THE FEDERAL government has an increasingly intricate regulatory relationship with the medical profession. The means of regulation are indirect: the cost reimbursement rules under Medicare. They are obscure and too little discussed, yet they have important consequences. The government now pays nearly 30 percent of the national medical bill, and to a greater extent than perhaps even it would prefer, what it will pay for determines what is done.
A current example involves the pattern of hospital expansion. For varying reasons, from misperception of needs to vanity among trustees, hospitals have expanded too fast in recent decades. The well-known results are empty beds and duplication of costly equipment. The new facilities have not generated enough new revenue to pay for themselves, and the hospitals have had to raise their rates to fill the gap.
In the 1970s Congress moved to deal with this capital-cost question through a licensing system. States were required to set up planning boards, and before hospitals could expand or buy major new diagnostic devices, they had to have certificates of need. This was one of several such direct regulatory efforts to combat the rising costs of Medicare and Medicaid. For example, the government also created local boards to police such elements of medical practice as tests prescribed under Medicare and lengths of stay.
The health planning system is now much disparaged, particularly from within the hospital industry, on two opposing grounds. The first is that it did too much, was intrusive and in effect gave the government a seat on every hospital board of trustees. The second is that it did too little, became politicized in many states so that certificates were issued too easily.
In any event there is now a move toward a new mechanism. Under the old system, if a hospital had a certificate of need, it was free to fold its resulting capital costs into its rate structure. Whatever the sanctioned capital costs were in a given hospital, the government paid. Payment patterns were uneven, higher in new or expanding hospitals than in other institutions. What Congress seems likely to replace this with next year is a uniform expansion allowance for all hospitals, a fixed percentage for capital costs on top of operating costs. A hospital could then do with its allowance as it chooses -- save it up for expansion, use it for other purposes. But economics, not regulatory boards, would govern.
The new device would be analogous to the new prospective payment system of fixed fees for hospital services rather than payment of costs incurred. This plainly suits the hands-off and economizing instincts of the administration and of many in Congress. It may in fact be a better method. But Congress, when it turns to the issue in earnest, needs to make sure that the new system meets needs as well as cuts costs. Too many hospital beds in a community are bad. So are too few.