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ice in cooperation with Hill-Burton State agencies, revealed that it would cost $3.6 billion to modernize and replace existing facilities without increasing the total number of beds.

Projects for the modernization of existing facilities are eligible under the existing Hill-Burton program. However, the legislation requires that priority of projects be based on the relative need of different areas lacking adequate hospital facilities (specially those in rural and financially disadvantaged areas). Under such criteri, projects for the modernization and replacement of urban hospitals (without increasing the number of beds) cannot compete effectively with projects for additional beds. It is therefore essential that funds be specially earmarked for modernization and used in the States under a separate priority system.

Moreover, the legislative formula for distributing funds among the States gives heavy weight to their per capita incomes, thus placing the bulk of the funds appropriated in geographical areas which, while most in need of additional beds and facilities, are not the geographical areas in which the greatest need exists for modernization work. Funds earmarked for modernization projects under the draft bill would therefore be allotted on a different basis which takes into account not only the populations and relative financial need of the States, but also the extent of their needs for modernization.

While the Hill-Burton program is accomplishing its original objective of constructing health facilities where additional beds are most needed, particularly in rural areas, this very accomplishment creates serious imbalances between the modern plants in rural and suburban areas and the relatively obsolete and often inefficient plants in our urban areas. Our system of health facilities whereby rural and suburban facilities rely on the quality care and the specialized services of the urban hospitals-requires that these urban facilities be modernized and replaced if they are to continue their leadership role in the Nation's health and hospital program.

For the above reasons, the new modernization program represents the highest priority item included in this draft bill.

COMBINING THE CHRONIC DISEASE HOSPITALS AND NURSING HOME CATEGORIES AND INCREASING THE ANNUAL APPROPRIATION CEILING

Separate categories for the construction of chronic disease hospitals and nursing homes tend to create or perpetuate an artificial distinction between these two types of long-term care facilities which has proven to be both undesirable and unrealistic. Problems have resulted from attempts made to plan separately the need for these two similar types of facilities as required in the present legislation. It is important that the legislation encourage and stimulate States and communities to focus attention on the total services and facilities required to meet the long-term care needs (excluding mental and tuberculosis hospitals) of a given area or community rather than attempting to plan separately for facilities having the same general purpose and differing only in the degree to which medical and nursing care is provided.

The draft bill also proposes that the existing combined annual appropriation ceiling of $40 million for chronic disease hospitals and nursing homes be increased to $70 million annually for the new single category of long-term care facilities. Since the Hill-Burton program became operative in 1946, considerable progress has been made in the provision of general hospital beds, particularly in rural areas. While this progress must be continued, we should at the same time make every effort to increase the supply of long-term care beds and facilities, and bring about a better balance between long-term care beds and facilities, and hospital beds and facilities for acute, short-term care.

In 1948, this country had only 59 percent of the general hospital beds which were required. At the present time, 83 percent of the general hospital beds needed are available in this country. At the same time, however, State agencies report that over 500,000 long-term care beds are needed, and the demand of our aged population for care in long-term care facilities and beds is steadily increasing.

MORTGAGE INSURANCE FOR CONSTRUCTION AND MODERNIZATION OF HOSPITALS AND OTHER RELATED MEDICAL FACILITIES

A new program is proposed which would authorize the Surgeon General of the Public Health Service to insure mortgage secured loans for the construction or modernization of private nonprofit hospitals, nursing homes and other medical

facilities and of nursing homes operated for profit. The maximum aggregate amount of insurance liability outstanding at any one time could not exceed $250 million, increased by annual increments of $500 million on July 1, 1965, and on July 1 of each of the next 3 years. No contract for insurance could be entered into after June 30, 1969, except pursuant to a commitment to insure issued on or before that date.

To be insurable the loan secured by the mortgage for a private nonprofit hospital or medical facility could not exceed 50 percent of the value of the facility after completion of the project, and when an insured loan is approved in conjunction with a grant the total could not exceed 75 percent of the value of the facility after completion of the project. Insured loans for the construction of a nursing home operated for profit could not exceed 90 percent of the estimated value of the facility when constructed.

The principal obligation secured by the mortgage could not have a maturity date in excess of 40 years. The interest rate could not exceed 5 percent per annum, or, if found necessary to meet the mortgage market, the maximum interest could be increased by the Surgeon General to a rate not exceeding 6 percent per annum. In consideration for the Government insurance the borrower would be required to pay a premium charge fixed by the Surgeon General at a rate adequate to cover expenses and probable losses; this premium charge could not exceed one-half of 1 percent per annum of the loan secured by the mortgage and outstanding at the time.

The draft bill contains provisions designed to assure that the facilities constructed with the aid of mortgage insurance would be adequate and suitable for carrying out the purposes of the program, and are consistent with plans for health facilities developed by the designated State agencies. The usual labor standard provisions would be applicable and various powers essential to the efficient administration of such a program, and customarily conferred upon other Government agencies administering similar programs, would be vested in the Surgeon General for purposes of the mortgage insurance program.

The draft bill authorizes the appropriation of $5 million for the fiscal year ending June 30, 1965, and such additional sums as may be necessary for each of the next four years, to be available for transfer to a medical facilities insurance fund until deposits of premium charges are adequate. The fund would be used for the making of payments in connection with the default of any insured loans and for necessary administrative expenses.

To provide full assurance to mortgagees that adequate Federal funds will be available to meet promptly their claims under mortgage insurance contracts in the event of defaults upon the part of borrowers, the bill authorizes the Surgeon General to borrow from the Treasury the amount needed to pay such claims if at the time the moneys in the mortgage insurance fund are insufficient to pay them in full; amounts so borrowed would bear interest until repaid to the Treasury. The bill contains amendments to various laws applicable to banking or other investing institutions operated or regulated by the Federal or District of Columbia Governments, and an amendment to the Bankruptcy Act, which amendments would accord the same status to loans secured by mortgages insured under the bill as is accorded loans secured under other Federal insurance programs. In addition, the bill provides that no application for insurance with respect to a mortgage on a nursing home under section 232 of the National Housing Act could be approved by the Federal Housing Commissioner unless such application is filed before the close of the sixth month following the month in which this bill is enacted. This latter provision would effectuate the transfer of the Federal Housing Administration's insured loan program for construction and modernization of nursing homes operated for profit to the Public Health Service, a health-oriented agency. This would enable the Federal Government to improve its coordination of Federal aid in the construction of health facilities by focusing programs of Federal financial aid to profitmaking nursing homes, nonprofit nursing homes, hospitals, and other health facilities in the Public Health Service, which has had long experience in the planning, design, construction, organization, and operation of all kinds of health facilities, including nursing homes. Other major revisions included in the bill would:

1. Authorize the payment to the State of one-half (or such smaller share as the State may request) of the expenditures found necessary by the Surgeon General for the proper and efficient administration during a fiscal year of the State plan. Such payments would be made from any construction allotment or allotments of funds made available to the State under the draft bill, and

payments could not exceed more than 2 percent of the total of the allotments of such State for a year or $50,000, whichever is less. Any such payments would be paid on condition that there shall be expended from State sources for administration of the State plan not less than the total expended for such purposes during the fiscal year ending June 30, 1964.

2. Delete the requirement that a private nonprofit diagnostic or treatment center must be sponsored by a corporation or association which owns and operates a nonprofit hospital.

In compliance with Public Law 801, 84th Congress, there is enclosed a statement of cost estimates and personnel requirements that would be entailed by enactment of this proposed legislation.

We shall appreciate it if you will refer the enclosed draft bill to the appropriate committee for consideration.

The Bureau of the Budget advises that enactment of this proposed legislation would be in accord with the program of the President.

Sincerely,

Enclosures.

ANTHONY J. CELEBREZZE, Secretary.

Hospital and Medical Facilities Amendments of 1964-Estimate of additional cost

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DETAILED ANALYSIS, HOSPITAL AND MEDICAL FACILITIES AMENDMENTS OF 1964

In addition to substantive amendments of greater significance described below, the bill would revise the provisions of the Public Health Service Act relating to assistance in the construction of hospitals and other medical facilities, to improve and to clarify and simplify many of its provisions and eliminate provisions which are executed or no longer of value to the program.

SECTION 1

This section provides that the act may be cited as the "Hospital and Medical Facilities Amendments of 1964."

SECTION 2

Section 2 of the bill would add a new section 318 at the end of title III of the Public Health Service Act to authorize the Surgeon General to make grants to public or nonprofit private agencies for developing and supervising and assisting in carrying out comprehensive regional, metropolitan area, or other local area

plans for coordination of health and related facilities and services. Projects approved by the State agency (designated under sec. 604 (a)(1)) would be eligible for a grant of up to 66% percent of the cost of the project; however, during the first 3 years of a project, the Surgeon General would be authorized to make a grant of a larger percentage of such cost. Appropriations of $5 million for fiscal year 1965, and $10 million for each of the next 4 fiscal years would be authorized to enable the Surgeon General to make such grants.

SECTION 3

Section 3 (a) of the bill revises title VI of the Public Health Service Act and adds a program for the insurance of mortgage loans for private nonprofit hospitals and medical facilities and proprietary nursing homes.

The existing title VI contains eight parts:

Part A-Declaration of purpose.

Part B-Surveys and planning.

Part C-Construction of hospitals and related facilities.
Part D-Miscellaneous.

Part E-Declaration of purpose with respect to diagnostic or treatment centers, chronic disease hospitals, rehabilitation facilities, and nursing homes.

Part F-Surveys and planning with respect to diagnostic or treatment centers, chronic disease hospitals, rehabilitation facilities, and nursing homes.

Part G-Construction of diagnostic or treatment centers, chronic disease hospitals, rehabilitation facilities, and nursing homes.

Part H-Loans for construction of hospitals and other facilities. Parts B and F have been executed and their provisions have, consequently, not been continued in the draft bill. The other provisions of the existing title VI which are still appropriate have been continued in parts A and C of the revised title VI. Substantive changes are indicated in the following material, but many of the differences in language between the existing law and the bill are a consequence of the elimination of separate parts dealing with hospitals and public health centers on the one hand and other types of medical facilities on the other.

PART A-ASSISTANCE FOR CONSTRUCTION AND MODERNIZATION OF HOSPITALS AND OTHER MEDICAL FACILITIES

Declaration of purpose (sec. 600)

The new section 600 provides that the purpose of title VI is

(a) To assist the States in their programs of construction and modernization of public or other nonprofit community medical facilities necessary for furnishing adequate hospital, clinic, or similar services to all their people; (b) To further assist in the construction and modernization of nonprofit private community hospitals and other medical facilities and proprietary nursing homes through the provision of mortgage insurance;

(c) To stimulate the development of new or improved types of facilities; and

(d) To promote research, experiments, and demonstration, and the coordination thereof, relating to the development and utilization of hospital, clinic, or similar services, facilities, and resources.

The differences in the declaration of purpose from the existing provisions of sections 601 and 641 of the Public Health Service Act reflect the changes in the other provisions of the title.

Authorization of appropriations for construction grants (sec. 601)

This section replaces the present authorizations of appropriations in sections 621 and 651 of the existing law, which expire on June 30, 1964. It authorizes appropriations of the following amounts for grants for construction or modernization of the following types of public or other nonprofit facilities: (a) For each of the fiscal years 1965 through 1969

(1) $70 million for construction of facilities for long-term care (replacing the existing authorizations of $20 million for grants for chronic disease hospitals and $20 million for grants for nursing homes),

(2) $20 million for construction of diagnostic or treatment centers (same as existing law), a and

(3) $10 million for construction of rehabilitation facilities (same as existing law);

(b) For construction of hospitals and public health centers, $100 million for each of the fiscal years 1965 through 1969 (the existing authorization is $150 million); and

(c) For modernization of the facilities referred to in (a) and (b), $50 million for fiscal year 1965, $60 million for fiscal year 1966, $70 million for fiscal year 1967, and $80 million for fiscal years 1968 and 1969.

State allotments (sec. 602)

This section provides for allotment among the States of the sums appropriated pursuant to the revised section 601 for each of the types of facilities.

Under subsection (a) of section 602, the allotment to each State for each type of facility for which an appropriation is authorized for construction grants under subsection (a) or (b) of section 601 would be an amount bearing the same ratio to that appropriation as the product of (1) the population of the State, and (2) the square of its allotment percentage, bears to the sum of the corresponding products for all the States. This formula is the same as existing law (secs. 624 and 652), although it would be based on the actual appropriations instead of on the authorized appropriations as under section 621 of existing law. The Surgeon General would, in accordance with regulations, make allotments for grants for modernization of such facilities on the basis of the population, the extent of the need for modernization of such facilities, and the financial need of the respective States.

Subsection (b) would, however, provide a minimum allotment for each State $50,000 in the case of construction of rehabilitation centers, $100,000 in the case of construction of diagnostic or treatment centers, and $200,000 in the case of construction of facilities for long-term care, construction of hospitals and public health centers, and modernization of all types of facilities referred to above. The existing minimum for construction of hospitals and public health centers is $200,000, and the minimum for diagnostic or treatment centers is $100,000. The minimum in the bill of $200,000 for long-term care facilities combines the existing minimum of $100,000 for chronic disease hospitals and $100,000 for nursing homes. The allotments of the Virgin Islands, American Samoa, and Guam for any year would be increased up to one-half of the minima applicable to the States, but only to the extent that the Surgeon General is satisfied of the ability to use the increased allotment within the 3-year period for which their allotments are available. The increases needed to provide the minimum allotments would be derived by proportionate reduction in the allotments of the remaining States. Existing law does not specify the method of securing the funds needed for the minimum allotments.

Subsection (c) of this section sets forth the meaning of "allotment percentage." As under the existing law (sec. 631(a)), this percentage would be based on the relative fiscal resources of each State, reflected by its relative average per capita income as compared with the average per capita income of the United States, but with a minimum of 33% percent and a maximum of 75 percent, and with the percentage for Puerto Rico, Guam, American Samoa, and the Virgin Islands set at 75 percent.

Also as under existing law (sec. 631 (c)), the State populations will be determined on the basis of the latest figures certified by the Department of Commerce.

Under subsection (d) allotments to the States would, remain available for 1 year beyond the year in which allotted. This is the same as existing law (secs. 624 and 652). However, the allotments of the Virgin Islands, American Samoa, and Guam would remain available for 2 years beyond the year in which allotted.

Section 624 of the existing law, which is applicable to hospitals and public health centers, increases the amounts authorized to be appropriated for this category of facilities to the extent of any allotments for such category which are unobligated at the end of the period for which they are available, any amounts authorized to be appropriated but not appropriated for the preceding fiscal year, and any amounts which are not allotted to any State because of its failure to have an approved State plan. These provisions of this section have never been used and their continuation would not appear to serve any useful purpose in the foreseeable future. It should be noted that the present part G, relating to other types of medical facilities, does not contain any provision for increasing the authorization of appropriations in this manner.

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