and these figures are, of course, increased further as principal is required to be repaid.

Therefore, the present 51/2 or 6 percent interest rates available in the commercial market means an increased cost for each patient each day of some $3 or more, without the additional cost for amortization of the principal. We do not believe, therefore, that any loan program on the part of the Federal Government to provide funds at commercial interest rates is of any significant value, and we would not support such a loan program. Further, short-term loans are not desirable as they require refinancing with all the additional costs involved.

We believe the following specifications for a Federal loan program would best meet the needs of hospitals:

(1) Loans should give first priority to projects for modernization, renovation, or replacement of existing facilities in urban areas.

(2) The types of facilities covered, both public and private nonprofit, should be coextensive with the types of facilities covered under the basic grants-in-aid programs (part C of the Hill-Burton program).

(3) No loan should exceed 80 percent of the cost of the project, exclusive of land costs.

(4) Loans should be at the lowest possible rate of interest, and preferably not to exceed 12 percent; and should extend for a period of not less than 30 years.

(5) To be eligible, an application for a loan must be made pursuant to the approved State plan. The application should be submitted to the Surgeon General through the saine State agency administering the grant-in-aid program. The requirements of the Hill-Burton program with respect to determination of need for facilities, standards of construction, maintenance and operation and the like should be equally applicable, but new criteria would have to be established with respect to priorities.

(6) No Federal loan should be granted on a project where a Federal grant has already been made. Similarly, no such grant should be made for a project where a loan has been made.

(7) A revolving fund of at least $500 million should be established. (8) Funds should be allocated among the States, according to their needs shown in State plans.

(9) The loans should be made directly by the Federal Government to the borrowers. The program should not be one of federally guaranteed mortgage loans.

(10) Loans should not be made for the purpose of refinancing existing indebtedness.

(11) The health aspects of the program should be administered in the Department of Health, Education, and Welfare in order to facilitate the necessary close coordination with the grant-in-aid program, and in order to assure that health considerations would be dominant in the administration.

I wish to emphasize that the above specifications have been carefully developed with the particular purpose in mind that any loan program must be constructed with a view to avoiding conflict with the HillBurton grant-in-aid program and to assuring that that program is not endangered.

We also believe it is essential that no new program for Federal participation in the construction of hospital facilities be established which ignores the existing program that has done so much to assure orderly planning.

RECOMMENDED AMENDMENTS

We are greatly interested in H.R. 5941 and H.R. 5944, and wish to express our appreciation to the sponsors of these bills for the consideration they are giving to further meeting the health needs of the American people. We note particularly the contrast between these bills and the community facilities legislation considered last year.

Whereas last year's legislation encompassed a broad spectrum of facilities needed by communities, the present bills are restricted to four types of facilities which, in varying degrees, may be considered as health facilities.

Now we wish to offer to this committee the specific amendments to these bills which would carry out the thought we have developed and discussed before you earlier in this statement.

If we were to propose a loan bill for hospital purposes alone, it would differ materially from the bills which are before you, but the most essential of our recommendations can be incorporated in the bills by the two brief amendments which are set forth in the attachment to my statement and which we recommend that your committee adopt. Other of our objectives could be achieved in administration, and we urge you to lend them your support in the report of this committee.

The first of our proposals is designed to effect the necessary coordination with the existing Hill-Burton grant program. The bills in their present form would require, as a condition to approval by the administrator of any hospital loan involving additional beds, a certification by the Surgeon General of the Public Health Service that the project complies with the State Hill-Burton plan.

Our proposed amendment would expand the necessary certification to encompass the requirements that are now applicable to Hill-Burton projects with respect to Federal standards of construction, conformity in all cases with the State plan, assurance of compliance with State standards of operation and maintenance, and State agency approval and recommendation of the project.

In addition, the amendment would direct the Surgeon General to issue modified regulations in regard to priorities, and woulld require his certification that the project was entitled to priority in accordance with these regulations. The modified regulations would give special consideration to the need for repair, improvement, or replacement of hospitals in metropolitan areas which have developed areawide hospital plans that have been approved by the State agency.

The purpose of this amendment will be evident from what I have already said about the essentiality of effective statewide planning, but I should call attention specifically to the modified priority regulations that we propose. They would be designed to channel the loan funds primarily into what is both the area of greatest unmet need and the area least duplicative of the existing grant program-that is, the modernization or replacement of the older hospitals in our large cities-but they would do this only on condition that adequate metropolitan hospital plans be developed, which has not yet been done in

most of our cities, and be coordinated with the existing State plans. I need not remind you that the growth and changing structure of our large cities are posing many new problems in providing needed services to people.

The second of our proposed amendments would earmark onequarter of the revolving fund for hospital projects, public and private, and would direct the Administration in consultation with the Surgeon General to allot and reallot this amount among the States.

State hospital plans will in most cases require adaptation to serve the purpose of these bills, since the States have generally had no occasion as yet to plan for the modernization of existing hospitals. In many cities, hospital plans will have to be developed from scratch and will, of course, have to be tied in with State plans.

These processes will take time, but neither States nor cities can plan intelligently without at least a general idea of how much money may be available in loans. Since information is not now at hand to make a final allocation among the States, we suggest a tentative allocation initially, to be revised as further data become available from the States and cities.

The necessary planning processes could be facilitated and speeded up if funds were made available to States and municipalities for this purpose, as was done to assist in State planning at the outset of the Hill-Burton program. If planning grants were made, however, they should be handled by the Public Health Service and the State HillBurton agencies, in order to assure the complete coordination with existing plans which is needed. We have proposed no amendment for this purpose, and we hope you will obtain the views of the Public Health Service in respect to its necessity.

With the two amendments which we recommend, we believe that a useful and long-overdue start could be made toward the modernization of what I may term the core of our nationwide hospital system. I should be less than frank, however, if I were to leave the impression that the $250 million we suggest earmarking for this purpose would provide anything more than a start. If the program is as effective as we feel sure it can be made, we shall undoubtedly be back before long seeking enlargement of the loan authority, and perhaps a more definitive basis for its allocation among the States.

Some of the other principles which we should urge if a bill were being drawn for hospital modernization alone, as I have said, could be adopted administratively under the terms of the bill before you, and we would hope that you might indicate your support of them in your committee report as a guide to administration.

We read these bills, for example, as permitting the Administrator to make loans for less than the full cost of construction, and we think it important in assuring community support that there be a local contribution to the project-from public or private funds, according to the nature of the sponsoring organizations.

We have suggested that loans not exceed 80 percent of the construction cost. We believe, on the other hand, that loans should be made available in that amount or not much less. The whole program might be stultified if the Administrator were to impose excessive matching requirements, as we think his predecessor has done in the college hous ing program for student nurses and interns.

Similarly, the Administrator could readily refuse to make a loan for the same project for which a Hill-Burton grant has been made or is under consideration by a State agency. Please note that I say "the same project," and not "the same hospital," for one hospital may in some situations properly undertake separate construction projects.

We assume that the bills are not intended to authorize loans for refinancing existing indebtedness, a limitation with which we concur. In view of the authority to purchase securities, however, you may want to examine the wording on this point.

Finally, we are glad to note that the bills give the Administrator wide discretion in the matter of requiring security for the loans to be made. I do not know how many governmental hospitals are legally able to mortgage their property, but I do know that many of our older private hospitals are encumbered to some extent, and that a blanket requirement of a first mortgage would go far to negate the whole purpose of these bills-or, if the requirement were limited to nonprofit hospitals, to negate the purpose of including them in the legislation.

The alternative which the bills hold open, that the loans be "of such sound value *** as reasonably to assure retirement or repayment, seems to us altogether appropriate. We are not disturbed by the possibility that the Administrator might exercise an excessively rigid judgment in appraising the value of the hospital loans.

We believe that a hospital's demonstrated ability to finance its operation is a more important index of assurance of repayment than the value of its one-purpose facility. But the habit of looking to mortgage security is so deeply ingrained in lending institutions that I very much hope you will remind the Administrator, in your committee report, that rigid requirement is in this case both impractical and

unnecessary.

We could wish, as I have said, that the amount to be made available were more nearly commensurate with the needs of hospitals for modernization or replacement. We believe that the interest rate should be lower than that specified in these bills, so that charges to hospital patients might be held as low as possible.

With the amendments we have recommended, with emphasis upon administration attuned to the needs of hospitals, and with an interest rate no higher than that specified, we believe that enactment of one of these bills can make a major contribution to the health facilities of the Nation, and thus to the national well-being.

I should like to express our appreciation of the opportunity to present to you the views of the American Hospital Association. Mr. SPENCE. Thank you, Dr. Buerki.

I am sure the committee will give careful consideration to the testimony you have presented when we go into executive session. Any questions?

Mr. WINDALL. Mr. Chairman.

Mr. SPENCE. Mr. Windall.

Mr. WINDALL. Dr. Buerki, on page 9 of your statement you say the present 512 or 6 percent interest rates available in the commercial market mean an increased cost per patient each day of some $3 or more. Now, prior to that you said each percentage point of interest charge adds at least 50 cents.

Are you multiplying 50 cents times 6 percent and arriving at $3 per day?

Mr. BUERKI. Yes, that 6 percent would be the total cost of the interest that would have to be charged to the patient and that does not include the amortization of the loan.

Mr. WINDALL. So that if you got the loan of 3 percent, you would still be charging $1.50?

Mr. BUERKI. Yes.

Mr. WINDALL. The way it reads here I think one might get the idea that a 512 or 6 percent note would add $3. Now, a number of years ago I can remember when we paid $8 for a private room in a hospital and got more service than you get now for $22 to $26 per

day.

Mr. BUERKI. That is right.

Mr. WINDALL. The interest rates have not materially changed in those years. What has been the big inflationary factor in hospital costs?

Mr. BUERKI. Just before the war, and at that time I was in Philadelphia at the University of Pennsylvania, we were paying employees as low as $30 a month when industry outside was paying individuals $150 for the same kind of work. There were still people that could be gotten at that price so that first, salaries of necessity have gone up even though hospitals today still do not pay salaries comparable to industry in the same community.

Second, at that time many people employed in hospitals were working 52 hours a week. Third, and probably largest is the increasing number each year of new techniques, new skills, new needs to improve care and save lives. For example, 20 years ago or even 10 years ago there was not anything like modern heart surgery, modern great vessel surgery. Today, in an open heart operation 14, 15, or 16 trained people in special fields are required. For 5 and 6 hours these people will be in the operating room, running equipment, watching the patient, and making possible the successful operation.

This is, I admit, one of the more dramatic procedures but you can multiply these procedures just continually and of course it comes down to the place finally of how far can we go. Is it right to deny these procedures to the individual who lives across the tracks but in the case of our own family when it comes down to it, we want all the modern procedures.

Mr. WIDNALL. Doctor, I understand the great advances that have been made in hospital procedure and in curing the ill involving major cost. I also have seen a lot of minor items go up materially. Aspirin used to be free; now in many hospitals they charge 10 cents for one aspirin, which is certainly a marked change. Why is it that interest rates become the goat with respect to the charges of the hospital when everything else has gone up far beyond any change in the interest rate?

Mr. BUERKI. Hospitals have become so sensitive to the criticism of present rates that the boards of trustees just shudder when any additional increase in the rates to patients are suggested. It is one of the reasons--because some hospitals still have borrowing power at 51⁄2 or 6 percent but they just shudder at accepting this responsibility and its attendant increase in rate.

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