the role of our local and State partners who have primary responsibility for planning their own health systems. This will be consistent with public statements in support of planning recently made by the Blue Cross Association and the American Hospital Association. The success of the Hill-Burton program is attributable in large part to the competence and integrity of the State agencies in formulating and implementing their plans. The States have proved that they are able to develop plans responsive to the needs of their citizens, and we, therefore, propose that the statute no longer require issuance of Federal regulations setting Federal criteria that the States must follow in the formulation or modification of their State plans. The State plan would include methods of determining need and priority which provide reasonable assurance that projects would be approved in the order of need and that the purposes of the proposal would be met. In addition to uniform construction standards, we would, of course, continue to require uniform data criteria for use in the development of the formula grant equation in distributing grants among the States. Mr. Chairman, we have learned a lot about the Nation's changing health facility needs in recent years, and we now have both the opportunity and the responsibility to fulfill those needs. Legislation within the substantive and fiscal framework which I have outlined to the subcommittee would go a long way toward achieving the maximum benefits for the American people in the most efficient and effective manner. The circumstances are too compelling to warrant delay in obtaining a better health return on the dollars we are spending in the health facility field. Accordingly, I am recommending that we not wait until expiration of the current Hill-Burton authorization but that the Congress enact a redirected program along the foregoing lines effective with the fiscal year commencing July 1, 1969. I would be pleased to answer any questions that any member of the subcommittee may have, and again appreciate the opportunity to submit our proposal for redirection of a program which, as you indicated, has been most effective in helping meet the health care needs of this country. Mr. JARMAN. Mr. Secretary, we appreciate you and your associates being with us and leading off in the testimony on this tremendously important subject. The statement that you have given us is certainly thought provoking, and I am sure there will be many questions and comments to be made on it. We have had sitting in with us in the beginning of this hearing the chairman of our full committee, Mr. Staggers. Also, the ranking minority member of our committee, Mr. Springer. They will be participating in the hearing as it progresses. I might lead off with one inquiry. You propose limiting appropri ations for the program to $150 million a year, of which $30 million would be used for project grants to be made by the Secretary. What criteria would the Secretary apply in determining whether to make a project grant? Mr. VENEMAN. Essentially, Mr. Chairman, it would be on the basis of need and also, as I described in the testimony, for innovative types of projects that perhaps would not be financed through other kinds of financing that is available. I think what we are really after is primarily other than acute bed care facilities. Mr. JARMAN. In that connection, let me ask this. Of the $120 million remaining of the $150 million, to be allocated among the States, am I correct in assuming that these funds could not be used for hospital construction or modernization? Mr. VENEMAN. That is correct. That is as the proposal has been presented. But it was directed to the other types of facilities. Mr. JARMAN. Mr. Rogers. Mr. ROGERS. Thank you, Mr. Chairman. Do you think the HillBurton program now is a categorical program? Mr. VENEMAN. Well, I think we do have, Mr. Rogers, five categories, five or six categories about which we determine the grants. We are suggesting through the block grant concept that these be consolidated. Mr. ROGERS. As a matter of fact, the way the Hill-Burton program is run, don't we make a block grant to a State on a formula and then they are allowed to transfer within the various categories? Isn't that permission now given? Mr. VENEMAN. You mean does the State have the authority to make the transfer? Mr. ROGERS. Yes. Mr. CAVANAUGH. Yes. Mr. VENEMAN. I do think we do have five different categories of public and nonprofit facilities. We have the hospitals, facilities for long-term care, rehabilitative facilities, diagnostic and treatment centers. These are the types of things Mr. ROGERS. This is about what we need, isn't it, according to your testimony? Mr. VENEMAN. These are the types of facilities the emphasis of the grants would be on. Mr. ROGERS. That is right. And they can presently do that now because they can transfer from one to another. Now, do you think your proposals now are doing adequately what we should in this field? Mr. VENEMAN. In the other than acute? Mr. ROGERS. In everything that you have just proposed to this committee. Mr. VENEMAN. I think what we are suggesting here, Mr. Rogers, is a redirection that could provide this. We are suggesting that the guaranteed grant program go toward the acute bed facilities. The $150 million that we recommend for the grant portion, I believe, is slightly higher than the estimated need for the coming fiscal year for other than acute bed facilities. I think that we can meet this ultimate need of some $11 billion for modernization probably more effectively under the changing circumstances by the guaranteed loan program and utilizing the grant for other facilities. Mr. ROGERS. I have no objection, I think, to the guaranteed loan program. I think this is all right. You propose that for nonprofit hospitals? Mr. VENEMAN. Yes, the guaranteed loan program. Mr. ROGERS. That is right. So it does not go to public hospitals at all? Mr. VENEMAN. It is not proposed that it go to public hospitals. Mr. VENEMAN. The grant program would go to facilities other than hospitals, Mr. Rogers. These would be for health care facilities other than acute-care nursing home facilities, extended care facilities, neighborhood health centers. Mr. ROGERS. What about the hospitals themselves, where are they covered? Mr. CAVANAUGH. It would go to hospitals, Mr. Rogers, for the provision of services other than acute general hospital beds. It would be for emergency rooms, for diagnostic and treatment centers, for ambulatory care facilities and extended care facilities. It was envisioned the acute bed need would be met through the guaranteed loan provision. Mr. ROGERS. You are not building any public hospital through that? Mr. CAVANAUGH. Not under the guaranteed loan. Mr. ROGERS. How are you going to get them moving? Mr. CAVANAUGH. As the Under Secretary mentioned in his testimony, the title 18 and title 19 programs provided in 1968 approximately $295 million to hospitals for depreciation. Mr. ROGERS. That is being done now? Mr. CAVANAUGH. Funds that can be and should be used for capital construction. Mr. ROGERS. Isn't that being done now? Mr. CAVANAUGH. Yes. Mr. ROGERS. That is nothing new. Mr. CAVANAUGH. New in terms of the development of the HillBurton program, a program that we have had for 25 years. Mr. ROGERS. It has been going to the hospitals right now? Mr. VENEMAN. Since 1966. Mr. ROGERS. In other words, what I am trying to get at, I don't think we are really meeting the problem in what you propose. You say we are doing something right now and a lot of these hospitals claim they can't even operate with what we are giving them now and they are going into debt because of rising costs. I am not going to take any more time right now because I know other members want to question you, but I have an awful lot of questions I want to take up with you. Thank you, Mr. Chairman. Mr. JARMAN. Mr. Nelsen. Mr. NELSEN. I thank you, Mr. Chairman. I note in the information we have the change in the Hill-Burton program toward modernization in other facilities, but I had the same question in mind as Mr. Rogers stated. You refer to the expertise of the local States in the way it is being handled, having in mind that the moneys will go to the States under a State plan. In the event that needs do still continue in some areas for the established Hill-Burton approach, it seems to me that there is a possibility that we should continue to rely on the judgment in the various States, at the same time putting emphasis on these other facilities that are referred to in your very good statement. This is the thought that came to my mind. Turning to another matter, a question was directed to me concerning the $60 million that was included for research and development in 304 (d), the Public Health Service Act. What has been done with the $60 million? Information that came to my attention would indicate that some of it has been spent on some exploratory investigations relative to group practice. I would like to have for the record what has been spent and how it has been spent. Will there be a report on a continuing basis for this committee to give us information as to what the procedure will be? Mr. VENEMAN. Mr. Nelsen, I think that this is one of the items which led us to ask for the deferment so we can evaluate the effectiveness of the program. Perhaps Mr. Kelly or Dr. Cavanaugh can respond specifically to how this has been spent. Mr. NELSEN. If you will supply it for the record. Mr. CAVANAUGH. We will be happy to supply it for the record. (The following information was received for the record:) NATIONAL CENTER FOR HEALTH SERVICES RESEARCH AND DEVELOPMENT MATERIAL FOR PROGRAM COMMITTEES A total of $60 million was authorized by Section 304 of the Public Health Service Act as amended, for the final year ending June 30, 1970. The 1970 budget now pending in the Congress, however, proposes $44,975,000 for the National Center, of which it is estimated about 60% will be spent for payments under Section 304 authority. The National Center was created May 1, 1968. The Center had transferred into it, activities of several programs of the Health Services and Mental Health Administration which were related to the mission of the Center. These included Research and Development activities of the Hill-Burton program and of the Research and Development Office of the former Bureau of Health Services, both under authority of Section 304; and Community Health Service and Chronic Disease grants, contracts and research associated staff, quoting under authority of Section 301 of the Public Health Service Act. The pending 1970 budget of $44,975,000 for the National Center for Health Services Research and Development provides for activities as follows: The Center has $40,922,000 available for obligation in 1969. Research grants and contracts, totaling $32,037,000 are supporting (1) studies in high priority areas, such as medical care cost, the disadvantaged, manpower, and health care institutions; and (2) the development of seven Health Services Research Centers at universities having special interest in health services research and development. The estimated funding in these areas is as follows: Medical care cost_ Disadvantaged.... Manpower. Health care institutions__ Organization and delivery of health services.. Health Services Research Centers___ $1,200, 000 2, 500, 000 1, 100, 000 3, 000, 000 12, 000, 000 2, 107, 000 In addition, $5,335,000 is available of the support of training grants and fellowships, $4,957,000 and $378,000 respectively. The remaining $3,560,000 supports the direct operations and program direction activities of the Center. STUDIES OF GROUP PRACTICE AND PRE-PAID GROUP HEALTH PLANS Following are the current studies of Group Practice and Pre-Paid Group Health Plans supported by the National Center for Health Services Research and Development. Current Contracts.-Cost $141,000, two years. St. Louis Labor Health Institute (Teamsters Union) study and analysis of utilization and cost data on home health service, extended care service and hospitalization as it applies to a pre-paid group practice. This is a before and after study closely related to the one described next. Kaiser Permanente, Portland, Oreg., cost $425,000, two years. Integration of home health and extended care services to pre-paid group practice plan. Utilization and cost analysis-effects of these services to group practice plan. Indigent population (1,000 families) included on a trial basis. Current Grants.-New York University, cost $20,548, two years. To determine why doctors join group health practices-what do they think about group health practices-about other doctors in group health practiceshow do they respond to administrative procedure-how do they communicate with other doctors? Kaiser-Permanente, Portland, Oreg., cost $210,000/year, five years. A Center grant to study within a group practice setting, new kinds of resources, the extension of services to the disadvantaged (migrants for example) the use of new kinds of personnel in delivering services, and evaluation of the total pre-paid plan in order to improve services. This grant stems from the contract previously cited, and will extend that study into the future. University of Michigan, cost $55,913. This project seeks to measure the factors responsible for the relation of various competitive medical care plans by potential members in the city of Cleveland, Ohio. It is essentially a study of public acceptance of pre-paid group health plans. Group practice and pre-paid group health plans are incidentally included in a number of other studies pertaining to medical care utilization, but are not, in these instances, the primary focus of the research. In addition to the ongoing work, two are currently under consideration. One would compare, within a group practice (20 doctors), the utilization of services on a pre-paid and on a fee-for-service basis. The other would compare the differential utilization of health services within a Blue Cross-Blue Shield plan and a pre-paid group health plan. Emphasis would be placed upon hospitalization and out-of-hospital care, medical care utilization, and hospital discharge diagnosis patterns. The estimated cost of these contracts would be over $550,000. Mr. NELSEN. Well, referring to the bills that have been introduced. In the last session of the Congress, in conference, the interest subsidy idea was discussed and the guaranteed loan approach was discussed. Both met with a good deal of approval by all of us on the Conference Committee. But in view of the fact that no hearings had been held, we delayed action. Now, in your proposal there is no provision for interest subsidy; is that right? Mr. VENEMAN. That is correct. We are not recommending an interest subsidy. Mr. JARMAN. Would the gentleman yield? Mr. NELSEN. Yes. Mr. JARMAN. In that connection, with no interest subsidy, would this not lead to substantially higher costs that might be passed on to patients? Mr. VENEMAN. I think it would be reflected in higher costs. But I think the question is if we guarantee the loan-and we do have a provision now where we do recover capital costs through title 18, through title 19, and through most health policies-the question is who should be responsible? Should it be the patient or should it be the general taxpayer? I think, as you look at the general subsidy from a total perspective, it is a grant. Mr. NELSEN. Yes. Mr. VENEMAN. There is no other way of looking at it, if you look at it objectively. |