To the Congress of the United States:
This country spends more on health care than any other nation--$160 billion this year, almost nine percent of our Gross National Product. We have the finest medical facilities and highly skilled, dedicated health professionals. Yet many of our people still lack adequate medical care, and the cost of care is rising so rapidly it jeopardizes our health goals and our other important social objectives.
I am transmitting to the Congress two major pieces of legislation to improve our health care system: The Hospital Cost Containment Act of 1977 to hold down rising health care costs, and the Child Health Assessment Program (CHAP) to improve health services for children of low-income families.
I. Hospital Cost Containment Act of 1977.
First, I am today proposing legislation which will limit the growth of the major component of health cost increases--rising hospital expenditures. The Hospital Cost Containment Act will restrain increases in the reimbursements which hospitals receive from all sources: Medicare, Medicaid, Blue Cross, commercial insurers, and individuals. The limit will be set using a formula which not only reflects general inflation, but also extends to hospitals an additional allowance for improving their quality of care. Based on current trends, the limit for fiscal year 1978 will be approximately nine percent.
The legislation will also impose a limit on new capital expenditures for acute care hospitals. The program will fix a national level for such expenditures below that of recent years and allocate new capital spending among the states by formula. With the assistance of local planning agencies, each state will determine which facilities merit new capital expenditures.
Specifically, the Hospital Cost Containment Act of 1977 will:
--Limit the in-patient reimbursements of acute care hospitals, excepting new hospitals, federal hospitals and Health Maintenance Organization (HMO) hospitals.
--Provide an automatic formula to adjust the nine percent limit for moderate changes in expected patient load. The formula will contain strong incentives to discourage unnecessary hospitalization.
--Include an adjustment for hospitals which provide wage increases to their non-supervisory employees.
--Provide an exceptions process for the small percentage of hospitals which will undergo extraordinary changes in patient loads or major changes in capital equipment and services. The program will require the Department of HEW to respond to any application for an exception within 90 days.
--Disallow in the computation of a hospital's base cost any unwarranted expenditures made in anticipation of the implementation of the program.
--Allow states which operate cost containment programs, and are capable of meeting the federal program's criteria, to continue their own regulatory approaches.
This program will save about $2 billion in fiscal year 1978--over $650 million in the federal budget, over $300 million in state and local budgets, and almost $900 million in private health insurance and payments by individuals. In fiscal year 1980, total savings will exceed $5.5 billion.
These savings will show a devastating inflationary trend, which doubles health costs every five years. This year health care will cost an average of over $700 for every man, woman, and child. Each worker's share of our Nations health bill will require more than a month's work.
For the federal budget, rising health spending has meant a tripling of health outlays over the last eight years. Without immediate action, the Federal government's bill for Medicare and Medicaid-which provide health care for our elderly and poor citizens--will jump nearly 23 percent next year, to $32 billion.
Rising health costs attack state and local governments as well. State and local Medicaid expenditures have grown from $3 billion in 1971 to $7 billion in 1976, forcing cutbacks which harm the low income recipients of the program.
Unrestrained health costs also restrict our ability to plan necessary improvements in our health care system. I am determined, for example, to phase in a workable program of national health insurance. But with current inflation, the cost of any national health insurance program the Administration and the Congress will develop will double in just five years.
Finally, uncontrolled medical care spending undermines our efforts to establish a balanced health policy. Medical care is only one determinant of our people's health. The leading cause of death for Americans under 40 is motor vehicle accidents. The leading causes of death for older Americans--heart disease and cancer-are directly related to our working conditions and our eating, drinking, smoking, and exercise habits. We can better confront these broader health problems if we can limit the increase in soaring medical care costs.
Containing hospital cost increases is of central importance. Hospitals absorb 40 cents from each of our nation's health care dollars, and the cost of hospital service is rising faster than the cost of other health services. As in recent years, our country's total hospital bill this year will climb 15 percent--to $64 billion.
Since 1950, the cost of a day's stay in the hospital has increased more than 1,000 percent--over eight times the rise in the Consumer Price Index. Today, the average hospital stay costs over $1,300; just 12 years ago, a slightly shorter stay cost less than $300. This relentless increase places a severe burden on all of us--and strikes hardest at the poor and the elderly.
To control escalating hospital costs, some have proposed to cap Medicare and Medicaid expenditures. Such a federal spending limit would encourage hospitals to reduce their services to low-income and elderly patients and to recoup rising expenses by increasing their charges to all other Americans. In contrast, the legislation I am proposing today reduces the growth in federal Medicare/Medicaid expenditures without imposing such severe new burdens on other purchasers of health services.
This legislation is not a wage-price control program. It places no restrictions on the hospital's ability to determine its charges for any particular service. It places no limit on the size of any wage demand or settlement. 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 individual circumstances.
This proposal relies heavily on the initiatives of the private sector. For it to succeed, businesses, unions, and insurers, working with providers, must continue to pursue innovative techniques for reducing the cost of high-quality health care. The private sector's response to the challenges of cost containment will help decide its future role in our health care system.
The federal sector must also hold down the costs of its own hospitals. The Administration will carefully review the operating and capital expenditures of federal health facilities, to insure that unwarranted increases do not occur. Further, we will eliminate unnecessary federal regulations which lead to increased costs for all hospitals.
Our hospital cost containment system is transitional. It is intended to flow directly into a long-term prospective reimbursement system, which will not accept a hospital's base cost as given. The long-term system will be able to analyze and compare base costs and provide greater incentives to those hospitals which are most efficient. The Congress and the Administration are already at work on this long-range system.
At the same time, I am committed to strengthening competition in the health industry. For example, we should encourage HMOs and other organizational arrangements which give providers an incentive to reduce costs, and we should encourage consumers to become more aware of the charges of different providers.
Finally, all of us--consumers and providers-must work together to reduce the unnecessary use of hospital facilities and services. By cutting down excessive utilization we can help preserve our valuable resources.
II. Child Health Assessment Program (CHAP).
The second piece of legislation I am proposing today, the CHAP Program, will replace Medicaid's Early and Periodic Screening, Diagnosis and Treatment Program (EPSDT) for children. The CHAP legislation, which calls for new expenditures of $180 million, will:
--Raise from 55 percent to over 75 percent the average federal payment to the states for health care provided to children whose health needs are assessed under the program.
--Extend benefits to children under age six whose family income level makes them eligible for assistance but who do not meet additional state eligibility requirements.
--Encourage states to assure the availability of comprehensive health providers for low-income children.
--Assure continuity of treatment by providing care for children six months after the family's eligibility for assistance otherwise terminates.
--Improve the federal program enforcement mechanism.
Like the cost containment program, the CHAP legislation is a crucial first step. Other children's health programs also require significant improvement, and the Administration will take steps to meet these needs. But the CHAP program is urgently needed to assure that more low-income children receive regular, highquality primary and preventive care.
Currently, twelve million children are eligible for Medicaid yet the EPSDT program is reaching only two million. Further, only slightly more than half of all children screened actually receive treatment for conditions that are identified. The CHAP program will assist the states in rectifying these deficiencies.
I call upon the Congress to act favorably on both of our new health initiatives.
The White House,
April 25, 1977.