people well up in earning power, people such as Art Linkletter and other famous Hollywood people, whom I thought would never think of this question. Well, the minute I opened the question it took 1 hour to stop them from talking. One actress from Hollywood said, "They charged me $2,500 for my first baby when I couldn't afford it, but I was a Hollywood artist and therefore I had to pay it."

You ought to have heard the discussion. It would just shock you how the people feel. And they are willing to give their efforts to bring this about and to bring the message to the people.

The message to the people needs to be had because of the opposition. This is our duty, your duty and my duty. The moment you enact this bill and make it possible for the doctors not to be faced with that serious financing situation you will immediately bring in the American Medical Association because there will be such a preponderance of the membership in the American Medical Association that they will be forced to accept it, the doctors themselves, by the fact that it is so superior in every respect. The people will be compelled to accept it.

Mr. HESELTON. I certainly share your conviction that if this message can get to the American people—and it should get to them— and if only our news services and radio and television people could grasp the significance or the importance of solving this problem it would ease the path tremendously; it would bring on much sooner the fine type of service that you are providing to many Americans. And certainly that is a worthwhile effort. I want to commend you for what you are trying to do in producing this television show. Čertainly those people who have volunteered their services and you and your associates are entitled to every kind of congratulation.

I cannot help but express one final hope. I recognize the need for ethics in any profession. I am a member of the bar and I realize that it is quite important that we have standards that people are compelled to live up to, or, rather, not compellled to but they are set up as a guide for us as to what is considered right and proper. But what I cannot get through my head is why it is that a service like this, that has been demonstrated to be of value, invaluable as a matter of fact, to the people whom you serve, that there should be any question as to whether it is proper or improper to tell the American people about that.

If they want to call it selling, all right. Then I think it is perfectly fair, perfectly ethical to sell to the American people the means by which they can improve their health. And I would challenge any member of the American Medical Association to provide an answer to that.

Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Rogers?

Mr. ROGERS. I should just like to get your observation on this proposition of course, this bill will provide for additional hospitals, medical facilities. But I wonder in providing these facilites whether or not that would reduce the charges of the physicians, the doctors that administer to the people.

Mr. KAISER. You mean reduce the cost?

Mr. ROGERS. Take the ordinary man out here who is unable to take care of himself. I wonder whether or not he could go into these fa

cilities that we are going to construct under this bill and whether he is going to give the same fees or same charges if he would if he did not have these. As I understand this bill, this provides the facilities. Mr. KAISER. No. It has the effect of lowering the cost tremendously. Mr. ROGERS. How is it going to do that?

Mr. KAISER. Through prepaid group practice in integrated hospital and clinic, tremendous economies are effected by eliminating duplication of equipment, facilities, auxiliary personnel, administrative personnel and functions, and overhead expenses. Just one item alone that of eliminating the costly billing for each service rendered-represents a substantial saving where, as in our plan last year, approximately 2 million units of service were rendered, for example, out-patient visits, house calls, laboratory tests, X-ray procedures, hospital admissions, and so forth.

I will give you another little illustration. We have the clinics, and we of course have a complete record over a period of years of the number of people that come to those clinics and whether they are increasing in proportion to our membership. We have a record of the number of people that are hospitalized in proportion to our membership. What is happening? The number of people that are hospitalized is coming down in proportion to the membership. The number of people that come to the clinics is going up. That is a lower cost. Right there there is a tremendous cost saving. Do you see what I mean? We are hospitalizing fewer people as a result of the preventive medicine improved by the fact that we have the clinics to give the preventive medical care. For instance, we have one test called the multiphasic test. They take through 4,000 at the rate of each one spending 2 hours. We do that regularly now. We are finding out that about 13 percent have diseases that they did not know they had and we had never recognized they had. But that is a complete test. And how much do we charge them for it? Two dollars we charge them for this complete test, X-rays and everything. We have found 13 percent of the mill that did not think they were ill, just by making a test. One of them is sitting right here. I have found the same thing.

Mr. ROGERS. In other words, you think the medical charges would be less by virtue of this program? Mr. KAISER. Definitely.

Mr. ROGERS. Is that right?

Mr. KAISER. We are proving it.

Dr. GARFIELD. There is another reason for that, Mr. Rogers. The bill calls for prepayment group practice, and the prepayment is so much per month toward the payment of your medical care, and that certainly is less expensive.

Mr. ROGERS. Suppose a number of people did not have the money to join the prepayment plan? How is the adoption of the provisions of this bill going to help them?

Mr. KAISER. You are presuming they do not have any money for medical expenses?

Mr. ROGERS. There are a lot of people where it takes practically all they have got to live.

Mr. KAISER. You are talking about the indigent really.

Mr. HESELTON. Will the gentleman yield?

Mr. ROGERS. Yes.

Mr. HESELTON. Did you not say in answer to one of Mr. Dolliver's questions that you do take a certain number of charity cases?

Mr. KAISER. Yes; we do. Five percent of our hospital beds are allocated for charity cases.

Mr. ROGERS. Would the man on this mortgage loan have any authority to say how much charitable work that institution would do? Mr. KAISER. No, he would not have that right.

The CHAIRMAN. I would say it comes under the State and local authorities.

Mr. KAISER. Yes.

Mr. ROGERS. Certainly they could not take enough charitable cases so that the institution would not be a paying institution and they could not pay off the mortgage.

Mr. KAISER. I would say we are emptying the charitable hospitals. Is that right?

Dr. GARFIELD. Yes. There are very few people that cannot pay these prepaid rates. We think that this program should be carried a step further where you have indigent people whom the county hospitals are taking care of. It would be much better for the counties to prepay their dues to a health plan because the individual then coming in for service would come in with the same dignity as a member coming into a clinic or doctor's office or hospital for service.

Mr. KAISER. The people do not want charity. So the doctor's idea is that we could eventually expand this to where we would prove to those who do provide charity, the institutions who provide charity, that it is much cheaper for them to come to us and to pay a monthly fee for those than it is to provide the hospitals that they are providing today as charitable institutions.

Mr. ROGERS. Just supposing that you were going out to construct a hospital and you floated a 90-percent mortgage.

Mr. KAISER. That is right.

Mr. ROGERS. Now you have got to come to the Surgeon General to get that insured. Has he got any say-so, or will he have any say-so under this bill-I have not acquainted myself with it sufficiently to know this-as to just the amount of charitable services you could render? In other words, if he is going to insure the loan for the Government can he just let you go along with that institution and make enough money to pay off the payments as they become due?

Mr. KAISER. Dr. Garfield said he could have the authority as far as the hospital is concerned.

Dr. GARFIELD. I do not see why he could not set a standard of 5 percent of your beds or 10 percent of your beds available for charity and make that the basis of giving the loan.

Mr. KAISER. That could be done.

Dr. GARFIELD. We are doing that today.

Mr. KAISER. We do it today voluntarily. You are saying it should be demanded?

Mr. ROGERS. No. I am not saying that.

Mr. KAISER. You are suggesting that the Surgeon General be given that power.

Is

Mr. YOUNGER. I think your fear is that the Government might be stepping in and telling them how the hospitals ought to be run. that not correct?

Mr. ROGERS. It could be that, or if they are going to reinsure the mortgages or insure the mortgage loan they should certainly have some power or authority as to the running of the hospital or the conducting of the hospital should mortagage payments become in default.

Mr. YOUNGER. Why?

Mr. ROGERS. So they don't lose money.

Mr. YOUNGER. You don't in any of the other insurances that the Government issues. They don't go out and run the apartments. Mr. ROGERS. They don't run them.

Mr. YOUNGER. All right. There is no use for them to run these other institutions either.

Mr. HESELTON. Would the gentleman yield?

Mr. ROGERS. Yes.

Mr. HESELTON. I am afraid there is a little confusion in this right at the moment. I think the reason for the handling of charity cases comes under the necessity of establishing a nonprofit institution under the State laws.

Mr. KAISER. That is where it comes.

Mr. YOUNGER. Internal revenue.

Mr. KAISER. You cannot have a nonprofit institution unless you render that service.

Mr. HESELTON. That is where your answer is.

Mr. ROGERS. When this Government comes in and insures loans or reinsures health insurance, certainly they ought to have some say-so in an indirect way, at least, so that the Government would not lose money. That is what I am looking for.

I have no further questions.

The CHAIRMAN. Are there any further questions, gentlemen? Mr. Pelly.

Mr. PELLY. Mr. Kaiser, I share the feeling regarding your testimony that has been given before, and the time is getting late. I would like to make one observation that refers back to the colloquy between you and my colleague, Mr. Heselton.

It seems to me that we were finding the American Medical Association guilty before we were hearing their testimony on H. R. 7700.

Other than that I would like to ask about three questions. First of all, How long is the useful life of these hospitals, in your opinion? Does their life justify a 40-year loan?

Dr. GARFIELD. I would consider 40 years as a useful life of a good, modern institution.

Mr. PELLY. In other words, you would feel

Mr. KAISER. My answer is that I think so without any question. Mr. PELLY. It would justify making a 40-year loan?

Mr. KAISER. We have bought some hospitals that are how old? Dr. GARFIELD. About 25.

Mr. KAISER. They have bought hospitals that are 25 years old. Dr. GARFIELD. We are considering one now that is 40 years old. Mr. PELLY. In other words, if properly maintained and from time to time rehabilitated, a loan of this character is justified, in your opinion, as a builder?

Mr. KAISER. It is.

Dr. GARFIELD. Most hospitals today stand longer than that. We have hospitals in this country over a hundred years old.

Mr. PELLY. I would like to refer back to your suggestion that possibly the 60-percent requirement for utilization under prepayment plans might be amended. Would it not, in your opinion, be more helpful in a rural community if that provision was not in there? In other words, in a farming community, a small community?

Mr. KAISER. You see, what I am suggesting is that the lender determine that because the lender is the man who is responsible for that loan. If the lender feels that he must have that type of security he would not loan the money unless he does that.

Mr. PELLY. I think that is a very constructive suggestion, and also referring back to the other suggestion that you made as to the utilization of existing Government agencies so that we don't duplicate and cause a tremendous amount of expense.

Mr. KAISER. That is why I suggested this. There has been criticism on those two points. We have had this criticism and that is the reason I brought it up as an amendment. In our thinking, to eliminate any objections, you can do it by giving the lender the power because he is going to have it anyhow. He is not going to loan unless he has security. That I know. We have told you we are still having trouble. They don't want to loan, or, rather, they want to loan but there must be the security there, and there is a limit to where they want to go.

Mr. PELLY. Mr. Kaiser, I remember from your previous testimony that you said if you could get long-term loans you could reduce the cost very materially to the user of the service?

Mr. KAISER. That is right.

Mr. PELLY. In other words, if you have a million dollars invested in a facility and you have to write it off over a period of 40 years it is much less cost per year than writing it off over a period of 10 years.

Mr. KAISER. It makes a difference. Today it probably costs $7 per day for writeoff on a 10-year basis. Well, just think of it now: the minute you put it on a 40-year basis it costs one-quarter of that for writeoff. There is a reduction instantly in your cost. We feel that we are writing these off too fast, but we have to do it in order to acquire further financing. So you are 100 percent right.

We discussed that this morning in great detail. I told one of the doctors that just as soon as we get this long-term financing you can cut the cost.

Mr. PELLY. That cuts the cost of the hospital service. It does not increase the profit or return of the doctor at all?

Mr. KAISER. No.

Mr. PELLY. It just cuts down on the hospital cost to the sick and the needy and the low-income groups?

Mr. KAISER. That is it.
Mr. PELLY. That is all.

That is what it does.

Mr. KAISER. Definitely. You are right on the beam on those three things.

The CHAIRMAN. Are there any further questions, gentlemen?
Mr. YOUNGER. Mr. Chairman?

The CHAIRMAN. Mr. Younger.

Mr. YOUNGER. I just want to mention, Mr. Kaiser, that coming from California, we take justified pride in the work that you have done out there and the other clinics that you have mentioned. I think

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