The proposal in the bill, which suggests continued financing of area wide planning agencies for the full period of 5 years, may well carry such support beyond the point of initiation and demonstration and, in essence, becomes continued Federal financing for their operation. We would suggest, therefore, that the proposal be amended to limit such support to a 3-year period for any given project.

SECTION 601, TITLE VI—AUTHORIZATION OF APPROPRIATIONS

We fully support the expanded funds proposed for construction of longterm care facilities and the combining of the previous separate categories of chronic disease and nursing homes. The unmet need for such facilities amply supports the proposal for a substantial increase in the funds to be made available.

The bill proposes to continue grants for the construction of rehabilitation facilities. We support the need for Federal assistance to provide such facilities. We were pleased that the Congress amended the Hospital Survey and Construction Act in 1961 to assure that encouragement would be provided for the development of such facilities on a much broader basis. We recognize the special need of "comprehensive" facilities which involve services other than purely medical services. However, we feel that encouragement should be given for the widest possible development of rehabilitation facilities even though they are not comprehensive in character. Therefore, we oppose the provision set forth under section 603(a) (2) which would establish a priority for rehabilitation facilities developed in university centers. We feel this provision will result in there being less facilities than are clearly needed throughout the country. We would prefer that the States be permitted to allocate funds for more and a wider range of facilities than they would with the priorities provided in this bill.

The Hospital Survey and Construction Act has, since its enactment in 1946, made a substantial contribution to the development of needed health facilities in the Nation. At the time the program was started, it was essential that first priority and particular attention be given to areas of the country which were without hospital facilities, and therefore, where the public was not likely to have available to them the benefits of modern medical advances. The picture today is different. Though a considerable need still exists for additional beds and other health facilities, the urgent need of rural areas has been met in substantial part in most sections of the country. We believe we are now at the point where the great unmet hospital facility needs of our large urban population centers must be cared for. We consider the surmounting and major problem of health facility needs in the Nation today to be that of the older hospitals with outmoded, inefficient, and often unsafe physical plants. This problem, though it exists in large part in metropolitan centers and in the older cities of the country, exists also to an appreciable extent in older smaller facilities in small cities and towns.

A growing awareness of the problem occasioned the association to make a nationwide questionnaire study. This revealed a dollar need for modernization of over $1 billion, and the later study in somewhat greater detail made by the U.S. Public Health Service indicated a figure of $3.6 billion needed for modernization.

Since that time, several areas have undertaken regional or metropolitan studies. In the city of New York a team of architects and engineers visited and studied the needs of 83 hospitals. The study determined that the modernization of these hospitals would require an expenditure of well over $250 million. This study in New York serves to validate the opinion of many authorities that the nationwide figures may have understated the size of the problem. In New York it was found that an expenditure of $120 million is needed merely to replace non-fire-resistant hospital structures.

The large urban teaching hospitals are the key to the whole health structure of this Nation. These hospitals provide the essential education for physicians, nurses, dietitions, medical-record librarians, physical therapists, and the other people who make up the health team. We are spending vast amounts of money for medical research in the country. Much of this research must be carried out in these large, older, teaching hospitals. A good deal of the medical research being done, if it is to be made available and to be beneficial to the people, must be translated into actual procedures for patient care. It is in these larger

and older hospitals where this essential task is performed. We believe that the American public, which in large part depends upon the older and outmoded hospitals of the Nation, are often treated unfairly and are, in fact, being discriminated against in terms of the Nation's expenditure for hospital improvement. The largest percentage of the Nation's population receives care in the hospitals of our metropolitan centers. Also, large numbers of the rural population turn to these metropolitan hospital complexes for care of the more serious types of illnesses.

It is our belief that the problem of modernization has reached such proportions and is of such severity that we must meet it with action. We are, therefore, extremely pleased that this bill at least recognizes the problem and the need for the Federal Government's participation in working toward a solution. Any appreciable impact on the problem will require the expenditure of large amounts of money and large amounts of Federal assistance. H.R. 10041 provides $160 million over a 4-year period for modernization. Of this amount. however, $60 million may be used for new construction instead of modernization at the discretion of the States. S. 2531 provides a larger sum for modernization. Neither bill reflects the magnitude of the need.

We recommend that the bill be amended so that for the fiscal year ending June 30, 1965, $50 million be provided for renovation; for the fiscal year ending June 30, 1966, at least $70 million; for each of the following 3 years, $100 million, making a total of $420 million in grants over a 5-year period. We believe, in fact, that this amount is minimal and will only produce an adequate beginning. We feel it is unnecessary to lose the first year as H.R. 10041 provides. Many projects could move ahead rapidly if funds were made available.

We recommend that $100 million be provided annually in each of the 5 years covered by the bill for the construction of new hospitals and other medical facilities. These amounts are recommended in addition to the amounts provided for under the section for long-term care facilities, diagnostic and treatment centers, and rehabilitation facilities.

The bill provides that States may transfer renovation and modernization funds into the new construction category. We believe this to be an unwise provision and recommend that funds provided for modernization purposes be earmarked entirely for this purpose.

It is recognized that the extent of the problem varies in different sections of the country. Individual projects for modernization often will require large expenditures and in numerous cases run into several millions of dollars. Under the Hospital Survey and Construction Act, by administrative decision, limited amounts of money have been provided to a single project. This was necessary to make the funds assist as many projects as possible. Generally, of course, these were smaller projects than the ones we are talking about for modernization. A different philosophy for the allocation of funds is essential if boards of trustees of individual hospitals are likely to assume the financial obligations of largescale modernization projects. A different grant formula will be required from that used in the Hospital Survey and Construction Act, wherein grants run from 33% percent to 66% percent depending upon the financial position of the State. The great bulk of modernization projects will be in those States that fall in the lowest percentage grants.

We believe, therefore, the minimum grant for any project should be at least 50 percent in order to accomplish any substantial amount of modernization.

FINANCING OF BORROWED MONEY

Even with 50 percent grants, project sponsors will have to obtain large amounts of additional funds thereby creating a heavy burden of debt. This indebtedness will be borne largely by paying patients and will cause an appreciable increase in the price of hospital care. The size of this indebtedness is a matter of serious concern to boards of trustees and would, we believe, discourage many of them from going ahead with needed projects if they are subject to the interest rates of the commercial money market. The attached table indicates the effect of various interest rates on patient-day costs.

As a matter of basic principle, it is felt that the needs of modernization must be approached so as to cause the least possible increase in the cost of hospital care. We recommend, therefore, that the bill be amended to provide for a program of direct Federal loans. Such a program of loans is proposed in S. 894 introduced by Senator Joseph Clark of this committee. It is our belief that the Federal Government could provide a great incentive for modernization of hospital facilities if it were willing to underwrite in part the cost of the money to

be provided by bringing the interest rate down to around 2 percent. However, if such a subsidized rate of interest is not feasible, we urge at least a system of direct Federal loans at the interest rate available to the Federal Government for numerous other programs as the Clark bill proposes. We agree with Senator Clark that project sponsors should be enabled to receive a 50-percent grant from the Federal Government and to borrow additional needed funds from the Federal Government through direct, low-interest loans up to a maximum of 80 percent of the total project cost.

A separate method of allocating money among the States for modernization is highly essential. We believe the single factor essential to take account of the varying need for nationwide modernization is the total amount of modernization needed in a given State in relationship to the total modernization needs for the Nation as a whole. Neither population nor the financial needs of the respective States are appropriate factors to be used in the allocation of the funds.

SECTION 603-GENERAL REGULATIONS

This section provides for special consideration to facilities serving rural communities. At the time the program was started it was essential that rural areas receive preferred treatment and first priority in the allocation of funds. As a consequence, the most acute rural needs have been met. The rapid growth of population in urban areas has resulted in unmet needs for new urban facilities. We believe that the rural priority is no longer needed. We recommend, therefore, that the provision granting priority to rural areas be stricken from the bill and the language be amended to permit the States to give special consideration to "areas of greatest need."

This section of the bill also provides that special consideration be given to rehabilitation facilities in university teaching hospitals. We have previously questioned the wisdom of this provision not because we are in any way opposed to comprehensive rehabilitation centers in universities but rather that we be lieve the States should be free to provide the additional, though less than comprehensive, programs needed in many areas.

The bill also authorizes the Surgeon General to develop criteria for determining the need for hospital beds and facilities in a given area, thus removing the previous statutory provision establishing ceilings. The ceilings have not been helpful, being too high in some areas and too low in others. We feel the language in the bill is a decided improvemet, and it will encourage more intelligent planning.

SECTION 604 STATE PLANS

The bill provides for the establishment of State advisory councils and names the types of individuals to be selected to serve on such councils.

We would recommend that the language be amended so as to provide for the inclusion of an individual who is authoritative in the field of mental health. The recently passed mental health-mental retardation program will be administered in some States by the same State agency which administers the hospital survey and construction program. In all States there is a need to coordinate planning activities between mental facilities and others. It is noted that the bill requires the appointment of a mental health authority to the Federal hospital council, and we suggest a similar requirement for State advisory councils.

SECTION 621-FEDERAL HOSPITAL COUNCIL AND ADVISORY COMMITTEES This section provides that the Surgeon General in administering this title shall consult with a Federal Hospital Council. However, as we read the amended language in the bill, it did not require the appointment of any hospital authority to the advisory council. The council is expanded from 8 members to 12 members and this would permit the addition of authorities relating to the mentally retarded and relating to mental health to the council which we fully supported. We believe the provisions set forth in the Hospital Survey and Construction Act should be continued in this bill. This provides for the appointment of four members who are "outstanding in fields pertaining to hospital and health activities, three of whom shall be authoriites in matters relating to the operation of hospitals." The wording as it appears in the bill is vague and the term "medical facility" has been substituted for the term "hospital." Further, the bill provides that authorities in the operation of hospitals need not be appointed and that persons who are authoritative in matters relating to "other medical facilities" can be appointed. We believe it would be most unwise to have a

council appointed which is to advise on the development of hospital facilities without assuring adequate representation of persons who are authoritative in the administration and operation of hospitals. We, therefore, urge that this section of the bill be amended accordingly.

SECTION 625-DEFINITIONS

The term "hospital" as defined in this subsection differs from the definition of hospital in section 631(e) of the existing law. The new definition does not include mental hospitals. We believe the language should be amended so that the term "hospital" clearly includes mental hospitals as in the existing law. This provision has been extremely valuable in encouraging the development of a new acute psychiatric facilities in general hospitals. In view of the great need for such facilities, we feel it would be a serious mistake to omit "mental hospital" from the definition of "hospital."

In conclusion, we have greatly appreciated the opportunity of appearing before this subcommittee and presenting the views of the American Hospital Association. We sincerely hope that our comments and recommendations will prove helpful in the final development of legislation. We wish to commend the committee for the enormous contribution that it has made in the past to advance the health and welfare of the American people. We recognize the important role of the committee in the provision of health facilities for the Nation. We feel that your consideration of the need for modernization of our older health facilities is a major step forward. The American Hospital Association stands ready to be of all possible assistance to this subcommittee.

The CHAIRMAN. Now, General Terry and Dr. Graning.

STATEMENT OF DR. LUTHER L. TERRY, SURGEON GENERAL; ACCOMPANIED BY DR. HARALD M. GRANING-Resumed

The CHAIRMAN. General, do you have any comments you would like to make on the amendment proposed by Senator Hruska?

Surgeon General TERRY. Yes, sir, Mr. Chairman.

Since the Senator presented his proposal, I have had an opportunity to look it over and to discuss it with some of the members of my staff. As I understand it, this amendment would authorize the transfer of funds from one allotment to any other allotment, upon the State agency certifying that the transfer would more effectively serve the needs of the people of that State. The amendment would also establish limitations on such transfers by stating that the amount of the transfers into any one allotment over the 5-year life of the program, plus the amounts of that allotment originally, could not exceed the amounts which would otherwise have been available.

In other words, presumably the bill provided so much funds over a period of 5 years in a part С category and, if transfers were made in or out of that, at the end of the 5-year period the total amount in part C could not exceed that basic authorization in the bill.

Very frankly, Mr. Chairman, we feel that the allotment transfer provisions which are already included in H.R. 10041 are quite liberal. The CHAIRMAN. General, I think we might have a clearer picture, when you are speaking of categories, if we explained that. You have the general hospital category.

Surgeon General TERRY. Yes, sir.

The CHAIRMAN. Then we have the diagnostic and treatment center category, and then we have the rehabilitation center categories. Surgeon General TERRY. That is right.

The CHAIRMAN. Then, we have the chronic diseases category and the nursing home category.

Surgeon General TERRY. Yes, sir.

The CHAIRMAN. Those are the five categories that we are now speaking of; is that not right?

Surgeon General TERRY. Yes, sir.

And, in effect, this provision would allow the funds to be transferred from one allotment or one category into the other.

As I said a moment ago, Mr. Chairman, we feel that the provisions in H.R. 10041 are quite liberal with regard to flexibility and the permission for the States to use transfers to meet the individual problems of that State.

At least upon looking preliminarily at the proposal, one can see that difficulties, serious difficulties, might be encountered in a State program during the fourth and fifth years if they had unwisely transferred too much funds in one category during the first 2 or 3 years of the program.

Frankly, I think that the Congress and the congressional committees have always felt that there was a stimulatory and a guiding effect in having funds placed in categories in this bill, and I think that this could do a great deal to nullify completely the categorical designation of funds.

Therefore, I would much prefer to see a provision such as is included in H.R. 10041.

The CHAIRMAN. Well, General, of course, if there are no approved applications, then funds can be transferred; is that not true? Surgeon General TERRY. This is true under H.R. 10041 for most categories; yes, sir.

The CHAIRMAN. Under the House-passed bill.

Surgeon General TERRY. Yes, sir.

The CHAIRMAN. For instance, if you had no approved applications for your nursing-home funds, those funds could be transferred to the modernization category, or to the rehabilitation category, or some other category; is that right?

Surgeon General TERRY. Yes, sir.

The CHAIRMAN. Do you have any questions, Senator Pell?

Senator PELL. In connection with Mr. Williamson's suggestion, General Terry, would you with regard to section 603-to give the help to the areas of greatest need, as opposed to those where the emphasis is perhaps more in the rural areas-would you think that that was a good amendment or not?

Surgeon General TERRY. I do not see any necessity for a change there, Senator. Frankly, I did not have an opportunity to discuss this with the staff in detail, but my initial reaction would be that I would not see a need for such change.

Senator PELL. I was wondering what your reaction was. My own view was favorable toward it, but I was interested in your views. Surgeon General TERRY. Yes, Senator.

The CHAIRMAN. Of course, that only applies within a State. If you have a State that does not have very much rural population, that would not apply.

Surgeon General TERRY. It not only applies within the State, but within the needs of the State. I think the critical point here is that the program has always been predicated upon the needs within the

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