Health Care Suffers Unkindest Cut of All

“The buck doesn’t stop here,” said last weekend’s budget negotiators, in effect, as they cut funding for Medicare.

The budgeteers from the Bush Administration and Congress dictated lower Medicare payments to hospitals and doctors and higher premiums on Medicare insurance for the elderly, subject to congressional approval. But they avoided higher taxes on Social Security income.

Which raises questions of just why politicians would cut a health program for the elderly but refrain from taxing an income program.

And the reason is that with Medicare the negotiators knew they could pass the buck. The reductions in projected federal expenditure during the next five years--totaling $60 billion--would be made up largely by increased payments from employer-financed insurance programs for retirees and by the practice of cost shifting, in which hospitals charge fully insured patients more to make up for Medicare and indigent patients paying less.

“The average hospital loss on Medicare is $136 per patient,” say Washington consultants Thomas Gilligan and Allen Dobson in Federation of American Health Systems Review, a publication that monitors legislative trends. It is simply understood that shortfalls on Medicare are made up by overbilling other patients, the authors write. And with new reductions in Medicare, “the shortfall in Medicare payments could rise to approximately $450 per patient.”

“The budget agreement is just a continuation of government underpayments,” agrees Kenneth Abramowitz, analyst at the Sanford C. Bernstein investment firm. “Business will see its health-care premiums go up 15% to 20% a year, forever.”

Skyrocketing costs, false billing, political sleight of hand: Medical financing in America seems at times to be a bizarre game of cat and mouse. For example, the government 10 years ago introduced a system of specific payments for specific treatments or illnesses in an attempt to control its costs. Private health insurers introduced similar cost-containment moves, and the system worked. Government outlays for hospital care only doubled in the 1980s, as hospital stays were shorter and more ailments were treated on an outpatient basis.

But payments to physicians and for outpatient services went through the roof. Expenditures on Medicare, the largest of the government’s health programs, trebled in the ‘80s to roughly $90 billion. And the outlook is for Medicare and other health expenditures to simply balloon as the average American grows older.

The nation’s health as well as its pocketbook is threatened by the present system of medical financing. Business and insurance groups are calling attention to “over-practice.” As much as “30% of heart bypass, angioplasties, prostate gland removals, Cesarean sections and pacemaker implants have been deemed unnecessary,” stated a Cleveland business group, citing work by medical researchers at UCLA and RAND Corp.

Such over-practice occurs, the business groups say, because health insurance and government programs pay on quantity of work done; to get the bucks, you have to take action. Also, patients demand action in the form of the latest diagnostic tests and medical procedures, and advancing medical technology properly encourages patient and physician to search for new answers.

It’s a complex situation, but one that cries out for reform, says Henry Aaron, a scholar at the Brookings Institution. And the latest Medicare cuts, by increasing business’ health insurance costs and hiking premiums on Medigap insurance--by which the elderly cover the difference between Medicare payments and medical bills--will only hasten reform. At least they will hasten a national debate over health care.

And that debate might consider Cleveland, where 10 major corporations and a coalition of small companies are supporting a program called Cleveland Health Quality Choice to monitor local hospitals. The business groups judge hospitals on how well patients respond to treatment, depending on their illness. The aim is to identify the better performing hospitals and persuade employees to use them. The result will ultimately be that some hospitals will close and others will specialize, says Dale Shaller, a consultant to the Cleveland group. One hospital might specialize in pediatrics, while another offers intensive cancer treatment.

Such reforms may be closer than we think. Business is in no mood to accept further hikes in medical bills--already one of industry’s highest single costs. “The United States now spends $600 billion a year on health care,” says Powell Woods, president of Cleveland’s health action group. “That’s twice the health expenditure per person of nations such as Germany and Japan. And you have to ask whether the U.S. is getting its money’s worth.”

The outlook is clear: Either private efforts such as Cleveland’s provide a solution to rising costs, or corporations, labor unions and voters will turn in the ‘90s to federal financing of health care.

And make no mistake, federal financing in this day and age won’t be generous. Rather, it will surely include rationing of health care.

The budget negotiators don’t know it, but the time has past for passing the buck on health care.