Taking the Litmus Test

Carter's bill to curb hospital costs challenges Congress

Jimmy Carter insisted that the bill had to be passed. Alfred Kahn, the Administration's anti-inflation strategist, declared that it would contribute more to curbing the rising cost of living than any other piece of legislation. HEW Secretary Joseph Califano termed it "the litmus test" for all members of Congress "on whether or not they have the guts to do something about inflation."

The barrage of rhetoric, which seemed a shade inflated itself, was supporting the Administration's 1979 version of a hospital cost containment bill that passed the Senate last year but failed by one vote to clear a House committee. Vowing to lead a more determined fight for passage this time, the President plugged the bill at a special White House press conference last week. He cited an alarming statistic: only ten years ago, a patient paid $533 for an average stay in a hospital; the average hospitalization now costs $1,634. An HEW study found that Americans spent less than 3% of the gross national product on health care at the turn of the century, now spend 9% and, at the current rate of increase, will be doling out 12%, or $1 trillion, annually by the end of the century. The cost of hospital care over the past ten years has risen more than twice as fast as the overall cost of living (see chart). Carter called the spiraling hospital cost "outrageous" and warned that it was a significant factor in inflation, but one that could be controlled. And Carter argued that a failure to contain inflation would endanger "the basic structure of our society."

To soften some of the criticism that helped kill the legislation last year, the Administration has vastly modified this session's bill. Last year's plan would have clamped a limit of 9% on the annual increase in revenues that hospitals could receive from bed patients. This time, the Administration would give the hospitals until Jan. 1, 1980, to prove that they can hold the amount of money they spend, rather than take in, to an annual increase of no more than 9.7%, plus an adjustment that would take into account some inflation factors. (Studies show that hospital revenues and expenses climb and fall at similar rates but that expenditures are easier to track.) The failure of a hospital covered by the program to meet this goal would trigger a penalizing mechanism so convoluted that administrators claim it would be a bureaucratic nightmare--and they have a point. Basically, the formula would restrict the amount of money that a hospital could collect from patients. A hospital's revenues might be reduced by as much as 2%, a sharp decline for an institution that operates on narrow margins.

About the toughest penalty in the bill would apply to hospitals that began juggling their patient load so that they were taking in higher-paying patients at the expense of lower-paying, or began discriminating against the poor or the elderly. These hospitals would lose their eligibility to collect from Medicare and Medicaid.

Last year's bill covered almost all community hospitals: this year's would exempt more than half. These include all hospitals in any state in which the average rise of hospital expenditures was below 9.7%, and all nonmetropolitan hospitals that have fewer than 4,000 admissions a year. Also unaffected would be hospitals in the nine states that have effective state-enforced cost-limit programs.

These exceptions and exemptions so complicate the bill that some liberals fear it will not work, but--concessions or no--the medical profession is as adamantly opposed to the legislation as ever. John Alexander McMahon, president of the American Hospital Association, calls the plan "inefficient, unworkable and horribly complex." He argues that hospitals cut the increase in their costs from 15.6% in 1977 to 12.8% last year. The Administration rebuttal is that this is still too high and came about only because of the threat of mandatory limits. The Administration also claims that the national decrease would have been much less if there had not been controls in the nine states.

As congressional hearings on the bill opened last week, Senator Edward Kennedy, who strongly supports the bill, convened his Subcommittee on Health in the unusual setting of an auditorium at Washington's Children's Hospital. After complaining that the setting was pure "show biz," Michael Bromberg, executive director of the Federation of American Hospitals, testified that the bill's triggering level of 9.7% was unrealistically low and warned that the mandatory controls would force hospitals "to reduce the quantity and quality of services they provide." The Administration claims the bill would cut costs but not quality care. Bromberg also argued that it was unfair to single out hospital costs for special controls, since they amounted to only 2% of the Consumer Price Index, compared with the role of food (17.7%) and housing (43.9%).

Carter's bill is sure to meet tough opposition on Capitol Hill from critics who claim it would not only create an entirely new bureaucracy but be dangerous to the health of hospitals. The fate of the legislation may rest on how much heat members of Congress finally feel from their constituents. Opponents are banking on the fact that 92% of the nation's hospital bills are paid by various health care plans, rather than by patients. Yet opinion polls show that Americans rate the high price of health care as one of their top four financial worries, exceeded only by inflation in general, uncontrolled federal spending and unemployment.

Looming over the hospital cost fight is an impending longer-range battle in Congress about increasing the protection against high medical bills through some form of national health insurance. As the medical profession digs in to fight hospital controls, it faces a dilemma. If the campaign succeeds, there is the risk that medical costs will go higher. And that, in turn, could generate more public pressure for a federally controlled health program that the medical profession hates even more. --

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