to say "Now you are going up to 60 percent." It may take 10 or 25 percent to get up to that 60 percent point. You have got two well-established things. If you put your clinic where needed, given the financial support to get it started, have your own Blue Shield plan that is in that area, let that clinic operate with the Blue Shield plan. Why tie the two things together. The CHAIRMAN. Will the gentleman yield? Mr. HESELTON. Surely. The CHAIRMAN. I ask you to do so for the reason you were not present when I spoke on the subject this morning. Do I understand from you, from what you have said then, that you believe that that portion of the bill relating to 60 percent should be eliminated? Dr. YATER. I do. The CHAIRMAN. You favor the bill as it is? Dr. YATER. Well, I have to know a little more than that about how the insurance features would be planted in the bill. The CHAIRMAN. I am assuming-my question at least to you is that if the bill were made broad enough, it would include or cover a clinic such as has been referred to here in the letters that have been read by Dr. Jordan, would that meet with your approval? Dr. YATER. Yes. I am sure that you will find that practically all of the member clinics of our association would qualify under such a bill, because I am sure that all are treating insurance patients. Now to the extent of 60 percent, I do not know. The CHAIRMAN. The purpose, as I understand it, the purpose of having that 60 percent reference in there was to give it a financial stability that would come from a fixed income that would enable the group that obtained the loan to amortize it or meet the annual amortization payments, and so forth. So that it was largely with the view that it would be helpful in making it a financial stable application. Now, I have in mind-I am not too certain as to the necessity of that but I said this morning, Mr. Heselton, we would give further consideration to that provision in the bill. For instance, when an application such as this would come before a board of directors of a bank, undoubtedly the board would consider the individuals who are making the application, whether they are men of standing in the community; whether they are successful; whether their past efforts indicate that they would be successful in an enterprise of this kind-in other words, character and qualifications of the applicants would be very much in the minds of the directors in passing upon that loan, and furthermore, what equity do you have in this enterprise that you are asking our bank to loan money on or put money into. Now, there was before us this morning a representative of a clinic where they had an equity and that enabled them to make their proposition financially stable for the loan. It was granted. That would be taken into consideration. Now, under those circumstances, in addition to that and to encourage the formation of groups such as this is, the provision that we will stand back of the bank to the extent of 90 percent of the loan that they make-now it does not say that every loan that is applied for will be granted. It does, however, provide protection to the lending institution that does grant the loan. Now, under those circumstances, personally I am trying to look at this in the way of accomplishing the greatest good for the greatest number, and I am going to give serious consideration to the necessity of having it confined to the voluntary prepayment plans which this 60 percent has reference to. I am wondering if you cannot fix some definite financial requirement or regulation that will give strength to the application equal to or beyond the provisions of the 60 percent provision that is in the bill. Mr. HESELTON. Well, one thing seems clear to me, that both of you recognize that there is an area where financing today simply is not available to people who would like to establish this type of medical service and that somehow or other, if the Federal Government has a responsibility in this particular field, you might be able to develop a satisfactory and sound approach which would encourage the more rapid development of at least the clinics, the physical plants, and if that can be done it is a good thing. Now, do I state your position, general position on that feature and the method of working it out remains to be the responsibility of the committee with the assistance of people like yourselves. Dr. JORDAN. Might I make one more comment, sir? The CHAIRMAN. Certainly. Dr. JORDAN. From a purely practical standpoint based upon my observation and experience, since I have been doing this work, the financial stability of a group is more dependent upon the competency of the doctors and their organization and ability to get along with each other than it is on whether they do or do not have prepaid plans or do or do not have it in this community or that community, and that, of course, is sometimes an intangible and extremely difficult thing to figure out under any kind of regulation, which poses a problem for the administration of this kind of a bill. The CHAIRMAN. What I am trying to emphasize is the thought that I think may be lurking in your own mind and that is when you go into a bank, of course the bank is interested as to whether its loan will be repaid. The individual character of the individual, of the person who makes an application, looms large. The success that he may have had in the past gives confidence as to what he can do in the future, and those elements it seems to me are so important in determining the advisability of a loan, and I think would be taken into consideration by any board to whom an application was made, so that I am trying to see my way clear as to the thought that you may not need this restrictive application as to the prepayment plan. I personally am interested in getting the greatest amount of health protection to our people at the least possible cost, consistent with proper service. Mr. HESELTON. And as rapidly as possible. The CHAIRMAN. Yes, as rapidly as possible. I have seen over a period of years in my service in the Congress, I have seen how small business concerns have been encouraged, where questions of character and ability have entered into it; where the Government has helped by giving a guaranty to the lending institution by saying, "We will do our part. We will stand back of you if you have confidence in an individual and believe a loan is good and assume part of that responsibility," as they do, when they are only giving 90 percent protection so to speak, We will do our part and we will stand back of them against any unusual loan. We will stand back of you for 90 percent. That has been very helpful to small business. It has been very helpful to people in providing homes. What we are trying to do here is to apply that principle to those activities that tend to promote health. With your clinics, some may take on a broader aspect than others. Some of them may take on the aspect that this particular clinic as indicated here today are going to have a building of their own. So that whatever you do to encourage what you have recognized is becoming more or less prevalent in this country, that is, a tendency to get together in the formation of clinics, or partnerships, or whatever else you wish to call the group, all adds up, in my opinion, to the necessity that the Government do something to be helpful where the physical aspects require something more than you would have merely to go into a bank. There must be some encouragement. There must be some protection. That is what this bill tries to do, encourage and protect. Mr. HESELTON. May I ask further questions? The CHAIRMAN. Mr. Heselton. Mr. HESELTON. I notice in the directory which you furnished to us, that the Ross-Loos Medical Group, Los Angeles, is a member. Dr. JORDAN. Yes, sir. Mr. HESELTON. Ánd there was testimony given us by them, also by the Permanente Group, originally the Kaiser Group, and by HIP, I think it is, in New York, and some others that do not come to my mind the general belief, that the initial financings have been quite difficult. I remember very definitely that Mr. Kaiser, or some representative of his, testified that when they first attempted to start, the banks just could not find it possible to help. So Mr. Kaiser furnished the original capital. But, from there on, because of the successful experience I believe I am correct in saying that they have had no difficulty in obtaining the necessary capital loans to carry on. As I see this in terms of what the chairman has just said, all this is an experimental effort to find some means by which the Federal Government can properly help to get these things initiated; get them expanded, get them sound and satisfactorily strong so that the health program can be extended as widely as possible throughout this country, and I think that you have made a very excellent-both of you— very excellent contributions toward working out a solution of this problem. I am quite sure that I speak for the committee, from our experience, and for the Department, that there is no feeling on our part or anyone of us that we have the definite right answer to all these very complex problems. What we are concerned with is, the majority of us are concerned with trying to work out the problem. We may make some mistakes on the way. But, I do not think that half as serious as to throw up our hands and say we cannot do anything. I want to personally express my appreciation for your appearance here. Dr. JORDAN. Thank you. Mr. HALE. I just want to ask one question of Dr. Jordan. I notice in your prepared statement you say that the sentence on page 2, line 13, of the bill "states a position which is hypothetical rather than established." That sentence, if I correctly identify it reads as follows: "Extension of voluntary prepayment health plans offers an effective way for better distribution of health services and costs." Is that the sentence you have in mind? Dr. JORDAN. That is the one I had marked; yes, sir. Mr. HALE. Well now Dr. JORDAN. Well, I think I was referring to the closed panel affair. Mr. HALE. Closed panel? Dr. JORDAN. Closed panel. Mr. HALE. What is there about this sentence that caused you to say that it is hypothetical? That surprises me. Is there any doubt about the meaning of the statement: "extension of voluntary, prepayment health plans offers an effective way for better distribution of health services?" Dr. JORDAN. No. I think I would not question that, in general, that sentence. I believe that was put down, because of the feeling that the bill was aimed at direct clinic prepayment plan arguments and that is something that we are not prepared to commit ourselves on, not in general principles, but only those which are specifically tied with a group practice, group practice and prepayment. Mr. HALE. Well, what is there, if anything, about the closed panel Dr. JORDAN. Well, the 60 percent proviison implies that it must be a closed panel, because no other clinic except those which have closed panels can meet that 60 percent, so that the impression on the bill is that this was devised only for those groups which had their own sponsored prepayment plans. Mr. HALE. I still would like to get your individual opinion as to whether this sentence-the way they do it in these quizzes in the newspapers is true or false. I want to know whether you think this sentence is true or false. Dr. JORDAN. I think that is true; taking the sentence all by itself I would agree with you. Dr. YATER. But putting it together with the rest of the bill, that is where the question arose. Dr. JORDAN. That is where the question came in, taking it out of the context. I do not think anyone would disagree with it. Mr. HALE. If it is true, standing alone, what is there in the bill that makes it false? That is what I want to know. What is there in the bill which subjects that statement to any qualification. Dr. JORDAN. Because the 60 percent requirement that applies, to the clinics, to qualify for a loan, must perform 60 percent of its medical service on a premedical basis, means that in actual practice only those clinics which are tied with their own plans, where all of the patients under the insurance plan must come to that clinic, only a given clinic can qualify and, therefore, we considered that that sentence applied to that type of prepayment plan. Mr. HALE. If you omit the word "prepayment" would it lift the sentence above any challenge? Dr. YATER. We do not challenge the principle of the voluntary health insurance at all. It is the way it is applied that we are questioning. Mr. HALE. What is that? Dr. YATER. The way it is applied through the bill. It limits it to insurance plans of a particular clinic. Now, that would eliminate the free choice of physicians unless the patient wanted to go in and pay his own fees. Within the Blue Shield plans as they exist today, a patient may go to practically any doctor or clinic he wants to and have his bills paid, which is an entirely different thing from these closed panel groups. Like for instance, the one you referred to, the RossLoos. They have a wonderful insurance plan. They have a good staff, but in order to get the benefits of their insurance, the premiums they have been paying over the years, they have to go to the physicians in that clinic. They cannot go elsewhere, the way they can in the Blue Shield plans. The Blue Shield applies to any doctor. Mr. HALE. Of course, the committee wants criticism of the bill and I personally can readily see the objection to what you call the closed panel or fixed panel plan, but singling out that particular sentence for criticism does not seem to be correct. Dr. YATER. I think it is unfortunate that we did not qualify it. That is what is wrong with that. It is not the statement itself that is at issue. Mr. HALE. Because certainly it is my understanding that a voluntary health plan, whatever the provisions are, does offer an effective way for the better distribution of health service and costs. It does not say that it is the only effective way. It says that is an effective way. Ďr. JORDAN. I think it is unfortunate that we worded that by taking that sentence out of context without modifying it. Dr. YATER. You may have many different conditions of control plans, that will not all be good. Mr. HALE. Well, the sentence does not say that. I have not even read all of this bill. I have read very little of it. Certainly that sentence in the bill does not say that all voluntary health plans are good or all prepayment health plans are good, and I realize that any generalization of that kind would go entirely too far. That is all, Mr. Chairman. The CHAIRMAN. I have only one further question, or suggestion. Mr. Hale has, I think, very appropriately pointed out the impropriety, if I may put it that way, of the statement that brought forth the uncertainty as to what was meant when you took exception to the lines 13, 14, and part of 15, on page 2 of the bill. The question, however, in order that we may better understand it both from your standpoint and our own, and we hope you do from ours is, now, having the same thought in mind with regard to another statement that is rather skeleton in form, he referred to that portion of your statement in which you say in next to the last paragraph on page 1. With regard to item (g) on page 6 we are not in agreement on the definitions either of "group practice" or "group practice prepayment health service plan,' which, in our opinion, are too narrow and are certainly not applicable to a great many active institutions at the present time. I merely direct your attention to that so that you may feel free to submit to us what change there should be in the definitions to carry |