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Jewish World Review March 23, 2000 /16 Adar II, 5760

Morton Kondracke

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Consumer Reports



Medicare cutbacks bleed hospitals -- Last year Congress discovered that U.S. hospitals were bleeding financially and applied a Band-Aid. But new estimates this year show that there's a hemorrhage.

Federal Medicare cuts are "killing the U.S. health care industry," according to one hospital lobbyist. But Congress, once again, is only reaching for a first-aid kit.

On Thursday, Congress' Medicare Payment Advisory Commission (Medpac) reported that hospital profit margins across the country dropped almost 40 percent from 1998 to 1999 to their lowest levels in 20 years. And in late January, the Congressional Budget Office (CBO) reported that Medicare payments -- a key revenue source for hospitals -- would be $62 billion lower over the next five years than the Congressional Budget Office had estimated just two months earlier.

All over the country, but especially in big cities and rural areas, hospitals are closing, going into bankruptcy, laying off personnel or having their credit ratings downgraded.

In the Washington area, troubled hospitals include Greater Southeast, D.C. General and Georgetown University. Elsewhere, they include Brookdale in New York, University of Pennsylvania Hospital in Philadelphia, Detroit Medical Center and UCSF Stanford in California.

Medpac reported that for the average U.S. hospital last year, revenues exceeded expenses by only 2.7 percent -- which industry experts say is not enough to keep pace with inflation or growth of the patient population. Rural hospitals averaged a net loss of 2 percent.

"Some very proud institutions are becoming very, very frail," says Ken Rafke, president of the Greater New York Hospital Association. "Some of the finest institutions in the country are being put flat on their backs."

Nursing home companies are also badly hit, with four of the nation's six largest chains currently in Chapter 11 bankruptcy proceedings and the remaining two under stress.

The two main causes of the problem are managed care -- insurance company and HMO limits on hospital stays and procedures -- and the Balanced Budget Act of 1997.

That measure put in place policies that were designed to cut Medicare spending by $125 billion over five years. Instead, they've cut $250 billion, and the savings grow every time they are estimated.

The good news is that Medicare spending is under control and the cuts are helping to balance the federal budget. "Before 1997, everybody said Medicare would break the bank," says Thomas Scully, president of the Federation of American Health Systems. "Now it is the bank."

For the current fiscal year, there will be $27 billion more Medicare savings than expected -- which is just about the size of the federal non-Social Security surplus.

The bad news, however, is that the Medicare-created surplus is inspiring Congress and the administration to spend money on highways, airport and defense -- and new medical benefits -- while allowing the nation's health infrastructure to deteriorate.

President Clinton proposed $8 billion in additional Medicare provider cuts in his current budget while at the same time offering a huge new prescription drug benefit for seniors.

"Medicare spending was growing at a rate of 11 percent per year during the 1970s and 1980s," said Scully. "For the last three years it's been flat, flat, flat. But it's killing the health care industry."

According to Arthur Ullian, chairman of the Task Force on Science, Health Care and the Economy, Medicare cuts could do long-term damage to economic growth.

"Health care represents 17 percent of the whole economy," he said. "When you start disrupting something so big and important, it can harm all the industries that depend on it, including computers and precision instruments. You risk killing innovation and investment in the whole economy."

Last year, after an all-out lobbying campaign by the hospital and nursing home industries, Congress acknowledged that the 1997 Medicare cuts were too drastic and passed a "giveback" to the industry of $15 billion over five years.

But the ink was barely dry on the legislation when the CBO came out with its new fiscal estimate showing that Medicare cuts over the five years would be $62 billion greater than previously expected.

This year, the health industry is gearing up for a new campaign for givebacks. The House Budget Committee reserved $40 billion for Medicare spending and the Senate Budget Committee is considering a $20 billion hike.

That's still too little to correct the problem, and whether any money at all gets allocated partly depends on health politics.

The administration has forced Congress to focus on a prescription-drug benefit for seniors, not on the hospital crisis. Meantime, there is zero chance that long-term reform of the Medicare system will be considered this year. It'll be a campaign issue instead.

So the U.S. health system, the best in the world, will continue to bleed for another year. Someone should call 911.

JWR contributor Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill. Send your comments to him by clicking here.


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