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This bill would correct that. The hinterland of America will soon be empty except for summer cottages. Everyone will move into a few of the 100 metropolitan complexities and there will be no such thing as a rural America.

Mr. SPENCE. Mr. Miller, do you desire to ask a question? Mr. MILLER. Mr. Chairman, if I might ask one question of Dr. Bingham. There has been a question directed here indicating that State and local bond issues appear to be firmer than the Federal Government. Dr. Bingham, do you care to offer an observation as to why this is so?

Mr. BINGHAM. The tax exemption on the interest from State and municipal bonds for private owners accounts for one-half to threequarters differential in some rates. Some interest rates are in favor of municipal bonds.

This is the only factor I know of which would cause any differential.

Mr. MILLER. Would you care to venture an observation as to why there is difficulty in the sale of securities in the U.S. Government bond market?

Mr. BINGHAM. Well, I am not a financial expert, particularly, sir, as to Federal income.

I do not know. I think it is a period of inflation in stock values and also a flight of capital from Federal tax liabilities through capital gains and

tax-exempt securities. This is one of the reasons for it. I just pointed out when the local governments issue bonds, the Federal Government loses a substantial revenue from the income tax due to the exempt status of these bonds.

Mr. SPENCE. If there are no further questions, Dr. Bingham, we are very much obliged to you for your statement. I know the committee will consider it when we go into executive session.

Mr. BINGHAM. Thank you.

Mr. SPENCE. The next witness is Dr. Robert C. Buerki, chairman of the Council on Government Relations of the American Hospital Association. Will you take the stand, Dr. Buerki? We thank you for coming here and giving us the benefit of your views. You may read your statement without interruption and then subject yourself to interrogation.

STATEMENT BY DR. ROBIN C. BUERKI, AMERICAN HOSPITAL

ASSOCIATION

Dr. BUERKI. My name is Robin C. Buerki. I am a physician and the executive director of the Henry Ford Hospital in Detroit, Mich. I appear before this subcommittee today in my capacity as chairman of the Council on Government Relations of the American Hospital Association, accompanied by Mr. Kenneth Williamson, its associate director.

On behalf of the association, I first wish to express our appreciation for the opportunity to discuss with you H.R. 5941 and H.R. 5944, identical bills, which would expand the public facility loan program of the Community Facilities Administration to make possible, among other things, loans to public and nonprofit hospitals. I should then wish to present our recommendations for amendments to these bills. I shall direct my remarks solely to that section of these bills dealing with hospital facilities.

The American Hospital Association is a voluntary, nonprofit membership organization with about 7,000 members, including the great majority of all types of hospitals. Among these are over 90 percent of the Nation's general hospital beds. Last year, the Nation's hospitals admitted almost 23 million patients. Our primary interest and the reason for the organization of this association-is to promote the public welfare through the development of better hospital care for all the people.

Because of our interest in the health of the American people, we are interested in the provision of health facilities. Years ago we learned that the kind of health care available to any segment of the population is directly related to the availability of hospital services. It was for these reasons, therefore, that this association participated in developing the Hospital Survey and Construction Act (the HillBurton program) and worked with Senators Hill, Burton, and Taft, who were the major architects in the Senate in the drafting of this noteworthy program, and with outstanding leaders here in the House as well, such as the late Percy Priest and former Congressman Charles Wolverton.

We believe the Hill-Burton program has been eminently successful in its operation and has caused hospitals to be built in areas that never before had any, and has thereby brought to many communities medical care that was not otherwise avaialble. One of its most important contributions has been in the stimulus it has given to statewide planning of hospital facilities, so as to meet the needs of people without wasteful overbuilding and duplication; and to the development of priority schedules to assure the orderly sequence in the building of needed facilities.

At the time the Hill-Burton program was being developed and past history with respect to hospital construction was studied, it became obvious that Federal funds should be expended in such a manner as to insure that facilities would not be built where they were not needed; that unnecessary duplication of facilities should be avoided; and that the most urgent need for facilities should be met first.

At that time, there was not statewide planning, or any other orderly means for deciding where and when facilities should be built or for assuring that each segment of the population would have enough hospital beds and not too many. The need for planning was given greater emphasis by the problem of continued support for the operation of hospital facilities, once they were constructed.

Each State was required to make an inventory of existing facilities and to document the need for beds. No grants for construction funds would be made to a State without the submission of a plan. Further, the States were required to establish priority schedules of needs for construction, in order to meet the greatest needs first and to assure that decision on particular projects would be arrived at objectively. The priority scheduling has been related to the number of hospital beds needed in each area, and the program has provided facilities in a great many areas where there were none at all.

The decision for statewide planning has proven to be a wise one, in view of the facts that neither the areas served by hospitals nor the areas from which they must draw their financial support are confined by boundaries of political subdivisions; that orderly planning and priorities would have been virtually impossible except as they were

approached on a statewide basis; and that statewide planning accords: with the responsibility of State government to assure adequate health care of its citizens.

Throughout the 12 years since its enactment, we have followed the program closely; we have maintained close communication with the hospital field regarding its operation; we have worked with the State agencies responsible for the operation of the program; we have worked closely with the Surgeon General and officers of the association have served on his advisory council; we have sponsored conferences throughout the country for discussion of the program and its operation; and we have consistently supported appropriations before the House and Senate Appropriations Committees to carry out the purposes of the program.

THE NATION'S NEEDS FOR FACILITIES

Virtually no hospitals were built from 1929 to 1939 because of the depression, and from 1939 to 1945 because of the war effort. Substantial progress has been made toward meeting this accumulative deficit of facilities through projects assisted by the Hill-Burton program, together with the construction that has taken place in those communities which have been able to undertake their own financing without governmental help.

Despite the encouraging progress, however, much still remains to be done.

The most recent surveys of facility needs within the States indicate that an additional 174,292 general hospital beds are needed. The average cost per bed for construction of these facilities is now $20,000 or more. This then would require about $3.5 billion. Additional hospital needs result from the annual population growth of about 3 million persons and from the increasing age of our population, with the greatly increased need of hospital care by persons 65 years of age and over.

Estimates of the construction cost to meet these two needs indicate an annual figure of several hundred million dollars. These figures do not contemplate expenditures for facilities to care for patients suffering from long-term illnesses and especially mental diseases.

The Hill-Burton program has contributed enormously in stimulating new construction in areas that lacked hospital facilities, and has contributed in varying degrees to meeting other problems of bed shortage.

RENOVATION MODERNIZATION, AND REPLACEMENT There is another area of need, however, to which I wish to direct your attention, and this is with respect to the renovation and modernization of existing facilities; and in some instances their replacement. A study by our association made in 1956 indicated, as of that time, an accumulated backlog of over $1 billion worth of needed renovation and modernization of our older hospitals. We believe from later studies that this figure is too conservative, and the need is now almost $2 billion.

For example, a recent study of the hospitals of the city of New York indicates that their renovation and modernization needs alone amount to about $200 million. The continued increase in construction costs has contributed to this rise in the new estimate. It must be remembered that these larger and often older institutions in every part of the Nation are the centers of medical teaching. It is in these institutions that the wonders of modern medical research must be translated into patient care through the development of techniques and procedures. It may be said literally, therefore, that the health progress of the country as a whole is in many ways dependent upon the contributions of the larger and older teaching institutions. It is, therefore, in the Nation's self-interest to see that these institutions particularly are modern and efficient, and developed so that they may be fully effective.

Further, approximately 9,500 hospital beds become obsolete each year and should be renovated. In some instances, the complete replacement of facilities is preferable to renovation and modernization. There are obsolete facilities in every section of the country, though the proportion of such institutions differs greatly. Obsolescence, moreover, is not merely a matter of age, for the rapid advances in medical techniques have rendered many institutions inefficient despite their relatively recent construction.

While the Hill-Burton program has accomplished a great deal to improve the Nation's hospital plant, it has done this primarily in terms of new construction and has left virtually untouched a serious and rapidly growing need for renovation and modernization of our older hospital facilities. The channeling of Hill-Burton funds so largely into new construction rather than renovation, together with the emphasis which that program places on rural areas, has produced in many case a pattern of modern and efficient small hospitals in regions surrounding metropolitan areas, while the metropolitan areas themselves are served by institutions many of which are far from being either modern or efficient. The plight of these urban hospitals and the growing deficiency of their physical plant are important to the total health picture.

It was for these reasons, therefore, that we recommended to the Congress last year in testimony presented to the Subcommittee on Health and Science, House Committee on Interstate and Foreign Commerce, that the Hill-Burton Act be modified so that needs for modernization and renovation should share equitably with the needs for new construction, and that the priority provisions under the program be reconsidered so that urban hospitals would be given greater consideration. Provision would have had to be made for additional authorization of funds to this program, if this need was to be met. Had our proposal been accepted, the planning and priority machinery of the Hill-Burton program would automatically have been used. This would have meant continued assurance of the orderly development of the Nation's hospital system-new hospitals would have been built where they are most needed, and existing hospitals would have been renovated, restoring them to modern efficiency.

LONG-TERM, LOW-INTEREST LOAN PROGRAM

It is the belief of the American Hospital Association that if our greatly expanded needs for health facilities are to be satisfied in the foreseeable future, public funds will be needed in very much larger

volume than are now authorized and appropriated. If the Congress decides that the existing machinery already established through the Hill-Burton program for Federal grants-in-aid should not be greatly expanded, we have felt that serious consideration should be given to the possibility of supplementing the grants by long-term loans carrying a very low rate of interest.

The Community Facilities Act, S. 3497, passed last year by the Senate as an antirecession measure, would have made both public and private nonprofit hospitals eligible for loans for construction or modernziation. Under this proposal, however, hospitals would have been competing with a wide variety of public works for whatever funds were made available, and hospitals had no assurance that a substantial proportion of these funds would be channeled to meet their great need. We believe such a proposal would in that respect and in others be less desirable than a program specifically tailored to the needs of hospitals.

However, last year, as you may know, our association gave vigorous support to the community facilities proposal, as we believed it gave more immediate promise for congressional action to meet these pressing needs, and it appeared that at that time there was little likelihood of amendments of the Hill-Burton program, so as to meet the particular needs of hospitals for financial assistance to renovate and modernize existing hospitals.

Before outlining the criteria which we think should guide the development of a loan program, I should like to discuss a moment the question which arises as to why community hospitals would come to the Federal Government for loans. The public importance of the community or private nonprofit hospitals of the country is well recognized. Congress and State legislatures have repeatedly attested to this recognition not only through the giving of many tax exemptions, but also through extension of public aid of other sorts, of which the grants under the Hill-Burton program are an outstanding example.

If these private nonprofit hospitals did not exist, Government would have had to provide a substitute. Indeed, as compared with public hospitals, nonprofit hospitals play a larger role in the provision of hospital care to the civilian population. Of the almost 23 million persons admitted to hospitals in the United States in 1957, about 15.5 million were admitted to nonprofit hospitals, about 6 million to government hospitals, Federal, State, and local, and the remainder or about 1.5 million to proprietary hospitals.

Loans are not available to many hospitals through normal commercial channels because they are nonprofit organizations and because the one-purpose nature of the facilities makes lenders wary of them as security. This does not mean in any way that hospitals are poor risks. In fact, quite the contrary: hospitals have proved to be good risks. Their financial integrity is a matter of broad community

But lending institutions, looking for more tangible security, will make loans to a very select group of hospitals. Regular business interest rates are prohibitive to many hospitals because of the increase in the cost of patient care which is imposed. With the current cost of construction, each percentage point of interest charged adds at least 50 cents, and often more, to the cost for each patient each day,

concern.

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