Prescribing New Health Care Financing While the Medical Establishment Fumes

<i> Gregg Easterbrook is a contributing editor to Newsweek. His novel, "This Magic Moment" (St. Martin's), has just been published</i>

Dr. William L. Roper has more money to spend than any American except Caspar W. Weinberger. Yet even in the town where he lives, hardly anyone recognizes his name.

Roper is administrator of the Health Care Financing Administration (HCFA, pronounced “hick-fah”), a little-known federal agency that controls the operative part of Medicare and Medicaid--the money. Washington seems only dimly aware of HCFA’s existence, owing to the general perplexity about how the medical Establishment operates: Not one congressman or reporter in 10 would recognize Roper if he walked into the room.

In 1987, Roper will dish out about $104 billion for Medicare and Medicaid: roughly 85% going to health care for senior citizens and 15% to the poor. This $104 billion is more than the 1985 revenue of the world’s largest corporation, General Motors. It is more than the government spends on anything else except defense ($289 billion) and Social Security ($202 billion). The Social Security Administration has no say in how benefits are distributed. Roper, on the other hand, exerts considerable influence over how much hospitals and doctors receive. This makes him America’s No. 2 big spender.

A 38-year-old pediatrician from Birmingham, Ala., Roper came to Washington in 1982 as a White House Fellow. Late that year he was asked to help compose a reference to “prospective payment,” an idea then gaining momentum with some health reformers, for Ronald Reagan’s 1983 State of the Union address.


“Prospective payment” is a fancy name for determining the price of medical care the way prices for most goods and services are determined--in advance. Hospitals and doctors like to assess their damages retrospectively, calculating price after services rendered. Retrospective payment creates a temptation to pad the bill, a flaw plaguing the health-care system for years. Prospectively set fees--say, a flat $5,000 to treat a heart attack--remove temptation.

In late 1982, with medical costs exceeding 10% of the gross national product for the first time, any reasonable medical spending restraint seemed worth propos)ng. The eye-glazing phrase “prospective payment” was more than the President’s speech writers could bear, however. Instead, Reagan made a murky reference to “curb(ing) the skyrocketing costs of health care,” the kind of political boilerplate everyone skips over. This time, however, he meant it. Just three months after the January, 1983, address, prospective payment was enacted for Medicare hospital services--the largest item in HCFA’s budget--in the form of diagnosis-related groups (DRGs), or fixed fees that pay an average amount, regardless of what a specific patient’s care costs.

DRGs hit the medical-industrial complex like a pile driver, shattering its traditional “we’ll just pass these costs along” mentality. Roper became the White House adviser for health policy, later involved in a 1984 push to freeze the fees doctors charge Medicare for office services. (DRGs apply to hospital only; doctors still bill Medicare on a pass-along basis, though the total amount they can pass along is now regulated.) Early last year Roper moved up to HCFA administrator, replacing the equally uncelebrated Carolyne K. Davis.

In 1984, after prospective payment for Medicare was enacted, federal spending for health care slowed to its lowest rate of increase since 1965; through the last two years overall national spending on medicine has cooled too, as many private insurers have followed Medicare’s example and begun agitating for fixed-fee service. “Despite the rhetoric you hear from lobbyists about how the federal government is bashing the health-care industry,” Roper says, “it’s not just government. Everybody who pays for health-care services is driving a much tougher bargain. And they ought to.”


Physician Roper often criticizes the doctor’s favored status in society. This could be because he is a pediatrician, low rung of the medical money ladder. “There is no rational reason to pay heart surgeons $500,000 a year, especially when surgeons are in oversupply,” Roper says. “My (family practice) colleagues work just as hard, but for reasons built into our payment system don’t get nearly the income.”

While the public perceives doctors as all of a piece, within the profession there are bitter turf frictions regarding money. Primary practitioners such as pediatricians and general practitioners resent the larger incomes of surgeons and specialists, who may do little of what they consider the “real” work of medicine--dealing face-to-face with patients. In turn nearly everyone, including surgeons, feels that radiologists (doctors who read X-rays), anesthesiologists and pathologists are overpaid. Anesthesiologists average $145,000 per year although they may not even say hello to patients; radiologists make similar sums for sitting behind a desk. In January the Reagan Administration asked Congress for legislation to pay radiologists, anesthesiologists and pathologists (RAPs, in medical argot) on a DRG basis, too. This is certain to cut their incomes.

Roper is an enthusiastic backer of the trend toward “market based” medicine, where supply and demand, rather than regulatory policy, is the control mechanism. He claims not to worry that competition will shift the focus away from the quality of care. Instead, Roper thinks the more hospitals and doctors are forced to compete, the better care they will provide, in order to attract customers.

A measure of Roper’s success as HCFA administrator is that most of the medical industry detests him. When a federal official is praised by the interest group he supervises--as a “fine public servant,” invited to give the keynote address at trade-association conventions--this is a sure sign he has been co-opted. Administrators who make interest-group blood boil, by contrast, are the ones onto their client’s tricks. In his first year, Roper put through several technical changes in Medicare payment formulas that closed loopholes beloved by health-care providers; this year he plans to close more.


Meanwhile doctors nationwide have been a mite hypersensitive since Roper’s appointment, fearing he will advocate prospective payment for all physicians, not just the RAPs. Roper, however, is aiming for something doctors will like even less--"capitation.”

In a capitated Medicare system, doctors would receive a flat fee per patient seen, regardless of ailment. There would be no billing of specific tests and procedures. If a patient needed more attention than the fee covered, the doctor would have to provide it free; if he needed less, the doctor could keep any money left over. Theoretically, over a year all pluses and minuses would balance out; meanwhile paper-work costs would be slashed, and a new incentive for cost-efficiency created. Incentives to take shortcuts would, of course, also be created.

The Reagan Administration maneuvered to introduce such legislation last year. That version was called a “medical voucher” plan, and though “voucher” is a magic word to right-wing fund-raisers, it doesn’t work in Congress. Another bill to capitate Medicare is expected this spring: It will abandon the term voucher, using the pleasant label, Medicare Expanded Choice Act. “We hope this will sound less threatening than capitation,” Roper said.

Capitation, it’s important to note, would in effect be a free-market variation on the national medical systems of Canada and Europe.


Though liberal Democrats and health-care intellectuals slip into rapture at the mention of socialized medicine, most are ferociously opposed to Medicare capitation. This is partly because, in Roper’s vision, doctors remain self-employed, and the system would retain a role for the profit motive--concepts the left wing simply cannot stand. But Roper’s notion of capitation is also opposed because adopting it without nationalizing health resources, and thus effectively banning private alternatives, would surely result in “two tier” medicine: standardized care for the poor and middle class, plush fee-for-service attention available at extra charge to the prosperous.

Roper is not troubled by this. “We have a multitiered medical system already,” he says. “Always have, and ought to have. There’s no other part of our society where people say we need single-tier housing, single-tier grocery stores or whatever. I think the government has a duty to organize health care in order to insure that people along the bottom tier get adequate services. Other than that, if people at the top want to have Rolls Royce-style health care, I’m certainly not offended.”