community is 30 miles away. And no facilities exist where efficient medical service could be provided or where, in fact, well trained modern physicians are willing to practice. So the need is obvious. The local bank is quite willing to make a loan to finance the needed facility but it simply does not have adequate reserves and is not large enough to take the admitted risk of financing a building which it would obviously have considerable difficulty in selling in case foreclosure became necessary. Were H.R. 9256 on the statute books the local bank could and would make this loan, doctors could be attracted to this community and the health of the people protected. If the guarantee were available other instances would come forward without drawing any real assistance from the Government except that guarantee. Many similar examples could be given, both from other rural areas. to which the legislation would give preference and also from cities where labor-sponsored and cooperative consumer-sponsored group health plans could care for much larger memberships if only they could receive the financing for the additional physical facilities they need. Finally, we submit that with the advent of the medicare program, the pressure upon existing health facilities will be greatly intensified. indeed something approaching a crisis in this respect may result What better way of forestalling such a crisis than by encouraging through a loan guarantee program the kind of constructive action on their own behalf which groups of our people are endeavoring to take through developing of group health plans like those about which I have been speaking? In times like the present it indeed seems the part of both wisdom and statesmanship to encourage voluntary action by the people of this country in attacking and solving their own problems-that of health economics at their forefront. For these reasons The Cooperative League of the United States hopes that this distinguished committee will report favorably upon H.R. 9256 and the other measures now before you and that they can be enacted into law at an early date. (The following letter was submitted for the record:) Hon. WILLIAM A. BARRETT, THE COOPERATIVE LEAGUE OF THE U.S.A.. Chairman, Housing Subcommittee of the House Banking and Currency Committee, Washington, D.C. DEAR CONGRESSMAN BARRETT: In recent testimony concerning H.R. 9256, the medical facilities loan guarantee bill, the Cooperative League referred to the comparative studies that have been made concerning actual utilization of inhospital services by members of the three most popular types of medical protec tion plans, viz, Blue Cross-Blue Shield, indemnity plans, and Group Practice. The results of the studies reveal with force and clarity that members of group practice plans make less use of hospitals than the other two types of protection. reflecting the result of early treatment, preventive medicine, and a program of using our medical resources to prevent or detect at an early stage the conditions which otherwise lead to hospitalization. The following chart covering 3 recent years is based on number of hospital days per 1,000 persons covered by the 3 types of protection in the Federal employees health program: Federal employees health program-Experience for 3 contract years comparing individual Group Practice plans, nonmaternity in-hospital services, both options As Dr. George Baehr (chairman of the Hospital Code Committee of the Board of Hospitals of the City of New York, and who was director of clinical research at Mount Sinai Hospital) said in the Michael M. Davis lecture in May 1965: "The difference of close to 50 percent in the utilization of hospital facilities under the two systems of medical care and payment for physicians' services may perhaps be ascribed in part to the number of surgical operations performed annually on Federal employees and their families under the two different systems of medical care: "Number of surgical operations performed All surgical procedures: Under Blue Cross-Blue Shield plans.. Under Group-Practice plans---Tonsillectomies and adenoidectomies: Under Blue Cross-Blue Shield plans_. Under Group-Practice plans----Female surgery (excluding D. & C.) : Under Blue Cross-Blue Shield plans.. Under Group-Practice plans.. Appendectomies: Under Blue Cross-Blue Shield plans.. Per 1,000 persons 70.0 39.0 10. 6 4.0 8.2 5.4 2.6 1.4 "So great a difference in hospital utilization under the two systems of medical care and methods of payment upon the costs of medical care must undoubtedly be an important factor in the magnitude of personal consumer expenditures in the United States for private medical care, which in 1963 reached $23.7 billion. The ratio of personal expenditures for medical care to total personal consumption expenditures by the American people increased from 4.3 percent in 1948 to 6.3 percent in 1963. Of this sum, 29.2 percent represents hospital costs, 27.9 percent physicians' charges, and 26.5 percent drugs and appliances used for the care of the sick (19.9 percent for drugs and 6.6 percent for appliances). In New York City private citizens spend about $1 billion a year for personal health services through insurance and direct out-of-pocket payments and an additional $750 million a year is spent by the State and local governments for the health and medical care of residents of the city of all economic levels." It would be appreciated if this could be made a part of the committee report. Sincerely, SHELBY SOUTHARD, Assistant Director, Washington Office. Mr. BARRETT. Thank you, Mr. Voorhis. STATEMENT OF GIBSON KINGREN, REPRESENTING KAISER FOUNDATION HEALTH PLAN, INC. Mr. KINGREN. Mr. Chairman and members of the subcommittee my ame is Gibson Kingren, representing the Kaiser Foundation Health Plan, Inc. The Kaiser Foundation Health Plan, a nonprofit organization, is The largest group practice prepayment health plan in the United States, providing medical services on a self-sustaining basis to more than 1,300,000 members in California, Oregon, Hawaii, and Washington. Kaiser Foundation Hospitals owns and operates 15 hospitals; a 16th is under construction, and three other hospitals are scheduled for completion by 1970. All but two of the Kaiser Foundation hospitals include extensive outpatient departments as an integral part of the facility. In addition to the outpatient facilities located at hospitals, our medical care program operates 29 detached outpatient clinics. In our experience the current cost of a 10 to 12 doctor outpatient facility—including land, building, and equipment-is between $400,000 and $500,000. Each new health plan member in the Kaiser Foundation medical care program means at least a $90 investment in medical facilities and equipment-almost a million dollars to serve 10,000 members. The fixed assets now employed in our medical care program cost more than $90 million. Obtaining capital on the scale required to provide comprehensive health care is a formidable obstacle for small existing plans, and may be almost insurmountable for new plans. One of the most important ways to encourage the growth and development of group-practice prepayment plans is to make available insured loans for facilities. THE KAISER FOUNDATION MEDICAL CARE PROGRAM HAS EXPERIENCED DIFFICULTY IN OBTAINING LOANS FOR FACILITIES During World War II, when the health plan was organized membership was restricted to employees of the Kaiser shipyards in Vancouver, Wash., Richmond, Calif., and later at the Kaiser steel plant at Fontana, Calif. With the close of the war in 1945 the plan was made available to the general public in these communities. We had sufficient capacity in the existing medical facilities so that no facility pinch was felt for several years and thus we did not face a large capital requirement until a good membership base had been developed. Even with an excellent banking relationship we were often unable to finance facilities rapidly enough to meet the demand for health plan coverage, and membership in the plan often was closed to new enrollment. As the health plan has grown and proved its financial soundness, it has become easier to secure conventional financing but we are unable, still, to obtain much of the necessary capital required to meet the steadily increasing demand. In 1962 we concluded an agreement with several banks and insurance companies for loans of about $35 million for facility expansion. We have recently concluded another loan agreement which will increase this financing to $50 million. This loan will make it possible to develop about $60 million of additional health facilities, and thereby increase substantially our capacity to serve the communities in which we operate. This brief recitation is intended to show that the Kaiser Foundation medical care program has experienced and continues to experience many of the financial problems which beset group practice plans. We believe a very formidable obstacle to the growth and development of group practice, health plans will be minimized through a Government program for insuring mortgage loans for health care facilities. NEED FOR HEALTH CARE FACILITIES NOW GREATEST IN OUR HISTORY This is the time to make needed health care facilities available as soon as possible. The medicare program will become effective on July 1 and many States already are increasing their medical services to the indigent through implementation of title 19 of the Social Security Act. Never in the history of this country has there been as much demand for medical services as there is today, and we expect this demand to expand substantially in the next few years. Group practice programs, with the inherent economies of group medical practice, can help to minimize the pressure caused by an increasing quantity of health-care dollars during a time marked by a shortage of physicians, a shortage of trained personnel and a shortage of adequate facilities. SUMMARY Kaiser Foundation Health Plan urges the passage of H.R. 9256 for the following reasons: 1. Experience has shown that capital to finance medical facilities for group practice organizations is difficult and often impossible to secure. This factor prevents many organizations from being established and keeps existing plans small so that many people who might wish to have the benefits of group practice plans are deprived of that opportunity. 2. Recent amendments to the Social Security Act are making substantial funds available for medical care. There may be overburdening of the relatively limited supply of doctors and health facilities available, with consequent detriment to the quality of medical service for the general public. Therefore it seems sound public policy for Congress to encourage expansion of efficient health facilities through insured loans. 3. To encourage long-term insured loans for facilities expansion is consistent with our free enterprise system. Experience has demonstrated that well-managed group practice prepayment plans can be self-sustaining, with the capacity to generate funds fully adequate to amortize indebtedness. However, group medical practice is a relatively new concept to the financial world and we believe that, in the absence of guaranteed repayment, lenders will continue their cautious policies and decline to make long-term loans to this kind of enterprise in the amounts which are required. A program of Government insured loans will open many doors now closed to qualified borrowers. Kaiser Foundation Health Plan KAISER FOUNDATION HEALTH PLAN HAS A LONG-ESTABLISHED POLICY IN SUPPORT OF INSURED LOANS FOR GROUP PRACTICE FACILITIES In 1954 Mr. Henry Kaiser appeared before the Interstate and Foreign Commerce Committee-when it was chaired by Representative Charles A. Wolverton-in support of H.R. 7700 which would have provided insured loans for the construction of health facilities. This measure did not pass Congress. The support of H.R. 9256 is a continuation of Mr. Kaiser's proposal of 12 years ago. The need for this measure was present then; it is even more pressing today. Mr. BARRETT. Thank you, Mr. Kingren. Mr. KINGREN. Thank you, Mr. Chairman, for the opportunity to present our views in this matter. Mr. BARRETT. The next gentleman, Mr. Doherty. Mr. DOHERTY. Thank you, Mr. Chairman. STATEMENT OF JAMES F. DOHERTY, LEGISLATIVE REPRESENTATIVE, AFL-CIO; ACCOMPANIED BY RICHARD SHOEMAKER, ASSISTANT DIRECTOR OF THE AFL-CIO SOCIAL SECURITY DEPARTMENT Mr. DOHERTY. Mr. Chairman, I have prepared a brief statement and I would like-I would request the statement appear, and I will read a brief summary. Mr. BARRETT. Without objection, so ordered. Mr. DOHERTY. We appear before you in support of H.R. 9256 because we believe this bill to provide mortgage insurance and to authorize direct loans by the Housing and Home Finance Administration to help finance the cost of constructing and equipping facilities for the group practice of medicine and dentistry will help to lower the cost and raise the quality of medicine and dental care. Quality medical care is a right and necessity for all of the American people and can no longer be considered a luxury. To meet the increased demands for medical care resulting from the increased expectations of the consumer as well as the improved ability of our senior citizens to pay for care because of passage of medicare last year, not only will more medical manpower be a necessity, but also improved efficiency in the use of the manpower we now have. Because of the increase in medical knowledge, the medical profession has had to specialize. There are now 35 specialties in medicine. This division of labor brings with it the need to organize the various specialized skills and disciplines as well as health facilities to provide health services efficiently. At the same time, the medical profession has become far more de pendent upon diagnostic and therapeutic equipment as aids to diagno sis and treatment. Such expensive equipment is only economically feasible in such institutional settings as hospitals or group practice clinics. At issue is not only efficiency, but the quality of care as well. In contrast to solo practice, the group practice of medicine can provide higher standards of recordkeeping, of evaluating performance, of interchange of professional opinion and of opportunities for continuing professional education. Of particular importance is teamwork of the many specialized medical and paramedical personnel in bringing the whole range of medical skills to the patient as a whole person. It is because of the inherent advantage of group practice to both the consumer as well as to the professionally oriented doctor that the group practice of medicine has been growing rapidly in recent years. Where the group practice is combined with direct payment by consumers to provide comprehensive health care, the medical group has an incentive to practice preventive medicine because financial responsibility is not divorced from medical responsibility. The success of comprehensive, direct service. group practice prepayment plans in |