turn is filed is intended to provide some relief to families who are hard hit. But, the law which income-tax representatives must follow is exceedingly restrictive. A catastrophic illness is, by its very nature, unusual. It results in many kinds of medical expenses which are not defined as specified in respect to medical-expense deductions. To illustrate, in my case these were three: Transportation, special food, and care of the patient in the home-not by a registered nurse, but care prescribed by physicians at less cost. In 1 year the expenses for these items, not allowable, meant a tax of nearly a thousand dollars to me. I will not go into detail other than to say that 3 physicians and 2 of our finest hospitals in New York City-the Presbyterian Hospital and Cornell Medical Center-documented the background of the case and these items, prescribed by physicians, as directly related to the recovery of the patient. With $1,000 at stake, and since my case involved similar expenses over a period of years-1949-52-I carried it up to the United States Tax Court. At two levels I was offered 50 percent settlement, the interpretation of the law varying as to what was allowable in each case. I wish to record in this connection that I received fair treatment and consideration by those with whom I dealt, but the law and its interpretation were both restrictive. After nearly 3 years of reviews of my case before various representatives of the income-tax bureau, I finally did not go to trial in the United States Tax Court. The advice of two lawyers and an incometax expert was that I had little chance of a favorable decision and might lose all of the $1,000 involved, plus the cost of lawyers' fees and witnesses. This was in spite of written statements by 4 physicians and 2 hospitals, and the sworn affidavits of individuals. As I said before, this was due to the limited interpretation of the law that made that possible. If desired at another time, I shall make available the documentary evidence of these. My two suggestions are these: 1. When an income-tax return is flagged for a justification of major medical expenses claimed, I believe the taxpayer-in the eyes of the law and in the spirit of the law as it was intended-should have the right to a medical judgment as to whether the items in question are medical expenses, rather than be bound solely by the decision of the tax gatherer-the representative of the income-tax bureau. By that I mean that a competent impartial physician, appointed by the division of the income-tax bureau protesting the claim, should review the claim and supporting evidence, to determine the medical nature of the items protested, and how directly they are related to the recovery of the patient. This would involve a nominal cost, or fee, which I am sure any taxpayer in such a circumstance would, I believe, be willing to pay. Certainly the cost would amount to far less in the aggregate than the cost to the Government in reviewing hundreds of thousands of cases which might by the above method be solved fairly and provide the relief which I believe is intended in the law. Now, there is another aspect which I would like to bring in at this point, that there are 3,500,000 families whose medical expenses run from 20 to 100 percent or more of their income. This means more than 10 million individuals in the country are affected. Our population, according to recent figures, is divided roughly into three groups: One-third of the population under $3,000 income; about onethird has income of $3,000 to $5,000, and the other third income of over $5,000. Illness does not choose income levels, but we can assume from one-half to two-thirds of the families affected by catastrophic illnesses are in the level of $5,000 or under. Now, what is the burden of medical expenses--I ask the questionin undermining the financial interests of 10 million or more of our people-in relation to the problem of indigency, and many, many people who are caught in this dilemma become welfare cases, and serious ones, I believe. 2. My second suggestion is this: That in cases where a taxpayer can specify allowable medical costs exceeding the $2,500, or $5,000 limitation, it be permissible to carry the costs forward for 2 or 3 years, to spread the amount and permit relief, as I believe is permitted in connection with business losses. I shall be glad to amplify that point also in writing, if desired. In conclusion, I should like to project for the committee's consideration the implications of problems I have pointed out as they make their impact upon the people of the Nation. I said 3,500,000 of our families had medical expenses last year which ate up from 20 percent to 100 percent or more of their total annual income. Project that figure over the next 10 years. Being conservative, let us say that somewhere between 20 and 30 million families are going to go pretty deeply into debt and suffer severe hardships, because this figure 3,500,000 is not a static figure. It is not the same families every year. There are different families affected. Twenty million families, or two-fifths of our national population, will be affected. I thank you for your courtesy in hearing me and for your consideration of these suggestions. The CHAIRMAN. Mr. Leibert, the statement that you have made has within it some thoughts that challenge attention and should be brought to the attention of the Committee on Ways and Means that has jurisdiction with reference to our tax laws. It is my purpose to see that your statement as made here this morning is brought to the attention of that committee, so that it may have in mind the situation to which you have referred. During these hearings there have been several challenging statements that have been made to this committee indicating the need of some type of legislation that can prove helpful to individuals who have these burdensome costs for medical and hospitalization treatment placed upon them. I think it was on Friday, for instance, that we had presented to us from one of the departments of Government information that was based on reports made by only 3 insurance companies in this country that showed that there were 445,000 loans that had been procured from those 3 companies in 3 years-1 year for each of those companies-in order to enable individuals to carry heavy, burdensome, medical and hospital costs. That was a challenging statement. Today you have made a challenging statement, when you point out to this committee what ex penses can come to an individual family, when you give figures that relate to your own family. While all families may not have incurred the heavy expenses that you have, yet we are aware of the fact that there are families that do have these burdensome costs, and it is in their interest that we are endeavoring to give consideration to what will be appropriate legislation, as I have already said, under our type and structure of government. We certainly thank you for your appearance here this morning. The next witness will be Mr. William S. McNary, chairman, council of Government relations, American Hospital Association, Chicago, Ill. Mr. McNary, I understand that Mr. Gordon Gray, has a schedule that makes it rather imperative that he be heard as soon as possible. Would there be any objection on your part in permitting the committee to hear from Mr. Gordon Gray, president of the University of North Carolina before we hear you? Mr. McNARY. None at all, Mr. Wolverton. The CHAIRMAN. Then we will hear Mr. Gordon Gray. STATEMENT OF GORDON GRAY, PRESIDENT, UNIVERSITY OF NORTH CAROLINA, CHAIRMAN, COMMISSION ON THE FINANCING OF HOSPITAL CARE, CHICAGO, ILL. The CHAIRMAN. With reference to our witness, Mr. Gordon Gray, 1 who we have the privilege of having before us this morning, I would like for the committee to know that he is here to testify in his capacity as chairman of the Commission of Financing of Hospital Care. I trust Mr. Gray will explain to the committee the origin and function of that commission. Mr. Gray's regular and full-time position is that of president of the University of North Carolina. Mr. Gray served in the previous administration as Secretary of the Army and subsequent thereto as a special assistant to President Truman in preparing a report on the foreign economic policy. Mr. Gray is a native of North Carolina, and I can say that he has rendered fine service to his home State and to the Nation. We feel highly privileged in having witnesses of that character and standing, and background and experience that is possessed by Mr. Gray to testify and give us the benefit of his views on this allimportant question. We shall listen with a great deal of interest to what you have to say, Mr. Gray. Mr. GRAY. Thank you, Mr. Chairman. Mr. Chairman and gentlemen of the committee, I am grateful, of course, for the kind introductory remarks made by the chairman. As he has told you, my name is Gordon Gray and I am appearing before the committee as the chairman of the Commission on Financing of Hospital Care. The commission was established in November 1951, under the sponsorship of the American Hospital Association out of concern for better understanding of the current problems involved in financing hospital care at the lowest possible cost to the public. May I digress for a moment, Mr. Chairman, to point out that the commission was concerned with financing hospital care and was not directed originally to address itself to the total health problem. The commission was established as an independent, nongovernmental agency to study the reasons for increases in the costs of hospital care and to determine the best systems of payment for such services. The commission was also concerned with methods of bringing to the public the best quality of hospital care at the lowest possible cost. The establishment of the Commission on Financing of Hospital Care was a natural sequel to the work of an earlier commission-the Commission on Hospital Care-which made its report to the public in 1947 after a 2-year study. The 22 members of the Commission on Hospital Care, representing a cross-section of public interest, were responsible for the Nation's first comprehensive study of the general hospital. That study was primarily concerned with an evaluation of the general hospital's function as a community institution and its role in the care of all types of illness. In its 181 principles and recommendations the Commission on Hospital Care established a guide for the provision of more effective hospital care. The soundness of these recommendations is evidenced by their widespread application today in hospital administration and community planning for hospital services. Thus that commission, sponsored by the American Hospital Association, gave the leadership which, in large measure, resulted in the planned and orderly manner in which communities and States have approached their postwar hospital inprovement and expansion programs. That commission, however, recognized in its report and recommendations that a subsequent study would be needed to analyze the various problems associated with financing the care which hospitals are dedicated to provide. At the request of the then president of the American Hospital Association, Dr. Anthony J. J. Rourke, I agreed to serve as chairman of the Commission on Financing of Hospital Care. The 34 members of our commission were appointed by me after consultation with the president of the American Hospital Association and after advice from persons with special knowledge of the problems to be studied by the new commission. Lewis Strauss, until the pressure of his national security responsi bilities kept him from active participation, served as vice chairman of the commission. He was, however, of great help to us during the first year and one-half of our study, as was Robert Cutler before he was forced to resign from our executive committee and from the commission upon his appointment as special assistant to President Eisenhower. Persons who were invited to serve on the commission were asked to do so because of their interest in improved methods of financing hospital care. An attempt was made to select persons for membership on the commission who would represent a cross section of public interest. All members were appointed as individuals and not as representatives of particular interest groups. The first meeting of the commission was held in Washington on November 28, 1951. At this meeting the commission accepted its assigned task "to study the costs of providing adequate hospital services and to determine the best systems of payment for such services" and to prepare a report to the public of its findings and recommendations. From the beginning it has been the commission's desire to direct its attention primarily to those areas of immediate concern to (1) The public. (2) Hospital administrators and hospital boards. (3) Prepayment agencies. (4) Other interested groups. May I digress, Mr. Chairman, to say that in considering prepayment agencies our commission included in that category both the Blue Cross type of prepayment agency as well as the commercial insurance type of agency, and where our commission used the phrase "prepayment agencies" both types of institutions providing protection against the cost of hospitalized illnesses were included. During the early months of the study a series of five regional conferences were held throughout the Nation to formulate the commission's major areas of study in consultation with persons who, from day to day, were directly concerned with the provision of community hospital services. Around the conference tables sat doctors; hospital adminsitrators; nurses; workers in health, welfare, and community services; and representatives of industry, labor, and the general public. The conference participants posed questions which they thought, from their own local community experience, should receive commission attention. More than 400 questions were presented to the commission at the regional conferences. These questions were classified and reviewed by the staff, by a special advisory committee of experts appointed by the commission, and by the commission itself to determine as objectively as possible the definitive areas in which intensive study by the commission would be most helpful to States and communities. The areas of greatest interest, as established by analysis of the conference questions, were adopted by the commission in April 1952. They were: 1. Voluntary prepayment: An evaluation of its effectiveness for the public, for the hospital and for the community, and proposed steps for strengthening prepayment in the public interest. 2. Improved methods of financing hospital care for groups unable to afford prepayment or in other ways to pay for care: A determination of means for assuring hospitals and communities of an adequate and orderly provision for meeting the costs of hospital care for persons unable to pay for care. 3. Why does hospital care cost what it does? An appraisal of the elements of hospital cost and an evaluation of various methods for control of hospital costs. Mr. Chairman, if you will permit me a departure from the prepared statement, I might say that originally in our consideration it seemed as though we might have a fourth area which would be of a particular and special nature, which would be the effect upon costs of hospitalphysician relationships. We ultimately, I think, covered that into this third area which I have previously referred to, but I must say in not the detail and not with the careful documentation that perhaps was |