheduled, because the money has not kept up with the increases in construction costs. We have carefully not added beds to our inventory. Our construction needs are replacements for wornout plants and improvement of inadequate office and support facilities. Costs have increased not only because of inflation but also because of added expenses of accommodating such factors as energy savings and OSHA. Cost escalation has impacted the O. & M. budgets as well, in three areas: Purchased professional services to cover in-house gaps; in other words, if you don't have a radiologist, you contract locally to have one come in: continuing medical education, which is a requirement now to maintain your license in most States and equipment replacement. In summary, our current status includes the following: The population we serve is slowly expanding while our in-house capability is in short supply, and most of the expansion is in the area of retirees. Hospital illnesses require longer hospitalizations. This limits the care that we can give, particularly to retired families. CHAMPUS is effectively bridging the gap but is costing more. CHAMPUS is undergoing some long-needed improvement, but there has been an associated turbulence. While we have been funded prudently, there are unmet needs in construction and operating dollars. Our main limiting factor, however, is physician staffing. Positive action on pay matters with less anxiety would help to insure better recruitment and retention. While we are not problem free, we have the determination and the mechanisms needed to make progress, assuming your continued support. Mr. Chairman, this statement is expanded by enclosures which I am prepared to submit for the record. I appreciate this opportunity to appear before you, and I will receive questions that you have. WRITTEN STATEMENT OF HON. ROBERT N. SMITH CHAMPUS UPDATE FROM 1974 A number of significant events have transpired since November of 1974 when we last discussed CHAMPUS with this subcommittee. As we reported then, CHAMPUS costs had been increasing significantly each year since passage of the 1966 legislation which expanded the program's benefits and enlarged the categories of beneficiaries. This growth has been of significant concern to the House Appropriations Committee over the past several years. They have made special inquiries into the Program's operations each fiscal year since FY 75. In that year the Program budget request was reduced some 24 million by the Appropriations Committees. While we were being reminded that our stewardship of the Program had to be improved, events on the national scene were moving in a direction which seriously complicated our efforts. Although inflation was a problem, it had been under check through price controls. In April 1974, these controls were removed. At that point a rapid rise in health care costs began and that trend has continued to date, relatively unchecked. At the same time the crisis nationally, caused by the sudden increases in malpractice insurance, added to the health care price tag. Thus CHAMPUS was faced with some very complex problems. It had little effective control over many of them but we continued to seek rational solutions. We continued in our efforts to more precisely define the Program's benefits package. We sought out the assistance of experts in the medical professions health care financing field. This approach was especially successful with regard to mental health. Through the efforts of many people and organizations we have achieved some very significant results. We have in fact seen a slight reduction in dollars spent on mental health services by CHAMPUS since 1975. At the same time we have retained the good will of the professionals and have been publicly cited for having improved the quality of care delivered to emotionally disturbed children and adolescents. Our efforts have not been limited to psychotherapy. The entire gamut of benefits has been evaluated. On April 4, we published a large and comprehensive regulation on CHAMPUS. In it we have defined a great many terms, 180 |