Veteran reporter Sarah McClendon touched a raw nerve last week when she asked President Reagan during his televised press conference what the government was doing about "dumping" elderly medicare patients out of hospitals before they were completely well.

McClendon, 75, a syndicated news correspondent, is herself just out of a hospital and convalescent home following an operation to replace her hip. Her own hospital experience "couldn't have been better," she said, but it did focus her professional attention on some of the problems of the aging and the infirm. However, even she was astonished, she said, at the extent of the reaction nationally to her question. Reagan said only that "we're looking at it."

But the day after the press conference, McClendon received phone calls "from every corner of this country," she said, "from people thanking me for asking it, people panicked over the idea of having their Medicare benefits run out before they were well, and having no place to go," or from people who had already felt the fallout from widespread and sometimes inadvertant abuse of the "diagnostic related groups," or DRGs.

DRGs were instituted in 1983 as an effort to cut soaring hospital costs, which were threatening to bankrupt the Medicare program. Under the DRG plan, hospitals are paid a fixed fee for treating a specific illness. If the patient's care costs more, the hospital or the patient pays the difference. If it costs less, the hospital profits.

DRGs have apparently cut costs. But there is an increasing clamor from consumer groups, senior citizens organizations, the American Medical Association and many individual physicians, patients and families that much of the hospital cost savings have been accomplished at the expense of elderly patients. Officials from the Health Care Financing Administration (HCFA) have repeatedly insisted that there is too little evidence to demonstrate a "pattern" of abuse.

But the General Accounting Office and even the inspector general of the Department of Health and Human Services, of which HCFA is a part, have, in formal testimony, expressed concern over HCFA's failure to prevent abuses of the system or even to effectively collect the data about abuses.

There are 470 conditions or medical procedures for which a specific DRG payment has been established. When a patient is diagnosed with, say, a stroke, the hospital can look in a book and find out how much Medicare will pay for the hospitalization of a stroke victim. It is a flat rate paid in advance.

The amounts allocated in the DRG guidelines are estimates of an "average" cost, since medical costs can vary widely from region to region and hospital to hospital. And according to Isabel Claxton, who is on the staff of Sen. John Heinz's (R-Pa.) Special Committee on Aging, Congress intended for hospitals to use the money they made on the patients whose treatment cost less than the average to pay for those whose treatment was more expensive.

It didn't work that way.

Instead, for a number of reasons ranging from out-and-out greed to a lack of understanding of the program, many, perhaps most, hospitals translated the payments into numbers of days for which Medicare would reimburse, and tried to squeeze all patients into the so-called "average."

"What we expected," said Claxton, "was for hospitals to make money on half the patients and lose money on the other half."

Instead, there is a growing body of medical horror stories, waning confidence in the Medicare system and evidence of erosion in the quality of care for America's burgeoning older population. Some 12 million older patients were admitted to one or another of the 5,800 acute care hospitals in this country last year. Here is what seems to be happening:

*Hospital administrators have pressured physicians to release patients within a time period that would be compensated by Medicare. In some hospitals, said Claxton, a list will be posted in the phsyicians' lounge of doctors who "cost the hospital money or who are making money" for the hopsital, according to how quickly their Medicare patients are discharged.

*A hospital chain in California is offering to share the savings with its phsycians when the Medicare patient is discharged before his benefits run out, according to the three-hour ABC documentary "Growing Old in America," broadcast earlier this month. It is, said Claxton, "one of the more creative" incentives hospitals are using. Another, she said, is the increased use of outpatient procedures, which are reimbursed in the old way -- payment for services after they are rendered. Under these programs, hospitals are often getting higher Medicare payments for patients never admitted to the hopsital at all, but treated in a hospital-owned ambulatory care facility.

*Patients who do not have reimbursable conditions may not be admitted to hospitals at all. Claxton tells of an investigator for the Heinz committee, a physician himself, who described a recent case in North Carolina: A patient visited his own family doctor complaining of dizziness and chest pains. Because he did not present a clear case of a heart attack, the doctor suggested he wait a day or so to see if it was just "stress." Medicare does not reimburse for stress hospitalizations. The patient died the following day in the hopsital emergency room of a massive heart attack.

*Some hospitals are also refusing to admit patients with more than one major problem -- for example, someone with asthma and a stroke -- because Medicare does not provide payment for more than one DRG condition at a time.

*The 54 Peer Review Organizations (PROs), established to monitor the Prospective Payment Plan of which the DRGs are a part, are in disarray, with some of them reporting hundreds of abuses and some reporting none. Some, said Claxton, have even gone bankrupt and there are no consistent guidelines for their activities. Even so, 4,700 alleged abuses were reported last year, almost none of which have been fully investigated, said Claxton.

Last week, HCFA said it would require hospitals to better inform patients about their right to appeal their discharge if they felt they were being released from the hospital too soon.

However, Heinz said the HCFA proposal made it seem as though patients were being given something new. But patients have always had this right to appeal their discharge -- since this 1983 legislation was enacted -- Claxton said. This right is kicked in when the patient is warned in writing, by the hospital or PRO, that after a certain time Medicare payments will be stopped and the patient will be billed for additional costs.

"What they are overlooking," said Heinz, is that "the largest category of discharge, where it is made by the hospital or the doctor with no written notice." The new notification plan "is actually detrimental," said Heinz, "because it further confuses the issue."

Dr. Sidney Wolfe, head of the Public Citizen Health Research Group, called the HCFA move "just one little tinkering, putting the burden on a sick person who is hardly in a position to launch a crusade flat on their backs." He believes it would be more cost effective to institute "simple things like mandatory second opinions for surgery."

Heinz and his colleagues are planning new legislation to fine-tune the existing system, with an eye to requiring closer adherence to the original congressional intent. They plan a "severity of illness" index to provide payments to patients with multiple problems, "such as a heart attack patient with diabetes," and there will be an overhaul of the monitoring system to better identify abuses and practices Heinz himself has characterized as "catapulting patients out of hospital doors" before they are well.