Rising Costs Put Medicare, Elderly on Collision Course

Theodore Flack, a retired miner who now lives in Washington on a low fixed income, suffers from high blood pressure, gout, arthritis and sinusitis.

But he remains a vigorous and robust 6-footer despite his 76 years--and he gives Medicare the credit. Without Medicare to pay for most of his medical care, including a three-week stay in the hospital last year, “I’d be in pretty bad shape,” he says.

But even as Medicare is keeping Flack healthy, federal officials across town are working overtime to try to restore Medicare to financial health. White House Budget Director Richard G. Darman is looking at Medicare’s future, and he does not like what he sees.

Medicare now costs less than half as much as Social Security, but if health care costs for the elderly keep growing at current rates, it will catch up by the year 2000. And by 2015, it will overtake Social Security and defense spending combined. Darman’s job: to keep that from happening.

Flack’s medical needs and Darman’s financial concerns appear to be on a collision course. Can the government ensure Medicare’s future by cracking down on doctor fees and hospital costs? Can it restrain the mounting costs of medical technology and malpractice insurance? Or will it have to solve Medicare’s problems on the backs of the elderly by limiting their medical services or increasing their share of costs?

These are the questions that President Bush and Congress will have to grapple with as they put flesh on the bones of Bush’s proposed $5-billion cut from Medicare’s projected growth next year.

In the budget documents accompanying his nationally televised speech to Congress on Thursday night, Bush said the cuts should be meted out on doctors and hospitals, not the elderly. Even with them, however, Medicare will grow from $84 billion in the current year to $92 billion in the next.

In his speech, Bush chose not to mention the painful choices ahead for Medicare. Instead, he spoke in generalities about how “a decent society shows compassion for the young, the elderly, the vulnerable and the poor.”

Several members of Congress immediately assailed Bush’s Medicare proposal. Suggesting a contentious battle ahead, House Speaker Jim Wright (D-Tex.) said edgily: “We will oppose attempts to cut Medicare.”

No More Friendly

An aide to Rep. Claude Pepper (D-Fla.), longtime advocate for the elderly, says Bush is proving no more friendly to Medicare than former President Ronald Reagan. “Reagan never came up with a plan,” he says. “He was always chopping rather than reforming.”

The politics of Medicare are familiar but gloomy. Doctors, hospitals, insurers and beneficiaries all assert that they are not the cause of Medicare’s soaring costs, and they want the inevitable pain to be felt by others.

Flack, who in 1921 began working for 50 cents a day as a 9-year-old water boy at a saw mill in Saluda, S.C., worked in a variety of occupations until he reached age 65. He then retired from his $10-an-hour job as a miner who blasted tunnels for the subway system. As he sees it, he has earned Medicare through years of paying taxes and Social Security.

“If a person is going to spend his entire life doing anything on behalf of himself and society,” he says, “there should be some compensation that results from it. If you put something in, you should get something out.”

Medicare benefits not only the elderly but also their sons and daughters and nephews and nieces, upon whom many of the costs of caring for their older relatives used to fall. Dorothy Hamilton, who cares for her ailing 84-year-old mother in Cliffwood Beach, N.J., says: “I don’t think there should be any cuts. It isn’t sufficient enough now for people who don’t have a lot of money.”

Hospital Bill

Medicare beneficiaries already must pay $560 for their first day of hospitalization, $31.90 a month toward their insurance against doctor bills, their first $75 a year of doctors’ fees and, in general, 20% of all additional doctors’ fees. And Medicare does not pay at all for a number of services, including most immunizations, dental and eye care, physical examinations, outpatient prescriptions and custodial care.

From the perspective of many of Medicare’s beneficiaries, doctors bear a heavy responsibility for the program’s runaway costs. Medicare payments to doctors are rising three times faster than those to hospitals.

Jack Meyer, president of New Directions for Policy, a Washington research organization, says doctors run too many expensive laboratory tests and too frequently carry out unnecessary medical procedures.

“We’ve reached a point when these guys have to be put on a budget like the rest of us,” Meyer says. “We’re going to have to raise the tough questions about what services are necessary. Certain surgical procedures are done when they are not called for.”

And Hamilton, a retired nurse, says some doctors simply charge too much for their services. “They walk in and say hello, and then you get a bill,” she complains.

Several analysts advocate simplifying and clarifying physician fee schedules. “Everybody is fed up with the current method of paying,” says Karen Davis of the Johns Hopkins School of Hygiene and Public Health. Davis was a health policy planner during the Jimmy Carter Administration.

Frustrated by rising doctor costs, Congress froze Medicare reimbursements to doctors for about two years starting in 1984. But John Cogan, the departing deputy director of the White House budget office, says it was like squeezing a balloon--when Congress pinched costs in one place, they popped out in another.

Increase in Services

“As you shrank down on the reimbursements,” he says, “there simply occurred an increase in the number of services provided to make up for the loss of income.”

Doctors assert that they are caught between the needs of patients and the demands of a litigious society. If they do not take every precaution, they fear, a medical malpractice suit awaits them.

“If a patient without much money asks you to limit the tests, they might wind up in a situation where they have a rare illness,” says Dr. Russell Rothenberg, a Washington internist. “Suddenly it’s not important that you tried to help the patient out and limit the amount of tests you did. That will not be something that will be important in a court of law. What will be important is that you could have done a test, and you missed it.”

Jeffrey Marsh, comptroller and general manager of the National Capitol Reciprocal Insurance Co., says $1 million in coverage for obstetricians and gynecologists can cost anywhere from $12,000 a year in Oklahoma to $186,000 in Florida. The same coverage in California costs from $36,000 to $51,000, he said, depending on specific policy provisions.

The exploding costs of malpractice insurance have generated calls for national ceilings on awards in malpractice suits. But until that happens, Marsh says, “we have no choice but to charge enough to cover the costs.” And those costs are ultimately passed along to patients.

Dr. Joseph Painter, a Houston internist who is a member of the American Medical Assn. board of trustees, estimates that “defensive medicine” costs $11 billion a year nationwide. He attributes the rise in doctor fees to Americans’ “insatiable appetite” for medical care, combined with the soaring cost of medical technology.

Awesome Technology

The technology is indeed awesome, both in its capabilities and in its costs. Michael Minakowski, advertising coordinator for the American Society for Medical Technology, describes one of the latest high-tech devices--a computerized chemical analyzer that allows doctors to check for the presence of a particular chemical in the blood simply by touching a button on a computer that is linked to a blood tester.

“The bottom line,” says Minakowski, “is that the equipment costs a lot. What drives the cost is Americans’ insatiable desire for better and better medical care, even to the point when it goes beyond what is necessary. How good a stapler do you need?”

Incentive Issue Raised

Medicare, as it is now structured, is not equipped to discourage recipients from seeking better staplers, or doctors from using them. As long as most of the costs are passed on to the government, no one has an incentive to control them.

The system, “in effect, subsidizes every contact” between patients and physicians,” Cogan says. “The policy dilemma is to control the growth and the cost without fundamentally altering the physician-patient relationship. And nobody has found a solution to that problem.”

In the struggle to control Medicare’s costs, the only notable success has been with hospitals. In 1983, the government abandoned the practice of reimbursing hospitals for services rendered to Medicare beneficiaries and instead instituted standard payments for treatment of each of 468 different patient conditions.

Hospitals complain it is unfair to set rates for all illnesses or injuries without considering the many possible variables that come into play when a person enters a hospital. But it has clearly contained costs. Federal payments to hospitals rose to $52.1 billion in fiscal 1988, a 4.5% increase over the previous year, while medical payments, mostly to doctors, jumped 13.6% to $34 billion.

‘Extremely Fragile’

The American Hospital Assn. is afraid of further efforts to limit hospital payments. “After years of ratcheting down hospital payments,” says association President Carol McCarthy, “the condition of the hospital system today is extremely fragile.” Inadequate payments, she says, threaten both the quality of health care and hospitals’ ability to remain open.

Many analysts, citing hundreds of hospital closings since 1982, agree that hospitals have suffered enough. “We’ve reached a point where we’ve gotten control of hospital costs,” says Meyer.

Firing a shot across the Bush Administration’s bow, a bipartisan group of 179 House members and 36 senators on Jan. 31 supported a resolution opposing reductions in Medicare payments to hospitals.

Institutions are not the only targets of Medicare cost-cutters. Government policy-makers will also consider proposals that would force Medicare beneficiaries to bear some of the burden of holding costs down.

Meyer asserts that cost-cutting measures “are going to hit beneficiaries.” He suggests that the government might have to increase Medicare’s $75 deductible for coverage of doctor fees.

The AMA favors phasing in a system under which the elderly are entitled to medical benefits only to the extent that they contributed to the Medicare system while they were working. At present, all the elderly receive full benefits, regardless of their job history.

Cites Slow Policy Moves

Whatever happens to Medicare will probably not happen quickly. “Policy in every area of government is made very incrementally, very slowly,” Cogan says. “It’s the fundamental nature of democracy. You don’t see a radical policy change being made overnight.”

Theodore Flack hopes the policy-makers will remember “the little guy.” For too long, he says, “the rich got richer and the poor got poorer.”