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DEPARTMENT OF THE NAVY,
OFFICE OF THE JUDGE ADVOCATE GENERAL,

Washington, D. C., April 27, 1954.
Hon. CHARLES A. WOLVERTON,
Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN: Your request for comment on the bill H. R. 7700, to amend the Public Health Service Act to provide mortgage loan insurance for hospitals and medical facilities used in connection with voluntary prepayment health plans, has been assigned to this Department by the Secretary of Defense for the preparation of a report thereon expressing the views of the Department of Defense.

The declared purpose of this measure are (1) to stimulate private lending, through Government insurance of mortgages, of funds by which medical facilities can be financed, built, and operated on a self-sustaining, self-liquidating basis, (2) to encourage the extension of voluntary prepayment health plans, and (3) to increase health facilities and profession opportunities. In furtherance of these purposes the bill would establish a medical facilities mortgage insurance fund. The administration of the fund and the programs connected with it are to be the function of the Surgeon General of the Public Health Service with the approval of the Secretary of Health, Education, and Welfare.

It is considered that the bill involves matters under the cognizance of the Department of Health, Education, and Welfare and would not directly affect medical administration or functions within the Department of Defense. Accordingly, the Department of the Navy, on behalf of the Department of Defense, has no recommendation to make concerning the enactment of H. R. 7700.

This report has been coordinated within the Department of Defense in accordance with procedures prescribed by the Secretary of Defense.

The Department of the Navy has been advised by the Bureau of the Budget that there is no objection to the submission of this report on H. R. 7700. For the Secretary of the Navy. Sincerely yours,

IRA H. NUNN, Rear Admiral, United States Navy, Judge Advocate General of the Navy.

TREASURY DEPARTMENT,

April 28, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce

House of Representatives, Washington, D. C. MY DEAR MR. CHAIRMAN : Reference is made to your request for the views of this Department on H.R. 6951 and H.R.7700, bills to provide mortgage loan insurance for the construction of hospitals and medical facilities.

While H.R. 7700 contains more detailed provisions as to the proposed mortgage insurance program than H.R. 6951, both bills would authorize mortgage insurance in an amount not to exceed $1 billion for the construction of hospitals and other medical facilities, the program to be administered by the Department of Health, Education, and Welfare. The mortgage insurance would be patterned after the rental housing mortgage insurance authorized by section 207 of the National Housing Act, as amended.

The Department has noted that the House of Representatives on March 9, 1954, passed H.R. 8149, the objective of which is to carry out in part the recommendations contained in the message from the President dated January 18, 1954, relative to the health of the American people. H.R. 8149 would authorize a program of Federal grants for the construction of hospitals and other medical facilities of a type similar to that for which mortgage insurance would be provided by H.R. 6951 and H.R. 7700.

The need for the mortgage insurance program can more properly be assessed by the Department of Health, Education, and Welfare, and the Department is not in a position to state whether the program is necessary in addition to the proposed program of grants. However, the Department believes that if the bills are given favorable consideration, it may be preferable to place the administration of the program (other than determination of general policy and eligibility) in the Housing and Home Finance Agency, which has a staff with experience in the mortgage insurance field. If that were done, it would be possible to integrate the provisions of the proposed legislation with those of the National Housing Act, as amended, and thereby assure consistency with respect to matters such as rates of interest on insured mortgages, rates of insurance premiums, and the conditions of the debentures. The Housing and Home Finance Agency should, of course, collaborate with the Department of Health, Education, and Welfare to assure that there would be the necessary correlation between the grant and insurance programs.

The Department has been advised by the Bureau of the Budget that there is no objection to the submission of this report to your committee. Very truly yours,

M. B. FOLSOM, Secretary of the Treasury.

BOARD OF GOVERNORS OF THE

FEDERAL RESERVE SYSTEM,

Washington, March 26, 1954. Hon. CHARLES A. WOLVERTON, Chairman, Committee on Interstate and Foreign Commerce,

House of Representatives, Washington, D.O. DEAR MR. WOLVERTON: This is in response to your letter of February 4, 1954, requesting a report on the enclosed bill H.R. 7700 to amend the Public Health Service Act to provide mortgage loan insurance for hospitals and medical facilities used in connection with voluntary prepayment health plans.

This bill relates to a matter which is not of primary concern to the Federal Reserve System and the Board has no general comments to offer with respect to the proposed legislation.

However, it is noted that section 705 (b) of the bill would authorize the Surgeon General, pursuant to an agreement between the Secretary of Health, Education, and Welfare and the Federal Reserve Board, to utilize the services and facilities of the Federal Reserve banks. The Board feels that, if it should be desired to utilize the services of the Federal Reserve banks under this bill, it would be preferable to provide for the use of the Federal Reserve banks as fiscal agents, as has been done in other cases. It is suggested, therefore, that the second sentence of section 705 (b) be changed to eliminate the references in that sentence to the Board and the Federal Reserve banks and that an additional sentence be added with respect to the utilization of the Federal Reserve banks as fiscal agents, so that these two sentences would read substantially as follows:

"In carrying out his functions, the Surgeon General is authorized, pursuant to agreement between the Secretary of Health, Education, and Welfare and the head of any other Federal agency, to utilize the services and facilities of such other agency, and to pay therefor either in advance or by way of reimbursement, as may be provided in such agreement. Upon the request of the Secretary of Health, Education, and Welfare, and subject to regulation by the Board of Governors of the Federal Reserve System, any Federal Reserve bank is authorized to act as fiscal agent of the United States on behalf of the Surgeon General in carrying out his functions under this title, and any Federal Reserve bank shall be reimbursed for its expenses in acting as such fiscal agent."

The Board has been advised by the Bureau of the Budget that it has no objection to the submission of this report. Sincerely yours,

WILLIAM McC. MARTIN, Jr. The CHAIRMAN. The first witness this morning will be Dr. Joseph Bailey, Washington Clinic, Washington, D.C.

Dr. Bailey was born in Washington, D. C., January 5, 1919. He graduated from Georgetown University in 1941 with a B. S. degree. He graduated from Georgetown Medical School, 1944, M. D. degree; interned Doctors Hospial 1944-45. Dr. Bailey was in the United States Navy in 1945 and 1946.

He was a fellow in internal medicine at Mayo Clinic, 1946–48. He was in private practice of medicine, Washington, D. C., 1948–52, when he was called back to active duty in the United States Navy, where he served from 1952 to 1953. He is at present in private practice in Washington, D. C.

Dr. Bailey is a member of American Medical Society, District of Columbia Medical Society, American Heart Association, Alumni Association of the Mayo Foundation, Rochester, Minn., executive and teaching staff, Doctors Hospital, Washington, D. C., chief of cardiology, Casualty Hospital.

Dr. Bailey, we will be glad to hear you.

STATEMENT OF DR. JOSEPH A. BAILEY, WASHINGTON CLINIC,

WASHINGTON, D. C.

Dr. BAILEY. Mr. Chairman and members of the committee, we have been requested to appear before this committee and to relate the problems met with in the formation and establishment of the Washington Clinic now under construction in the District of Columbia. This we are pleased to do.

This clinic represents the so-called group practice inasmuch as the various specialties of medicine, together with the general practitioner, will be housed in a single physical plant. There will be pooling of income and all overhead expenses will be paid from the income of the group derived from patients in the form of fees.

I would like to take this opportunity to relate to this committee the evolution of our group.

Having completed postgraduate training in the Mayo Foundation and clinical work with the Mayo Clinic, Rochester, Minn., several of us entered the private practice of medicine in the District of Columbia. It was only natural, therefore, that group and individual types of practice would be compared. It was not long before we realized the many advantages of the clinic type of practice, both to the doctor and to the patient. At the same time, we are sure that this opinion is not shared by the entire medical profession. The problem then was how to establish an efficient functioning group.

We did not underestimate the difficulties involved, but because of our personal experience and the experience of other well-founded groups established elsewhere, we set about the task of developing our clinic. It has not been easy.

Interest alone, however, accomplishes little. After many discussion sessions with a number of physicians, it became apparent that the first problem to be solved was that of financing such an enterprise. One method had great appeal, that is, the giving of money by an individual or an already existing foundation to establish a clinic for group practice.

Great encouragement was given us from certain sources that money would be made available for such a clinic. Brochures were prepared, legal counsel was had, advice from the Bureau of Internal Revenue was obtained, but still no funds were ever secured. It soon became apparent that if we were to have the physical facilities for what we wanted in group practice, we must do it ourselves. When this fact was realized, it served to jell the ambitions of some and discourage others. This was quite natural, for few practicing physicians with their many responsibilities are sufficiently confident and determined to risk everything financially to attain a goal, whether it be for the establishment of a medical clinic or most anything else. This is not meant to be critical, but is an important and realistic fact with which this committee must be well aware. After 4 years of planning, 2 very important events were experienced by us. (1) In the fall of 1952, the trustees of the Lisner estate in Washington, D. C., after hearing of our project, made available for us a very desirable and strategically located tract of land which had not been previously for sale. Six physicians pooled together their resources, borrowed or saved, and purchased this property, contingent on the change in zoning which would allow the erection of a clinic. Literally, we went from door to door to enlist the support of the adjacent landowners in order to accomplish the change of zoning. We received the approval of 100 percent of the property owners who urged the construction of such a clinic. Permission for rezoning was promptly granted and the land purchased. (2) The second event was the enlisting of the legal firm of Pierson & Ball. With their advice and counsel, a corporate bodyClinic Properties Association, Inc. was established. Exemption was asked for and granted from the Securities and Exchange Commission for the sale of stock by this corporation. The land was then exchanged by the six doctors for such stock.

The majority of stock was bought by our friends and patients without any commission or promotion fee. As of today, we have sold about 65 percent of our stock. We were then able to secure a construction loan of $400,000 at 5 percent over a 20-year basis. Between the cost of architects, land, and other expenses, it was necessary for us to spend approximately $130,000 before the construction of the building was ever considered. In December 1953 our plans were put out for bids and the contract awarded to William P. Lipscomb & Co. The cost of our building will be about $525,000, with at least another $150,000 for equipment. Our clinic is now under construction and will be completed in the fall of this year.

Although the physical plant of a clinic is a necessity, the success or failure of such a group is entirely dependent upon the medical personnel. We think ourselves most fortunate in having a group of physicians associated who have just a desire to create and build an outstanding medical team. In order to do this, they are willing to submerge themselves for the benefit of the whole. We expect to start with 25 full-time physicians and all fields of medicine covered.

Practicing as a group, the Washington Clinic is a voluntary association of physicians with a definite organizational framework having no stock and no assets. It has entered into a long-term lease with Clinic Properties Association, Inc., for renting the building and leasing of equipment. Its policies and actions are governed by the members themselves who are all salaried employees of the clinic. The organization of the doctor personnel of a clinic is a difficult problem and only doctors who believe and want to participate in such a project can make it a success.

The interest on the part of the public has been most enthusiastic and encouraging. According to a worker in the Haskins news service of the Evening Star, there have been more inquiries relative to the Washington Clinic than to any other single project in its history.

From the practicing physicians in the metropolitan area, we have had much comment—some adverse—others most encouraging.

During this time, we have also established a foundation for medical education and research. This foundation has been named after James F. Mitchell, who has been one of the outstanding personalities in Washington medicine. This foundation will allow for investigative endeavor and provide for the educational facilities of fellows working in the clinic. The Washington Clinic can give money to this foundation, thus enabling it to return to the sick that which has come from the sick. Money received from patients in the form of fees will thus be returned to them in the form of advancement of research and methods for better medical care.

As of the present time, the clinic plans to function under a fee for service plan. We have no prepayment voluntary plan. We can well appreciate the many advantages to the public of such a plan, but we are also aware that such a plan must be made successful or not by the practicing physicians. If the public is satisfied by the care it receives on a prepayment basis, it will be a success, but if the doctor-patient relationship is hindered by a prepaid fee, the success of such a plan is not very favorable.

After 5 years of planning and work, the Washington Clinic, because of the determination and vision of a small group of physicians here in Washington, and because of the generous help and advice of many individuals, is about to commence the private practice of medicine as a group. The CHAIRMAN. Any questions, gentlemen ? Mr. DOLLIVER. Mr. Chairman. The CHAIRMAN. Mr. Dolliver.

Mr. DOLLIVER. How many physicians are associated together in your clinic?

Dr. BAILEY. We hope to start with about 25 full-time physicians.

Mr. DOLLIVER. What will be their relationship; will it be a contractual relationship, a partnership, or both; or just a loose association working under the same roof?

Dr. BAILEY. It will be a voluntary association of doctors.
Mr. DOLLIVER. Not in a corporation?
Dr. BAILEY. No; not in a corporation.

Mr. DOLLIVER. Will there be any provision for a man withdrawing or new members coming in from time to time?

Dr. BAILEY. Yes; anybody may leave at any time they like, and new members will be taken in from time to time, depending upon their acceptance by the present staff of the clinic.

Mr. DOLLIVER. Let me inquire, if a new doctor comes into the clinic, will you require him to buy his way in or how is that to happen?

Dr. BAILEY. No; actually, to separate the two, there is no buying into the clinic at all. The corporation is the stockholding organization which is entirely separate from the clinic.

Mr. DOLLIVER. It will own the property?
Dr. BAILEY. The building; the association actually.
Mr. DOLLIVER. If a new doctor comes in, would he rent space

from the building corporation?

Dr. BAILEY. No; the doctor that comes in merely works as a salaried member of the clinic. He does not actually rent anything; he just works in the clinic.

Mr. DOLLIVER. And he receives a stated compensation for the work ho does?

Dr. BAILEY. He receives a stated compensation regardless of the work he does. He is not paid on how much work he does.

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