CALIFORNIA COMMITTEE ON
                      REGIONAL MEDICAL PROGRAMS

                                       25 Au@t 1972
         C- MacLaggan, M. 0.                                                            Paul   0.   W,ard
       Chairman.      Mr. James H. Kerr
      C John Tupper, M. 0. Branch Manager
       V'vm Chairman  DHEW Audit Agency
      DsvW L Olsscn   San Francisco Branch
       Umlaq-Treasurer
                      681 Ilarket Street'. Room 609
                      San Francisco, California 94105

                      Dear Mr. Kerr:

                      This will acknowledge your letter of August'@7th in which you enclosed a

                      draft copy of the first part of the  Audit  Report  relating  to  the  management

                      of the California R.2.  As you ha ve indicated, these  findings  pertain  to  an

                      organizational entity composed of the California  liedical  Education  and  Re-

                      search Foundation ( @-PF) and the California Committee  on  'Regional  @fedical

                      Programs (CCI*T, I-.ic.)

                      You have requested  our  comments  regarding  these  draft  documents.  No@ll-,

                      we would address our co=.ents to the redo=enda-"ions which appear  at  the  enk-'

                      of each draft; however, since the relationship between CIIIP@T, Inc. -md

                      has played such a prominent role  in  the  preliminary  discussions,  we  believe

                      that it is essential to set forth a historic description of how the CCR:-.,?.  Iz

                      CMERF relationship evolved. This history  appears  to  be  fundamental  to  our

                      ensuing comments on other  recommendations  wnicn  you  might  make.  We  believe

                      that an accurate description of the past is critical to future  ludc7ents  an@

                      developments.

                     'The California R2-T Program is based upon many volunte-.-y cooperative  arr@.-ge-

                      ments, some of which have been set forth precisely in the written record  an-@

                      some of which had been maintained through verbal agreements.  When the

                      nitude of these relationships is considered, it is to "he credit of all

                      people involved that thev have functioned so smoothly and  amicably.  It  is







                                                                                        2



               we have been able to function in what has been described on several occasions
               as a highly satisfactory manner. It is our intent to  express  these  agreements
               as clearly as possible in order that they may function as a backdrop  to  future
               decisions that we are required to make. In light of this, I have  attempted  to
             .describe in some detail the early historical relationships that developed and
               pertain essentially to page 1 of the draft enclosed in your August  7th  letter.


               I call particular attention to the last sentence of your first paragraph  which
               states "The Foundation serves as the recipient and disbursing agent of  Federal
               PJW funds and retains the power to overrule any decision or action of CCIL@IP., Inc."
               This sentence is probably technically correct in a legal sense but is not an
               accurate-reflection of the relationship that has actually existed between the two
               organizations.  Certain commitments wzre -de between @.IEPF and CC.@ , Inc.  We
               believe'these commitments have been honored to their fullest extent and, as a re-
               sult, would modify significantly the implications of the above referred to state-
               ment.  Therefore  below we have reviewed the historical commitments which are a
               matter of record, and we have provided our interpretation of their effect.


               Public Law 89-239 was signed into law on October 6, 1965.  Even before the
               enabling legislation was signed, however, interested parties were meeting
               together in California to consider the implications of the-proposed program.
               On June 15, 1965, four months before the law was signed, a meeting of the
               Deans of the schools of medicine, representatives from the California  @ledical
               Association, and others met in the office of the State Director of Public
               Health to discuss the possible implementation of this program.  Although everl-
               one present anticipated the passage of the legislation, there was a co=it=ent to












              pursue the objectives of the program whether
                                                            or not it passed.  Dr.  MacLagaan,

              representing the California.4edical Association, proposed the creation of a

              statewide planning committee to accomplish in heart disease, cancer and

              stroke planning what had been done in hospital planning.  The group concluded

              that such a coordinated approach was desirable and that the  staff  members

              from the schools and other agencies should get together to plan the next s@eps.

              Dates were set for future meetings of the Committee, which later became

              CCRMP, Inc.



              At that point in time (1965), California enjoyed an unusual insight into the

              emerging program since one of the staff members of the  DeBakey  Co=mission

              which led to the drafting of enablin- legislation to create Regional @ledical

              Programs was Dr. Borhani, Chief of the Btreau of Cnronic Diseases in the

              California State Department of Public Health.  Dr. Borhani was instrumen a

              in informing the Committee of the purposes of the new program and  he  also

              functioned as staff along with others from the State Department  of  Public

              Health to the new Committee.  The Committee at this point became known as the

              California Committee to Consider Implementation of the Recommendations of the

              President's Commission on Heart Disease, Cancer, and  Stroke.  Some  months
              later it was incorporated as "The California Coordinating 6o@ttee for Training,

              Research, Education and Demonstrations in the Fields of Heart  Disease,  Cancer,

              Stroke and Related Diseases." This name proved to  be  unmanageable.  Later  .he

              Articles of Incorporation were changed to name the corporation "California

              Committee on Regional @fedical Programs." To simplify this discussion,  we  will

              refer to the organization as CC@T, although this designation came later in

              its development.










              CCRMP and its staff group, which became known as the Committee  of  Staff

              Consultants, continued to meet in the  latter half of 1965.  During  this

             ,period they began the development of a statewide planning grant  and  con-

              tlnued to enlarge the membership of the organization.  The California

              Hospital Association was the first to be added. Later in  the  year,  the

              W ifornia Heart Association and the California Division  of  the  American

              Cancer Society were added, as well as the Deans of the Schools  of  Public

              Health, as participating members of the committee.  This  brought  repre-

              sentation on the Committee up to a total of 18.



              On September 16, 1965, the Committee had as its guests Dr. William Stewart,

              who then was Director of the National Heart Institute and later became

              Surgeon General, and Dr. Stuart Sessoms, Deputy Director of  the  National

              Institutes of Health.  They outlined the provisions of the Regional Medical

              Program legislation which was then about to be approved by  the  Congress.

              The Committee expressed again its interest in pursuing the goals  of  the

              legislation and developing an application to be submitted to the National

              'Institutes of Health for a planning grant to develop Regional Medical

              Programs (then better known as heart disease, cancer and stroke) in Califor-

              nia.




              By the time of the next  meeting of the Committee, Public Law 89-239 had been

              signed into law.  CCMFP began the consideration of tentative regional boun-

              daiies and established a subcommittee to draft the application for the plan-

              ning grant to be submitted to the entire CCZT for its consideration.




                 T%   I. -- 1 01 n 9: r, -U- rrnxfn







               the evolving planning grant application, added to its membership the newly
               developed School of Medicine at Davis, and then cons idered the question of
               incorporation into a nonprofit independent organization to carry out the
               EM program in California.  The California State Department of Public Health
               was asked to act as staff and secretariat to the proposed nonprofit cor-
               poration and to prepare all documents necessary for incorporation.  It was
               further decided to submit the final draft of the planning grant application
             ,to Washington as soon as it was fully developed.


               During the first part of 1966, the Committee continued its refinement of the
               planning application and the development of the papers necessary for incor-
               poration.  On June 81, 1966, the Secretary of State acknowledged CCRNP as a
               nonprofit corporation.  Earlier, on May 12, 1966, the planning arant appli-
               cation was submitted to the Division of Regional @ledical Programs for fund-
               iug.  A site visit to review the planning proposal by a committee of the
               HAtional Advisory Council of DRMP was held on July 14, 1966, in Berkeley.
               The site visit team considered many pertinent matters, but the end result
               was that California was designated as a single region and that CCP-MP was to
               be considered as the applicant agency for planning grants.  The original
               planning grant application had to be modified as a result of the site visit
               to indicate that California was defined "as a single region for planning"
               and that CCM.T, which had 18 members at this point, had to be expAnded by
               8 advisory members "broadly representative of the public, including labor,
               Tnanagement, consumer, minority group, and other community interests.to  The
               advisory group members did not become a part of the corporation but when added
               to the Board of Directors of the corporation the combined groups of people
               became the Regional Advisory Group to the program.  It was decided that those







               agencies and institutions wishing to participate in the Regional Medical
               Programs in California would do so by presenting proposals to CCPMP, which
               would render decisions on them in terms of their applicability to the plan-
               ning being done by CCMT and its objectives.  CCR.@T would then send the
               applications, along with CCR.NP comments, for consideration by the National

               Advisory Council and if approved, for funding.


               On June 30, 1966, the Board of Directors of the California Medical Education
               and Research Foundation met; as a part of their agenda, the matter of the
               emerging Regional Medical Programs and-CC@ was discussed.  The C,  repre-
               sentatives on CCR.KT discussed the importance of the activities of CCPM and

               indicated that CMERF should be an active participant in the program.



               On August 18, 1966, Dr. Nemat Borhani, who had been designated as  Coordinator
               for the emerging Regional Medical Program in California, was informed by tele-
               phone that the National Advisory Council of DRIIP had recommended award of the
               amount requested by CCKIP for planning. California had submitted  a  statewide
               planning application of $223,400 and an additional request for $2.5 million
               for contracting with the various medical schools for planning at the Area
               level.  The statewide application was recommended, but the $2.5 million request
               for contracting was withheld pending further study. It w@'s during this  dis-_
               cussion that the problem of fiscal responsibility was first noted.  The record
               of the telephone conversation existing at @T offices at the federal level,
               states that "We then discussed the problem of (CC.@T) as a new nonprofit
               stitution.  Dr.'Borhani said that he had anticipated the need for financial
               assurances and he would discuss this problem with Dr. Breslow, Director of
               the California State Department of Health, and officials of the LTniversity of







                                          d requesteId specific details from our Grants
             Cvmeral Accounting office an
             Mmagement Branch-"

                                           1966, Dr. Borhani received official notifica-
             In a letter dated August 19
                                         3,000 for planning by CCRMP had been recommended
              tiou that the amount of $22
                                                                                  maining
              to the Surgeon General for approval.   The letter stated that the re
              $2.5 million requested would be subject to evidence that the supplemental
                                         itutions within the California Region did  not  reo-
              grant request made by inst
                                          on their  art but instead actually coordinated
             -resent independent actions           p
                                                    ia program for RMP.  The   latter'pointed
              efforts emerging through the Californ
              out the problem of financial accountability of a new nonprofit corporation
              and made su-,,estions for formal financial backing of the corporation from

               other sources.


               CCRMP then referred the matter of financial accountability to its Staff Con-
               sultant.group. According to the October 3, 1966, minutes  of  the  Staff  Con-
               sultants group, the matter was brushed off lightly with the assurance that it
               could be handled by securing a bond from an insurance company.  The Com=littee
               advised Dr. Borhani to confer with the Chairman of CCKT and to proceed with
                the arranging of an appropriate bond.  There was reason to believe that this
                could be accomplished since, by that time, one nonprofit corporation had been
                established to manace an KT region     I-lisconsi
                                   a                           n KT, Inc. had been establi-sned
                and awarded a grant for planning in  September of 1966.  Ten Regional @led-Lcal
                Programs had been funded prior to that but, in each case, the grantee had been
                an established university or medical school.  Wisconsin P@T, Inc. had no funds
                of its awn and its Board of Directors consisted of three persons --- the  two
                presidents of the universities in Wisconsin, plus a retired insurance executive.






                                                                                  8


                This Board of three was ultimately expanded to a much-larger Board but as a
                Board of three had no problem in securing a'bond that would meet the re-
                quirements of the granting agency.  An insurance group was contacted in order
                to secure a bond for CCP,@ and arrangements were made for the members of
                CCRMP to sign the bond at its regular meeting on October 12, 1966. By  this
                @e the planning grant award had been processed, the Surgeon General had been
                advised of the award, and it was to be made in the group of awards slated for

                November 1, 1966.


                According to the minut es of CCPle for October 12  1966, CCPIIP was advise  t at
                it would function as an independent agency and become the sole recipient of
                funds under the provisions of the planning grant application submitted from
                California.  Dr. Robert Glaser, Dean o.f Stanford Medical School and Chairman
                of CCRNP, advised the Committee of its responsibilities in processing,  re-
                viewing, and funding proposals throughout the state. October 12, 1966, proved
                to be one of the more crucial meetings of CCRMP because then the question of
                financial responsibility for the funds was raised.  A telegram from Dr. Ro ert
                Marston, Associate Director of NIH and Director of DMT, stated that "Supple-
                ments to a planning grant must be made to a grantee who assumes the same res-
                ponsibilities involved in the initial grant."  This indicated that the sil-q
                for which CCPIT would be responsible could grow into a substantial  amount.
                When the discussion of the insurance bond came up, the members of CCKT pro-
                ceeded to sign the pre-arranged bond.  Representatives of the insurance co=-
                pany appeared and proceeded with the necessary signatures.  According to the
                minutes of the meeting of that date, during the discussion with the insurance
                company representatives, it became apparent that the bond was not  to be an
                insurance bond, but a liability, requiring commitment from Committee members






                                                                                    9


              to repay the insurance company up to  the total  amount  underwritten  ($100,000)
              in case of mismanagement."  After that discussion, it was decided that the
              @ers of the Committee could not sign such a document on their own or on
              behalf of their institutions, which fact seemed, at that point in time, to
              make them or their institutions liable for the amount of the grant.  It was
              then decided that the lawyers of the California Medical Association, the
              ,California Hospital Association, and the University of California should
              discuss the matter further and contact Dr. Harston's office to find a solution
              to the question of fiscal responsibility.


              There is an asterisk in those minutes of October 12,  1966,  which  refer  to  an
              explanation later added to the minutes.  This explanation states:

                    "After the meeting of October 12, this subject  was  discussed  by  the
                    attorneys and the ultimate solution found was  to  ask  the  California
                    Medical Education and Research Foundation of the  California  Nf.edical
                    Association to serve as Fiscal 'Mgent for the California Com.=ttee.
                    This was brou-ht to the attention of the me@-ers of the California
                    Committee (CCKT), who  gave  their  approval.  Subsecuently;  the  Division
                    of Regional @ledical Progra---s was contacted, which also approved  of  the
                    solution.  The face sheet of the crant application was thus revised and
                    mailed to Washinaton for review a-         deration.  Under  this  new  ar-
                                     c                 id cons
                    rangement, the California @l.edical Education.and .research  Foundation
                    <CMA) will act as the fiscal agent  and  the  California  Co=ittee  As  the
                    operating body for implementation of the  objectives  of  the  planning
                     rant application. Thus, @Ir. Howard Fassard  of  the  California  @iedical
                    9
                    Association signed the new face sheet in lieu of ',:ir. liark Berke,
                    Secretary-Treasurer of the California Committee.  Other items on the
                    face sheet remained the same."
                The following day Dr. Borhani called the Division of Regional Iledica     rogra=s
                to inform them of the action taken by CCP-NT concerning the bond.  This call,
                of course, placed the award which was to be made a,, any  moment  in  question.
                According to a memo to the files dated October 14, 1966, by  @ir.  Karl  Yordy,
                then Assistant Director, The Division of Regional @tedical Progra=s, discussed






                                                                                        10



               the question of the bonding with Grants Management.  Their conclusion was

               that the insurance company would try to recover its losses from the or-

               ganization or individual who was covered by the bond; however, it was their

               opinion that in this case the insurance company would have to move against

               the corporation rather than individual members of the Board of Directors.



               Unfortunately at this point in time, the government was only beginning its

               relationship with what it later termed  "Financially  Dependent  Organizations".

               These are organizations that have relatively no money of their own and are

               almost entirely dependent upon Federal funds for their  support.  In  fact,  the

               --qnual for financially dependent organizations was not developed by  the  Con-

               troller of HEW until June of 1970. CCRNP was one of  the  earliest  RNP  organi-

               zations of this type and few knew how to proceed  with the appropriate financial

               assurances. Since that time CCK-T itself has developed  several  of  these  or-

               ganizations, including the Drew School which is now a multimillion dollar

               operation. Undoubtedly we will develop more. But at  that  point  in  1966  the

               rules of the game were indefinite.



               On October 24, 1966, Mr. Robert Lindee, Assistant Dean at Stanford Medical

               School and acting for the Chairman of CCR.NIP, Dean Robert Glaser, went to  the

               Division of Regional @,ledical Programs to discuss this matt er.  According  to  a

               memo for the record by Karl Yordy with whom this discussion took place, the

               conversation covered the following matters:


                   "Mr. Robert Lindee, Assistant Dean at Stanford @ledical School, came to
                   my office to discuss the problems which had been encountered by the
                   California Coordinating Cc=-ittee in obtaining the performance bond.
                   As reported to me by Dr. Borhani, the insurance a-ent in San Francisco
                                                                      C)









                   who had obtained the bond, did indicate to the group that each of the
                   officers of the corporation who signed the bond could be held financially
                   responsible as individuals if the insurance company was required to vay
                   the Federal government because of an audit disallowance.  This requi--e-
                   ment was =acceptable to the members of the.corporation; and as a result,
                   their signatures were withdrawn from the bond because  this  requirement
                   for the bond seemed to be different than the bond obtained by  the  Wis-
                   consin Regional @iedical Program, Inc., even though the insurance com-
                   pany involved was t,qe same (,The Northwestern National Insurance Comoany
                   of Milwaukee): I called Dr. John Hirschboeci-,, Program Coordinator  tor
                   the Wisconsin Regional iledical Program, Inc., to discuss his understand-
                   ing of the requirements of their bond. Dr. Hirschboeck  explained  t4iat
                   they had originally contacted a bonding cortany in Baltimore which would
                   have made the same requirement of personal  financial  responsibility.
                   Finding this unacceptable, they contacted the Northwestern National
                   Insurance ComDany and were able to procure the bond without this require-
                   meat because of the personal character and standing in  the  community
                   of the officers of the corporation.  .

                   Dr. Eirschboeck then called me-back after.talking to  their  insurance
                   agent and said that it was the Wisconsin Recional @ledical Program,  nc.
                   that was bonded and not the individual members of the  corporation.  The
                   insurance a-ent also suggested that he saw no reason why the North-
                   western National Insurance Company would not allow the same procedure
                   with the California corporation if the character and standing of  -the
                   incorporators in California was demonstrated.  i-he agent also indicated
                   that perhaps the insurance agent in San .--rancisco with whom the Califor-
                   nia group was dealing was being overly cautious.,,
               When the attorneys for the California liedical Association, California HosDital
               Association, and the Universities discussed the possible way out of the dile--n
               of fiscal responsibility, the California Hospital Association and atERF both

               were suggested as possible fiscal agents.


               The term "fiscal agent" was used constantly throughout the  discussions and in
               the various communications.  The term "grantee" did not app@ar until such ti=e

               as it became obvious that the proposal which had been submitted and approved

               would need a new "face sheet".  There is perhaps a subtle distinction between
               a "fiscal agent" and a "grantee".  And there was a lack of knowledge on the
               part of the Committee concerning the technical provisions of Section 903 of






                                                                                        12



              the Regional Medical Program Law.  It  can  be  seen,  though,  from  the  written
              agreement between CCR!Q and C.ME.RF that the  two  organizations  had  a  somewhat
              different  concept of "grantee"  than  finally  emerged  within  Regional  Medical

              Programs Service.



              In a letter  dated October  27, 1966, to Dr. Marston as Chief of DRMP, Dr.
              Robert Glaser, Chairman of CCMT, set forth the agreement that had been

              reached by the CCRBT and CLE.RF:



                    "Attached herewith is a revised FACE SHEET for the planning grant
                    application from the State of California.  The initipl application
                    showed the applicant organization as the California Co=ittee on
                                                                             that  the   California
                    Regional Medical Ptogrp-s, and we are now requesting
                    ,14edical Education and Research Foundation  be  substituted  as  the  official
                    applicant for and recipient of a planning grant under PL 89-239. Cnar.-e
                    in applicant is requested in order to zeet a----4nist.-al@i-ve and financial
                    requirements or an applicant receivin(, a ,rant under PL 89-239.
                                                            0   0
                    The change in applicant in no way chan@es the planning procedures
                    as outlined in our initial application.              assurance  has  been
                    received by the California  Committee  that  California  @fedical  Education
                    and Research Foundation will act solely in an administrative capacity
                    and that policies heretofore  or  hereafter  adoDted  bv  the  California
                    Committee will be governing, and subject on!,. to Cali-.For,-ia  @ledical
                    Education and Research Fourdation's primarl c--      tment to administer
                    and account for the funds in  accordance  with  the  law  and  applicable
                    regulations and instructions of the Surgeon General.
                    The following statement of the policy has been aareed upon by the
                    California '-o-@ttee a-id California @ledical @-ducat-r-on and  Research-
                    Foundation. The California 'ledical Educatic:- and -Rpsearc-i Foundation,
                    a non-prof4-t, ta-x exe=@t education and research  or-.a-.i@zation  established
                    in 1962 by the California '-'edical -'.Sscciaticn, and acti-,@ on  behalf
                    of the California Co,-@,Ltee on -'@egional @'ed4-zal Pros-rams, wi . serve as
                    the recipient and disbursing ave@-,t of plann4n@  crant  -4uids  received
                    the U.S. Public '-@ealt'- Service for the purpcse or co=lyin- with the rec-u-
                    lations under Public Law 89-239.
                    In assuming this reSDcnsibility, California :-'edical Education and
                    Research Foundation will:
                      1.  Comply with the sDeci-@ic provisions of Section 903 of the Public
                    Health Service Act; a-,id.with

                      -t   ot 11 11 - 2-4 - 4 - , - - @ 4 ,- t- ,, @ @ , -a tin r, -, ii r (-p q -q ftil T) erf  cce







                                                                                      13

                      California Ifedical Education and Research Foundation has, for several
                      years, demonstrated its fiscal responsibility by virtue of its past
                                                                          ederal, state, and
                      history of performance in receiving grants from F
                      local agencies, and in accounting for the use of such monies following
                      the co=plet4-on of studies it has either undertaken or for which it has
                      been responsible for supervising.
                      lu assuming a similar responsibility, in serving in a fiscal and ac-
                      counting capacity on behalf of the California Co==ittee on Regional
                      Medical Programs, the California Yieciical Education and  Research  FoL,-nda-
                      tioa will be guided by, and adhere  to,  the  policy  decisions  of  the  Cali-
                      fornia Co,.-ittee on Regional @ledical Progra=s (as adopted by the full
                      Committee or the Executive Committee  of  that  organization  which  may  act
                      on its behalf). In so doing, however, the California  .@,f--dical  Educat--;cn.
                       d Research Foundation will exert only those veto powers which are in
                      conformity with.or required to adhere to Title IX of the Public Health
                      Service Act, but will in no manner make unilateral decisions which a_-a
                      at variance with the goals  and  objectives  of  the  California  Committee  on
                      Regional @ledical P-ro,-ra=s as contained in its  Dlarnin-  -rant  application,
                      or with the conditions of  performance  established  by  the  California  'uc=-
                      mittee on Regional @ledical  Programs  and  its  Advisory Co=mittee."
                 Oa October 28, 1966, the Board  of  Directors  of  @.ERF  met. one  of  the  matters
                 on its agenda was a!ERF's fiscal role   on behalf  of  CC,@.T. -The Board of Direc-
                 tors took und er consideration a  copy  of  the  letter  quoted above which Dr. Glaser
                 had written to Dr. Marston.     The minutes  of  that  meeting read as follows:


                      "Doctor 1,4aCLag,,an provided the background regarding the Co=itteets
                      formation and its efforts to  secure  a  planning  grant  from  the  National
                      Institutes of Health.  He reported that one of the obstacles to the
                      actual receipt of the monies was the  absence  of  an  agency  which  would  be
                      responsible for the fiscal and accountaDili-@,, responsibilities which
                      P.L. 89-2'@19 P-,id the ';ational Advisory Council required.  L-ne capab-.'l-'.-,ies of
                      CMERF had therefore been offered and accepted bv the California Co---'z-@ee.
                      Mr. Fas8ard e.%?lained the conditions under which C'-L-:RF could assume  t",4-s
                      fiscal role.  The conditions-cited were unanimously approved by the ---card.
                      Mr. Hassard then read the letter  addressed  by  Dean  Robert  J.  Glaser  to
                      Doctor Robert Q. '@'-@.arston in which these conditions were offered as a  asis
                      for designating C2-@F,7, @s the responsible fiscal agency to serve on be-alf
                      of the California Co---;ttee.  The Board uiani=ouslv aDvroved of the c3ndi-
                      tions set -@orth 4--,i Doctor Glaser's letter of October ;-7 -,,;,-iicli would re-:ise
                      the planning @ra-it adtlicaticn originally    submitted bv the Califor-.i-La
                                    0
                      Committee on ae7ional -'edical Progra@ , -nd  then  authorized  'ikir.  Hassard
                                      t)       -
                      to sign the revised application Face Sheet."
                 The following day a new face sheet was prepared and signed by @'r. Hassar-1.       @e
                 face sheet was added to the project proposal as it was      originally prepared and

                 .qnnroved bv the National .dvisory Council when  CC,@T  was  to  be  the  grantee.






                                                                                      14


               There were no changes or amendments made except for the face sheet.


               On November 10, 1966, Mr. Hassard then received notification of approval of
               the planning grant application as submitted by the California Medical Educa-
               tion and Research Foundation in the amount of $223,400.  On the s.--p day,
               however, a letter was addressed to Dr. Nemat Borhani from the Chief, Develop-
               inent and Assistance Branch, Division of Regional Medical Programs, indicating
               that DP1.IP had "concern that the applicant organization, the California  Medical
               Education and Research Foundation, cannot be considered to  have  the  experience
               in handling large and numerous Federal grants and subcontracts nor the financial
               resources which would be essential if it were to serve as the grantee organi-
               zation for multiple large supplementary or operational grants".  The letter then
               went on to suggest that California should arrange to adopt a plan comparable to
               that being contemplated for Texas at that time where one of the universities
               would serve as the grantee.  This letter again threw the @ Program in California
               into consternation but it did raise the point that Texas  was  developing  a@ree-
               ments.among institutions where the grantee was protected in the  event  that  any
               one of the participating institutions misspent or mismanaged  an  of  the  funds.
                                                                               y
               These agreements, in essence, made the institutions misspending the funds no=inall
               responsible for the exception in place of the grantee.  No one knew the validity
               of these agreements, but most assumed that they  could  be  m.ade to work.


               The above letter of -,ovember 10 was followed almost i=ediately by another letter
               from Dr. Itarston indicating in effect that CC@T should ignore the previous letter
               Dr. Marston stated that "Though we succested the possibility of those in Califor-
                                                      ac,
               nia adopting an arrangement similar to that in Texas, you should not feel bound




                                                                                               15




                       suggestion in any way-"
             b,y th is  u

                                                        fornia Medical Education and Research
             Dr.  Marston  indicated  that  if  the  Cali
              Foundation gave evidence of the existence of legally binding agreements with
              other institutions or agencies within the region assuring that the participating
              institutions would expend funds only in accordance with an approved budget and
              would be required to reimburse OIERF for any funds which might be subsequently
              disallowed, then the arrangement would be satisfactory.  This position was
              ultimately accepted by CCP-NT and the award that had already been made was accepted.

                                                                              d  and had been deposited
                                             tion of  the  fundina  had  arrive
               The check for the first por
               in a newly created account under CERF's name (known as  M@RF II) but devoted
               solely to the operation of CCPIT, Inc.  on 'February 24j 1967, the Board of
               Directors of CI.ERF met to confirm certain interim actions taken in regard to
                                                                              k the foll@,qinc, aC@4ons:
                CCI*IP by @.iEpF. The  minutes  indicate  that  the  Board  too

                                                         PALT-L T @ AS E.)MCUTIVE D@@CTOR
                       "COliFM'%IATIOI',' OF APPOI'@qT.@cENT OF
                       OF CCPIIT
                       The Board confirmed, by unanimous vote, the anpoint'rent of Paul Ward
                       as Executive Director of the California Cc---4ttee on Rec.-i-onal iled4-cal
                       Programs; such aDDoint--ent effective as of January 1, 1967,
                       the date on which      Ward  was  employed  by  the  Califo.rnia L@ledical
                       Education and Research Foa-,idation.
                       RELATIONSHI.- OF C-ZM-RF TO  CC@'T
                                                             s surro=,,Iir.@ the C@E-:PF adplica-
                       The Board revieged the circiLnstance                0
                       tion for plannin- -.rant funds for regional Medical Dro@r@-s under
                       P.L.  89-239.  It  reiterated  the  facts  that:   c@ERF is the iezal
                                                          ')S                              which
                       grantee of such funds; that the      -7.e@er  aAviso@,,  co-@ttee
                       is designated as the California Cor---itt--e c,-i --,e-bi-onal @led4-cal
                                 (CCT"T) is, in fact, tie advisory Co=-ittee to             for
                       Programs
                                            application which '-as   -revioLs-L,; been received,
                                      ,-rant                    L,   r,
                       the planning         t  r,2q,,,ests still oeid4-Ln-; that the 7--@ecutive
                       as well as for 7ran
                       committee on L'ne CCF@'2 could loc,,icall-v serve as the ooeratii,,,,
                                                             a-,id that at least one officer






                                                                                            16



                                                                           DICAL PROGRAM
                   FINANCIAL STRUCTURE LND ACCON,TABILITY OF REGIONAL
                   FUNDS
                   Mr. Hassatd informed the Board of the bookkeeping system which had been
                   developed.  The svstem is so designed as to maintain separate bank
                   accounts and records for the receipts and  expenditures  of  each  of  the
                   organizations and institutions involved  in  carrying  out  planning  pro-
                   grn?n-.. Thus, C@!EPF itself has been designed as CL@--.RF 1. The  initial
                   grant received on behalf of the statewide planning staff, of which Paul
                   Ward is Executive Director, is-@,JERF 2.  The funds to be received in
                   the future will similarly be designated numerically for each of the
                   medical schools, CLIA, and CIMA.  The Board approved of the system which
                   has been developed."
             -Thus, the CL,,EERF Board has honored its part of the above agreement.  It estab-
               lished a bank account (DEP-7-2), devoted solely to CCP,@ purposes which has
               been administered according to "the policy  decisions  of  the  CCRIT."  CIERF
               has exercised no veto powers and has made no "unilateral decisions which are
               at variance with the goals and objectives of CC@IP". Although C.%IA  and  :its
               local societies have at times taken positions which might be interpreted as
               limiting the scope of       these positions have not been enforced throuch tie
               CEERF fiscal mechanism but instead have been presented for    debate and decision
               by the full CC@T Regional Advisory Group.  The executive Committee of CC.@2
               has served as the operating committee making most fiscal decisions not dee@-ed
               proper to refer to the full CCP,%T.  On the other side of the agreement @ERF
               has "in serving in a fiscal and accounting capacity on behalf of CCR',%IP"
               caused periodic audits to be made and accounting practices to be reviewed by
               their retained audit firm, John F; Forbes and Co.  THis firm has acted both
               ,as auditors of accounts and advisors on accounting practic   es.  In siin"-ation,
               generally the terms of the oricinal agreement which was approved by DKT have
               been complied with and to date there has been no need or request to modify
               the arrangement. We would suggest  that  the  phrase  "retains  the  power  to
               overrule" goes beyond the facts of the situation in view of the history and

               the written agreement.







                                                                                   17

                                                            -d in Draft Finding No. 19
               Tur-aing now to the recommendations which appear
                                                   e current requirement for Area office
               you have recommended that we expand th
               budgeting by functional categories on the KT Form 8, to include budget data
                                                            itoring the execution of ap-
               for (a) developing project proposal and (b) mon
               proved projects.  Your second recommendation is that we require Area Offices
               to account for and report actual costs by the functional categories estab-
               3-ished in the core budgets and explain any significant deviations from the

               budget.

               From the point of view of sound and effective management, no one could argue
               with the value of these recommendations.  As program managers, we are also in
               general agreement with the substance of the draft critique leading up to these
               reco=endations and in fact have taken steps to respond to the "PROGRki FOR
               IEPROVI',\-G TF-E QUALITY OF G@@@'TEE @ILNAGEI@T;@T" published by the Controllers of
               D104 on June 1970.  We do believe, however, that it is necessary to consider
               both the history of the development of the California P-@T program and the
               fact that the program has been engaged in a far wider spectrum of activities
               at the Area level than is indicated in the body of the Draft.  Many of these
               activities lend themselves to a structured planning and budgeting system
               while others have defied the best thinking of institutional and Federal
               management experts.  Because of the philosophy advanced in the early stages
               of the program and the program's history of development, we, as managers,
               have been constantly made aware that our management Dolicies and procedures
               should not stifle initiative and innovation or produce an institution that
               is so rigid that it would be unable to respond to the unusual dictates and

               objectives of the program.


                          r,.-tA.@linpq wp-re filled with idealistic implorations to maintain a







                                                                                      18


              of the program made unusual efforts to indicate that program direction would
              not come from the top but instead ideas should emerge from'the lowest grass-
              root level possible and filtrate upward for funding and support.  The fact that
              only very general guidelines were published about the program and virtually
              no regulations were issued indicates the extreme attempts that were made by,
              DHEW to see that the program operated from.the bottom up and not from the top

              down.



              The Guidelines were filled with such vague state=eits as this effort "calls
              for the development of Regional @'Ledical Programs which create an effeCt4ve.
              environment for continuing adaptation, innovation, and modification', and
              "The Regional Medical Programs present the medical interest within a region
              with an instrument of synthesis that can capitalize on and reinforce the
              various trends and resources,, It and "It is the interaction of these tren s at
              this time, rather than an abstract conceptualization, which not only justifies
              but requires a synthesizing force such as the Regional i@f.--dical ProgrnmA" and
              "Among various identified needs, there also are often relationships which,
              when perceived, offer even greater opportunities for solutions."  'The dan@er
              of project visualization, which is akin to tunnel vision, must be guarded
              against."  The above sentences in the Guidelines indicate the vagueness with
              which the program was begun.  Yet this was deliberate in order to assure that
              the program would avoid direction from above and attempt to capitalize to the
              greatest degree possible on actions and concepts that would em=ate from the
              lowest possible level within the health care system.  This may have been
              highly idealistic and impractical, but it was a deliberate attempt to deter-
              mine whether or not progress could be made in this fashion and thereby avoid

              directives and regimentation from the top down.







                                                                                19


              At this point in time that philosophy may seem rather far afield from the
              question of budgeting and accounting procedures.  It did permeate all as-
              pects of the program however, and as people in institutions become involved
              in the program, essentially from a voluntary point of view, they jealously
              guarded that concept in all of the various areas of operation, including

              fiscal management.
              The development of the California region involved other facts and conditions
              that tended to emphasize this philosophy.  As indicated earlier in this letter,
              several uni versity medical centers were involved in forming what eventually
              became CCM,-T, Inc.  Some of these medical centers had developed planning
              grant applications in 1965 and submitted them to NIH for funding during the
              time when the combined group was developing theirs.  As a result of the 1965
              site visit, they were obligated to withdraw these planning grant applications
              and join with CCMIP, Inc. in the planning process.  As the record indicates,
              the first site visit decided that California would be one region for planning.
              A.lthough a later site visit team and the National Advisory Council dedided
              that California would also be a region for operations, at the time of the first
              planning grant some of the university medical centers believed that they would
              have their own region when they entered the operational stage.  The fact that
              California was made a region for operational purposes was accepted with so-.e
              reluctance by the centers concerned.  There was a continuo us strugale for local
              autonomy in all aspects of the program and subsequent site visit tepmq gave de
              facto recoo,,nition to the local autonomy.  Although there was never any question
              raised by the site visit teams or by the National Advisory Council concerning
              California's status as a region, recognition for local autonomy-was given in

              the way the site visits were structured.  '"lien site visit teams came to
              California at later dates, not only did they review the region as a whole, but







                                                                                20


                                                  parate visits with the areas concerned.
             they also scheduled individual and se
             A.s management we anticipated the need for better budgetary and expenditure
             controls, although we felt that we had little authority upon which to pro-
             ceed.  -Prior to the publication by DHEW in June 1970 of its -annual for
              "Financially Dependent Organ izations," our Region Office spent a considerable
              period of time exploring the possible implementation of program budgeting.  It
              was discussed with the areas and it was discussed with the fiscal people at the
              university level.  The concept was eventually abandoned, however, with the ad-
              vent of the new KTS forms for reporting and the deliberations of the @T
              TASK Report.  We believed that we were.meeting the requirements of the pro-
              gram by converting to the new forms  and we further believed that a further
              tightening of the system was not feasible at that time.
              Ve would make two 'general comments about the implications of the Draft Report.
               The first is that it lists five basic functions of each Area Office.  We be-
               lieve that this is a rather narrowly drawn definition of Area Office functions
               and might lead to the conclusion that the development and management of funded
               projects is an adequate measure of the Area Office's success or failure.  We
               believe that this conclusion would be erroneous and extremely unfortunate if
                left to stand as valid.  Project development and management is but one product
                of the activities intended to be the function of @T. Other activities, such
                as establishing recional cooperative relationships, the acts of providing in-
                formation and resources to providers that could not otherwise be obtained by
                them, and the acts of keeping discussions going about the health needs and
                providing suggestions as to how they might be resolved certainly are as i=-
                         nq nroiect development itself.  These latter acts, while possible






                                                                                  21



               of describing and listing, often defy cost analysis
                                                                simply because no one
               can estimate the value of their final result.  In addition, any listing
               of the functions of an Area Office would have to be considered a perpetually
               changing list.  To illustrate but one example, functions 1 and 2 listed in
               the Draft indicate that the Areas-are identifyin- the health care needs and
               assessin-z- medical resources in the Area. To be sure, we have,been doing this
               to the extent that we have found it necessary, but essentially this should be
               the function of Comprehensive Health Planning.  To :the degree that CHP is able
               to perform its functions in these two areas, @ can then abandon its efforts.
               Certainly we should be phasing out of these two activities as CaP becomes
               more sophisticated And able to accomplish its own objectives.  We would then
               respond to the needs and resources as indicated in the CHP determinations.

               The second implication is that projects are developed which are of measurable
               magnitude and that, in essence, the program staff in the Area is the sole source
               and developer of the proposal. It is difficult for us to determine how the
               cost figure cited in the Draft was determined, but it creates a completely er-
               roneous concept of what is being done.  Some projects are developed in their
               totality by the Area Staff, but in keeping with the original philosophy of ,he
               program, many projects are developed by groups outside of-the Area Office
               and are submitted to them for some degree of assistance in their final pre-
               paration.  These projects are then reviewed at the Area level by the Area
               Advisory Group to determine their appropriateness to meet Area needs as well
               as the appropriateness of the manner in which the project proposes to meet
               the needs.  This manner of program development rollows from KT's NIH heritage.
                                                              .L
               It will be recalled that independent groups, usually in universities and







                                                                              22


                                                  d submit them to NIH for funding-
             medical centers, develop proposals an
             one of the major additions of the KT program was that there was to be in
             existence a paid staff to help the community develop proposals to submit
             for funding.  It would be erroneous if we assume that all NIii proposals
              are prepared by unpaid interested parties, since =any NIH proposals are
              prepared by persons borrowed from other NIH funded projects.  But the ILQO
              approach was to be a more honest and direct approach.  We were to provide
              paid staff to help the cot=unity develop a proposal to do what it believed
              needed to be done.

              Another aspect that has to be emphasized is that the Area Staff prepares
              projects not only for P-@T funding but also for a wide variety of other
                     a           Although on first glance this might seem 'to be a distor-
               fundina sources.
               tion of P,"T purposes, it nevertheless has been -.@  incorporated into the
               normal routine of the program.  Projects funded from other sources reach into
               several millions of dollars, including emergency medical services projects
               that were funded from other sources, Area Health Education Center projects
               which are about to be funded by the Bureau of Health !,,Ianpower, and several
                other types of projects aimed at NIH funding.  In addition, there is always
                an element of gambling present in attempting to meet the health needs of tne
                community.  In each fiscal year there are always earmarked funds.  Those wno
                are able to correctly anticipate these earrarN-2ngs can begin the develo?=ent
                of proposals early enou@n to assure funding.  If you begin proposals early,
                however, and the earr-arkings failed to materialize, then sometimes you have
                 gambled in vain.  Last year funds were earmarked for Emergency @'edical
                 Services, Area Health Education Centers, Kidney Disease, among others.  Per-
                 ---- -- -@Clif')nq that anticipated these earmarkings usually had an advantage.






                                                                                  23





            for adoption-

                                                              willing to recommend to
            iu short$, we wish to state that we are more than
                              uld move in the direction indicated by the recommenda-
             CMw that we sho                                            n made toward this
                    and state further that sone,procrress has already bee
             tiorist                                                  definition of area
                                                            he narrow
                               with the draft statement is t       I
             eud.  our problem                            .  nal budgeting and cost
             office function and the assumption that functio
                                                   roauctiOn pattern of the program,
              accounting would greatly change the p

                                                                       Program Review
                                                    the formation of a
             Progress which has been made includes                     ogram and fiscal
                                                  roup which reviews pr
             .Committee of the pegional Advisory G
                                        ar.  A fiscal management information system pro-
                    s three times per ye                  0
              report                   diture reports from the area  Offices on a monthly
              vides data based on ex-pen                                        g methods
                                                    ttee is curr ntly considerin
              basis.  our Regional Evaluators Commi             e
                                                                      rting and is de-
               of structuring and streamlining fiscal and program repo
                                                            r current reporting form.
               veloping an improved instrument to replace ou
                                                  elop,@ent of effective planning budgeting
               We continue to believe that the dev
                                                       'rea offices and must ta-e into ac-
               and reporting systems must involve our a
                count their needs and resources.'-A-S a result,. we have undertaken the develop-
                                                                      f placing useful in-
                ment of a rational system that assumes the necessity 0
                formation in the hands of responsible managers at all levels.


                Very truly yoursv






                      n- ward








                       CALIFORNIA COMMITTEE ON
                       REGIONAL MEDICAL                     PROGRAMS

                                         25 August 1972
         C. MacLaggan, PA. 0.                                                               Paul  O.Ward
      Chain"an
                       Mr. James E. Kerr
     C- John Tupper. M. D. Branch Manager
      VKe Chairman
                       DHEW Audit A-ency
                                    0
     David L Oisson    San Francisco Branch
       @ury-Treasuret
                       681 liarket Street, Room 609
                       San Francisco,, California 94105

                       Dear Mr. Kerr:

                       This will acknowledge your letter of August.7th in which you enclosed a

                       draft copy of the first part of the Audit Report relating to the  @-lagement
                       of the California R-@.  As you ha  ve indicated, these findings pertain  to  an
                       organizational entity composed of the  California  Ifedical  Education  and  Re-
                       search Foundation (in.@-PF) and the California Committee on '.Regional  @ledical

                       Programg (CC%@2, Inc.)
                       You have requested our   comments regarding these draft  documents.  -\'orr-ally
                       we would address our co=.ents to the reco=endallions  which  appear  at  the  en.-

                       of each draft; however, since the relationship between C%"P@-T,  Inc.  and  C@@-R:
                       has played such a prominent role  in  the  preliminary  discussions,  we  believe
                       that it is essential to set forth a historic description of  how  the  CCR:,.?  I:

                       OFERF relationship evolved. This  history  appears  to  be  fundamental  to  our
                       ensuing comments on other  recommendations  which  you  might  make.  We  believe
                       that an accurate description of the past  is  critical  to  future  iud-=ents  an(

                       developments.
                      'The California F-@T Program is based upon many volunt@ry  cooperative  arrar,,z-e-

                       ments, some of which have been set  forth  precisely  in  the  written  recor  anz

                       some of which had been maintained through verbal agreements
                                                                                      .  When the  m@,.

                       nitude of these relationships is considered, it is to the credit of all
                       people involved that thev have  functioned  so  smoothly  and  amicably.  It  is






                                                                                        2


              we have been able to function in what has been described on several occasions
              as a highly satisfactory manner. It is our intent to  express  these  agreements
              as clearly as possible in order that they may function as a backdrop  to  future
              decisions that we are required to make. la light of this, I have  attempted  to
              describe in some detail the early historical relationships that developed and
              pertain essentially to page 1 of the draft enclosed in your August 7th  letter.


              I call particular attention to the last sentence of your first paragraph  which
              states "The Foundation serves as the recipient and disbursing agent of  Federal
              REP funds and retains the power to overrule any decision or action of CCP,@T, Inc."
              This sentence is probably technically correct in a legal sense but is not an
              accurate. reflection of the relationship that has actually existdd between the two
              organizations.  Certain co@tments ware made between @.:EPF and CC,%2, Inc.  We
              believe' these commitments have be en honored to their fullest 8xtent and, as a re-
              sult, would modify significantly the implications of the above referred to state-
              ment.  Therefore, below we have reviewed the historical commitments which are a
              matter of record, and we have provided our interpretation of their  effect.


              Public Law 89-239 was signed into law oa October 6, 1965.  Even before the
              enabling legislation was signed, however, interested parties  were  meeting
              together in California to consider the implications of the -proposed progra--.
              On June 15, 1965, four months before the law was signed, a meeting  of  the
              Deans of the schools of medicine, representatives from the California  @ledical
              Association, and others met in the office of the State Director of  Pub  ic
              Health to discuss the possible implementation of this program. Although everl-
              one present anticipated the passage of the legislation, there was a co=mit=ent to






                                                                               3




                     the objectives of the program whether or not it passed.  Dr. MacLag-an,
              pursue
              representing the California Medical Association, proposed the creation of a
              statewide planning co=mittee to accomplish in heart disease, cancer and
              stroke planning what had been done in hospital planning.  The group concluded
              that such a coordinated approach was desirable and that the staff  members
              from the schools and other agencies should get together to plan the next steps.
              Dates were set for future meetings of the Committee, which later became

              CCRMP, Inc.



              At that point in time (1965), California enjoyed an unusual insight into the
              emerging program since one of the staff members of the  DeBakey  Co=ission
              which led to the drafting of enablinc, legislation to create Regional '.Iiedical
              Programq was Dr. Borhani, Chief of the Bureau of C,,ironic Diseases in the
              California State Department of Public Health.  Dr. Borhani was instrumental
              in informing the Committee of the purposes of the new program and he  also
              functioned as staff along with others from the State Department of  Public
              Health to the new Committee.  The Committee at this point became known as the

              California Committee to Consider Implementation of the Recommendations of the

              President's Commission on Heart Disease, Cancer,  a.td Stroke.  Some  months
              later it was incorporated as "The California Coordinating Committee for Training,
              Research, Education and Demonstrations in the Fields of Heart Disease, Cancer,
              Stroke and Related Diseases."  This name proved to be unmanageable.  Later ?--he

              Articles of Incorporation were changed to name the corporation "California
              Committee on Regional 4'fedical Programs."  To simplify this discussion we will
              refer to the organization as CC@T, although this designation came later in

              its development.








              CCRMP and its staff group, which became known as the  Committee  of  Staff
              Consultants, continued to meet in the  latter half of  1965.  During  this
              period they began the development of a statewide planning  grant  and  con-
              tinued to enlarge the membership of the organization.  The California
              Hospital Association was the firit to be added. Later  in  the  year,  the
              California Heart Association and the California Division  of  the  American
              Cancer Society were added, as well as the Deans of the  Schools  of  Public
              Health, as participating members of the  committee.  This  brought  repre-

              sentation on the Committee up to a total of 18.


              On September 16, 1965, the Committee had as its guests Dr. William Stewart,
              who then was Director of the National Heart Institute and later b  ecame
              Surgeon General, a-,id Dr. Stuart Sessoms, Deputy Director of the  National
              Institutes of Health.  They outlined the provisions of the Regional Medical
              Program legislation which was then about to be approved  by  the  Congress.
              The CoTnmittee expressed again its interest in pursuing the  oals  of  the
                                                                           9
              legislation and developing an application to be submitted to the National
              Institutes of Health for a planning grant to develop Regional Medical
              Progrq-.-, (then better known as heart disease, cancer and stroke) in Califor-

              nia.



              By the time of the next meeting of the Committee, Public Law 89-239 had been
              signed into la-a.  CCM-IP began the consideration of tentative regional boun-
              daries and established a subcommittee to draft the application for the plan-
              ning grant to be submitted to the entire CC@T for its consideration.






               the evolving planning grant application, added to its membership the newly
                                                      and  then  cons.idered the question of
               developed School of Medicine at Davisg
               :Lnc                   profit independent organization to carry out the
                 orporation into a non
                                                                         nt f  Public  Health
               RMP program in California.  The California State Departme    0
               was asked to act as staff and secretariat to the proposed nonprofit cor-
               poration and to prepare all,documents necessary for incorporation.  It was
               further decided to submit the final draft of the  planning  grant  application
               .to Washington as soon as it was fully developed.


               During the first part of 1966, the CoTnmlttee continued its refinement of  the
               planning application and the development of the papers  necessary  for  incor-
               poration.  On June 8, 1966, the Secretary of State acknowledged CCRNP as a
               nonprofit corporation. Earlier, on May 12, 1966,  the  planning  arant  appli-
               cation was submitted to the Division of Regional @ledical Programs  for  ftmd-
               :iug.  A site visit to review the planning proposal by a committee of the
               i4Ational Advisory Council of DRNP was held on July 14, 1966, in Berkeley.
               The site visit team considered many pertinent matters, but the end result
               was that California was designated as a single region and that  CCRMP  was  to
               be considered as the applicant agency for planning grants4  The original
               planning grant application had to be modified as a result of  the  site  visit
               to indicate that California was defined "as a single region for planning"
               and that CCKT, which had 18 members at this point, had to be expanded by
               8 advisory members "broadly representative of the public,   including   labor,
               management, consumer, minority group, and  other  community  interests.11  The
               advisory group members did not become a part of the corporation but when added
               to the Board of.Directors of the corporation the combined groups of     people
               became the Regional Advisory Group to the program.  It was decided    that those







              agencies and institutions wishing to participate in the Regional Medical
              Programs' in California would do so by presenting proposals to CCP,@, which
              would render decisions on them in terms of their applicability to the plan-
              ning being done by CC@ and its objectives.  CCP-@IP would then send the
              applications, along with CCP-@ comments, for consideration by the National
              Advisory Council and if approved, for funding.


              Oa June 30, 1966, the Board of Directors of the California Medical Education
              and Research Foundation met; as a part of their agenda, the matter of the
              emerging Regional Medical Programs and-CC@ was discussed.  The CMA repre-
              sentatives on CCMT discussed the importance of the activities of CC&MP and
              indicated that C,,MERF should be an active participant in the program.


              On August 18, 1966, Dr. Nemat Borhani, who had been designated as Coordinator
              for the emerging Regional Medical Program in California, was informed by tele-
              phone that the National Advisory Council of D@-T had recommended award of the
              amount requested by CCRNIP for planning.  California had submitted a statewide
              planning application of $223,400 and an additional request for $2.5 million
              for contracting with thd various medical schools for planning at the Area
              level.  The statewide application was reco=ende(f, but the $2.5 million request
              for contracting was withheld pending further study.  It was during this dis-
              cussion that the problem of fiscal responsibility was first noted.  The record
              of the telephone conversation existing at M-IP offices at the federal level,
              states that "We then discussed the problem of (CC.@T) as a new nonprofit in-
              stitution.  Dr.'Borhani said that he had anticipated the need for financial
              assurances and he would discuss this problem with Dr. Breslow, Director of
              the California State Depart=ent of Health, and officials of the University of







                                                   .d specific details from our Grants
             General Accounting office and  requeste
             Management Branch."

                                           1966, Dr. Borhani received official notifica-
             in a letter dated August 19,
             tion that the amount of $223,000 for planning by CC@ had been recommended
                                                                            the remaining
             to the Surgeon General for appr6val.  The letter stated that
             $2.5 million requested would be subject to evidence that the   supplemental
                                         tutions within the California Region did not reo-
              grant request made b@ insti
             -,resent independent actions on their part but instead  actually coordinated
              efforts emerging through the California  program  for  MT.  The letter pointed
              out the problem of financial accountability of a new nonprofit corporation
              and made suacpestions for formal financial backing of the corporation from

              other sources.

              CCRNF then referred the matter of financial accountability to its Staff Con-
               sultant group.  According to the October 3, 1966i minutes of the Staff Con-
               sultants group, the matter was brushed off  lightly with the assurance that it
               could be handled by securing a bond from an insurance company.  The Committee

               advised Dr. Bor
                              hani to confer with the Chairman of CCKT and to proceed with
               the arranging of an appropriate bond.  There was reason to believe that this
               could be accomplished since, by that time, one nonprofit corporation had been
               established to' manace an P-@T region.  Wisconsin @T, Inc. had been established
                and awarded a grant for planning in September of 1966.  Ten Regional @ledical
                Programs had been funded prior to that but, in each case, the grantee had been
                an established university or medical school.  Wisconsin P@fP, Inc. had no funds
                of its own and its Board of Directors consisted of three persons---the two
                            nf the universities in Wisconsin, plus a retired insurance executive.









                                                                       rger Board but as  a
                This Board of tHree was ultimately expanded to a much-la
                                                          'bond that would meet the re-
                Board of three had no problem in securing a
                quirements of the granting agency.  An insurance group was contacted in order
                                for CCMT and arrangements were made for the members of
                to secure a bond
                     to sign the bond at its regular meeting on October 12, 1966.  By  this
                CCRMP
                @e the planning grant award Ihad been processed, the Surgeon General had been
                advised of the award, and it was to be made in the group of awards slated for

                November 1, 1966.


                According to the minutes of CCIL@T for October 12, 1966, CCMT was advised that
                it would function as an independent agency and become the sole recipient of
                funds under the provisions of the planning grant application submitted from
                ,California.  Dr. Robert Glaser, Dean o.f Stanford Medical School and Chairman
                of CC%'Q, advised the Committee of its responsibilities in processing,  re-
                viewing, and funding pro osals throughout the state. October 12, 1966, proved
                                        p
                to be one of the more crucial meetings of CCPIQ because then the question of
                financial responsibility for the funds was raised.  A telegram from Dr. Robert
                Marston, Associate Director of NIH and Director of DP,',-IP, stated that  Supple-
                ments to a planning grant must be made to a grantee who assumes the same tes-
                ponsibilities involved in the initial grant."  This indicated that the sil-q
                for which CCPIT would be responsible could grow into.a substantial  amount.
                When the discussion of the insurance bond came up, the members of CCKT pro-
                ceeded to sign the pre-arranged bond.  Representatives of the insurance co.=-
                pany appeared and proceeded with the necessary signatures.  According to the
                minutes of the meeting of that date, during the discussion with the insurance
                company representatives, it became apparent that the bond was not "to be an
                insurance bond, but a liability, requiring co=itment from Committee members






                                                                                     9

              to repay the insurance company up  to  the  total  amount  underwritten  ($100,000)
              in case of mismanagement." After that  discussion,  it  was  decided  that  the
              @ers of the Committee could not sign  such  a  document  on  their  own  or  on
              behalf of their institutions, which fact seemed, at  that  point  in  time,  to
              make them or their institutions liable for the amount of the grant.  It was
              then deci ded that the lawyers of the  California  Medical  Association,  the
              ,California Hospital Association, and the  University  of  California  should
              discuss the matter further and contact Dr. Harston's office to find a solution
              to the question of fiscal responsibility.

              There is an asterisk in those minutes of  October  12,  1966,  which  refer  to  an
              explanation later added to the minutes.  This explanation states:

                     "After the meeting of October 12, this subect was discussed by the
                     attorneys and the ultimate-solution found was to ask the California
                     Medical Education and Research Foundation of the California @'edical
                     Association to serve as Fiscal '@aent 'or the  California  Co==Itllee.
                     This was broucht to the attention  of  the me-@-ers of the  California
                     Committee (CCIL@-@), who gave their approval.  Subseau--ntly;  the   Division
                     of Regional Medical Progra.--s @as contacted, which  also  approved  of  the
                     solution.  The face sheet of the   crant application was  thus  revised  and
                     mailed'to I,,Iashincton ior review a-,id consideration. Under this  new  ar-
                                      c'
                     rangement, the California Medical  Education  and  Research  FotLndation
                     @CMA) will act as the fiscal agent and the  Cali.Lornia  Cor-@ittee  as  the
                     operating body for implementation of  the  objectives  of  the  planning
                     grant application. Thus, @Ir.  Howard  Hassard  of  the  California  Medical
                     Association sicned the new face sheet in lie   u of ',:ir. Mark Berke,
                     Secretary-Treasurer of the California Committee.  Other items on the
                     face sheet remained the same."
                The  following day Dr. Borhani called the Division of Regional Medical Prog--ams
                to inform them of the action taken by CCRNIP concerning the bond.  This call,
                of course, placed the award which was to be  made  at  any  moment  in  question.
                According to a memo to the files dated October 14, 19669  by  Nlr.  Karl  Yor  y,
                then Assistant Director, The Division of Regional @ledical Programs, discussorl






                                                                                       10



              the question of the bonding with Grants Management.  Their conclusion was

              that the insurance company would try to recover its losses from the or-

              garlization or individual who was covered by the bond; however, it was their

              opinion that in this case the insurance company would have  to  move  against

              the corporation rather than individual members of the Board of Directors.



              Unfortunately at this point in time, the government was  only  beginning  its
              relationship with what it later termed  "Financially  Dependent  Organizations".

              These are organizations that have relatively no money of their  own  and  are

              almost entirely dependent upon Federal funds for their  support.  In  fact,  the

              manual for financially dependent organizations was not developed  by  the  Con-

              troller of HEW until  June of 1970. CCRNP was one of the  earliest  &MP  organi-

              zations of this type  and few knew how to proceed with the appropriate financial

              assurances. Since that time CCR@T itself has developed  several  of  these  or-

              ganizations, including the Drew School Vnich is now a multimillion dollar

              operation. Undoubtedly we will develop more. But at  that  point  in  1966  the

              rules of the game were indefinite.



              On October 24, 1966, lir. Robert Lindee, Assistant Dean at Stanford  @ledical

              School and acting for the Chairman of CCR.NT, Dean Robert Glaser, went  to  the

              Division of Regional kiedical Programs to discuss this matter.  According  to  a

              memo for the record by Karl Yordy with whom this discussion took place, the

              conversation covered the following matters:


                   "Mr. Robert Lindee, Assistant Dean at Stanford @fedical School, came to
                   my office to discuss the proble--s which had been encountered by the
                   California Coordinating Cor.-@,ttee in obtaining the performance bon d.
                   As reported to me by Dr. Borhani, the insurance aaent  in  San  Francisco,







                    who had obtained the bond, did indicate to the group that each of the
                    officers of the corporation who signed the bond could be held financially
                                                                      iy was  required  to  vay
                    responsible as individuals if the insurance compa.
                    the Federal government because of an  audit  disallc-4ance.  This  require-
                    mp-nt was unacceptable to the members of the corporation; and as a result,
                    their signatures were withdrawn from the bond  because  this  requirement
                    for the bond seemed to be different than the bond obtained  by  the  Wis-
                    consin Regional @i'edical Program, Inc., even though the insurance com-
                    pany involved was the same (.The Northwestern National  Insurance  Comja-ny
                    of Milwaukee): I called Dr. John  Hirschboeck,  Program  Coordinator  for
                    the Wisconsin Regional @ledical Program, Inc., to discuss his understand-
                    ing of the requirements of their bond.  Dr.  Hirschboeck  explained  that
                    they had originally contacted a bonding cor-vany in Baltimore which would
                    have made the same requirement of personal financial responsibility.
                    Finding this unacceptable, they contacted the Northwestern National
                    Insurance ComDany &-id were able to procure the bond without this require-
                    ment because of the personal character and standing in the community
                    of the officers of the corporation.
                    Dr. Eirschboeck then called me-back after.talking to their insurance
                    agent and said that it was the Wisconsin Regional @i'edicAl  Program,Inc.
                    that was bonded and not the individual members of  the  corporation.  The
                    insurance agent also suggested that he saw no reason why the North-
                    western National insurance  ompany would not allow the same procedure
                    with the California corporation if the character  and standing of the
                    incorporators in California was demonstrated.   -ihe agent  also  indicated
                    that perhaps the insurance aaent in San .7rancisco with whom the Califor-
                    nia group was dealing was being overly cautious."
               When the attorneys for the California liedical Association, California Hospital
               Association, and the Universities discussed the possible way out of the dile=a
               of fiscal responsibility, the California Hospital Association  and  @.IERF  both

               were suggested as possible fiscal agents.


               The term "fiscal agent" was used constantly throughout the   discussions and in
               the various co =unications.  The term "grantee" did not app@ar until such ti--e
               as it became obvious that the proposal whicl,. had been submitted and approved
               would need a new "face sheet".  There is perhaps a subtle distinction between
               a iffiscal agents and a "grantee". And there was a lack of  knowledge  on  tl-le
               part of the Committee concerning the technical  provisions  of  Section  903  of






                                                                                           12



                                                        can  be  seen,  thought  from  the  written
              the Regional Medical Program Law.  It
              agreement between CCR,@ and Cl,'E'.ZF that  the  two  organizations  had  a  somewhat
              different  concept  of  "grantee"  than  finally  emerged  within  Regional   Medical

              Programs Service.


              In a letter dated October 27, 1966, to Dr. Marston as Chief of DRMP, Dr.
              Robert Glaser, Chairman of CC@, set forth the agreement that had been

              reached by the CC@T and Ci.E.RF:


                     "Attached herewith is a revised FACE SHEET for the Dlanning grant
                     application from the State of California.      The initial application
                     showed the applicant organization as the California Co=ittee on
                     Regional Medical Progra--s, and we are now requesting that the California
                     'Medical Education and Researc,i Foundation be    substituted as the official
                     applicant for and recipient of A planning grant .mder PL S9-239. Cnan-e
                     in applicant is requested in order to =eet a--:@4nistra@@ive and financial
                     requirements or an applicant receiving a crant under PL 89-239.
                     The change in applicant in no way chances the planning procedures
                     as outlined in our initial -application.  @-i'ri-l@ten  assurance  has  been
                     received by the California Co=ittee that California @ledical Education
                     and Research  Foundation  will  act  solely  in  @-n  administrative  capacitv
                     and  that  policies  heretofore  or  hereafter  adoDted  by  the  California
                     Committee will be governing, and  subject  on!,:-  to  California  :Ip-dical
                                                  C,
                     Education and Research Foundations primary c-- @-t=ent to administer
                     and account for  the  funds  in  accordance  with  the  law  and  applicable
                     regulations and instructions of the Surgeon General.
                     The following statement of ,he policy has been agreed upon by the
                     California '@o,.r=ittee and California L@ledical @-ducat,'@on and  Research-
                     Foundation. The  California  '-Iedical  Educatio:i  and  Research  Foundation,
                          -prof4-t, tax e-.Ke=Dt education and research or-a-
                     a non                                                      iization established
                     in 1962 by the California  -'edical  Associaticn,  and  acti-,i@  on  behalf
                     of the California Co.--dttee on Regional              Progra@, will serve as
                     the recipient and disbursing avent of plan-.i4--@ grant funds received .@rom
                     the U.S. Public Health Service for the purpcse of complying with the recu-
                     lations under Public Law 89-239.
                     In assuming this responsibility, California @.edical Education          d
                                                                                           an

                     Research Foundation will:
                       1.   Comply with the sDeci-@ic  revisions of Section 903 of the Public
                                                        p
                     Health Service Act; and with

                              -   - . .               I -. -- --          -I,-             nprfor-r--,ance







                                                                                      13

                                            cation and Research Foundation has, for several
                     California @f.edical Edu          esponsibility b'v virtue of its past
                     years, demonstrated its fiscal r
                     history of perormance in receiving grants from Federal, state, and
                     local agencies, and in accounting  for  the  use  of  such  monies  following
                     the completion of studies it has  either  undertaken  or  for  which  it  has
                     been responsible for supervising.
                     In assuming a similar responsibility, in serving in a fiscal and ac-
                     counting capacity on behalf of the California Co=mittee on Regional
                     Medical Programs, the California  Medical  Education  and  Research  FoL--ida-
                     tion will be guided by, and adhere  to,  the  policy  decisions  of  the  Cali-
                     fornia Co=ittee on Regional @tedical Progra=s (as adopted by the full
                     Committee or the Executive Co"@-ittee  of  that  organization  which  may  act
                     on its behalf). In  so  doing,  however,  the  California  @ledical  Education
                     and Research Foundation will exert  only  those  veto  powers  which  are  in
                     conformity with.or required to adhere to Title IX of  the  Public  '--'ealt'-
                     Service  Act,  but  will in  no  @ner  make  unilateral  decisions  which  are
                     at variance with the goals  and  objectives  of  the  California  Committee  on
                     Regional @ledical Provrarq as contained in its Dlan-,iina arant application,
                     or with  the  conditions  of  performance  established  by the California %"o=-
                     mittee on Regional  liedical  Programs  and  its  Advisory Co=ittee.11
                Oa October 28, 1966, the  Board  of  Directors  of  @,ERF  met. one of  the  matters
                on its agenda was CIE-RF's fiscal  role  on  behalf  of  CCI*T. The Board of Direc-
                tors took under consideration  a  copy  of  the  letter  quoted above which Dr. Glaser
                had written to Dr. Marston.     The  minutes  of  that  meeting read  as  follows:

                      "Doctor @facLag-.an provided the background regar'd-ng the Comitteels
                      formation and its efforts to  secure  a  planning  grant  from  the  National
                      Institutes of Health.  He reported that one of the obstacles to the
                      actual receipt of the monies was the absence of an agency which would be
                      responsible for the fiscal and accountability responsibility
                                                                                      -as wnicn
                      P.L. 89-239 P-,id the National Advisory Council   required.   'Lne capaD-"l-'@z-Les of
                      CMERF had therefore been offered and accepted     by the California Co--4@'tee.
                      Mr. Hassard explained the conditions under which C@17RF could assume
                                                                                                   s
                      fiscal role.   The conditions-cited were unanimously avproved by the @-card.
                      Mr. Hassard then  read  the  letter  addressed'by  Dean  Ro,bert J.  Glaser  to
                      Doctor Robert Q. Marston in which these conditions were offered as a ':)asis
                                         - 'P @-s the r
                      for desig-,iat;ng- C.'.@P-       esponsible fiscal agencv to serve on    oe-,alf
                      of the Cali@ornia Cor=ittee.    The Board unani=ouslv aDDrovea of the co-ei-
                      tions set forth 4--,i Doc,-or Glaser s letter of October 27 -,;,iich would -:a-.-;se
                      the planning crant a.DDlicat:ion.original'Ly  submitted  bv  the  California
                      Committee on @Aec,,ional @'@dical Progra@, and then authorized  i@ir.  Hassard
                      to sign the revised application Face Sheet."
                The f llowing  day  a  new  f                                             'Fassar-1.
                      0                     ace sheet was prepared and signed by     @.r.
                 fate sheet was added to the project pr               t was originally prep red -vd
                                                          oposal as i                        a

                                            Irl-tyicn"j rntinril when CC@T was to be  the  grantee.






                                                                                      14





                                                                         ce sheet.
               There were no changes or amendments made except for the fa

                                         as'           eceived notification of approval of
               On November 10, 1966,.,Mr. H  sard then r
               the planning grant application as submitted by the California I-ledical Educa-
               tio-a and Research Foundation in the amount of $223,400.  On the same day,
               howeve'r, a letter was  addressed  t.oDr. Nemat Borhani from the Chief, Develop-
               Tnent and Assistance Branch, Division of Regional liedical Programs, indicat ng
               that DP1-IP had "concern that the applicant Organization, the California Ifedical
               Education and Research Foundation, cannot be considered to have the experience
               in handling large and numerous Federal grants and subcontracts nor the financial
               resources which would be essential if it were to serve as the grantee organi-
               zation for multiple large supplementary or operational grants     The letter then
               went on to suggest that California should arrange to adopt a plan comparable to
               that being contemplated for Texas at  that time where one of the universities
               ,would serve as the grantee. This letter again threw the @NT Program  in  Califor-ni@
               into consternation but it did raise the point that Texas was developing agree-
               ments. among institutions where the grantee was protected in the event that any
               one of the participating institutions misspent or mismanaged any of the funds.
               These agreements., in essence, made the institutions misspending  the  funds  nominal
               responsible for the exception in place of the grantee.  No one knew the validity
               of these agreements, but most assumed that they could be made to work.

               The above letter of November 10 was followed  almost  i=ediately  by  another  lettei
               from Dr. Ilarston indicating in effect that CC@\T should ignore the  prev-.ous  lette
               Dr. Marston stated that "Though we sug'ested the possibility of those in  Califor-
                                                       9
               nia adopting an arrangement similar to that in Texas, you should not feel bound




                                                                                              1.5






                        s 'ggestion in any way-
             by  this  u
                                                       fornia Medical   Education and Research
             Dr. Marston indicated that if the Cali
                                                                                         nts with
                                                         ce of legally  binding agreeme
                                  idence of the e,,ist'
             potmdation gave   . ev                                           that the participating
                                             es within the region assuring
              other  institutions  or  agenc,
              institutions  would  expend funds only in accordance with an approved budget and
              would be required to reimburse OIERF for any funds which might be subsequently
              disallowed, then the arrangement would be satisfactory.  This position was
              ultimately accepted by CCP-NT and the award that had already been made was accevted.
                                             tion of the fundina had arrived and had been deposited
               The check for the first  por
               in a newly created account under  iMRFts name (known as CIMERF 11) but devoted
               solely to the operation of CCPIT, Inc.  on February 24, 1967         the Board of
               Directors of C@RF met to confirm certain interim actions ta-ken in regard to
                                                                              k the follc-wina actions:
                                             e indicate that  the  Board  too
                CCI*IP by @.IERF.  The minut s

                                                                    AS EXECUTIVE DIRECTOR
                        "CONFI@"IATION OF APPOI',NTT,:@T OF PALIL I'@
                        OF CCRI-IP
                                                                   the appointment of Paul Ward
                        The Board confirmed by unanimous vote)
                        as Executive Director of the California    Co---ittea- on Pec,i-onal -.&led,-Cal
                                  such 21)DOint--ent effective as  of January 1, 1967,
                        Programs;                                             ifornia @iedical
                        the date on which @!r. Ward was employed   by  tne  Cal
                        Education and Research Foundation.
                        RELATIO@NS',-Ilp OF CAEF-RF TO CCKIP
                                                                              the       applica-
                        The Board reviewed the circumstances surro@.,cip.,
                        tion for planning grant funds for regional Medical proc,,r@-s under
                        POL. 89-239.  It reiterated the facts that:            is the legal
                                                                        Avisor,         e which
                        grantee of sucli.fun6s; that the 28-7.@er a           ., cor---itte
                        is designated as the California Cor---ittee cn -@e@,i-onal @led4-cal
                                     :--"T) is, in fact, the advisory co=-ittee to          for
                        Programs (cc
                        the planning c-rant a-?Iication which has previously been received,
                                      Z)      r                                    -    utive
                                                  uests still ?e-idint-; t,nat the 7,@ec
                        as well as for grant req
                                   on the CCP-'.-- Could logical! serve as tie ooeratin"..
                        Committee                         C,
                                                             nnri t-',Iat at least one officer






                                                                                         16


                                          ACCOUN'TABILTTY OF REGIO',IAL @DICAL PROGRAM
                  FINAICIAL STRUCTURE LND
                  FMS
                  Mr. Eassa-td informed the Board of the bookkeeping system which had been
                  developed.  The svstem is so designed as to =,aintain separate bank
                                                         and expenditures or each  of  the
                  accounts and records for  the  receipts
                                and institutions involved in carrying  out  planning  pro-
                  organizations
                  grams. Thus, C@@-PF itself has been designed as CLI---RF 1. The  initial
                               d on behalf of the statewide planning staff, of which Paul
                  grant  receive tive Director, is alERF 2.  The funds to be received.in
                  Ward is  Execu
                  the future will similarly be designated numerically for each of the
                  medical schools, C'rlA, and  iM.  The Board approved of the system which
                  has been developed."
            'Thus, the CIIERF Board has honored its part of the above agreement.  It estab-
               3.ished a bank account (@,fEP-P-2) . devoted solely to CCPU@ purposes which has
               been administered according to "the policy decisions of the CC@.T."  CMERF
               has exercised no veto powers and has made no "unilateral decisions which are
               at variance with the goals and objectives of CC@IP".  Although @,.Lk and its
               local societies have at times taken positions which might be interpreted as
               @ting the scope of        these positions have not been enforced throuch tie
               CHERF fiscal mechanism but instead have been presented for debate and decision
               by the full CCR.KT Regional Advisory Group.  The executive Committee of CC.R!2
               has served as the operating committee making most fiscal decisions not de6--re(
               proper to refer to the full CCP-%T.  On the other side of the agreement C-ERF
               has "in serving inla fiscal and accounting capacity on behalf of CCPNJP"
               caused periodic audits to be made and accounting practices to be reviewed by
               their retained audit firm, John F; Forbes and Co.  THis firm has acted both
               as auditors of accounts and advisors on  Iaccounting practices.  In sil@.;ition,
               generally the terms of the oricinal agreement which was approved by D@T have
               been complied with and to date there has been no need or request to modify
               the arrangement. We would suggest that the phrase tiretains the power  to
               overrule" goes beyond the facts of the situation in vie-w of the history a-id

               the written agreement.







                                                                                   17

                                                             d in Draft Finding N3.
            Tu@ng now to the recommendations which appeare
                                          exVand the current requirement for Area office
            you have recommended that we
                                                                       nclude budget data
            budgeting by functional categories on the RIT Form 8, to
                                                   d (b) monitoring the execution of ap-
            for (a) developing project proposal an
                                                                      equire Area Offices
                               Your second recommendation is that we r
            proved projects.
             to account for and report actual costs by the functional categories estab-
             lished in the core budgets and explain any significant deviations from the

             budget.

             From the point of view of sound and-effective management, no one could argue
             with the value of these recommendations.  As program managers, we are also in
              general agreement with the substance of the draft critique leading up to these
              recormendations-and in fact have taken steps to respond to the "PROG@I t.'O
              IMPROVING TF-F, QUALM OF G@-,,TEE XLNAGafE'.-kiT" published by the Controllers of
              DRE14 on June 1970,  We do believe, however, that it is necessary to consider
              both the history of the development of the California P-@T program and the
              fact that the program has been engaged in a far wider spectru-n of activities
              at the Area level than is indicated in the body of the Draft.  @y of these
              activities lend themselves to a structured planning and budgeting systems
              while others have defied the best thinking of Iinstitutional and Federal
               management e--Kperts.  Because of the philosophy advanced in the early stages
               of the program and the program's history of development, @e, as managers,
               have been constantly made a-,ware that our management policies and procedures
               should not stifle initiative and innovation or produce an institution that
               is so rigid that it would be unable to respond to the unusual dictates and

               objectives of the program.


                                                      4elpnli-qtic imvlorations to maintain a






                                                                                     18



                                                    indicate that program direction would
              of the program made unusual efforts to
              not come from the top but instead ideas should emerge from'the lowest grass-
              root level possible and filtrate upward for funding and support.  The fact that
              only very general guidelines were published about the program and virtually
              no regulations were issued indicates the extreme attemts that were made by.
              DHEW to see that the program operated from the bottom uD and not from the top

              down.


              .The Guidelines were filled with such vague statements as this effort "calls
              for the development of Regional i'Ledical Progrnmq which create an efteCt4ve.
              environment for continuing adaptation, innovation, and =odifcation    and
              "The Regional Medical Programs present the medical interest within a reg on
              with an instrument of synthesis that can capitalize on and reinforce the
              various trends and resources,it and "It is the interaction of these trends at
              this time, rather than an abstract conceptualization, which not only justifies
              but requires a synthesizing force such as the Regional .@.--dical Progrqm--," and
              "Among various identified needs, there also are often relationships which,
              when perceived, offer even greater opportunities for solutions."  'The dan-er
              of project visualization, which is akin to tunnel vision, must be guarded
              against.11  The above sentences in the Guidelines indica-@e the vagueness with
              which the program was beguni  Yet this was deliberate in order to assure that
              the program would avoid direction from above and atte--ot to capitalize to the
              greatest degree possible on actions and concepts that would e@ate fro,-. the
              lowest possible level within the health care system.  Tnis may have been
              highly idealistic and.impractical, but it was a deliberate attempt to  deter-
              mine whether or not progress could be made in this fashion and thereby avoid

              directives and regimentation from the top down.






                                                                               19


              At this point in time that philosophy may seem rather far afield from the
              question of budgeting and accounting procedures.  It did permeate all as-
              pects of the program however, and as people in institutions become involved
              in th'e program., essentially @rom a voluntary point of view, they jealously
              g=rded that concept in all of the various areas of operation, including

              fiscal management.
              The development of the California region involved other facts and conditions
              that tended to emphasize this philosophy.  As indicated earlier in this  etter,
              several university medical centers were involved in forming what eventually
              became CCPI.T, Inc.  Some of these medical centers had developed planning
              grant applications in 1965 and submitted them to NIH for funding during the
              time when the combined group was developing theirs.  As a result of the 1965
              site visit  they were obligated to withdraw these planning grant applications
              and join with CCMT, Inc. in the planning process.  As the record indicates,
              the first site visit decided that California would be one region for planning.
              Although a later site visit team and the National Advisory Council dedided
              that California would also be A region for operations, at the time of the first
              planning grant some of the university medical centers believed that they would
              have their,o,.m region when they entered the operational stage.  The fact that
              California was made a region for operational purposes was accepted with so=e
              reluctance by the centers concerned.  There was a continuo us struggle for local
              autonomy in all aspects of the programs and subsequent site visit teams gave de
              facto recognition to the local autonomy. Although there was never any question
              raised by the site visit teams or by the National Advisory Council concer-.i4-ng
              Califor-nia's status as a region, recognition for local autonomy-was given in
              the way the site visits were structured.  @lien site visit teams came to
              California at later dates, not only did they review the region as a whole, but







                                                                                        20


                                                        arate visits with the areas concerned.
              they also scheduled individual and sep

                                                          r better budgetary and expenditure
              As management we anticipated the need fo
              controls, although we felt     .that we had little authority upon which to pro-
                                                        W in June 1970 of its manual for
                      'Prior to the publication by DHE
              c.eed.                                               on office spent a considerable
                                              izationss Of  our  Pegi
              topinancially Dependent Organ                                   rogram budgeting.  It
                    -  of time exploring the possible implementation of P
               period
                                             s and it was discussed with the fiscal people at the
               ,was discussed  with  the  area
                                                                   'kandoned, however, with the ad-
               University level.  The concept was eventually a-
                                                                             ations Of the FAST
                                 pVS forms for reporting and the deliber
               vent of the new
                                                                    the requirements of the pro-
                      eport.  We  believed  that   we   were.meeting
               TASK R                                                                    a further
                                   g to the new fors, and we further believed that
                gram by convertin
                                                       sible at that time.
                tightening of the system was not fea

                                                         out the implications of the Draft Report.
                Ve would make two general comments ab
                                                                                         ce.  We be-
                                             s five basic  functions  of  each  Area  Offi
                 The first  is  that  it  list
                                             er narrowly drawn definition   of Area office funct ons
                 lieve that  this  is  a  rath                                           ent of funded
                 and Might lead to the conclusion that the development       and   managem
                                                                             uccess or failure.  We
                                             easure of the Area office's s
                                  adequate   m
                 projects is an                                     s and extremely unfortunate if
                 believe that this conclusion would be erroneou
                                                                   and management is but one product
                 left  to  stand  as  valid.   Project   development
                                                                    of @T. other activities, such
                                             ed to be  the  function
                 of  the   activities   intend                                           providing in-
                  as establishing re-,ional cooperative relationships, the acts of
                                      0                            uld  ot Otherwise be obtained by
                  formation  and  resources  to  providers  that  co   n
                                                                   ing about the health needs and
                  them, and  the  acts  of  keeping  discussions  go
                  providing suggestions as to how they might be resolved certainly are as i=-
                                        dovaloDment itself.  These latter acts  while possible





                                                                                  21




                                                  cost analysis simpl  because no o ne
               of describing and listing, often defy                 -Y
               can estimate the value of their final result.  In addition, any listing
               of the functions of an Area Office would have to be considered a perpetually
               changing list.  To illustrate but one example, functions 1 and 2 listed in
               the Draft indicate that the Areas -are identifying the health care needs and
               assessing medical resources in the Area. To be sure, we have been doing this
               to the extent that we have found it necessary, but essentially this should be
               the function of Comprehensive Health Planning.  To the degree that CHP is aID  e
               to perform its functions in these two areas, @ can then abandon its  efforts.
               Certainly we should be phasing out of these two activities as CdP becomes
               more sophisticated and able to accomplish its own objectives.  We would then
               respond to the needs and resources as indicated in the CHP determinations.

               The second implication is that projects are developed which are of measurable
               magnitude and that, in essence, the program stafL in the Area is the sole source
               and developer of the proposal. It is difficult for us to det ermine how t@ie
               cost figure cited in the Draft was determined, but it creates a completely er-
               roneous concept of what is being done.  Some projects are developed in their
               totality by the Area Staff, but in keeping with the original philosophy of Lhe
               program, many projects are developed by groups outside of -the Area Office
               and are submitted to them for some degree of assist ance in their final pre-
               paration.  These p-@ojects.are then revieged at the Area level by the Area
               Ad@isory Group to determine their appropriateness to meet Area needs as  well
               as the appropriateness Of the manner in which the project proposes to meet
               the needs.  This manner of program development follbgs from !U-.T's NIH heritage.
               It will be recalled that independent groups, usually in universities and






                                                                                22


                                                     submit them to NIH for funding.
            medical centers, develop proposals and
                                                                        re was to be in
             @e of the major   additions of the MT program was that the
                                                              velop proposals to submit
             existence a paid  staff to help the  community  de
                                                   f we assume that all NIII proposals
                               would be erroneous i
             for funding.  It
                                                              e many NIE proposals are
             are prepared by unpaid  interested  parties,  sinc
                                                                                 the &@10
             prepared by persons borrowed from other NIE funded projects.  But
                       w s to be a more honest and direct approach.  We, were to provide
             approach  .a                  ity develop a proposal  to do what it believed
              paid staff to help the cot=un
              needed to be done.


                                                                                  epares
                               hat has to be emphasized is that the Area Staff pr
              Another  aspect  t
                                                  but also for  a wide variety of other
                    ts not only for Ril? funding
              projec                                          s might see  to be a distor-
                                 Although on first  glance  thi          m
              funding   sources.
                                                                        orated into the
                     f R,@IP purposes, it nevertheless  has  been incorP
               tion 0
                                                    ects funded from other sources reach into
               normal routine of the program.  Pro
                    al millions of dollars, including emergency medical services projects
               sever
               that were funded from other sources') Area Health Education Center projects
               which are about to be funded by the Bureau of Health ',,Ianpower, and several
                                                                        ion  there is always
               other types of projects aimed at NIIJ funding.  in addit
                                                    ttempting to meet the health needs of t-ne
                an element of gambling present in a
                                                                        ked. funds.  Those who
                community.  In each fiscal year there are always earmar
                are able to correctly anticipate these earuar'--ings can begin the development
                of proposals early enoue:n to  assure  funding. if you begin proposals early)
                however, and the tarr-arkings failed to materialize,  then sometimes you ha%,e
                                                                          'rgency @tedical
                 gambled in vain.  Last year funds were earmarked for F-r-e
                                                                                   thers.  Per-
                                                    nters, Yidney Disease, among 0
                 Services, Area Health Education Ce
                                                                       ually had an advantage.
                                       --4-4@innt-p-d these earmarkings us





                                                                                  23





           for adoption.

                                                                                d to
                                                             willing to recoumen
                                                   -more than
                      we wish to state that we  are
            i:u short$                            tion indicated by  the  recommenda-
                                         the  direc
            Caw that we   should move  in                    already been made toward this
            ticast and state further that some@progress has
                                                               narrow definition of area
                               with the draft statement 3.s the   I
            end.  Our problem                            tional budgeting  and  cost'
                    function and the as sumption that func
             office                                         pattern Of  the  program.
                                                  reduction
             accounting would greatly change  the  p

                                                            tion of a Program Review
                    s which has been made includes the forma
             ptogres                                                         and fiscal
                                                  oup which reviews program
             Committee of the Pegional  Advisory  Gr                     ion system pro-
                                         r. -A fiscal management informat
                               es per  yea                C>
                     three tim
             reports                                        he area  offices on a monthly
             vides data  based  on expenditure reports fromt
                                                                      onsideri-ng methods
              basis.  Our Regional Evaluators Committee is currently C
                                                                                s de-
              of structuring and streamlining fiscal and program reporting and i
                                                              current reporting form.
              veloping an improved instrument to replace ou
                                                            f effective planning$ budgeting
              We continue to believe that the development 0
                                                            ffices and must tale into ac-
               and reporting systems must involve our area o
                                         ources. '-As a result; we have undertaken the develop-
               count their needs  and  res
                                                                      f placing useful in-
               ment of a rational system that assumes the necessity 0
                formation in the hands of responsible managers at all  levels.


                Very truly  yours,