President Carter asked Congress yesterday to enact a hospital cost control law that he said would save the nation $2 billion in the first year by limiting both revenue increases and capital expenditures.
The proposal, widely viewed as the Carter administration's first step toward national health insurance, would employ a formula limiting a hospital's revenue increases to about 9 per cent more than the hospital received in the base period of 1975 and 1976. Additionally, it would set a national ceiling on expenditures for hospital construction, new facilities and new equipment of $2.5 billion, roughly half of what was spent in 1976.
In his message to Congress, the President said the $2 billion savings that could be realized in 1978 "will slow a devastating inflationary trend which doubles health costs every five years."
The proposal faces an uncertain future in Congress, where hearings are scheduled in the House early next month.
In a White house briefing yesterday, Secretary of Health, Education and Welfare Joseph A. Califano Jr. insisted that limitations on hospital revenue increases would not impair the quality of medical care but rather would improve it, by forcing hospitals to become economically efficient.
In explaining the proposal, Califano provided a short analysis of why hospital costs, which now are rising at about 15 per cent annually, have gone up 1,000 per cent since 1950 - eight times the increase in the consumer price index.
"Hospitals are unlike any other segment of our economy." Califano said. "They are a big business. There is absolutely no competition." In addition, Califano noted that 90 per cent of the cost of hospital care, about $55.7 billion in 1976, was paid for by some form of insurance, relieving consumers of any direct financial burden. Hospitals receive the bulk of their payments from insurance companies o a cost basis, Califano said.
As a result of this system, the secretary declared, "Hospitals . . . many of them, have become obese if you will. They are not trim." Hospitals could have saved $330 million in energy costs last year with prudent conservation, according to Califano.
The administration's cost control bill wass described by both Carter and Carlifano as a first, temporary step until a more comprehensive program can be fashioned. It proposes to get at the problem of rising hospital costs through establishing a ceiling on reimbusements by insurance companies in place of today's virtually guaranteed reimbursements regardless of what the hospitals spend.
Although national health insurance was mentioned only briefly yesterday, it is generally felt by health economists and government officials that no such benefit can be provided until health cost inflation is under control.
Califano said hospitals could cut their costs without harming services by more efficient energy practices, elimination of excess beds, sounder buying practices and avoidance of unnecessary duplication of services.
Although HEW officials did not claim that the bill would result in lower insurance premiums, taxes, or prices paid for consumer goods, they did contend that controlling the increase in hospital costs would at least hold down what government must pay hospitals, what companies must pay for employee benefit plans, and what individuals must pay for health insurance premiums.
About 6,000 hospitals would be affected.
The controls would be administered through Medicare, Medicaid, Blue Cross and other insurance programs. They would be permitted to pay no more to the hospitals than the increase permitted by law. If a hospital were overpaid in one year, it would be required to adjust its revenue increase accordingly the following year. Violations of the law could require a hospital to pay a tax equal to 150 per cent of the surplus amount.
HEW officals contend that the program, which they hope to have enacted by Oct. 1, will require a minimum of additional bureaucracy to administer since most of the information already in available in the annyual Medicare cost reports hospitals must file.
The bill also provides exceptions for hospitals ithat have an extroordinary increase in patient load or major changes in the facilities or services offered.
Excluded from the bill are chronic care hospitals, hospitals less than two years old and those receiving at least 75 per cent of their income on a per capita basis from a pre-paid health maintenance orgainzation.
The ceiling on capital expenditures, which would be imposed among the states according to population, would the states accroding to population, would not permit any net increase in hospital beds in areas where a surplus is already considered to exist. HEW oficials estimate that nationally about 100,000 hospital beds - costing about $2 billion a year to maintain - are unneeded.
The adiinistration's proposal received a lukewarm response in Congress. Cources in both houses said nothing less than intervention by the President would secure its passage.