Year after year in our fund-raising campaign for Children's Hospital, we point out that Children's treats patients who cannot afford to pay their bills. As we point out, your contributions help Children's offer care to such patients.

But all your help has not made the open door policy at Children's a paying proposition. In fact, the hospital has never been in worse financial condition.

How can that be, when medical costs are so high? And what is the management of Children's doing about it? My associate, Michelle Hall, met last week with top hospital officials, and compiled this report:

When Children's Hospital President Bruce Perry heads for the hospital by cab, he often talks to the driver. Perry always asks the same questions, and he often gets laughably incorrect answers.

"I'm going to visit somebody at the hospital," Perry will say. "What do you think of Children's?"

"Oh, yeah, it's a great hospital. Great care," the cabbie will reply.

"Are they pretty well off? Do they have financial problems?" Perry presses.

"Oh, they have all the money in the world. Lots of governmental money going in there. Got everything they need. Shows you what the federal government can do," the typical driver will say.

In fact, Children's Hospital ran up a deficit of $8.2 million in fiscal year 1984 -- its largest single-year deficit ever -- and it has never received direct federal operating funds. So things are far from rosy at Children's. But why?

I met with Perry, Executive Vice President Donald Brown, Vice President for Advocacy and Community Development Dr. Frederick Green and Senior Vice President for Academic Affairs Dr. Robert Parrott to discuss the reasons.

Perry explained that the hospital has grown, reimbursement for services has decreased and costs have risen faster than the ability to generate revenue to cover them. But the biggest reason is that the hospital has an "open door policy." It accepts everyone regardless of ability to pay.

"There are fewer government programs to pay for them (people who can not pay), plus there are people who aren't eligible, never were eligible, who we continue to take care of chiefly illegal aliens and the "working poor" ," Perry said.

The hospital was in better shape financially before 1980. The Reagan Administration has made substantial cuts in Medicaid funds. The states and the District, which match federal Medicaid grants, cut funding as well. At the same time, Virginia and Maryland cut off (or "capped") Medicaid payments after 20 days per patient, regardless of how sick he was. Medicaid "caps" still apply to most patients.

The effects of "caps" are especially pronounced when a child is hospitalized for a long time. A premature newborn, for example, will usually have a minimum hospital stay of 80 days. Medicaid will reimburse the hospital for no more than 80 percent of costs. The hospital will not be reimbursed for the remainder. Perry estimated that at least half the babies in the newborn nursery come from families who cannot afford to pay.

About one third of the children the hospital sees on an out-patient basis have no means with which to pay. More than one fifth of hospitalized children cannot pay. "Unfortunately, many of the high risk children are children of the group who are less able to pay for services," said Dr. Green.

"It's not just the direct care of children that costs," Dr. Parrott said. Teaching health care, equipment and research are also important. "What a child needs costs so much more, if you do it right, than you could possibly collect," said Dr. Parrott.

Perry agreed. "You can bill for specific services, but you can't bill for support. The price would be too high. But that's really the way to take care of a child," he said. Children with spina bifida, for instance, require the services of several different specialists, as well as social work and nursing. The bill from the spina bifida clinic is less than one tenth of actual costs.

Often, when the government tries to address a health care need, it funds a program on a three-year trial basis. If funding is cancelled at the end of the three years, as it often is, the hospital must continue funding the program on its own or stop meeting critical needs of the community.

The high prices at Children's pose more problems. "Most people don't understand the specialized services you have to have to take care of children, which are very expensive," said Perry. He offered a simple example: "It takes three people, if you're lucky, to draw blood from a four-year-old child."

Children's has a program to prepare the classmates, teachers and family of a sick child for his return to normal life. The staff believes that a child should not have to suffer because other people are unsure how to act.

"It's all very expensive. It's things that people normally don't understand and don't want to pay for, and that's all built into our prices. So our prices are high. Part of our prices are to pay for people who can't pay," Perry explained.

"For us to remain competitive and attract the patients that are paying, we have to be very sensitive to price . . . . What we worry about is the ability to generate the funds to continue to take care of all of those children while at the same time maintaining the quality." Fully two-thirds of the hospital's revenue comes from outside fundraising campaigns and benefits, Perry said.

Perry hopes to see a deficit of less than $2 million for the current fiscal year. He plans to tell the hospital's story better to corporate donors. Meanwhile, the hospital must find ways to cut costs or hold them constant, while offering competitive salaries and providing quality care.

A reduction in force for the first time this summer was part of Perry's plan to improve productivity. The hospital will do more competitive bidding to cut costs, and it will try to attract more children who can afford to pay.

In the meantime, the needs of the children in this community continue to grow. "There are things that we could be doing, should be doing for children," Perry said.

"Most of the money we raise right now goes toward taking care of children who can't afford to pay," said Parrott. What better place?