Hospitals Voice Worry at Medicare Cut Impact : Health: GOP plans to slash billions of dollars expected to most affect teaching, city institutions serving poor.

America’s hospitals, their revenues already squeezed by the nationwide drive to contain health costs, are bracing for more cutbacks as Congress prepares to patch up the Medicare program by slashing billions of dollars from their future revenues.

Hardest hit will be teaching institutions, where new doctors receive their basic training, and city hospitals that serve large numbers of poor and uninsured patients.

Republican blueprints for trimming future spending on Medicare provide for large reductions in payments for medical education and a 30% cutback in a special allowance for taking care of low-income people.

“We are very worried. There are five or six different ways in which we will get less money,” complained Martin Goldsmith, chief executive of Albert Einstein Medical Center in Philadelphia and president of the National Assn. of Urban Critical Access Hospitals, whose members serve masses of poor people. Big-city hospital administrators, he said, are beginning to feel like the captain of the Titanic: “As we watch the ship go down, we ask the social director: ‘Will you please arrange the deck chairs?’ ”

California hospitals expect Medicare reforms to cost them $7 billion in federal payments over the next seven years out of total projected Medicare revenue of $54 billion, said C. Duane Dauner, president of the California Assn. of Hospitals and Health Systems. In a state where health maintenance organizations and other forms of managed care have already cut deeply into revenues--and jobs--the prospect of more cuts is daunting.

At Huntington Memorial Hospital in Pasadena, which prides itself on its traditional mission of training new doctors, President Stephen A. Ralph said: “We have to ask the question [of] whether we can continue doing this.”

House and Senate Republican leaders have offered separate proposals for lopping $270 billion out of Medicare’s projected growth over the next seven years. The Senate plan would cut Medicare payments to hospitals by $86 billion, while the House package calls for trimming $75 billion.

These figures, large as they sound, could grow. Both plans rely on millions of Medicare beneficiaries moving from traditional fee-for-service care into less-expensive managed care. If that does not happen, Congress could turn to hospitals and doctors for billions in additional savings.

The proposed changes would have a “devastating impact” on the UCLA Medical Center, said James G. Terwilliger, vice provost for administration at the UCLA School of Medicine. Some 40% to 45% of the hospital’s patients are in either Medicare or Medicaid--which pays the medical bills of the poor and also faces likely spending cutbacks.

Terwilliger called the savings “simply budgetary numbers. To lop off that much money without a policy behind it is misguided.”

When government reimbursements came up short in past years, UCLA and other hospitals could shift costs to patients with private health insurance. When Medicare paid about 85 cents for every $1 it cost to care for a patient, the hospital would charge people covered by private insurance $1.25 for $1 in costs.

But employers rebelled in the 1980s against soaring health insurance premiums. Insurance companies formed cost-conscious health networks and HMOs proliferated. Insurers and HMOs turned to hospitals, demanding--and getting--deep discounts.

“Cost-shifting worked very well,” said Thomas W. Chapman, chief executive officer of George Washington University Hospital here. “But we saw the evaporation of the surplus. Medicare [payment rates] used to be our floor, and now it is our ceiling in negotiations over managed care.”

George Washington, UCLA, Albert Einstein and other teaching and urban institutions cannot compete on a strict dollar basis with suburban hospitals, where patients tend to be more affluent, healthier and have better medical insurance.

HMOs and insurance companies, bargaining hard, have voiced reluctance to pay extra for their customers in urban teaching hospitals just because those institutions bear a disproportionate share of the expense of training doctors and caring for patients without insurance.

“Teaching hospitals are clustered by history in urban areas,” Chapman said. If government support is drastically reduced, he warned, “you tamper with the long-term care of the population.”

The pressure is particularly intense in Southern California, where 85% of the insured population is enrolled in managed-care systems, contrasting with a national figure of 55%.

Medicare requires its elderly and disabled beneficiaries to pay $716 for the first day of a hospital stay. Under current practice, Medicare reimburses hospitals for beneficiaries who are too poor to meet this cost.

Hospitals routinely absorb these costs for the elderly poor. “If you have a person who is too poor to buy [private health insurance] and too wealthy to qualify for Medicaid, what is a hospital to do, make them sell their dog to make the payments?” asked Charles L. DeBrunner, executive director of the National Assn. of Urban Critical Access Hospitals.

But under the Republican proposals, DeBrunner said, the government payments would be cut in stages to half of their current levels.

“You can only squeeze the grape so long before there is no juice left,” said Pat Guthrie, president of Healthcare Financial Advisors Inc., a Newport Beach firm that helps hospitals navigate the complexities of Medicare and Medicaid payments.

“At some point, some hospitals will not be able to afford the huge expense of running a teaching program, or offering community service programs such as an [obstetric-gynecologic] clinic to give prenatal care to poor women,” Guthrie said.

Both Republican plans would create a special federal trust fund to provide funding for medical education. However, hospital officials said they fear that they would still be left with less financial assistance from Washington than they get now.

Ralph, the head of Huntington Memorial, said that in areas of heavy managed care such as Southern California, the fat has already been excised from hospital budgets. “The opportunities for reducing costs are getting minimal,” he said.

While hoping to develop other sources of revenue, Huntington and other well-respected teaching hospitals keep an eye on the financial bottom line. As pressures mount, Ralph said, Huntington Memorial must “decide how we are going to fund programs and ultimately whether we will continue programs.”

The reductions in the growth of Medicare and Medicaid could hasten the merger or disappearance of some of the most honored names in the hospital world.

“Think of how many teaching hospitals there are in the corridor from Boston to . . . North Carolina, all competing with each other,” said James Bentley, senior vice president for policy at the American Hospital Assn.

In California, he said, “you’ve got the five UC hospitals, Loma Linda, Stanford, L.A. County, Cedars-Sinai--about nine hospitals slugging it out with each other. They are competing with each other for the most sophisticated services and with local community hospitals for the common things.”