Hospital Cost Containment Message to the Congress Transmitting Proposed Legislation.

Note: The correct word is "stay," not "day."

Hospital cost inflation is uniquely severe. It is also uniquely controllable. It offers us one of our best opportunities to bring down the rate of overall inflation. This year, once again, I ask the Congress to join me in grasping that opportunity by enacting a tough program of hospital cost containment.

The Senate passed a Hospital Cost Containment bill last year, but the House did not complete action on it. The legislation I am transmitting to the Congress today is similar to the bill that passed the Senate last year. It responds to Congressional concerns that were raised during consideration of last year's bill, and it is strong enough to do the job.

The Hospital Cost Containment Act of 1979 will be one of the clearest tests of Congress' seriousness in dealing with the problem of inflation. Through this one piece of legislation, we can, at a stroke, reduce inflation, cut the Federal budget, and save billions of dollars of unnecessary public and private spending.

The legislation I am transmitting today will save $3.7 billion in fiscal year 1980. It will save $1.4 billion in the Federal budget, over $420 million in state and local budgets, and almost $1.9 billion in private health insurance and payments by individuals. Altogether, the potential savings that could result from this measure amount to some $53 billion over the next five years.

Because most hospital bills are paid by public or private insurance programs, the impact of hospital inflation is sometimes disguised. But that impact is painfully real for every American.

When hospital costs rise, so do health insurance premiums. This means that workers take home smaller paychecks. It means that businesses are forced to charge higher prices. For example, over $140 of the cost of every automobile manufactured in this country goes to pay for health insurance premiums.

When hospital costs rise, so do health budgets of Federal, state and local governments. From 1969 to 1979, Federal government expenditures for hospital care rose by 330 percent. State and local government expenditures for hospital care rose by 140 percent. Sooner or later every taxpayer pays more to finance these increases.

When hospital costs rise, the elderly-who need more hospital services—are particularly hard hit. The Medicare hospital deductible paid by the elderly has almost quadrupled—from $44 in 1969 to $160 in 1979. If hospital cost inflation is not restrained, the deductible will reach $260 in 1984.

The inflationary rise in hospital costs is not inevitable. While there have been dramatic and desirable improvements in the quality of hospital services, much of the increase in hospital expenses has been unnecessary. No one's health is improved by the existence of thousands of untilled hospital beds, by hospital stays that are unnecessarily long, by surgery and x-ray tests that are unneeded and sometimes harmful, by wasteful supply purchasing practices, by inefficient energy use, or by pointless duplication of expensive facilities and equipment. But these wasteful practices cost billions.

In the past, hospitals have had little incentive to be efficient. The hospital sector is fundamentally different from any other sector in our economy. Normal buyer-seller relationships and normal market forces do not exist. The consumer of services—the patient—rarely pays the bill directly. Nor does the patient decide what services he or she will receive in the hospital. The person who makes those decisions-the physician—does not pay the bill either, and therefore has little or no incentive to see that services are provided in an efficient manner. Often, doctors do not even know the costs of the tests and x-rays they order.

There is a growing determination throughout the country to make hospitals efficient. Nine states—Colorado, Connecticut, Maryland, Massachusetts, New Jersey, New York, Rhode Island, Washington, and Wisconsin—have enacted mandatory cost containment programs. Hospitals in these states, which include many of the most renowned medical institutions in the world, have reduced cost increases substantially while continuing to provide care of high quality.

The legislation I am transmitting today would ensure that every hospital in this country has the incentive to be efficient. It establishes a reasonable goal for hospital cost inflation. It sets mandatory limits only for hospital cost inflation. It sets mandatory limits only for those hospitals which have been unable to meet this goal. Specifically, the Hospital Cost Containment Act of 1979 will:

—Establish an annual goal for the rate of hospital cost increases. This goal would reflect actual increases in the price of goods and services hospitals use, changes in population, and improvements in hospital services. In the event that the hospital industry does not, as a whole, meet the national goal, mandatory reimbursement limits on individual hospitals, also based in part upon the actual costs of goods and services, would go into effect on January 1, 1980.

—Exempt hospitals which individually meet the voluntary goal, have fewer than 4,000 admissions annually, are less than 3 years old, or have 75 percent of their patients enrolled in federally qualified health maintenance organizations.

—Exempt all hospitals in a state if the state on average met the voluntary goal or had an approved mandatory cost containment program.

—Provide for a system of bonuses and penalties to hospitals, depending on their efficiency relative to other hospitals of similar type and location.

—Include an adjustment for wage increases provided to nonsupervisory personnel in hospitals.

The Hospital Cost Containment Act of 1979 is reasonable and realistic. It permits a period of time for voluntary action, with mandatory limits only if voluntary action fails to meet the reasonable goals established in the bill. Under current assumptions the national goal will be 9.7 percent in 1979; it will be adjusted to reflect the actual increases in the price of goods and services hospitals use. In 1977, one-third of the Nation's hospitals—from all regions and of all types—had cost increases of 9.7 percent or less.

Even if triggered, the stand-by mandatory program holds regulation to a minimum. It does not interfere with the day-to-day management decisions of hospital administrators and physicians. Rather, the program establishes an overall limit on the rate of increase in reimbursements, permitting doctors and hospital administrators to allocate their own resources efficiently, responding to local needs and patient care concerns. The program changes the incentives under which hospitals have functioned, from a system in which hospitals receive guaranteed reimbursement for their services, whether efficiently provided or not, to one in which hospitals are rewarded or penalized for their actual efficiency and productivity.

Congress has debated hospital cost containment for almost two years. There is now no reason for delay. I call upon the Congress to demonstrate its commitment to the fight against inflation by promptly enacting the Hospital Cost Containment Act of 1979.

JIMMY CARTER
The White House,
March 6, 1979.