Appendix A: The Hill-Burton Act and the American tradition of building health care

This appendix supports the section "Build the capacity" in the plan. It explains the program that section is modeled on.

What the country looked like in 1945

At the end of the Second World War, roughly 40 percent of American counties had no hospital at all. The hospitals that existed were concentrated in cities and in the richer states. The Depression had stopped almost all hospital construction for a decade, and the war had stopped it again. The Public Health Service estimated that the country was short by hundreds of thousands of general hospital beds against a standard of four and a half beds per thousand people, and that the shortage was worst exactly where incomes were lowest: the rural South, Appalachia, the Plains.

There was no market mechanism that was going to fix this. A hospital in a poor county could not earn back its construction cost from a population that could not pay, and no bank would lend against it. Where hospitals were built, they were built by philanthropy, by religious orders, by cities and counties, or not at all.

The Act

The Hospital Survey and Construction Act of 1946 was sponsored by Senator Lister Hill, a Democrat from Alabama, and Senator Harold Burton, a Republican from Ohio, and it is still known by their names. Harry Truman had asked Congress for a national health insurance program in November 1945. He did not get it, and would never get it. What he got instead was Hill-Burton, which Congress passed with broad support from both parties and which Truman signed in August 1946.

The design had three parts, and the order matters because the plan copies it.

First, the survey. Before any money moved, every state had to survey its own hospital capacity, county by county, against a federal standard for beds per population, and submit a state plan ranking its areas by need. The survey was the price of admission. A state could not receive construction money until it had documented where the shortage was, and the money then had to go to the areas the survey ranked highest. This was the first systematic inventory of American health facilities ever made, and it turned "we need more hospitals" into a list of specific counties and specific bed counts.

Second, the money. The federal government paid a share of construction cost, initially one third and later up to two thirds in the poorest areas, and the state or community paid the rest. The allocation formula favored poorer states, so that the federal share was highest where local resources were thinnest. The match was deliberate: a community that raised its own share had a stake in the building, and a hospital that a county had voted a bond issue for was a hospital the county would keep open.

Third, the conditions. A facility built with Hill-Burton money took on two obligations that ran with the building, not with the original owner. It had to provide a reasonable volume of free or reduced-cost care to people unable to pay, the "uncompensated care" obligation. And it had to serve everyone in its community, the "community service" obligation, which meant it could not turn away a patient for reasons unrelated to need. Those obligations were enforced, unevenly, for decades, and a few still bind facilities today.

What it built

Over the following three decades the program supported the construction or modernization of roughly 6,800 facilities in more than 4,000 communities and something on the order of half a million beds. By the 1970s nearly one in three American hospital beds was in a Hill-Burton building. The program built general hospitals first, then in later amendments added nursing homes, rehabilitation facilities, outpatient clinics, and public health centers. It is the reason that most mid-sized American towns, and a great many small ones, have a hospital at all. The county hospitals of the rural South and Midwest are, overwhelmingly, Hill-Burton hospitals.

It was sustained across administrations of both parties. Eisenhower expanded it. It was reauthorized repeatedly through the 1960s, and its survey-and-plan machinery became the template for the regional health planning agencies of the 1970s.

What it got wrong

Two failures are worth naming, because the plan is designed around them.

It built and walked away. Hill-Burton paid for the building and nothing else. It did not fund operating budgets, and it did not fund staff. A hospital in a poor county got a building it could not necessarily afford to run. For 20 years this was survivable, because Medicare and Medicaid arrived in 1965 and put a paying patient in the bed. When Medicare payment moved to fixed rates per admission in the 1980s and volume became the only route to solvency, the small, low-volume hospitals Hill-Burton had built became the first to close. A capital program without an operating model builds facilities that die. This is why the plan's hospitals are paid a negotiated annual budget rather than per claim (see the plan, "How hospitals get paid"), and why the operating cost of new capacity is the largest single line in the cost table.

It permitted segregation. The original Act contained a "separate but equal" clause, the only one in federal health law, that allowed states to build racially separate facilities so long as they were of equal quality. Southern states used it. The clause was struck down by a federal appeals court in 1963 in a case brought by Black physicians and dentists in Greensboro, North Carolina, against the Moses H. Cone Memorial Hospital, and the Supreme Court declined to hear the hospital's appeal. Together with the Civil Rights Act the following year, that decision made Hill-Burton money a lever for desegregating hospitals rather than for entrenching separate ones. The lesson for the plan is that the conditions attached to public capital are the point, and they have to be written on the assumption that someone will test them.

Why it ended

The program did not fail. It was allowed to lapse. Its construction grants were folded into a new title of the Public Health Service Act in 1974, and appropriations for the successor program dwindled through the late 1970s and stopped in the 1980s. Three things happened at once.

The first was a change in theory. By the mid-1970s the dominant view among health economists was that America had too many hospital beds, not too few, and that supply was driving demand: a bed built was a bed filled, whether or not the patient needed it. Federal policy turned toward restraining capacity through certificate-of-need laws, under which a hospital had to prove need to a state board before building anything. The instinct was not wrong about the urban teaching hospitals of 1975. It was catastrophically wrong as a rule applied to rural obstetrics in 2020.

The second was the turn to market financing. From the 1980s the expectation was that hospitals would fund their own expansion out of operating margins and bond markets. Hospitals that could earn margins, in wealthy suburbs, in profitable specialties, expanded. Hospitals that could not did not. Capital went where the return was, which is exactly the opposite of where the survey had sent it.

The third was that nobody was left to count. When the planning agencies were defunded in the 1980s, the country stopped maintaining a systematic inventory of where its health capacity was and where it was missing. The counties without obstetric care today are not on any federal list because no agency has been asked to make one.

What the plan takes from it

The National Health Facilities Program copies the structure and corrects the two failures.

• Survey first. A county-by-county capacity survey across every kind of facility, published and updated, before construction money moves. The plan's survey is broader than Hill-Burton's because the shortages are broader: maternity units, psychiatric beds, dialysis, dental, behavioral health, and long-term care as well as general hospital beds.
• Public capital, allocated by need. Roughly $75–100 billion a year for 10 years, which is one to two cents of every dollar the country spends on health care. Hill-Burton's total outlay over its whole life was small in the same way, and it built a third of the country's beds.
• Conditions that run with the building. Every facility built with public capital is publicly or community owned, opens its books, seats the people it serves on its board, and serves everyone. These are Hill-Burton's obligations, made enforceable.
• An operating model, this time. A reopened rural hospital gets a guaranteed annual budget that makes low volume survivable. The building comes with the means to run it, which is the piece Hill-Burton never had.
• The capital budget is separate from the operating budget. Hospitals stop funding expansion out of margins, which is how capacity ends up chasing profitable services instead of following need.