Agonizing Over Health Costs

The preoccupation in Washington with the federal deficit leaves little opportunity for remedying problems in health-care financing this year. Once again critical decisions are being postponed and long-term solutions are being ignored in the desperate search for short-term financial fixes. The deficit notwithstanding, however, there are things that need doing.

Medicare, the $72-billion program of health care for the elderly and disabled, is the target of two freeze strategies. The Administration wants to extend for yet another year the freeze on doctors’ fees and to adopt revised hospital fees that hold the line at close to the level of the current year. Congress will find it difficult to resist both moves, because of the limits in the separate budgets of the House and Senate.

But the potential for disrupting medical services can be minimized in two ways:

--By postponing the next step of the transition of Medicare hospital fees to a fixed national scale.


--By providing urgently needed funds for hospitals with a greater-than-average proportion of low-income patients.

The Health Care Financing Administration has proposed modifying Medicare’s method of compensating hospitals. The result would be essentially a freeze in the present level of compensating the hospitals for Medicare patients. Under the plan, hospitals are paid a fixed amount depending on the diagnosis-related group in which the patient is placed. Hospitals make more money as they are able to shorten stays and reduce services. The so-called prospective-payment system has led to a 20% reduction in the length of hospital stays since its introduction in 1983. Evaluation of the effect of these cuts on the quality of care is incomplete.

Most hospitals have managed to adjust to the new policy, but most also anticipate serious problems if the fees are frozen for a second year. High-cost health-care states like California suffer the most. The California Hospital Assn., estimates the state’s loss at $180 million next year if fees are frozen. That effect would be eased by about half for most hospitals in California by postponement of the transition to a national fee scale, which also works to the disadvantage of California and other relatively high-cost states. Rep. Robert T. Matsui (D-Sacramento) has introduced legislation to delay for at least a year the next stage of the transition to national rates.

Not everything in the proposed regulations is negative for California. Some hospitals, notably those in Northern California, will benefit from the new wage index that is part of the regulations. The state as a whole could receive as much as $90 million in fee increases triggered by the adjusted index, although it would be unevenly distributed.


The Department of Health and Human Services proposes to implement these changes by administrative regulation. That is being challenged in Congress, and it should be. Only through the process of congressional hearings and action can there be an adequate public review of the facts and options, which in turn can help assure an equitable decision.

Congressional action has a particular importance on the question of funding disproportionate-share hospitals. The Reagan Administration has continued to ignore the mandate of Congress that steps be taken to recognize and compensate these hospitals for the higher costs implicit in caring for large numbers of indigent and other high-cost patients. The only response from the Health Care Financing Administration has been a call for further research and analysis. That is not an acceptable response. Enough is known about the need to justify immediate congressional action.