A joint Congressional conference yesterday approved a compromise proposal which would give medical schools more flexibility in admitting transfer students but still require a 5-per-cent increase in enrollment next year.

Under the existing law, the Federal Department of Health, Education and Welfare will assign transfers to each medical school from a group of foreign-trained Americans.

A spokesman for Sen. Edward M. Kennedy '54 (D.-Mass.), chairman of the Senate Health and Sciences Subcommittee, said yesterday the new legislation would retain a 5-per-cent mandatory increase in enrollment in the third year class at American medical schools for one year. The change would, however, allow the schools to choose from an unlimited pool of foreign-trained Americans and transfers from two-year American programs.

Medical schools refusing to comply with either the current or revised law will lose Federal subsidies called capitation grants for three years, but under the new proposal they would still be able to participate in a Federal student loan program.

Michael F. Brewer, director of governmental relations, said yesterday it is too early to say whether "issues of principle will be answered," but he called the new proposal "a vast improvement."

Sources at the Medical School said yesterday the major objection to the original law was that medical schools had to accept students without regard to their academic ability. The new proposal would eliminate that issue, the sources said.

Medical school officials would choose seven or eight transfer students next year from a pool of more than 3000 people if the proposal passes, or forfeit between $2.5 and 3 million in capitation funds over the next three years.

Daniel Steiner '54, general counsel to the University, said yesterday Harvard has not yet decided whether to comply or not, and the issue is "of serious concern" to administrators and faculty