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Prescribing New Health Care Financing While the Medical Establishment Fumes

February 01, 1987|Gregg Easterbrook | Gregg Easterbrook is a contributing editor to Newsweek. His novel, "This Magic Moment" (St. Martin's), has just been published

WASHINGTON — Dr. William L. Roper has more money to spend than any American except Caspar W. Weinberger. Yet even in the town where he lives, hardly anyone recognizes his name.

Roper is administrator of the Health Care Financing Administration (HCFA, pronounced "hick-fah"), a little-known federal agency that controls the operative part of Medicare and Medicaid--the money. Washington seems only dimly aware of HCFA's existence, owing to the general perplexity about how the medical Establishment operates: Not one congressman or reporter in 10 would recognize Roper if he walked into the room.

In 1987, Roper will dish out about $104 billion for Medicare and Medicaid: roughly 85% going to health care for senior citizens and 15% to the poor. This $104 billion is more than the 1985 revenue of the world's largest corporation, General Motors. It is more than the government spends on anything else except defense ($289 billion) and Social Security ($202 billion). The Social Security Administration has no say in how benefits are distributed. Roper, on the other hand, exerts considerable influence over how much hospitals and doctors receive. This makes him America's No. 2 big spender.

A 38-year-old pediatrician from Birmingham, Ala., Roper came to Washington in 1982 as a White House Fellow. Late that year he was asked to help compose a reference to "prospective payment," an idea then gaining momentum with some health reformers, for Ronald Reagan's 1983 State of the Union address.

"Prospective payment" is a fancy name for determining the price of medical care the way prices for most goods and services are determined--in advance. Hospitals and doctors like to assess their damages retrospectively, calculating price after services rendered. Retrospective payment creates a temptation to pad the bill, a flaw plaguing the health-care system for years. Prospectively set fees--say, a flat $5,000 to treat a heart attack--remove temptation.

In late 1982, with medical costs exceeding 10% of the gross national product for the first time, any reasonable medical spending restraint seemed worth propos)ng. The eye-glazing phrase "prospective payment" was more than the President's speech writers could bear, however. Instead, Reagan made a murky reference to "curb(ing) the skyrocketing costs of health care," the kind of political boilerplate everyone skips over. This time, however, he meant it. Just three months after the January, 1983, address, prospective payment was enacted for Medicare hospital services--the largest item in HCFA's budget--in the form of diagnosis-related groups (DRGs), or fixed fees that pay an average amount, regardless of what a specific patient's care costs.

DRGs hit the medical-industrial complex like a pile driver, shattering its traditional "we'll just pass these costs along" mentality. Roper became the White House adviser for health policy, later involved in a 1984 push to freeze the fees doctors charge Medicare for office services. (DRGs apply to hospital only; doctors still bill Medicare on a pass-along basis, though the total amount they can pass along is now regulated.) Early last year Roper moved up to HCFA administrator, replacing the equally uncelebrated Carolyne K. Davis.

In 1984, after prospective payment for Medicare was enacted, federal spending for health care slowed to its lowest rate of increase since 1965; through the last two years overall national spending on medicine has cooled too, as many private insurers have followed Medicare's example and begun agitating for fixed-fee service. "Despite the rhetoric you hear from lobbyists about how the federal government is bashing the health-care industry," Roper says, "it's not just government. Everybody who pays for health-care services is driving a much tougher bargain. And they ought to."

Physician Roper often criticizes the doctor's favored status in society. This could be because he is a pediatrician, low rung of the medical money ladder. "There is no rational reason to pay heart surgeons $500,000 a year, especially when surgeons are in oversupply," Roper says. "My (family practice) colleagues work just as hard, but for reasons built into our payment system don't get nearly the income."

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