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By Amy Goldstein
Washington Post Staff Writer
Friday, January 8, 1999; Page A06

The White House is preparing to recommend a substantial new round of cuts in the payments that the government makes to the nation's hospitals for caring for elderly patients.

Budget officials are contemplating a reduction of $6 billion to $10 billion over the next five years in the growth of Medicare expenditures for hospital stays, although they are not expected to determine the exact size of the cuts for another several days.

Administration officials say such a step is warranted because hospital profits -- particularly from inpatient care -- are higher than those in other parts of the health care system. According to a recent analysis by the commission that advises Congress on Medicare payments, hospital profits in 1997 reached their highest level in a dozen years. Profit margins for treating patients who stay overnight or longer, the kind of care for which the administration wants to curb payments, average 16 percent.

One senior administration official, while not confirming any budget figures, said the government must be especially careful not to use up Medicare funds too swiftly because the trust fund that pays hospital bills is projected to become insolvent in about a decade, just as the large baby boom generation begins to become old enough to qualify for the nation's health insurance system for the elderly. "Where there are excesses, we are going to need to look at them," the official said.

Over five years, the expected reductions amount to 1 to 2 percent of the $468 billion Medicare is expected to spend on inpatient care.

Already, word of the administration plans has prompted protests from hospital officials, who note that the new round would come on top of deeper cuts, totaling $44 billion over five years, set in motion by the 1997 federal budget agreement.

"The print of the balanced-budget act is hardly dry," said Richard J. Pollack, executive vice president of the American Hospital Association. "This is going to exacerbate the hurt that is already being felt by hospitals and health systems in providing care to patients."

Pollack said that, after a few years of relatively stable costs, hospitals now are facing greater financial pressure, in part because of rapid increases in pharmaceutical prices. He also contended that the White House is failing to take into account that, even though inpatient profits are high, hospitals are losing money on other kinds of services. "The way they look at our situation," Pollack said, "is like a physician doing a physical and looking only at the big toe."