Siphoning Medicare to Aid Health Plan Appears Risky

President Clinton proclaims it as his crusade for 1994: to guarantee that every American, sick or well, working or jobless, will be insured against the ravaging costs of health care. And he says he can pay for a hefty share of it by slicing $118 billion from Medicare spending over the next five years.

But Medicare itself is out of financial control, headed for bankruptcy within seven years unless it is radically reformed, the system’s trustees warned in a gloomy report last month.

A special Los Angeles Times investigation, which largely supports the trustees’ report, demonstrates the dangers facing Clinton if he tries to rely on Medicare to pay for his vision of universal health care coverage.

Spurred by breathtaking advances in medical technology and consumer demand for state-of-the-art care, Medicare outlays have exploded at an average rate of 15% a year since the program went into effect in 1966. Runaway spending has made a mockery of cost-control efforts by Democratic and Republican administrations alike.

The Times’ research--which included a computer-aided analysis of more than 11 million Medicare hospital records from 1992 as well as interviews with doctors, patients and hospital administrators--uncovered some intriguing aspects of Medicare spending growth.

For example, more than 7 million surgeries a year are performed under the Medicare program. Yet for no known reason, surgery rates for Medicare patients varied sharply according to geography.

A resident older than 64 in Clinton’s home state of Arkansas, for example, was 70% more likely than one in California to undergo a coronary bypass operation in 1992. Hip replacements were performed nearly three times as often in Utah as in Louisiana.

No one knows whether the higher rates are justified. Either way, something seems to be awry.

If too many of the elderly in some states are going under the knife, then Medicare is wasting a lot of money with no particular idea of how to stop it. Alternatively, if too few of the elderly in other states are receiving operations, then the health care system is shortchanging them.

Likewise, The Times’ survey documented that Medicare pays small hospitals to perform life-or-death operations even though these procedures are both more dangerous and more expensive than those performed at larger and more experienced hospitals.

The death rate for coronary bypass surgery, for example, was 43% higher in 1992 at hospitals that performed few of the delicate operations than at high-volume medical centers. And the low-volume hospitals also cost the taxpayers about $2,000 more for each case.

The American College of Cardiology, which says hospitals need to perform at least 200 bypass operations a year to assure a smoothly running surgical team, asserts that Medicare could save money and lives at the same time if it could channel more heart patients to high-volume hospitals.

But many heart patients prefer to have the bypass operation performed near home so that family and friends can visit. So cutting any hospitals out of the coronary bypass business would be unpopular.

But the change suggested by the American College of Cardiology is not on Clinton’s list of proposed Medicare cost savings. Instead, the President proposes cutting future Medicare outlays by about 10% through a variety of steps, such as trimming payments to hospitals that train doctors and care for large numbers of poor people and requiring affluent Americans to pay more for their Medicare coverage.

The $118 billion to be saved over five years would provide about 30% of the $396 billion the President says is needed for his plan to provide health insurance for all Americans. It is an ambitious goal.

“We have real questions whether it is possible to reduce Medicare spending by $118 billion without seriously hollowing out the program and almost leaving it as a shell,” said Martha McSteen, president of the National Committee to Preserve Social Security and Medicare, a lobby of 6 million senior citizens.

More than that, Medicare’s own financial history casts doubt on the Administration’s prediction that universal health care coverage would be only a modest burden on the Treasury. Medicare, which began with outlays of $3.4 billion in 1966, exploded to $147.7 billion in fiscal 1993, a nearly tenfold increase even after adjustment for inflation.

That makes Medicare bigger than all federal spending programs except defense and Social Security.

For hospital care, the Medicare patient pays $696 for the first day and Medicare pays all bills for the next 59 days. Then the patient pays $174 a day for the third month and $348 a day for longer stays. Hospital coverage, which is Part A of the Medicare program, is financed by a 1.45% payroll tax on workers and employers alike.

For doctors’ charges, covered under Part B, Medicare picks up 80% of approved costs after the patient pays the first $100 a year. Medicare beneficiaries pay $41.10 a month for this part of their insurance. These premiums cover about a quarter of the costs; the other three-quarters comes from general federal tax revenue.

In 1983, in an effort to prevent hospitals and doctors from seeking unlimited Medicare reimbursements, Congress imposed a system of fixed payments depending on the diagnosis. This slowed the growth of spending somewhat, but many surgeries were shifted from hospitals to outpatient clinics, where they were not covered by fixed fees.

Congress also tried to slow spending on doctors by freezing their fees, but the medical profession responded by increasing the volume of required office visits and procedures.

Medicare is clearly a victim of its own success. It has brought an unlimited range of doctors and hospital treatments to 32 million Americans 65 and older and 4 million disabled people of all ages.

Thanks in no small measure to Medicare’s inception in 1966, the elderly’s share of the total population has grown from 9.5% to 12.6%.

But population growth accounts for only a fraction of the 15% annual growth rate in Medicare spending since 1966. To explain the rest, most experts point to leaps in medical technology and to the demand by patients and their families for the latest array of tests and operations regardless of cost--after all, the taxpayers pick up most of the tab.

“Many elderly people come to doctors’ offices with shopping lists of specialists they expect to get referrals to,” said Dr. Richard Hornbeck, an internist who practiced in a small North Carolina community and now works at a big medical complex in Rochester, N.Y.

“Rural Southerners and sophisticated New Yorkers have the same kind of entitlement mentality,” he said. “They say: ‘I have a rash, I’ve got to see a dermatologist immediately.’ ”

Patients have become more demanding because they know what modern medicine can do.

“I’ve been treating a woman with gallstones successfully for 20 years, and she comes into my office and announces she wants her gallbladder removed because her friend had the operation,” said Dr. Lawrence Wellickson, an internist in Orange, Calif. “I said: ‘Do you have any pain or problems now?’ and she said: ‘No, but I want the operation.’ ”

Wellickson refused, but the patient found another surgeon who said yes. “She wasn’t having pains before, and she didn’t have them after the operation,” Wellickson said. “Does it make sense to be curing things when there is no appreciable problem?”

About 800 out of every 1,000 people enrolled in Medicare received some services in 1992, an increase from 633 a decade ago. And even after adjusting for inflation, the average amount spent on each beneficiary rose from $2,216 in 1985 to $3,624 in 1992, according to a commission created by Congress to study Medicare.

The volume of hospital diagnostic tests under Medicare mushroomed from 2 million in 1980 to more than 8 million last year. The sophistication of treatment is sending costs out of sight.

“The real driving force is what we broadly call technology,” said William P. Pierskalla, dean of UCLA’s Graduate School of Management. “You have to train people to use the machines, a whole new group of technicians and specialists.

“I’m very pessimistic that we can control costs with this system,” Pierskalla said. “The demand for health care is almost insatiable.”

Some surgical procedures are more popular in some regions than others. Heart bypass surgery is big in the South. People in the Great Plains and the Rocky Mountain states are most likely to get knee or hip replacements. In California, by contrast, surgeons operate less than in almost any other state.

California doctors perform coronary bypass surgery at a rate of 134 for every 100,000 people of Medicare age, according to The Times’ review of hospital records. In Arkansas, the rate is 229 per 100,000.

Are California residents getting too few operations? Are people in Arkansas getting too many?

“That’s the million-dollar question,” said Dr. Don Neilsen, a quality expert for the Kaiser Permanente Health Plan. “Taking a number in isolation, you can’t say whether this it good or bad. You can only say it varies.”

No surgical procedure costs Medicare more than heart bypass surgery. Not even invented when Medicare began paying hospital bills in 1966, the procedure ran up a $4-billion Medicare bill in 1992.

In 1980, only the most daring surgeon would perform a coronary bypass operation on a patient older than 80. Today the operation is being performed on patients as old as 99, according to Dr. Edward Schneider, dean of the Andrus School of Gerontology at USC. “Doctors were hesitant about taking older patients, but they are no longer squeamish,” he said.

One thing is clear about bypass surgery: Hospitals that do a big volume are safer and cheaper than those that do less.

The Times’ study uncovered a death rate for Medicare patients of 7% at hospitals that performed fewer than 50 bypass surgeries in 1992. For hospitals doing 247 or more operations, the mortality rate was 4.9%.

The bigger hospitals also saved an average of about $2,000 a case because their patients had fewer complications and went home sooner.

Doctors, operating room nurses and intensive-care nurses who are veterans of bypass work are better at their jobs “because of the number of times they have seen these things and their ability to react more quickly,” said Dr. Daniel Ullyot, president of the American College of Cardiology and a San Francisco cardiovascular surgeon who does nearly 200 bypass operations every year.

Yet Medicare will not ask Congress for the power to restrict bypass surgery to high-volume hospitals that offer package deals. That, Medicare officials say, would anger too many hospitals in too many congressional districts.

“Coronary bypass surgery is sexy from a marketing point of view--every hospital wants to have a well-known cardiac care unit,” said the cardiology chief at a major California hospital. “The public likes it, and the insurance company likes dealing with a hospital with a full range of services.”

Medicare’s trustees said earlier this month that the system was simply “unsustainable in its present form” and, while offering no specifics, demanded radical changes to prevent bankruptcy by the end of the century. And the outlook for Medicare in the longer term is grimmer still.

When the baby boomers--the biggest generation in history--have passed their 65th birthdays by the year 2030, there will be a staggering 66 million elderly Americans, compared to 32 million now. Nearly 22% of all Americans will be drawing Medicare, but their children may be unwilling or unable to pay the freight.

Warned Roland King, chief actuary of the Health Care Financing Administration: “We will get into a situation when we can no longer afford to pay the kind of benefits we pay now.”