STATEMENT OF HON. JOHN G. VENEMAN, UNDER SECRETARY, HEALTH, EDUCATION, AND WELFARE; ACCOMPANIED BY JAMES F. KELLY, ASSISTANT SECRETARY COMPTROLLER; CREED C. BLACK, ASSISTANT SECRETARY FOR LEGISLATION; JAMES H. CAVANAUGH, DIRECTOR, OFFICE OF PLANNING AND PROGRAM COORDINATION; AND IRVING J. LEWIS, DEPUTY ADMINISTRATOR, HEALTH SERVICES AND MENTAL HEALTH ADMINISTRATION

Mr. VENEMAN. Thank you very much, Mr. Chairman.

First of all, let me express the regret of Secretary Finch who had planned to present this testimony himself but went home yesterday at the doctor's orders as a result of a virus that he encountered over the weekend.

Also, Surgeon General Stewart has undergone surgery and had planned to be here.

I think the first application we will make for a Hill-Burton grant will be for a facility in HEW.

May I introduce the gentlemen who are with me this morning.

To my left is Creed C. Black, the Assistant Secretary for Legislation. To my immediate right is James H. Cavanaugh, Director of the Office of Planning and Program Coordination, and Jim Kelly, the Assistant Secretary Comptroller for HEW. Also with me today is Irving J. Lewis, Deputy Administrator, Health Services and Mental Health Administration.

Mr. Chairman, I think in your opening statement that you have reflected the many benefits that the Hill-Burton program has provided the people of this Nation during the time that it has been in existence since 1946.

I think the two charts to our left and right also give us a visual indication of the types of project and the effectiveness of the entire

program.

When Hill-Burton program was initiated, the country had less than 60 percent of the general hospital beds needed for the care of its people. The most critical shortages existed in rural areas, where many families lived hours away from lifesaving care. As a consequence, the program acquired a rural emphasis. It has served its purposes well. Today, despite rapid population growth, 90 percent of the Nation's need for general hospital beds is fulfilled-thanks in large measure to HillBurton.

We believe that now the priorities have changed and the needs for today are basically twofold:"

1. Modernization or replacement of existing and obsolete acute-care facilities in the hospitals;

2. Expansion of other kinds of medical facilities which can reduce the pressure on hospitals and thus help curb skyrocketing medical

costs.

It is for this reason that we are proposing a radical redirection of the Hill-Burton program.

Looking first at the need for modernization of acute-care facilities, there is a national requirement estimated by the States at $11 billion. It is obvious that a program of Federal grants cannot meet a backlog of such proportions.

We are, therefore, proposing a guaranteed loan program which we believe would stimulate the private capital it will take to bring about the modernization of acute-care facilities.

With hospital needs met in this way, we would then propose a program of block grants to encourage the States to expand such other facilities as outpatient clinics, neighborhood health centers, skilled nursing homes, and structures designed to increase efficient sharing of hospital resources.

Facilities for ambulatory care services such as those provided by hospital outpatient clinics and separate health centers will help balance our entire health delivery system. The distances traveled and hours spent in waiting for such services by millions of our people testify to the critical nature of this need in almost every community. The experience to date with the neighborhood health center indicates that this model is one highly productive way of serving individuals and families.

It is my understanding that under the OEO program we have practically 29 neighborhood health centers in operation and approximately 50 that have been funded which will be in operation within a short period of time.

Grant funds to encourage shared facilities should go a long way toward maximum utilization of scarce manpower and the prevention of unnecessary duplication of expensive equipment that is necessary. A related need is far greater availability of long-term-care facilities, especially skilled nursing homes. This need has been and continues to be accentuated by the growing numbers of our citizens in the older age groups, and by their increased capacity to pay for the care they require.

The resources to meet these and other needs of the health care system are large but ultimately limited. Therefore, it is imperative that they be invested wisely and used efficiently. It is essential that we prevent wasteful duplication and encourage cooperation and shared use of facilities.

This requirement imposes upon the health enterprise another important need-that of thorough and coordinated planning. The planning processes must involve not only all elements of our complex public-private health care system, but related sources as well.

As the members of this subcommittee well know, there are a multiplicity of such resources among Federal programs alone. Our estimates report that $295 million was paid for depreciation reimbursement to hospitals and other facilities through the medicare and medicaid programs in fiscal year 1968. This payment relates directly to capital financing. Above and beyond these are the great sources of strength in the private economy which are or can be devoted to health

purposes.

It is against this broad backdrop that we project our considerations of legislative proposals to amend title VI of the Public Health Service Act. Further, we project our urgent concerns for strengthening the health care system against the background of fiscal reality and responsibility.

H.R. 6797, which has been introduced by the distinguished chairman of the full committee, Mr. Staggers, and H.R. 7059, which bas been introduced by Mr. Rogers, both address themselves to the needs I have discussed. Both recognize the magnitude of health facility

capital financing requirements, as well as the necessity for greater local involvement in health facility planning.

However, the major thrust of H. R. 6797 and H. R. 7059 would continue the categorical grant support under the existing Hill-Burton Act. We have serious doubt that such a continuation would assure the construction, replacement, or modernization of other health facilities which are more urgently needed than general hospital beds: facilities for ambulatory care, including neighborhood health centers, extended care, rehabilitation, and shared facilities. We believe that continued application of grant funds to projects within the existing Hill-Burton categories would divert limited funds away from these specific needs.

In addition, H.R. 6797, which recognizing the need for multiple sources of Federal financial assistance, would have an impact on the Federal budget which is not consonant with this administration's efforts to stem inflationary forces and establish patterns of greater Federal fiscal responsibility. Moreover, it would continue tne existing legislative requirement of priority to projects in rural areas, even though our greatest needs are for modern facilities in the urban areas. Section 130 of the bill would extend for three additional years the provisions of Section 304 of the PHS Act, authorizing grants and contracts for the support of research and demonstrations relating to health facilities and services. We are now in the process of evaluating program accomplishments and future requirements in the field of health services research and development, with particular attention to the program functions administered through the National Center for Health Services Research and Development which was activated only last June.

Pending the completion of this program evaluation, therefore, at this time we would recommend deferment of any legislative action to extend or otherwise amend the provisions of section 304 of the act. Mr. Chairman, to achieve the goals outlined earlier, a redirected. Federal effort is essential. Specifically, we would propose that grant funds be allotted to the States as a block, rather than earmarked for specific categories. A grant authorization of $150 million, limited to construction, replacement, or modernization of the most critical types of health facilities, would result in the most effective use of Federal funds. We have not included the construction and modernization of acute hospital beds because we believe these needs can better be met through a guaranteed loan program. Additionally, we recommend the removal of the existing Hill-Burton categories to provide, a better balance of heath care facilities in the community by assisting those kinds of facilities which have traditionally been neglected or in short supply.

The proposed redirection of grant funds would afford an opportunity whereby limited Federal resources could most beneficially influence the organization and delivery of health care. Such redirection would relieve the pressures on acute-care inpatient facilities by encouraging the use of other types of facilities under conditions less expensive than the use of acute-care hospital beds. While firm estimates are not available for all health facility needs, there is a known need for an additional 164,000 extended care beds, 177 additional facilities for rehabilitation, and 872 ambulatory care facilities. The well-documented health problems of the Nation's disadvantaged

compels a further development of the comprehensive health services currently being provided by neighborhood health centers.

We propose that 80 percent of the $150 million grant program be allotted to the States for these purposes on the basis of population, per capita income, and the need for the construction or modernization of these facilities.

We further propose that before annual allotments are made to the States, 20 percent of the grant funds appropriated by the Congress be reserved for direct project grants to be made by the Secretary, after consultation with the States, for innovative projects or projects reflecting critical needs of national significance. Such projects would be eligible for assistance up to 90 percent of project cost. They could include those facilities described earlier, as well as projects of an innovative nature which would materially improve the organization and delivery of health care. The judicious use of this project grant authority would permit program flexibility in taking advantage of changing health facility relationships and would encourage new relationships among health facility construction and health services as they evolve.

Our recommendations would authorize maximum Federal support up to 66%, except for projects serving areas of greatest financial need where the maximum would be 90 percent. In addition to the increased Federal share, we recommend that the applicants for the latter projects be allowed to include in their matching participation the current value of equipment, services, and facilities dedicated by them to the project. This is a reasonable adjustment to provide greater opportunity for participation by those least able financially to produce local matching funds. At the same time, it recognizes the value of local participation in funding projects.

In order to stimulate the maximum amount of needed health facility construction and modernization, we would add to the grant program a Federal loan guarantee authority which would guarantee a maximum of $500 million in loans annually. Within each State, the aggregate of loans to be guaranteed annually would be determined in the same manner as the allotment of grant funds. All privately owned nonprofit health facility modernization or construction projects would be eligible for loan guarantees. Projects would be eligible to receive 90percent guarantees on any loan. No loan, nor any combination of loan and grant under the grant program, could exceed 90 percent of the total cost of the project.

In addition to the proposed annual grant authorization of $150 million for health facilities other than hospitals, the $500 million loan guarantee authorization for nonprofit hospitals provides a substantially increased level of Federal support for facility construction beyond what Hill-Burton now provides. The repayment by hospitals of interest and loan principal will be especially assisted by the increasing and substantial Federal payments for depreciation under medicare and medicaid. Our estimates of these amounts are $295 million for fiscal year 1968. These payments are also available to public hospitals for repayment of tax-exempt public borrowings for the construction and modernization of such hospitals.

This administration is pledged to consolidate, wherever possible, related programs. Last year the Congress enacted a program of guaranteed loans for the construction of hospitals. We recommend

that this program, which is administered by the Department of Housing and Urban Development, be replaced by a broader authority covering the needs of all types of health facilities.

With the exception of modernization grants, the present annual appropriation for health facilities construction is allotted to the States on the basis of a formula using State population and per capita income related to the per capita income of the United States. In addition, the Hill-Burton Act requires that the per capita income factor be squared. This squaring method results in an inordinately large allotment to those States with relatively stable populations and relatively low incomes. It was adopted at the inception of the program for lack of any better method for determining definitive need for health facilities. However, a more accurate basis now exists for determining need for health facilities by type and number. We propose that grant funds and loan guarantees be allotted to the States on the basis of financial need, population, and need for construction and modernization of health care facilities.

As you know, the existing Hill-Burton legislation further requires that the States, in approving projects, give special consideration to health facilities serving rural communities. Although this provision does not apply to determining the priority among facilities in need of modernization, it does cover the construction of new facilities or additions to existing facilities. The provision had substantial validity during the early years of the program when the major national health facility problem was to provide additional health facilities for rural communities. However, as the population has shifted in the last two decades from rural to urban areas, so has the greatest need for health facility financial assistance shifted from rural to urban areas. We, therefore, recommend that the rural area priority requirement be eliminated, since it is no longer responsive to the health facility needs of today.

Mr. Chairman, the extension and revision of title VI of the Public Health Service Act now pending before this subcommittee must be considered, and its final form determined, in the light of the fact that it is but one part, though an important part, of the Nation's overall health program. It is the point of departure in this Congress in our joint efforts to increase the efficiency, strengthen the capacity, and control the alarming rise in cost of our country's health care delivery system. The directions charted by this legislation can have a positive impact on each of these areas of legitimate Federal concern far beyond the initial impact of the dollars directly authorized.

The maximum utilization of local and State health planning agencies must be included in this legislation in such fashion as to anticipate the equivalent utilization of such agencies in other Federal programs. Accordingly, each project seeking financial assistance under this title should be submitted for review and comment to the appropriate areawide planning agency created under the provisions of section. 314(b) of the PHS Act. The State Hill-Burton plan should be approved by the State health planning agency created under section 314(a) before awards from the State allotment are approved and funded.

We also have under consideration legislation that would provide for reimbursement through medicare and medicaid only to institutions whose future capital expenditures are in conformance with State and local health plans. These provisions will strengthen and reinforce

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