of nonprofit hospitals from so many Federal, State, and local taxes, it seems to us, requires that they not be taxed to relieve unemployment caused by others. The argument that nonprofit hospitals should be subject to this tax because it is levied for a special purpose, rather than for general support of government, I confess I am unable to follow. Nonprofit hospitals do not ordinarily pay school taxes, and we see no reason they should pay unemployment taxes.

EFFECT ON HOSPITALS AND HOSPITAL PATIENTS

The private nonprofit hospitals of the country employed the equivalent of 711,000 full-time persons in 1957, with an aggregate payroll of $1.9 billion, exclusive of student nurses, interns, and residents. If we assume that 80 percent of this payroll would be covered by the Federal unemployment tax, which with the present $3,000 tax base I am sure is a conservative estimate, the agregate contributions from these hospitals would be something over $45 million in the first year of coverage and nearly as much the second year, and thereafter, as experience rating came into play, would begin to taper off. The period during which the initial 3 percent rate would apply would vary from State to State, but would apparently range from 3 to 4 years in about half the States. The variations in State laws and in the condition of State unemployment funds, as well as the likelihood of changes in State laws, make any forecast of the ultimate burden on hospitals largely guesswork. We are told that a 1 per

cent State contribution is perhaps a reasonable estimate of the present nationwide average of the lowest effective rates, and to this would be added the 0.3 percent Federal tax. On the basis of 1957 payroll, these figures would mean a continuing levy of some $20 million a year. I will not take your time for discussion of the financial problems of our nonprofit hospitals. Let me say merely that these problems are serious both for the hospitals and for the public. The widespread concern about rising hospital costs has been evidenced in many ways-most conspicuously, in recent hearings in many parts of the country on rate increases to Blue Cross subscribers. Nonprofit hospitals would have no choice but to pass the burden of the proposed tax on to those who pay the hospital bills; namely, to paying patients, to subscribers to Blue Cross and other forms of prepayment, and to government to the extent that government finances hospital care of the indigent and other groups.

Taking payroll as two-thirds of total operating cost, which is about the national average, and still assuming that 80 percent of the payroll would be covered, the increase in cost would average about 1.6 percent at the outset, or 43 cents per patient day in short-term hospitals on the basis of 1957 payrolls. As reduced rates became effective, these added costs would be lessened a good deal for some hospitals and lessened somewhat for most of them, but for some would continue undiminished. If I were to guess at a nationwide average figure, the ultimate cost might be on the order of 20 cents a patient day.

Hospital wage rates, by and large, are not yet as high as the prevailing community rates for similar work. Hospital administrators and trustees are acutely conscious, I can assure you of the need to improve their wage scales, and have in fact been improving them rapidly. Thus, wages which averaged $1,330 in 1946 for a 48-hour week had reached $2,873 by 1957 for less than a 42-hour week-an increase of 116 percent in pay, and a decrease of about 13 percent in hours. Imposition of the proposed tax on hospital wages could not fail to slow down the further increase in wages, and to postpone the day when hospitals may hope to close the gap between their rates of pay and those prevailing in their communities.

The questions for this committee, as we see it, are whether the risk of involuntary unemployment of hospital employees is sufficient to justify the added burden on hospital patients; whether from the standpoint of hospital employees themselves the sums involved, if and when they become available to the hospitals, would not better be devoted to increasing the still inadequate wages; and whether there is reason enough to depart, in this instance, from the general policy of exempting nonprofit hospitals from taxation.

HOSPITALS PRODUCE ALMOST NO UNEMPLOYMENT

Let me turn now to our reasons for believing that the risk of involuntary unemployment of hospital employees is very slight. There are no statistical data available, but on what I think is the principal aspect of the question, I can speak with conviction if not with statistical precision.

Unquestionably there is a high rate of turnover among some groups of hospital employees, though for other groups this is far from being the case. Where turnover is high it may suggest, but it certainly does not prove, unemployment of kinds which would be compensable if hospitals were covered by State laws. Hospitals lose many of their lower paid employees not because they lay them off, but because these employees naturally are looking for jobs with better pay.

There is almost no seasonal or other periodic variation in levels of hospital employment, such as make for layoffs in so many industries. It is true that occupancy rates vary from time to time, but a hospital cannot reduce its staff because occupancy falls off for a few days or a few weeks. By adjustment of holiday and vacation periods, administrators can readily achieve such little flexibility as the demands upon hospitals permit in the level of their staffing. If any longer range trend toward lower utilization were to develop in a particular hospital, the effect on employment would be so gradual as to be well within normal turnover.

If you were to ask a group of hospital administrators about involuntary unemployment arising out of their day-to-day and month-to-month operations, they would answer you almost to a man that no such thing exists, and for all practical purposes I am convinced that this is true. When these hearings were announced we put this and some related questions to the presidents and secretaries of State hospital associations and metropolitan hospital councils. As of April 8 we had received replies from 15 State associations scattered across the country, and (eliminating possible duplications) from 9 metropolitan councils and a score of individual hospitals.

To our question about seasonal or other periodic variations in staff leading to involuntary unemployment, all the replies but three were unqualified negatives-that is, that no fluctuation in staffing occurs sufficient to provide layoffs. The exceptions indicated, not variation in level of staffing, but so constant a level as to require some temporary employment of substitutes, primarily during the summer vacation season. To these infrequent exceptions there should be added those occasional separations which, though not involuntary as most people apply that term, might nevertheless be compensable under the laws of some States-for example, resignations for good cause in States that recognize causes personal to the employee. Adding all such instances together, I am sure they are statistically insignificant. Hospital employment rose in each and every year from 1946 through 1957, the latest year for which we have figures, increasing by 81 percent in that period. The number of employees per 100 patients in nonprofit hospitals has risen in an 8-year period from 156 to 207. In view of the volume of hospital employment and its constant upward trend, and the yearround stability of hospital staffs, it remains true that for all practical purposes no involuntary unemployment is generated in the normal operation of nonprofit hospitals.

There are, of course, occasional abnormal occurrences in hospitals as there are in other undertakings. We inquired about possible unemployment resulting from merger of hospitals, closing of an institution or part of it for remodeling, contracting out of some service such as the laundry, and similar events which, infrequent though they are, might lead to layoffs when they do occur. Here again, the instances of involuntary separation that we have turned up can almost be counted on the fingers of one hand. In the District of Columbia three hosiptals were merged without any layoff, but contracting out of dietary service led to about 20 dismissals by the contractor. In Georgia a hospital was closed in a town that had acquired a new and larger one, with negligible dismissals of personnel. Putting together all such cases that we have learned of, I should think it very unlikely that as many as 100 persons have been discharged in these 15 States in the last 5 or 6 years.

Hospitals are very little subject to so-called technological unemployment. Bookkeeping and accounting machines may occasionally replace a few employees in the accounting department, but the numbers are so few that the personnel can be absorbed elsewhere in the organization. We see no prospect of mechanization of major hospital services, and our experience is that new developments in medical technique almost invariably increase rather than decrease our personnel requirements as witness, the steadily rising ratio of employees to patients.

Finally, we have to think about what might happen in a major depression. We have been able to find no statistical data on hospital employment and unem

ployment in the early 1930's. The American Hospital Association stated in 1935 that "unemployment has not been a serious factor in hospital problems (bulletin AHA, February 1935, p. 2), and persuaded this committee to delete nonprofit hospitals from the unemployment tax title of the original social security bill (Id., March 1935, p. 28). Replies to our questionnaire have thrown little light on unemployment in that period, but tend to indicate some reduction in hours of work rather than any extensive dismissals. Since 1935 conditions have changed in a number of respects, and with a single exception involving less than 50 employees, the recessions of postwar years have caused no layoffs that we have been able to learn of, even in the areas that were hardest hit. Thus, the executive director of the Detroit Hospital Council writes us:

"We have had, and are having substantial economic recession in this area but I do not believe it has caused any involuntary separation of nonprofit hospital employees. Hospitals have been able to tighten their belts primarily by taking advantage of normal turnover and merely not hiring replacements." Replies from other recession areas, such as Rhode Island and West Virginia, are to the same effect.

One reason for the lessened impact of recession on hospital employment is that the spread of prepayment plans has provided a financial cushion that did not exist in the 1930's, which has proved that it can absorb moderately heavy economic shocks. We can only speculate what might happen in a serious and prolonged depression, or what governmental aid might be forthcoming, but hospital service has become so essential that I would venture the guess that no wholesale curtailment of it would be permitted to take place, and that even at the worst, hospital employment would not be much affected.

To sum up: So far as concerns the normal day-to-day operation of nonprofit hospitals, we are convinced that the risk of involuntary unemployment is negligible. Such remoter risks as do exist we cannot believe are great enough to warrant adding $45 million, or even half that amount, to our annual hospital bill. And we do not believe that nonprofit hospitals, which are exempt from most taxes, should be required to contribute to the relief of unemployment produced by others.

PUBLIC HOSPITALS STILL EXEMPT

One other point I will make very briefly. State and local governmental hospitals are, of course, exempt from the Federal unemployment tax, and to the best of our knowledge they are almost invariably excluded from State compensation laws. Such exceptions as exist are apparently State institutions, probably mental and tuberculosis hospitals in the main.

In the case of short-term general hospitals, public and nonprofit institutions perform substantially the same function. All reasons of policy that argue against coverage of public hospitals, it seems to us, are applicable to the private institutions as well, and the discrimination that would result from the present proposal seems to us unjustified. Generaly in tax matters, as well as in other programs such as the Hospital Survey and Construction Act, the Congress has been at pains to treat the two groups of institutions alike. We respectfully submit that it should continue to do so.

For these reasons, gentlemen, we would urge against the inclusion of private nonprofit hospitals in the Federal Unemployment Tax Act.

Dr. GRONER. Then, in order to conserve your time, we will just move to the first page of this statement and read the summary which I think covers in essence what is contained in the complete testimony. The American Hospital Association urges against amendment of the Federal Unemployment Tax Act to include private nonprofit hospitals.

These hospitals produce virtually no involuntary unemployment either seasonal, technological, or from economic recession. For the same reasons that nonprofit hospitals are exempt from general taxation, they should not be taxed to relieve unemployment produced by others.

Inclusion of these hospitals in the tax would cost more than $45 million a year at the outset. After 3 or 4 years the cost would apparently stabilize at a level of at least $20 million. These amounts

would have to be passed on to hospital patients who are already complaining about high hospital costs. Hospital wages have been rising but are still inadequate, and hospitals need to put every dollar they can into increased wages.

Inclusion of nonprofit hospitals would discriminate against them and in favor of State, county, and municipal hospitals which will continue to be exempt. We feel there is no need because, for all practical purposes, there is no involuntary unemployment.

In 1935, in the depths of the depression, this committee investigated this and took the position that it would not bring in nonprofit hospitals.

The CHAIRMAN. Dr. Groner, we thank you for presenting to us the views of the American Hospital Association.

Mr. Curtis will inquire.

Mr. CURTIS. Do you know, Doctor, who contends or does anyone contend that there has been unemployment in our hospitals?

Dr. GRONER. So far as I know, no one has contended that the unemployment problem exists. But it is if we are included in this bill. I agree with your statement-I have never heard anyone make that contention. I wonder if the authors of the bill have some basis for assuming there was a problem here. I do not have any knowledge of what they might have been thinking of.

The bill reads "nonprofit organizations," and, as nonprofit organizations, we assume that we would be included.

Our problem, Congressman Curtis, is just the opposite. We are looking for employees.

Mr. CURTIS. I thought that was the case.

The CHAIRMAN. The other day when the representative of the Department of Labor was here, Dr. Groner, he said that we would extend coverage to about 1,300,000 additional people if we made unemployment compensation available to employees of nonprofit organizations, which, of course, would include hospitals but might not reflect in this figure any actual unemployment in these nonprofit hospitals. We will check into this. If you have some further figures that you could give us, that would reflect generally over a period of time the employment record of nonprofit hospitals, it might be helpful to the committee to include it at this point in the record.

Dr. GRONER. If we can develop those figures, we will. Our figures on all hospitals show that even during the last periods of the economic recession hospitals have continued to add more and more employees. (The following letter was subsequently filed with the committee:)

AMERICAN HOSPITAL ASSOCIATION,
WASHINGTON SERVICE BUREAU,
Washington, D.C., April 14, 1959.

Hon. WILBUR D. MILLS,

Chairman, House Ways and Means Committee, House Office Building, Washington, D.C.

DEAR CHAIRMAN MILLS: At the time of Dr. Frank Groner's testimony before your committee on April 10 on unemployment compensation, he promised to submit for the record a statement of the total personnel and total payroll of private nonprofit hospitals for the last 10 years.

For short-term nonprofit hospitals the figures are as follows:

The 1957 figures given by Dr. Groner in his statement (711,000 employees and total payroll of $1.9 billion) included long-term as well as short-term hospitals. We do not have at hand comparable figures for the earlier years. Dr. Groner's statement referred to a questionnaire we had sent to State hospital associations and metropolitan hospital councils, and summarized the answers received up to April 8.

We have now received replies from the State associations of Connecticut, Florida, Georgia, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Nebraska, New Hampshire, New Mexico, Rhode Island, South Carolina, Texas, Utah Vermont, and Washington; from metropolitan or regional hospital councils of Baltimore, central New York State, Chicago, Cincinnati, Detroit, Kansas City, and Nassau-Suffolk (New York); and from more than 30 individual hospitals in Michigan (outside Detroit), Montana, and West Virginia. These reports reinforce the conclusion expressed by Dr. Groner, that any instances of involuntary unemployment resulting from nonprofit hospital operations are so few as to be statistically insignificant.

I should like to thank you again for your courtesy to Dr. Groner and me, and for the opportunity to present the views of the American Hospital Association. I should appreciate it if you would have this letter included in the record of your hearings.

Sincerely yours,

KENNETH WILLIAMSON, Associate Director, American Hospital Association.

The CHAIRMAN. Whose employment is not affected by ordinary dips and rises in the economy like many other institutions would be affected, of course.

Dr. GRONER. No, sir.

The CHAIRMAN. Because prosperity and lack of prosperity do not determine how many patients you have in a given year at the Baptist Hospital of Memphis. I know that.

Dr. GRONER. That is correct.

Mr. CURTIS. Mr. Chairman.

Do you happen to have the figures of about how many employees there are of nonprofit hospitals?

Dr. GRONER. Yes.

In our testimony on page 3, about the fifth line from the top. There is the figure 711,000.

Mr. CURTIS. That is the reason I wanted that figure. That would be the bulk of that 1.3 million figure that was given to us.

The CHAIRMAN. No. The 1.3 might be made up this way: I do not know frankly. We will know before we get through, but we have not developed that information yet. I do not know just from which of these nonprofit organizations they get most of this 1.3 million.