Three principal elements-prepayment or insurance, group practice by doctors, and self-supporting hospitals and medical facilitiesare compounded into a program designed to provide comprehensive care to our people at costs within their means. Individually, these elements are quite familiar to all of us. When brought together, they offer the people a typically American, private enterprise solution to the problem of meeting the high costs of medical care.

Witnesses have assured our committee that many new groups of physicians all over the country would provide comprehensive medical care services on a prepayment basis if they had the necessary medical and hospital facilities in which to work.

Doctors and others interested in providing comprehensive coverage within the means of our people tell us that one need is long-term financing. They have pointed out the key role medical centers and hospitals play in increasing the efficiency, effectiveness, and economies of group practice prepayment plans.

A role of government in this field can be that of stimulating the growth and development of such plans by encouraging private capital investment for the construction and equipping of hospital and medical facilities. This can be accomplished through Government-insured mortgage loans, as provided by H. R. 7700.

H. R. 7700 is based on the extensive experience of prepayment plans offering comprehensive services in many part of the country today. It is based on sound, tested principles. It offers a great opportunity for the forces of private enterprise to demonstrate in a most dramatic fashion effective solutions for some of the major health problems we face today.

I wish to make it very clear at the outset of these hearings that H. R. 7700 is no panacea. It does not pretend to offer a solution to all problems in the medical care field, but it does fill a very important segment of better and low-cost medical care.

In the treatment of disease, no progress has been made by those who would be satisfied only with a cure-all. Similarly with legislation, no progress has been made by those who would be satisfied with only a complete solution to the manifold and complex health problems of the Nation.

Today, tomorrow, and Friday-April 28, 29, and 30-this committee will hear from doctors in group practice and doctors and laymen who operate, administer, or sponsor medical care plans which provide comprehensive medical care on a service basis.

I will insert in the record the bill and the departmental replies to our inquiries requesting their viewpoints with respect to the pending legislation.

(The bill, H. R. 7700, reports are as follows:)

[H. R. 7700, 83d Cong., 2d sess.]

A BILL 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

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Public Health Service Act is amended by adding after title VI thereof the following new title:

"TITLE VII-MORTGAGE INSURANCE FOR FACILITIES USED BY VOLUNTARY PREPAYMENT HEALTH PLANS

"DECLARATION OF POLICY AND PURPOSES

"SEC. 701 (a) DECLARATION OF POLICY.-It is the conviction of the Congress that there is a serious need throughout the country for a greater number of hospitals and related medical facilities and services than now exist or are being planned under existing programs. The shortage of health facilities and services handicaps efforts to improve the health of the people in peacetime and would create a crisis in time of military or other emergency. The American people are earnestly and urgently seeking ways by which the cost of good medical care can be brought within their means and reach.

"Solutions to the people's health needs can and should be attained through free enterprise and private initiative without resort to so-called Government or socialized medicine. Extension of voluntary, prepayment health plans offers an effective way for better distribution of health services and costs. Insurance of mortgage loans for construction offers an effective way for better distribution of health facilities.

"(b) DECLARATION OF PURPOSES.-This title therefore is enacted by the Congress for the following purposes:

"(1) To stimulate private lending institutions, through Government insurance of mortgages, to loan funds by which medical centers, hospitals, clinics, and other medical facilities can be financed, built, and operated on a self-sustaining, selfliquidating basis.

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‘(2) To encourage the extension of voluntary, prepayment health plans providing comprehensive medical and hospital care of high quality to the people at reasonable costs within their means.

"(3) To increase the opportunities and facilities by which doctors may associate themselves together in groups, partnerships, and other private initiative arrangements of their own choosing, in order to broaden the distribution of high quality medical care through general practitioners and specialists working together, making the most efficient use of medical skills, facilities, and equipment, and emphasizing preventive medicine, detection of disease and early diagnosis. "(c) FEDERAL CONTROL LIMITED.-Except as otherwise specifically provided, nothing in this title shall be construed as conferring on any Federal officer or employee the right to exercise any supervision or control over the administration, personnel, maintenance, or operation of any medical facility or group practice prepayment health service plan, or as authorizing any person, association, or corporation to engage in any manner, directly or indirectly, in the practice of healing or the practice of medicine as defined by the law of any State; or as conferring on any person the right to exercise any control over any person with respect to the personal right of each individual freely to select the hospital and licensed physician that he desires.

"DEFINITIONS

"SEC. 702. As used in this title

"(a) The term 'medical facilities' includes the following:

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'(3) personal health service centers;

'(4) rehabilitation facilities;

(5) offices for physicians and dentists for the provision of personal health services to ambulatory patients; and

"(6) central service facilities, such as eating facilities and power plants, in connection with the foregoing.

"(b) The term 'hospital' includes general, chronic disease, and other types of hospitals (excluding tuberculosis and mental hospitals) in which patient care

is under the professional supervision of persons licensed to practice medicine in the State, and related facilities, such as laboratories, nurses' homes and training facilities, central service facilities operated in connection with hospitals, outpatient departments, and medical rehabilitation and convalescent facilities in which patient care is under the professional supervision of persons licensed to practice medicine in the State, including hospitals for the chronically ill and impaired, but not including any hospital or facility furnishing primarily domiciliary

care.

"(c) The term 'diagnostic or treatment center' means a facility for the diagnosis or treatment, or both, of ambulatory patients, in which patient care is under the professional supervision of persons licensed to practice medicine in the State, and includes outpatient clinics.

"(d) The term 'personal health service center' means a facility for the provision of personal health services primarily to ambulatory patients under the professional supervision of persons licensed to practice medicine in the State.

"(e) The term 'rehabilitation facility' means a facility operated for the primary purpose of assisting in the rehabilitation of disabled persons through an integrated program of medical, psychological, social, and vocational evaluation and services under competent professional supervision: Provided, That the major portion of such evaluation and services are furnished within the facility and that all medical and related health services are prescribed by, or are under the formal supervision of, persons licensed to practice medicine in the State. "(f) Personal health services' means services rendered to individuals by licensed physicians, licensed dentists, and, under the supervision of licensed physicians or dentists, by auxiliary personnel, including nurses and attendants, laboratory and X-ray technicians, physiotherapists, psychologists, dental hyginenists, optometrists, podiatrists, medical social workers, and health educators or counselors, whenever and wherever required for the improvement or preservation of physical and mental health or for the diagnosis and treatment of disease or injury; the use by such licensed or auxiliary personnel of any and all apparatus or machines designed to aid in the diagnosis or treatment of disease or injury; the provision of bed and board in general or special hospitals, convalescent homes, sanatoria, or other institutions licensed or designated as such by a State when care in such institutions is prescirbed by licensed physicians; and the provision of drugs and medicines, dressing and supplies, prostheses and appliances (including eyeglasses), and ambulance service, when prescribed by licensed physicians.

"(g) 'Group practice prepayment health service plan' means a prepayment health service plan under which medical and surgical services are rendered to subscribers by a group, partnership, or other association of physicians. 'Group practice' refers to a formal organization of physicians which meets the following criteria: (1) The organization of physicians must have more than one specialty of medicine represented in the group; (2) there must be a joint use of office facilities and auxiliary personnel by the physicians in the group; (3) the group must have a formal organization for administration and financing; and (4) there must be a pooling of income by physicians in the group and a sharing of common overhead expenses with net payments to physicians made according to a preestablished plan. In accordance with section 705, (a) below, the Surgeon General of the Public Health Service shall prescribe the minimum number of full-time physicians which shall be required to constitute a 'group' under the provisions of this subsection and the minimum number and the type of specialties which shall be required to constitute a 'group' under the provisions of this subsection. In the term 'group practice prepayment health service plan' the word 'prepayment' refers to prepaid subscription charges. To come within the meaning of the term 'group practice prepayment health service plan' the predominant share of the cost of providing comprehensive medical care for subscribers at home, in the office, and in the hospital must be met by prepaid subscription charges.

"(h) Health service association' means a nonprofit, voluntary association, corporation, trust, or other form of organization engaged primarily in undertaking through medical-care contracts with groups of physicians, partnerships of physicians, or with other associations of physicians, to provide medical and surgical services on a group-practice basis to subscribers of such association in return for prepaid subscription charges, if no part of the net earnings of such association inures (other than through benefit payments) to the benefit of any private shareholder or individual: Provided, That such association may also undertake through hospital-service contracts to provide benefits to the sub

scribers of such association, in return for prepared subscription charges. "(i) 'Health service contract' means any 'medical care contract' or 'hospital service contract'. 'Medical care contract' means any contract to furnish medical services and surgical services encompassing all generally accepted surgical procedures including preoperative and postoperative care and obstetrical, anesthesia, diagnostic, and endoscopic services which are directly related to any medical, surgical, or obstetrical services and any supplies incidental to any such care. 'Hospital service contract' means any contract to furnish bed and board in general or special hospitals, when care in such facility is prescribed by a licensed physician.

"(j) The term 'nonprofit private agency' means any private corporation, association, cooperative society, or trust formed or created for the purposes of maintaining or operating nonprofit medical facilities and holding property for such use, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.

"(k) The term 'construction' includes construction of new buildings, expansion, remodeling, and alteration of existing buildings and initial equipment of any such buildings (including medical transportation facilities); including architects' fees but excluding the cost of off-site improvements.

"(1) The term 'State' includes the several States and Alaska, Hawaii, Puerto Rico, the Virgin Islands, and the District of Columbia.

"(m) The term 'mortgage' means a first mortgage on real estate, in fee simple, or on a leasehold (1) under a lease for not less than ninety-nine years which is renewable or (2) under a lease having a period of not less than fifty years to run from the date the mortgage was executed, upon which there is located or upon which there is to be constructed a building or buildings designed principally for medical use; and the term 'first mortgage' means such classes of first liens as are commonly given to secure advances (including but limited to advances during construction) on, or the unpaid purchase price of, real estate, under the laws of the State in which the real estate is located together with the credit instrument, if any, secured thereby, and may be in the form of trust mortgages or mortgage indentures or deeds of trust, securing notes, bonds, or other credit instruments.

"(n) The term 'mortgagee' includes the original lender under a mortgage, and his or its successors and assigns, and includes the holders of credit instruments issued under a trust mortgage or deed of trust pursuant to which such holders act by and through a trustee named therein.

"(o) The term 'mortgagor' includes the original borrower under a mortgage and his or its successors and assigns.

"(p) The term 'maturity date' means the date on which the mortgage indebtedness would be extinguished if paid in accordance with periodic payments provided for in the mortgage.

"(q) The term 'Surgeon General' means the Surgeon General of the Public Health Service.

"MEDICAL FACILITIES MORTGAGE INSURANCE FUND, AUTHORIZATION OF APPROPRIATIONS, AND BORROWING AUTHORITY

"SEC. 703. (a) There is hereby created a Medical Facilities Mortgage Insurance Fund (hereinafter referred to as the 'fund'). It shall be used by the Surgeon General as a revolving fund for carrying out the provisions of this title with respect to mortgages insured as hereinafter provided, and there shall be allocated immediately to such fund the sum of $2,500,000 out of funds made available to the Surgeon General for the purposes of this title.

"(b) There is hereby authorized to be appropriated for the fiscal year ending June 30, 1954, and for each fiscal year thereafter, such sums as may be necessary to carry out the purposes of this title.

"(c) General expenses of operation of the Surgeon General under this title may be charged to the Medical Facilities Mortgage Insurance Fund.

"(d) The Surgeon General is authorized, subject to the approval of the Secretary of Health, Education, and Welfare, to borrow from the Treasury of the United States, such sums of money as may be necessary to carry out his functions under this title: Provided: That the amount borrowed under the provisions of this section shall not exceed an aggregate of $5,000,000 outstanding at any one time: Provided further, That the contingent liability imposed upon the United States by the insurance of any mortgage pursuant to this title shall be considered for the purpose of sections 3679 and 3732 of the Revised

Statutes, as amended, as an obligation only to the extent of the probable ultimate: net cost to the United States thereunder; and the Secretary of Health, Education, and Welfare shall submit a report to the Congress not less often than once each quarter setting forth the gross amount of all such insured mortgages and the basis for determining the probable ultimate net cost to the United States thereunder. For the purpose of borrowing an authorized by this subsection, the Surgeon General may issue to the Secretary of the Treasury notes, debentures, bonds, or other obligations to be redeemable before maturity, at the option of the Surgeon General, in such manner as may be stipulated in such obligations. Such obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the issuance of the obligations. The Secretary of the Treasury is authorized and directed to purchase such obligations and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, as amended, and the purposes for which securities may be issued under the Second Liberty Bond Act, as amended, are extended to include any purchases of obligations hereunder.

"AUTHORITY FOR INSURANCE OF MEDICAL FACILITIES MORTGAGES

"SEC. 704. (a) In order to encourage the extension of credit for the construction and equipping of medical facilities, the Surgeon General is authorized and it shall be his duty, upon application by the mortgagee, to insure, in the manner and within the limitations hereinafter provided, any mortgage (including advances on such mortgage during construction) offered to him which is eligible for insurance as hereinafter provided, and, upon such terms as the Surgeon General may prescribe, to make commitments for the insuring of such mortgages prior to the date of their execution or disbursement thereon.

"(b) The aggregate amount of principal obligations of all mortgages insured under this title and outstanding at any one time shall not exceed $1,000,000,000, except that with the approval of the President such aggregate amount may be increased at any time or times by additional amounts aggregating not more than $250,000,000 upon a determination by the President that such increase is in the public interest.

"(c) The aggregate amount of the principal obligations of all mortgages that cover property the construction of which was completed more than one year prior to the date of the application for insurance, and that are insured under this title after — 19-, and outstanding at any one time shall not exceed per centum of the total amount of the principal obligations of mortgages with respect to which insurance may be granted under this title after such date. (d) On and after "" 19, no mortgages shall be insured under this title except mortgages that cover property which is approved for mortgage insurance prior to the completion of the construction of such property, or which has been previously covered by a mortgage insured by the Surgeon General.

"(e) Mortgages insured under this title shall be known and referred to as 'medical facilities insured mortgages'.

"ADMINISTRATION AND GENERAL REGULATIONS

"SEC. 705. (a) Within three months after the enactment of this title, the Surgeon General, with the approval of the Secretary of Health, Education, and Welfare, shall prescribe general methods of administration of the program for medical facilities mortgage loan insurance pursuant to this title.

"(b) The Surgeon General shall carry out his functions as provided herein under the supervision and direction of the Secretary of Health, Education, and Welfare. In carrying out his functions, the Surgeon General is authorized, pursuant to agreement between the Secretary of Health, Education, and Welfare and the Federal Reserve Board, or the head of any other Federal agency, to utilize the services and facilities of the Federal Reserve banks or such other agency, and to pay therefor either in advance or by way of reimbursement, as may be provided in such agreement.

"(c) Applications for medical facilities mortgage insurance under this title shall be submitted by the mortgagee or any one of two or more mortgagees to the Surgeon General. Such application shall be in such form and shall set forth such details as the Surgeon General may require.