two were about the same. I do not have the exact figures on that. I can get them if you want them.

Mr. DOLLIVER. In the Hospital Construction Act, and in the administration of it, are certain standards set up there that are relatively high?

Dr. CLARK. Yes, sir. There are construction standards set up. Well, I do not know just how we would know whether they are relatively high. They are higher than some private hospital construction has been in the past, and in my judgment, justifiably so, because some of the hospitals have been pretty badly built. These are mainly standards, as I have said, for safety, for assurance of good water, and good sewage disposal, and things of that sort; safety measures for the nursery for the new born infants, operating rooms, and things of that sort. They require a certain number of square feet per bed. I cannot recollect exactly, but that is the general idea.

Mr. DOLLIVER. Thank you.

The CHAIRMAN. Any questions, gentlemen?

Mr. THORNBERRY. Mr. Chairman.

The CHAIRMAN. Mr. Thornberry.

Mr. THORNBERRY. Dr. Clark, I am interested in your discussion of the reinsurance proposal and you stated that it would be necessary to provide certain safeguards.

I would assume that you mean by that, if we are to enter upon the reinsurance proposal, that it would be necessary for anyone to qualify under the prepayment plan, or whatever is involved, that they meet certain standards set in the act or by the Federal Government.

Dr. CLARK. I should think it would be necessary, sir, if you want to have any assurance that the funds are wisely used.

Mr. THORNBERRY. I notice in your statement that you say it would be necessary to make provision for safeguards to make sure that it was rewarding the most efficiently operated plans and not rewarding inefficient or extravagant ones. I suppose from your viewpoint it would involve probably encouraging prepayment plans that are not in existence at this time?

Dr. CLARK. I do not quite understand what you mean, sir.

Mr. THORNBERRY. That are not in existence at this time. I mean plans to have new features, not in existence at this time.

Dr. CLARK. Yes; I would hope that a reinsurance scheme could be so arranged that it would, while not penalizing any honest organization, at the same time, have an incentive in it that would tend to encourage the better, the more comprehensive types. That is what I would hope.

Mr. THORNBERRY. The reason I asked the question, and of course I am sure it will be developed, and I am not as well informed on this probably as others are-probably there is no need for reinsuring the plans already in existence, because they are in existence and functioning, whether you say that they are functioning as well as you want them to or not; they are functioning, and so if you are going to introduce this policy of reinsurance somebody certainly has in mind a radical improvement or radical departure from existing conditions. Is that correct?

Dr. CLARK. I see what you mean now. I do think so and, in the case of the existing plans, whether they are comprehensive in benefits

or not, all of them are, by necessity, obliged to be rather restrictive in their enrollment. Most all of the successful ones are based on group enrollment; but if a person is not employed; if a person is retired, or handicapped, or has some chronic disease, or is not in a group that is easily accessible to enrollment, such people have a hard time getting any of this sort of insurance. They may obtain it through individual insurance company policies, but these are necessarily very expensive because of the collection problems and the sales problems in individual insurance, the expenses of which are very high.

So that I think that a reinsurance scheme could in some way assist the existing plans to enroll the poorer risks, the ones they can't or won't or at any rate do not enroll at the present time.

Mr. THORNBERRY. I believe that is all, Mr. Chairman.

Dr. CLARK. I would like to add one more thing, if I might, and that is I think it would be possible to extend the length of benefits, perhaps with reinsurance. Most of the existing plans-not all-have a certain term after which the benefits cease, and of course, the particular person with the long-term illness who is hardest hit by the expenses of a long illness is the one who is most affected by these limitations.

So I think the reinsurance proposal might be able to lengthen the term of the benefits.

Mr. THORNBERRY. Now, since you have brought that up, I believe I will ask one more question, Mr. Chairman. Maybe we have gotten far enough along with the questions, to get some information on this. Another problem in my mind is when you go into this field, is it necessarily true that the plan must contemplate, the proposal, must contemplate, that these plans must be very comprehensive or you create other problems, such as those of people who will not come within the plans, having their medical costs increased? Is that going to be involved? I notice that all of the testimony we have had here on these plans indicates that the cost of hospitalization, hospital costs, medical costs, and fees seem to have been increased. I mean, that the plans are not quite comprehensive enough. Has that been your experience?

Dr. CLARK. Well, I think that is true; but there are several factors in it. In the first place, to an extent, that is not very easily determined, the utilization of doctor services and hospital services has increased in a necessary and desirable way. People are getting something that they did not get before, and they need it.

Mr. THORNBERRY. I think that is right.

Dr. CLARK. There is also unquestionably in effect, especially with hospitalization-I should say it is quite clear-that there are some admissions that would not be admitted if they did not have insurance. That is partly due to the fact that most of the insurance for physicians' services do not include diagnostic work and X-rays, and so on, outside of the hospital. Therefore, the natural tendency for any physician and his patient, if he has got to have a series of complicated tests, is to shove the patient into the hospital, because he is insured. I do not say that that is always consciously done; but I think it is inevitable.

We have not finished the survey of the Health Insurance Plan of Greater New York sufficiently to tell whether our expenses on hospitalization has been less than that of other insurance plans or not. In the case of the Health Insurance Plan in New York, it does provide

for diagnostic and laboratory services outside of the hospital. There have been surveys in other comprehensive insurance plans that show a good deal smaller use of hospitalization by the subscribers of those comprehensive plans than by those covered by the hospitalization plans only.

But, there are difficulties in interpreting that data. I think we will have some from the New York studies in-I do not know the number of months now-it is in the works.

I do not think insurance has increased hospital costs except as utilization is reflected in the costs, and perhaps as utilization of certain laboratory, X-ray, and laboratory tests may have been a little excessive at times.

It is awfully difficult to prove that, you know, because you can show that there has been a great increase in the use of laboratory and the X-ray for everybody whether insured or not.

Mr. THORNBERRY. I think that is true.

Dr. CLARK. Now, the other thing you may have been referring to is, it is often stated that when a person has an insurance policy for physicians' services, which pays, say, $100 for a certain procedure, it is alleged, let us say, that some surgeons have raised the fee to that person a little higher than otherwise. I do happen to know of 1 individual, and this is hardly satistically valid information, 1 woman who had 2 babies in rather close succession. She had the same obstetrician. At one time she did not have the insurance-the first time—and the second time she did. She got charged just exactly the additional amount the second time that she had in her insurance policy. I think that there is a good deal of suggestive evidence that that has happened. This may not be quite so malicious as it sounds, because it could well be that the doctors in the earlier instance were not getting a decent return and in the later instance they were more nearly adequately compensated. I know that that is true of the hospitals. Mr. THORNBERRY. I think that is all right now, Mr. Chairman. Mr.HESELTON. Mr. Chairman.

The CHAIRMAN. Mr. Heselton.

Mr. HESELTON. Dr. Clark, here is a point that I would like to pursue a little further and have the benefit of your experience, especially in Massachusetts, as against the definite testimony relating largely to the area of Akron, Ohio.

That testimony indicated that there is no publicity given; there was no accounting, to the public, or available to anybody, with reference to the financial operations or costs, indicating that at least there was doubt in the minds of the public and the belief that there was a possibility that the hospitals were operating on a very profitable basis. From my limited knowledge of the situation in Massachusetts, I have been led to believe, at least in Massachusetts, there are few if any hospitals actually operating on a profit. They rely on fairly regular appeals to the public. And, the financial statements are always made available to the public.

Would you care to make a statement with reference to at least the conditions you know exist in Massachusetts?

Dr. CLARK. Yes, sir. These are the voluntary nonprofit hospitals you are referring to, mainly, I suppose.

Mr. HESELTON. Yes.

Dr. CLARK. Very few of them even break even. There are a few that take very few charity cases, that manage to about break even; but they certainly do not make a profit of any substantial size. I would not even call it a profit. In some years they may have a surplus, but they use it up the following year. It never goes to any individual as a dividend or anything like that.

And, in answer to the second part of your question, all of the hospitals in Massachusetts that wish to contract with the Blue Cross, or to receive public welfare patients have to submit to the State commission on administration and finance full financial statements annually. We are preparing ours now.

Mr. HESELTON. And is it not also true that in connection with the appeals to the public for assistance, they do furnish the essential financial statements?

Dr. CLARK. That is true. In the Boston area, the organization that raises funds is known as the United Community Services, as you undoubtedly know, and we furnish the United Community Services essentially the same full financial statement as goes to the State commission on administration and finance.

Mr. HESELTON. I recall that is true, in fact, in every part of Massachusetts.

Dr. CLARK. It is true throughout the State of all hospitals that want to contract with the Blue Cross or have public welfare patients, which means all hospitals.

Mr. HESELTON. I personally have had some experience with it in my own community. The committee on which I served had the obligation of deciding how the appropriations would be set up, for the several services in the community, and at that time the person responsible for the county hospital had to give us full and detailed statements on the income and outgo, so at least we knew what the cost of the operation of those hospitals was.

Dr. CLARK. Well, these statements are filed in the State House and are public information which anybody can get.

Mr. HESELTON. You made reference to something in your statement which has been brought to our attention repeatedly by other witnesses, when you said some restrictive legislation exist in certain States, and certain opposition tactics have been used against such plans by local medical societies.

Turning to the first point, restrictive legislation, is there any such restrictive legislation in Massachusetts?

Dr. CLARK. No; there is not, sir. Massachusetts is in a slightly peculiar situation in this regard, because in, I think, 1938-I cannot remember the year, when Senator Saltonstall was Governor-two bills were introduced in the legislature and both passed. One of these laws authorized the State medical society to organize a prepayment plan, which has been established and is known as the Blue Shield, while the other law authorized the establishment of plans under consumer auspices. One consumer plan was started, called the White Cross, but it was very hard hit by the war and most of its doctors had to go into the service and it finally folded up. The charter under that law is still in existence and as far as I know there would be nothing to prevent another plan of the same kind under consumer sponsorship to be started in Massachusetts.

The same is true in New York, where the Health Insurance Plan is in existence. The same is true in a number of States. But in about half the States there exists what appears to be restrictive legislation. Most of this has not been tested in the courts, but it is expensive to go into the courts and test legislation. So the effect of the legislation, whether it will stand up in the courts or not, has been the same as if it would, because it has discouraged efforts to form consumer-sponsored plans, since the legislation appears to restrict the right to organize medical insurance plans to the medical societies. The restrictions are worded differently in the different States.

I think that with some encouragement through the reinsurance scheme or of some other kind, such as that the chairman proposes in his bill for loans to create facilities, possibly some of this restrictive legislation might be repealed or might, at least, be court tested.

There are two States, as you perhaps have heard, where specific legislation has been enacted (two States besides Massachusetts and New York) in recent years specifically authorizing consumer-sponsored plans to operate; namely, Wisconsin and Illinois.

Mr. HESELTON. I want you to discuss briefly the second portion of that statement which you made that there is "certain opposition tactics against such plans by local medical societies." We have had testimony to that effect.

Dr. CLARK. Yes, sir.

Mr. HESELTON. I believe that there have been statements that that type of opposition varied; was not quite as vigorous in some parts of the country as in others.

At least, I would like to have your views as to what the situation is now in New England.

Dr. CLARK. The White Cross had a pretty hard time with the medical societies. I was not living in Massachusetts then, so I cannot tell you first hand just what was done. I know more about what happened in New York and in Minnesota, and I can describe it a little better in certain other places like Seattle.

I would like first, if I may, sir, to go back into history a little bit, because it happens I am a native of Minnesota, and my father was the treasurer of the Northern Pacific Railroad, and of the Northern Pacific Beneficial Association, which is a very old consumer-sponsored association. It is actually the employees of the railroad who govern it. It is a consumer-sponsored prepayment plan that began in 1883, and is still in existence. It covers voluntarily virtually all of the employees of the line from St. Paul to Seattle and Tacoma. The last I knew of it-and I cannot say that this is certain information-it was a group practice plan. The doctors are on part-time or full-time salary. The Association owns 4 hospitals, and provides service to around 20,000 employees and their families. The families are not insured but can come into the clinics and hospitals, but they pay additional fees in

that case.

I mention that plan because it started in 1883. There was no opposition to it. There never has been any. There is not any today, to the best of my knowledge anywhere in any of those States which the Northern Pacific passes through. There are a good many other industrially sponsored plans that have been in existence since the early part of this century or the latter part of the 19th century, and there

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