Charles Stewart's doctor ordered him to build up his strength before undergoing throat surgery at Howard University Hospital. So Stewart, a 74-year-old retired cook, spent two months at home living mainly on oatmeal, coffee and a high-protein drink, because he cannot eat solid food.

Two years ago, it would have been different. The doctor would have checked Stewart into the hospital a week or two ahead of time for nutrition therapy.

Stewart, who cannot talk because of an earlier larynx operation, writes on a piece of paper that he is happier to be at home, near friends and familiar sights. But Maria Rozario, the visiting nurse who looks in on him at his modest Northwest Washington apartment, says he does not feed himself as well as he should, and that the hospital would have done a better job.

"Emotionally, it's good," she says of his stay-at-home therapy. "Physically, it's not."

Because of other complications, Stewart entered the hospital a month early.

Cases like Stewart's are more common these days, as hospitals struggle to get patients out of their beds. Not on doctors' orders, but on Medicare's. The federal health program for the elderly and disabled is pushing thrift as never before.

Trying to put a lid on spending, Medicare has switched its method of paying for care. Instead of coughing up for each test, each day in the hospital, and each drug, Medicare pays a preset price based on the patient's diagnosis. Ailments are classified into 468 Diagnosis-Related Groups, or DRGs. The system, called prospective payment, is the biggest revolution in Medicare since it began in 1966.

There is some flexibility for local labor costs, urban or rural location, and hardship cases. Some types of hospitals are not included. Also exempt are hospitals in states with their own cost-control systems: Maryland, Massachusetts, New Jersey and New York.

The rule is simple: Hospitals that spend less than the fixed fee can keep the profit, and those that spend more must swallow the loss. So the 5,400 hospitals under prospective payment are discharging patients earlier, performing fewer inpatient tests, shifting some surgery to walk-in centers, and bargaining for cheaper supplies. Occupancy is down, and layoffs are up. More patients are using home health care and home-delivered meals.

The system's defenders say patients will benefit because DRGs will hold down health costs. The government is collecting more information on quality and price of medical care, and that could help patients, too. And the stress on reducing hospital stays could help patients bypass unnecessary care.

But critics worry that quality will be compromised in the rush toward the exit.

The new system began operating in late 1983, and hospital stays are down dramatically, from 9.3 days on average for all patients the year before the program started to 8.4 days its first year of operation. When only those patients covered by Medicare are counted, the average stay during prospective payment's first year was just 7.5 days.

One Providence Hospital patient checked out so quickly that his family had to scramble to find him a place to live. They had rented out his room at home in anticipation of a long absence.

"Prospective payment indeed is causing hospitals to be more prudent purchasers," says Dr. Donald A. Young, executive director of the government-appointed Prospective Payment Assessment Commission. "It seems to be playing itself out the way it was supposed to."

Medicare does not get all the credit. Private insurance also is putting the brakes on, and hospitals were tightening their belts already. Occupancy had been heading down, and outpatient surgery going up, before prospective payment. But Medicare, which pays 40 percent of the nation's hospital bills, has clout.

The government says hospital admissions have dropped 2 percent since 1983 under the combination of pressures. "We're going to see much more outpatient surgery," predicts Charles R. Stewart, assistant administrator for finance at Maryland's Suburban Hospital.

Medicare is pushing for many cataract operations to be done on a walk-in basis. One Adventist hospital reports that since DRGs came along, it does hundreds of outpatient cardiac catheterizations that two years ago would have involved hospitalization.

At Providence Hospital, patients are likely to be asked to come in for tests a few days before surgery and then be sent home to await the results. Some grouse that it is inconvenient to go to the hospital twice, says utilization manager Daniel M. Veith, but Providence cannot afford the costs of keeping them for a few days until their tests come back.

And it also means that hospitals can, essentially, get paid twice for the same tests. The hospital can bill the tests to Medicare outpatient insurance, and then collect the full hospital fee for that patient's surgery, even though the preset fee presumes testing is included.

Hospitals are seeking ways to cut down on tests in general. Suburban Hospital is constructing a "test profile" to tell doctors when the results of one test they ordered will duplicate another already done. At Fairfax Hospital, a procedure requiring a technician to examine slides under a microscope had been included automatically with every complete blood count, a common test. Now, the procedure is not done unless the doctor requests it. Fairfax is also preparing lists that will show doctors the costs of tests and drugs, in an effort to make them think twice before ordering.

Providence Hospital, however, says tests have not declined, because patients now in the hospital are sicker. The healthier ones have outpatient surgery.

The American Hospital Association says cost-consciousness is dampening the drive toward high technology. Hospitals are buying fewer CAT scanners and ultrasound machines. But nearly three-quarters of the nation's hospitals bought computer hardware or software to help calculate fiscal wins or losses under DRGs, according to a survey in Modern Healthcare magazine.

Some hospitals are joining forces to buy supplies at a discount. A group in Florida agreed to use the same menu, then negotiated volume discounts for food. Another Florida hospital changes the bed linens every other day, instead of daily, unless they are soiled.

Lower hospital occupancy is bad news for hospital workers. The American Hospital Association says the full-time hospital work force now numbers 3 million, a 3 percent drop from its peak in 1983. Candice Owley, vice president of the American Federation of Teachers, which represents 50,000 health care workers, says most layoffs have been among LPNs, aides and other nonprofessional employes. Hospitals are keeping their more highly trained RNs, she said, but often requiring them to take on new duties such as cleaning floors, doing clerical work or performing respiratory therapy.

Nurses complain they have less time to chat with patients, explain their medication or prepare them to go home, Owley said. She hears "a great deal of complaint and concern at what they perceive as staffing shortages within their institution, and the quality of care being damaged because of it." Labor experts predict a rise in union organizing -- and maybe more strikes.

Hospitals are giving new attention to discharge planning, trying to make sure their patients have places to go. At Fairfax Hospital, a social worker assesses each case upon admission to determine where the patient will go upon release -- usually home, a nursing home or another hospital.

Suburban Hospital is preparing to tell patients upon check-in how long they are expected to stay, what their charges will be, and how much insurance will pay. That way, patients will ask their doctors about going home a day or so before they anticipate leaving, Stewart said, and "that puts pressure on the doctor."

Once they are home, patients need more care. "We're seeing sicker patients who need more extensive care and more complicated care," says Ruby Van Croft, assistant director for services at the Visiting Nurse Association of Washington. Patients now require care the day they arrive home, and some need care several days a week. Visiting nurses are seeing Medicare patients who require six weeks of antibiotic therapy or twice-daily wound care -- something rare until recently.

Indiana's state aging agency reported a 30 percent increase in requests for nursing care, homemaker help and personal care services after DRGs took effect. In Michigan, one local agency saw demand for home care climb 57 percent. The waiting list for home meals and other services in Oregon grew 25 percent.

"We think DRGs are good in that older people prefer to have care at home," says Nancy Gorshe, assistant director of the National Association of Area Agencies on Aging. "The problem is that if you don't have a family member to do that initial caring when you get discharged, there's a gap."

Advocacy groups say they are hearing more complaints about hospitals dumping people on the street too quickly or cheating them of good care.

Bruce M. Fried, an attorney with the National Senior Citizens Law Center, said the center hears a "sufficient number of anecdotal complaints to give us great cause for concern as to whether quality of care for older people has been sacrificed."

The Visiting Nurse Association of Dallas told a congressional hearing last year of a Mississippi woman who was sent home because the hospital could not afford to keep her any longer and there was no nursing home bed available. She required daily home health aide visits, but Medicare rules provide for only "intermittent" care. She died at home.

Dr. Young of the prospective payment commission says it is too early to draw any conclusions on quality because no scientific studies have been done.

The American Medical Association informally polled its members and reported that 63 percent of those who responded think quality dropped or will drop if the new payment system continues. Thirty-seven percent believe quality has held steady.

AMA said a "significant number" reported that hospitals had urged them to discharge a patient with two conditions needing treatment after only one condition had been treated. The hospital could then readmit the patient and collect a second fee.

Forty-three percent of those responding to the AMA survey reported that hospitals exerted "unwarranted pressure" to discharge patients quickly -- in some cases telling the doctors their patients could stay no longer than the average number of days for that DRG.

The system's defenders say admissions are down, not up, and that readmissions are not alarmingly high. They also cite the government's new weapon in its fight to keep hospitals both honest and thrifty. Every hospital accepting Medicare patients under the new system must sign a two-year contract with a Professional Review Organization, staffed by doctors and nurses. The PROs are empowered to look at medical records before elective surgery and after any hospital stay, and are allowed to deny the hospital Medicare reimbursement for inappropriate care.

The contracts include numerical targets for such goals as reducing "avoidable deaths" or "unnecessary admissions." For example, the District of Columbia PRO contract promises to eliminate 4,889 unnecessary admissions for 150 procedures from inguinal hernia to breast biopsy. Maryland's PRO pledges a 70 percent reduction, 721 cases, in the number of patients getting excessive radiology or lab services in certain DRGs. In Virginia, the PRO says there is wide variation in the number of heart attack deaths at different hospitals and it will reduce avoidable deaths in that category by 86 in each year of its contract.

Doctors, unaccustomed to the government looking over their shoulders, complain that setting numerical goals for reducing admissions or procedures interferes with their freedom to make medical decisions. But Andrew H. Webber, executive vice president of the American Medical Peer Review Association, the PRO trade group, cites studies showing huge differences in surgery rates from one city to another. One found that 70 percent of women in one Maine city had had hysterectomies by age 70; in another city in the same state, 20 percent had.

"What we're trying to do is narrow the range into a more manageable size," he says. "There will always be differences." As for quality, he says, "There are a few individual cases of a premature discharge here or there . . . but we have not seen a whole pattern of quality of care compromised. I have not seen by eliminating those days in the hospital that quality of care has been compromised."

And how are the hospitals doing under the new system? "We're operating very favorably within prospective payment," says Fairfax Hospital's Thomas Young. But rural hospitals, hospitals that are referred patients by other institutions, and public hospitals complain they are losing money and may have to close.

The public hospitals say their patients are sicker and therefore more expensive to care for, and that other hospitals are dumping high-cost patients on them. At D.C. General Hospital, 904 patients were transferred from other hospitals in the year ending Sept. 30, more than five times the number three years ago. Many public hospitals are instituting new policies on transfers, but public hospitals still remain the institution of last resort.

Some officials worry that care for the poor will worsen as public hospitals strain to stay afloat under Medicare's new limits.

If some hospitals are losing money, Medicare is saving money, so far. According to the Congressional Budget Office, the hospital fund spent only 8 percent more in 1984 than it did the year before, a contrast to double-digit increases in years past. The Health and Human Services Department says DRGs were a "major factor" in the slowdown.

However, even the system's defenders acknowledge that the savings from DRGs alone will not be sufficient to save the Medicare fund from running out of money, as is currently predicted, in the mid-1990s. The Reagan administration wants to freeze rates where they are for the coming fiscal year, a move that would save $1.8 billion for that year.

The Congressional Budget Office warns that costs may drift up again after the early drive for thrift, as hospitals figure out ways around the DRG limits. Hospital journals and academic articles speculate that administrators will find ways of assigning patients to money-making DRGs, or admitting them when it is not necessary, or admitting them twice for two fees when they could be treated in one visit.

Bruce Fried, of the senior citizens law center, questions whether the growing cost to other programs such as home care service means "we're really saving money or we're just playing budget games."

So far, however, Congress remains guardedly satisfied about the revolution it set in motion with passage of a briefly debated amendment to a 1983 Social Security bill.

"The general consensus is that it's making a positive impact on the system, but there are some problems to be dealt with," says Chip Khan, chief health aide to Sen. David Durenberger (R-Minn.), who chairs the Finance Committee's health subcommittee.

There are some indications, however, of growing concern. A preliminary report from the General Accouting Office to the Senate Special Committee on Aging last week said patients are being sent home in poorer health and sometimes enough post-hospital care may not be available. The House Select Committee on Aging held a hearing on the impact of DRGs last week, and chairman Edward R. Roybal (D-Calif.) said after hearing testimony he is "more convinced than ever that cost containment is becoming care containment."