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APPENDIX

COMMITTEE ON GOVERNMENT OPERATIONS, SUBCOMMITTEE ON FEDERAL SPENDING PRACTICES, EFFICIENCY, AND OPEN GOVERNMENT, Washington, D.C., July 1, 1975.

J. W. HERBERT,
President, Blue Shield, Inc.,
Jacksonville, Fla.

DEAR MR. HERBERT: Several questions have arisen out of testimony heard before the U.S. Senate Subcommittee on Federal Spending Practices, Efficiency and Open Government on June 13, concerning Florida Blue Shield's involvement in the Part B Section of the Medicare program. The investigation and inquiry at these hearings and in subsequent correspondences centered on abnormal delays in the processing of Part B claims in Florida. A few questions were posed concerning general aspects of the operation of Blue Shield in Florida, both in conjunction with and independent of the Social Security Administration.

As an extension of issues raised in the hearing, the Subcommittee would like to have the following questions answered by Blue Shield. What percentage of your operation is non-profit or federally funded? Assuming your Medicare section is indeed non-profit, what special advantages or incentives are incurred by a private company in taking over Part B operations?

Viewing the fact that 8 private companies expressed a firm desire to take over Part B operations in Miami, what forms of "bidding" take place to allow for selection of one company over others?

To the best of your knowledge, why was your company selected to head the program in Florida and how long (what) is the term of your contract with the Social Security Administration?

We would appreciate comments concerning these questions as well as a general explanation of the funding and operation of Blue Shield of Florida.

With kind regards,
Sincerely,

LAWTON CHILES, Chairman.

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Responding to your letter of July 1, I am pleased to offer the following comments and
information which I believe you will find helpful.

With respect to your question concerning what percentage of our operation is non-profit
or federally funded, in response let me say that Blue Shield of Florida was incorporated
in 1946 as a not-for-profit corporation under Chapter 641 of Florida Statutes. The
original capital of $20,722 was put up by individual doctors of medicine, or in some
instances by county medical societies. Florida physicians were urged to cooperate in
this venture by agreeing to accept the fees paid by Blue Shield contracts as full payment
for people in certain income brackets but having the right to charge their regular fees
for those above these levels. This is the concept of Participating Physicians, and since
that time a number of contracts have been offered with higher income levels and at the
present time we even offer a contract which pays the doctor's "usual and customary" fees.
Our present enrollment in Blue Shield is 1,908,418 subscribers in Florida. All of this
enrollment has been achieved by competing in the market place against some 400 other
companies writing surgical and medical insurance in Florida and without government
subsidy of any kind. At the present time in addition to the Medicare B program we are
servicing the professional charges made to dependents of, and retired military personnel,
and in addition are paying under Title XIX any charges for Florida residents receiving
coverage under Medicaid which is supplemented by Medicare benefits. We pay taxes
on our building in Jacksonville, all of our sales representatives are fully licensed under
the laws of the State of Florida, and the corporation must file with and get approval of
the Insurance Department of the State for changes in benefits of present contracts,
changes in rates affecting contracts and in addition, the Department must approve the

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Senator Chiles

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7/9/75

rates we wish to charge for all new contracts. The fact that we are a not-for-profit organization and have always had the policy of carrying people regardless of their attained age and thus had many people over 65 enrolled, made us feel that we should ask for the privilege of participating in the Medicare B program. The only advantage that we saw was the opportunity of being of further service to the people of Florida.

In response to your question concerning the information that eight private companies expressed a desire to take over Part B operations in Miami, I would like to say that we are not familiar with that information and would suggest that you solicit this from the Social Security Administration.

In response to your question about why our company was selected to head the program in Florida, I believe I have indicated our reason for doing this in answering the first question. As a Florida not-for-profit corporation engaged in the offering of medical and surgical coverages to the residents of Florida we felt that this could be an extension of our service. We did not envision the growth of the program which came about from the very wide-open scope of benefits offered and the increased number of residents of Florida over the age of 65, as well as the fact that all tourists in the state had to have their claims handled by the carrier chosen for the state of Florida instead of filing them with the carrier covering their place of residence when they returned there.

With respect to the information about our funding and operations, I have touched on that in the answer to the first question and hope this would give you sufficient information. I am enclosing a copy of our Annual Audit Report made up by Coopers & Lybrand, who also assist in the preparation of the annual statement we must prepare for the Insurance Department of the State of Florida. Also enclosed is a copy of "25 Years of Progress" which is a history of Blue Shield of Florida from 1946 - 1971.

Trusting that this information will be helpful, and if I may be of further service, please let me know.

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[From the Miami Herald, June 19, 1975]

LETTERS TO THE EDITOR-How To CURE MEDICARE'S ILLS

(By Edward Morrow, Naples)

.. on average Medicare enrollees are paying substantially more for health service than they did before they signed up..."

HEW has announced that it intends to limit payments to doctors under Medicare because costs are getting out of bounds. HEW may limit payments to doctors, sure enough, and save money. But the savings will come out of the hides of the people over 65 who are enrolled in Medicare. The doctors' lobby will see to it that they get their ever-rising fees, whoever pays for them.

In the eight years since I was enrolled in Medicare, Blue Shield of Florida, the state's Medicare carrier, has almost invariably "allowed" less than the doctors' actual charges—and of course it pays only 80 per cent of this "allowance." When office visits were $12, for example, Medicare "allowed" $10. When office visits went up to $15, Medicare "allowed" $12. If a surgeon's fee were $500, Medicare would probably allow about $400. I know of one case where the surgeon's fee was $1,000, and Medicare actually paid the patient $320.

Medicare's "allowable" fees are supposed to be based on the prevailing rate in the area in which the patient lives. They are not.

And all the doctors I know refuse to take assignments of Medicare's payments because they would then be compelled to take Medicare's "allowance"-paid 80 per cent by Medicare and 20 per cent by the patient. For the lack of an assignment, the patient must pay whatever fee the doctor fixes, and collect from Medicare what he can.

Under Medicare, many people are simply being denied medical care because of Medicare's rule that the patient must pay the first $60 under Part B, in addition to at least 20 per cent of any charges over that.

It is a provable fact that on average Medicare enrollees are paying substantially more for health services than they did before they signed up for Medicare. This is a health insurance program?

If Medicare is to set a ceiling on doctors' fees lower than the present "allowables," it should have the guts to brave the doctors' wrath and see to it that the over-65s don't get stuck even more than they are now. This could be done easily. All that would be needed would be a rule that Medicare would pay no claims submitted by patients, but only those submitted by doctors who have accepted an assignment.

To be sure, the AMA will explode like Vesuvius at such a proposal. It will solemnly declare that this will destroy "the sacred doctor-patient relationship"though why this relationship usually seems to be based on money is a puzzle. Some doctors may continue to refuse to accept assignment-for a time. They will come around. Most practicing doctors derive a substantial part of their incomes from Medicare patients. And if they refuse to accept assignments, and thus force their elderly patients to pay their entire bills out of their own pockets, the Medicare patients will desert them by droves and go to doctors working to work within a framework that will to some extent fit into the concept of health insurance.

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