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do anticipate general success from the viewpoint of giving service, in Washington, and the patients that are patients of your clinic. Is that true?

Dr. BAILEY. We certainly hope so.

Mr. O'HARA. Thank you. That is all, Mr. Chairman.

Mr. ROGERS. Mr. Chairman.

The CHAIRMAN. Mr. Rogers.

Mr. ROGERS. Dr. Bailey, I wonder if you are in favor of the provisions of this bill.

Dr. BAILEY. I do not remember all of the provisions of the bill. If I remember correctly, there are certain stipulations that must be fulfilled in order for the bill to apply to a group. Correct me if I am wrong.

Mr. ROGERS. Since you must have voluntary prepayment plan in your clinic, it would not do you any good, or any clinic the like of which you have under the provisions of this bill, as I understand it, because this would merely help, provided you had a voluntary prepayment plan.

The CHAIRMAN. Will you pardon me there. The bill has a limitation of 60 percent which must be made available for that type, voluntary type.

Mr. ROGERS. And the other 40 percent may be made up of the other type?

The CHAIRMAN. Yes.

Mr. ROGERS. Does that mean 40 percent of the patients; does that mean that 40 percent of the patients treated must come under that provision?

The CHAIRMAN. 60 percent of the facilities shall be available to prepayment plans.

Dr. BAILEY. The way I look at the bill, the only way we would be a beneficiary under it, we would have to convert into a prepayment plan and do 60 percent, of which 60 percent of our facilities under the prepayment plan.

The CHAIRMAN. Will the gentleman yield?

Mr. ROGERS. Yes, I will yield to the chairman.

The CHAIRMAN. I think you have misunderstood it. The bill would not have that effect, that you would be justified in saying in organizations such as that represented by Dr. Bailey would not be available. It would be available. It does provide that whatever facilities are available, 60 percent of them must be for the use of voluntary prepayment plan patients.

Mr. KLEIN. Will the gentleman yield at that point?

The CHAIRMAN. Mr. Klein.

Mr. KLEIN. I would like for this all to be cleared up.

Does that mean then that 40 percent of the funds available would be available to clinics such as this one where you do not have any prepayment plan, do you mean 40 percent of the facilities of the clinic must. be available?

The CHAIRMAN. I might say for the benefit of the gentleman that serious consideration is being given to whether there should be any restriction such as I have just mentioned in the bill and whether it should not be broad enough to include all organizations such as Dr. Bailey has described in the Washington Clinic.

So I think that is a subject that will undoubtedly be given very serious consideration by the committee.

Dr. BAILEY. Mr. Chairman, I would just like to state that the prepayment basis is all new to me; but I cannot help but feel that certain groups, when we start in the practice, or open the clinic, for instance, are going to be halfway prepaid, and when I say that, I mean for instance the big bulk of the population now carry surgical plans to take care of various operative procedures-obstetrical carethat is prepaid medicine in a certain sense of the word. They are buying insurance through the various insurance organizations, of

course.

The CHAIRMAN. I am inclined to think that there may be an interpretation given to the bill that would justify the opinion that you have expressed, Mr. Rogers, and if the bill does have that effect, I am inclined to believe that it should be changed so as to eliminate that restrictive feature and make it usable by all. There is some objection made that by reference to the voluntary prepayment plan that is provided for in the bill, that it is selecting a segment of the medical profession, which is not justified, and, of course, it is readily understandable why a provision of that kind would be helpful in making it a bankable or a financially sound institution, because it would provide for the income that would come through organizations such as the prepayment plan contemplates; but as I say, that question is one that undoubtedly will be given very serious consideration when the bill is taken up in the committee.

Mr. PELLY. Mr. Chairman.

The CHAIRMAN. Mr. Pelly.

Mr. PELLY. Dr. Bailey, does your clinic fall within the code of ethics and good practice of the local medical society and the American Medical Association?

Dr. BAILEY. I would certainly think it would.

Mr. PELLY. In other words, it is or provides for a free choice of doctors.

Dr. BAILEY. Free choice of doctors.

Mr. PELLY. If, for example, you could have obtained financing on a 40 year's amortization base rather than 20 years amortization base you could have redistributed the cost, as I figure it, from writing off a million dollars in facilities in 20 years, to 40 years. Is that not right?

Dr. BAILEY. That is correct; yes.

Mr. PELLY. Therefore, amortization could have been based on 40 years instead of 20 years?

Dr. BAILEY. Yes.

Mr. PELLY. Therefore the amortization base now is about $50,000 a year, and your clinic, and the patients, have to pay that in in order to just pay off the principal.

Dr. BAILEY. Yes; pretty close to that. Actually, when we quoted a million dollars in assets, that is not the amount of money actually that we have put into this organization. Now, we were able to secure the original land that was owned, residential A, restricted, by going through the Zoning Commission, and being able to rezone that land, to be able to build our clinic. Of course, we increased the value of that land.

Now, that represents probably $150,000 to $175,000 more of the value of the land; but what you say is correct, that we have in the neighborhood of $30,000, thirty-some thousand dollars each year, so far as amortization is concerned on our property over a 20-year base period.

Mr. PELLY. And that affects your fee schedules? You have to anticipate that and you must take that in from your patients, that is, enough to pay off that amount over a 20-year investment, on somewhere close up to a million dollars, which would be $50,000 a year. Dr. BAILEY. Now, remember that it is the Clinic Properties Association, Inc., to which the clinic pays rent.

Mr. PELLY. That is right, but your rental is based on that.

Dr. BAILEY. The rental is based on that amount.

Mr. PELLY. And your fees are based on your being able to pay that

rent.

Dr. BAILEY. That is true.

Mr. PELLY. Now, if you could have gotten a 40-year loan you would have had a lower rental and in turn could have charged lower fees to your patients, could you not?

Dr. BAILEY. I think that follows; yes.

Mr. PELLY. Because I think the interest of our committee in this legislation is to provide lower cost medical service and make it available to low-income groups.

Dr. BAILEY. Well, I think the basic idea of the thing, however, is, the main effect of it is practicing as a group. No. 1, just as an example, you take 25 doctors, as we are, practicing individually, we will all require either one or two to help in the office, as far as the female help is concerned. We will have 25 doctors and need 25 waiting rooms, but if the 25 are put under group practice, we will need only one or two big waiting rooms, with maybe two personnel controlling the waiting room; maybe only one person giving service to four or five doctors.

So actually the basic idea of group practice in itself eliminates some of the overhead, as you may say, in the running of the medical team.

Mr. PELLY. What you are saying, then, Doctor, is that the whole idea of the clinic is to reduce the cost of medical services to the public? Dr. BAILEY. No; I do not say that the whole idea is that, no. The whole idea is, No. 1, I think, if run efficiently and economically, we can reduce some costs. No. 2, is that it gives greater convenience to the patients, where they get all of their medicine and all of the services under one roof; not running here and there for various things to be done. It gives convenience. It also adds a stimulus to the doctors practicing in the clinic itself, with consultations available immediately, where there is discussion of the various cases, which can be had right away.

Mr. PELLY, Modesty prevents you from saying that it enables you to give better medical service; is that right?

Dr. BAILEY. I actually think it does; yes.

Mr. PELLY. Thank you. That is all, Mr. Chairman.

Mr. KLEIN. Mr. Chairman.

The CHAIRMAN. Mr. Klein.

,

Mr. KLEIN. Dr. Bailey, carrying Mr. Pelly's point of view a little further, you say that it would reduce the cost somewhat. Obviously

it would reduce the expenses where you have a group, rather than individual physicians, as you point out.

Would that saving then be passed on to the public?

Dr. BAILEY. No. 1, I must correct that by saying I do not know if it is going to do that.

Mr. KLEIN. We will say theoretically. I do not want to put you on the spot; just theoretically.

Dr. BAILEY. Theoretically, yes, I think that patient should get the advantage of savings in medical care.

Mr. KLEIN. Is it your opinion, then, that this group practice ultimately-if is run for the benefit of the public should result in a lessening of medical costs to the average person?

Dr. BAILEY. I do.

Mr. KLEIN. Now, specifically, I notice you call the doctor members of your group partneres.

Dr. BAILEY. No.

Mr. KLEIN. Did you not use that term?

Dr. BAILEY. No.

Mr. KLEIN. Well, these doctors are all employed by the clinic?
Dr. BAILEY. They are employed by the clinic.

Mr. KLEIN. And the profits, then, if any are derived, will be profit to the clinic

Dr. BAILEY. To the stock; that is right. Now, this is a difficult problem in trying to sell stock to people. The stock is only held by the corporation. Now, some of the doctors-not all of the doctors in the clinic are stockholders-have bought stock in the corporation. In the clinic itself, every doctor on the staff in the clinic will be a salaried employee of the clinic; all will receive a salary.

Now, I believe your question reads to the point of, at the end of the year, for instance, if we paid all of our debts and paid all of our expenses and there was so much money left over.

Mr. KLEIN. What happens?

Dr. BAILEY. What happens to that money ?

Mr. KLEIN. Yes.

Dr. BAILEY. That money, so far as that is concerned, anything can be done with that money. It belongs to the clinic. It can either be given, No. 1, it can be given to the Foundation, or it can be given and distributed to the doctors in the form of a bonus; it can be given to the corporation to start an addition to the building, if you wanted to put it that way. It is the clinic's own money, and it can be made a part of the organization. That money belongs to the doctors and the doctors in themselves can do what they want with that money.

Mr. KLEIN. Is that a similar setup as we would have, or as they have in the Mayo Clinic and some of these larger clinics.

Dr. BAILEY. Of course the Mayo Clinic is on a much larger scale than we are, but I think our setup follows fairly closely the setup at the Mayo Clinic; not exactly, but fairly closely.

Mr. KLEIN. In other words, a person requiring medical service can get a wide variety of service, and whatever the service may be in one place, by going to one place, and find out what is wrong with him? Dr. BAILEY. That is right, and we are trying to pick people that are competent in their various fields of medicine and putting them together.

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Mr. KLEIN. Do I understand that you said that you do not contemplate at the present time any prepayment plan for patients?

Dr. BAILEY. Of course, I must say that I have no contemplation of such a plan, or we have no plan at the present time for such a plan. Whether or not it will come into being, I think that is something for the future, that will have to be considered.

Mr. KLEIN. At the present time you have not?

Dr. BAILEY. We have not at the present time.

Mr. KLEIN. So actually it seems to me whatever interpretation we may put on the legislation which is before us now, your organization would not come within the benefits of this bill. In other words, you would not be entitled to have one of these Government-secured mortgages, because of the fact that you do not at the present time at least have any prepayment plan whatsoever. It is private enterprise?

Dr. BAILEY. It is private enterprise, except I must say this, that from your question, so far as we know, we would not fit into your scheme of events here. I believe that our organization is not the ideal organization, type of organization, that fits into your plan. Now whether or not that would make us eligible under such a plan as yours would depend upon whether we could conform with and fulfill the stipulations of the 60 percent or not at the present time.

Now, just in listening to the question as to whether or not you make that 60 percent or not, is coming up. Whether or not you provided for the 60-percent stipulation.

Mr. KLEIN. That is my next question, and my final question. Do you think, Doctor, that this plan, or that the Government in any case, should step in and offer some kind of financial assistance any kindto a group who bands themselves together as you have, which I think is a very laudable purpose; but do you think that the Government should come in and assist such organizations as yours-I mean generally. Of course, this may be amended. But, what you say as to groups such as yours, when it is formed it just cannot get along; do you think that the Government ought to come in there and help you out?

Dr. BAILEY. That is, just cannot secure a loan?

Mr. KLEIN. Well, either a loan or you cannot make the thing pay and you do not have enough doctors; you do not have enough patients in the beginning, or whatever the reason may be.

Dr. BAILEY. I think the answer to your question is that it would certainly be much easier for a group that is really interested in establishing a clinical type of practice to have something as you are presenting. In other words, I can see that there will be much adverse comment toward it in view of the fact that you are taking a certain segment of doctors and helping that segment of doctors.

Mr. KLEIN. One other question. Do you know what the position of the American Medical Association would be on this legislation? Dr. BAILEY. I have ideas, but I just do not know the exact viewpoint.

Mr. KLEIN. I think they are just like mine. The American Medical Association would probably be opposed to it. They would say that this is an instance where the Government is getting its foot in the door. They do not want the Federal Government to come in and help any doctors do anything, because they claim then the Government will take over and it will result in socialized medicine.

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