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The first showdown will be over the hospital cost containment bill. Carter introduced a similar bill in 1977, and while it passed the Senate last year, the hospitals applied enough local pressure to get it killed in the House Commerce Committee by one vote. This time the President, Califano and Administration aides are lobbying intensively, something they failed to do in 1978, calling the bill "the litmus test" of whether a legislator is really serious about fighting inflation. The bill, Carter insists, would save the country "some $53 billion" over the next five years the amount by which he estimates medical costs would increase if no limits were enacted. The Congressional Budget Office is less optimistic; it pegs the likely savings at $31.7 billion. But adds one of the office's analysts: "That's still a lot of bucks to save."
Under this year's bill, hospitals would be given until Jan. 1, 1980, to show that they can voluntarily hold down the increase in their costs. Controls would go into effect only if hospitals fail to keep their average annual increase to 9.7%, plus an adjustable figure to compensate for general inflation. That is hardly a stingy rise. Even so, more than half of the nation's nearly 6,000 community hospitals, mainly those in small towns and in states with effective cost control laws already on the books, would be exempt from controls. The country's 1,200 other hospitals, including psychiatric and federal hospitals, would also be exempt.
Once the mandatory controls are in effect, the Government would have the power to require that the fees received by hospitals from their bed patients be limited by a complex formula based on general inflation, local wage levels and each hospital's efficiency. The Government would order Blue Cross, Medicare and Medicaid not to pay a hospital more than the specified increase. Hospitals would be required to set aside part of the payments they received from private insurance companies. If these payments exceeded the prescribed limit, the hospitals would have to reimburse the insurers. If they failed to do so the Government would have the power to take al of the hospitals' "excess' revenues, plus a punitive sum equal to 50% of the amount.
John Alexander McMahon, president of the American Hospital Association, calls the proposal so horribly complex that it would be "unworkable." Actually, a few of the bill's supporters, including Senator Kennedy, agree that there is a problem. Kennedy's subcommittee on health last week modified the Carter plan by increasing the voluntary limit to 10.9%, more carefully defining the conditions under which a hospital could be exempt from mandatory controls, and setting Dec. 31, 1984, as the date when controls would end, unless Congress acted to extend them.
McMahon argues that Carter's bill would create "a huge bureaucracy to do something that is already being done voluntarily." He notes that hospitals have cut their rising costs from 15.6% in 1977 to 12.8% last year. Michael Bromberg also protests that it is unfair to single out hospitals when such industries as food and housing contribute more to inflation.
The Administration has strong arguments