The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. I'm Jim Lehrer in Washington.

MR. MacNeil: And I'm Robert MacNeil in New York. After the News Summary this Thursday, we continue our week long study of the Clinton economic plan. Tonight, HHS Secretary Donna Shalala and critics discuss proposed health care cuts, and we have a Newsmaker interview with British Prime Minister John Major. NEWS SUMMARY

MR. LEHRER: President Clinton announced humanitarian airdrops into Bosnia today. The announcement was made in a written statement which said the war in Bosnia had already taken a staggering toll and thousands more faced death from Hunger. He said no combat aircraft will be involved in the operation. The timing would be determined by the Defense Department in coordination with the United Nations. Defense Sec. Les Aspin had this to say after he briefed Senators on Capitol Hill.

LES ASPIN, Defense Secretary: Three things about the airdrops, themselves, and then maybe three things about why we're doing it. First, on the airdrops, themselves, these are short-term and emergency efforts. They are not substitutes for land convoys. Secondly, they do not represent a new operation, but they really are an extension of an operation that's already underway, Operation Provide Promise, under which we have been flying aid into Sarajevo. Third, these efforts are purely humanitarian and absolutely even- handed. They will be delivered to Bosnians, Croats, and Serbs alike.

MR. LEHRER: Sec. Aspin made that appearance at the Capitol after being released from a Washington hospital. He had been treated for a heart ailment. In Bosnia today, a U.N. aid convoy reached an isolated town in the Eastern part of the republic, but trucks have been stopped for two days by Serb rebels. Robin.

MR. MacNeil: The U.S. and Russia set a date today for the first summit between Presidents Clinton and Yeltsin. The leaders will meet April 4th at a still to be determined site. The announcement was made in Geneva by the U.S. of Secretary of State and the Russian foreign minister. The two men also invited Arabs and Israelis to begin a new round of peace talks in Washington in April. Today's announcement came hours after Christopher ended a trip to the Middle East. He said, "There is a very strong consensus the parties want to return to the talks.

MR. LEHRER: President Clinton said today he might consider new taxes on cigarettes to help pay for his health care reform plan. He said the U.S. is spending a ton of money to deal with health problems caused by smoking and other bad habits. We'll look at the health care cuts proposed in the President's economic plan right after this News Summary. Also today, Mr. Clinton showed off some of the support he's won for his economic plan. More than two dozen business and labor leaders came to the White House to endorse it. They called it a serious attempt to get the deficit under control. Reporters asked the President about Republican criticism his plan does not contain enough spending cuts.

PRESIDENT CLINTON: Unlike a lot of these other people, I worked for weeks and weeks and weeks on this budget. What I said was if they had more spending cuts they thought were good ideas, I'd be happy to embrace them. And I intended for the entire duration of my term here to continue with more spending cuts. If I find more that I think are worthy, I'll be glad to incorporate them, so I'm not -- but let me just say -- I have a difficult time taking these people seriously who say we should have more spending cuts who were here for the last 12 years. Where were they? I mean, you know, I don't mind -- anybody can say whatever they want about more spending cuts, but why are you asking me? Why don't you ask them? They're going around saying, I have a list of spending cuts that I will discuss with somebody at some later date. I mean, you know - -

MR. LEHRER: But Senate Republican Leader Bob Dole accused the President of not providing specifics of his proposed spending cuts. Dole offered his own suggestions in a speech on the Senate floor.

SEN. BOB DOLE, Minority Leader: I just suggest on behalf of the Republicans that we'll be responsible, as we have been in the past, and I'll go back to 1985 again and years after that where we were willing to do the tough things, make the tough choices, but I'd just say for starters there's $178 billion in new spending. We could certainly cut that back by a hundred billion or so. And there are a lot of new taxes, 360 billion in new taxes. We could certainly cut that back. And there are some tax breaks of some 60, 70 billion dollars. We could certainly cut those back. And that would be a good start.

MR. LEHRER: Jack Kemp today announced formation of a group aimed at defeating the Clinton economic plan. Kemp was Secretary of Housing & Urban Development in the Bush administration. He said raising tax rates on the wealthy would discourage entrepreneurs from creating new jobs. General Motors announced today that about 11,000 assembly line workers will be permanently laid off next week. They lost their jobs last year when GM management began a restructuring of the company. The workers had been receiving full pay and benefits through an income security fund, but the fund ran out of money this week.

MR. MacNeil: There was more violence today in the Somali capital, Mogadishu. U.S. and Nigerian troops exchanged fire with Somali snipers for more than five hours. At least one Somali was killed. Three Marines and two Nigerians were wounded. The United Nations headquarters and a relief agency compound also reportedly came under fire. The U.N. today issued a report charging the Haitian government with human rights violations, including murder, torture and repression. The report said abuses could only be curtailed by a return to democracy. Haiti's first democratically- elected president, Jean Bertrand Aristide, was ousted in a military-led coup nearly 18 months ago.

MR. LEHRER: Riot police attempted to stop a massive rally by Hindu protesters in New Delhi, India, today. At least 88 people were injured, nearly 3,000 arrested. The protesters were members of a Hindu nationalist party known by the acronym BJP. Mark Austin of Independent Television News reports.

MARK AUSTIN: On the streets today activists of Hindu BJP Party the government here blames for the demolition of the mosque at Iodia and the widespread religious killings that followed. Two hundred thousand police and troops were out on government orders to prevent a massive rally. They succeeded by sealing off the parliament area and arresting tens of thousands across the country. But it was not without violence. Protest leaders said they'd intended a peaceful demonstration against the dismissal of BJP governments in four states, thus, in one opposition stronghold police using batons and tear gas toward running skirmishes for much of the day. The BJP claimed hundreds of people were injured.

MANOHAR JOSHI, President, BJP Party: This government has gone berserk, paranoid. They've made the whole of Iodia a battle zone - - one of the worst British repressions during their rule in this country.

MR. AUSTIN: Today's crackdown come as Prime Minister Narasima Row is under increasing pressure to get tough with the BJP in a bid to ease religious tension. But this is an opposition party that senses its time has come and is promising an intensified campaign to oust the government.

MR. LEHRER: South Korea got its first non-military president in 30 years today. His name is Kim Yung Sam. At a swearing in ceremony he promised a different kind of government. He also challenged the leader of Communist North Korea to meet to discuss reunification. Cuban President Fidel Castro may retire in five years. He said so last night after his Communist Party ran unopposed in the first parliamentary elections since the 1959 Revolution. A reporter asked whether he expected to be president in 1998. The 66-year-old Castro said, "Let's hope it won't be necessary."

MR. MacNeil: That's our summary of the news. Now it's on to Medicare cuts and Prime Minister John Major. FOCUS - HEAL WE MUST

MR. MacNeil: Tonight we continue our week's close look at President Clinton's economic game plan. This time it's the proposed cuts in federal Medicare payments. The President wants to limit the amount paid to doctors in hospitals by $62.6 billion over the next five years. In addition, he proposes increasing the monthly Medicare premiums paid by the elderly from about $36 today to $55 by 1997. We'll have reaction to the proposals from HHS Sec. Donna Shalala in a moment. First, Correspondent Tom Bearden reports on the reaction at one hospital in New Jersey.

MR. BEARDEN: The people who run the nation's big city hospitals are afraid that most of the burden of the proposed cuts will fall on them. President Clinton wants to save $24 billion over the next five years by paying hospitals less for treating the elderly. Hardest hit will be teaching hospitals which will lose existing payments to subsidized medical education. For example, St. Joseph's Hospital in Patterson, New Jersey, the largest private hospital in the state. Hospital President Sister Jane Frances Brady.

SISTER JANE FRANCES BRADY, Hospital President: I was frightened when I heard that the President was going to announce cuts. That fright was somewhat tempered when he said it was "stop gap" and the reform would still continue. But I thought it was more of what we've had so many times where the President just stood up and announced a slash in Medicare without any rationale, without any attempt at reform. That's very frightening. All that does is increase your revenue. It doesn't change anything else. That's very hard to deal with.

MR. BEARDEN: Sister Jane finds the prospect of cuts particularly troubling because today's Medicare reimbursements are already below the hospital's costs.

SISTER JANE FRANCES BRADY: We are losing money right now on Medicare patients. The latest estimate that I heard is that in 1992 Medicare was paying about 84 cents on the dollar of expense here. So, yes, the answer would be we would lose money on Medicare patients.

MR. BEARDEN: So how do you make up the difference?

SISTER JANE FRANCES BRADY: Good question. There's very little ability to shift many of the costs because now, of course, we're in an era of great competition, and everybody has to watch what their charges and prices are because insurers are shopping. So it - - I don't know how we have to make it up. We'd have to pass it along in some fashion.

MR. BEARDEN: Sister Jane and a lot of other hospital administrators have no real ida how to make up the shortfall. Most say they've already cut their costs to the bone.

PERSON: [on phone] You don't have any other insurance?

MR. BEARDEN: And hospitals aren't the only ones worried about covering their costs. Many doctors say federal reimbursements for Medicaid, the government's plan for the poor, have already fallen below their cost of treating most patients, and they're worried that Medicare may eventually do the same.

DOCTOR: How are you feeling, any better --

MR. BEARDEN: Dr. Robert Amoruso is a pulmonary specialist who practices at St. Joseph's.

DR. ROBERT AMORUSO, Private Practitioner: Our reimbursements were down significantly last year. It's cut significantly into our income, and you can try to cut costs in certain ways or do less because at some point it doesn't pay. I mean, I'm not talking about ethically. Certainly we take care of patients. They're sick. We take care of them whether they have money or not. But at some point you just have to say, well, I just can't see any more patients, or I won't see any more patients, because it's not worth it. And -- but again I don't know where that breaking point is with Medicare just yet. It would depend on what the figures are when they come out. If Medicare rates are reduced to what Medicaid rates are, there is no way we could continue to see these patients.

MR. BEARDEN: The elderly, themselves, will be affected by the President's plan. They'll be asked to pay higher premiums for Medicare coverage, and taxpayers who make more than $135,000 a year in salary will pay higher Medicare taxes. The administration is also looking for savings in the Medicaid program by eliminating payments for home health care. Sister Jane believes that's a major mistake because it'll force people into much more expensive hospitalization.

SISTER JANE FRANCES BRADY: Well, the hospital is the ultimate safety net. If people can't get care any place else, they land on the doorstep of the hospital because the hospital's always there. It's open 24 hours a day. And we have to take care of people. So any time you tinker with any of those other reimbursement issues and people can't access that particular site, it all backs up into the hospital. We have people sitting here in expensive hospital beds because they're waiting either for a Medicaid number or nursing homes who don't want any more Medicaid patients. So that is overcharging the system, if you will.

MR. BEARDEN: Sister Jane believes these problems can be effectively addressed only by the much broader health reforms now being studied by the President's task force, but in the mean time hospitals, doctors and Medicare and Medicaid patients are deeply worried about the potential impact of the proposed cuts.

MR. MacNeil: For more reactions we have more views. Martha McSteen is president of the National Committee to Preserve Social Security and Medicare, a lobbying organization with six million members. She was the acting commissioner of Social Security from 1983 to '86, and one of the first regional administrators of Medicare. Dr. Frederick Schild is the president of the Florida Medical Association and a surgeon. Ronald Pollack is the executive director of the Families USA Foundation, a health consumers' organization advocating health reform and long-term care. Carol Cox Wait is the president of the Committee for a Responsible Federal Budget, a Washington-based lobbying group. Martha McSteen, you heard Sister Jane, the administratorof that hospital in New Jersey, say she was frightened, she found these cuts frightening. Are they frightening to you?

MS. McSTEEN: The chills run down your spine when you realize as a senior that more Medicare cuts are coming. You know, seniors have to use the system more often and more frequently for longer periods of time. So there are a lot of concerns not only that you have a disabling disease or some chronic disease, you need to be hospitalized. You really wonder what's going to happen. Will my small hospital close? And if it closes, will my doctor leave town? So there are great concerns about accessibility to the hospitals and to the physician.United States

MR. MacNeil: What effect do you think this will have on patients, these immediate cuts if they go through?

MS. McSTEEN: Well, the concern really is that we don't know as seniors what really is going to happen. Medicare is a good program and undoubtedly there are cuts that should be made. We really think that Medicare should be in isolation, however, until we see the entire health care program that the President is going to put in place. Certainly he's doing an admirable job in bringing together all of the ideas and all the people to talk about it, but it is the health care escalating costs that are the problem, so arbitrary cuts are not the answer.

MR. MacNeil: Do you mean the administration should have waited until it could make this part of an entire reform package and not just announce these cuts now? Is that your point?

MS. McSTEEN: Yes. I think it would be much more acceptable, and we would be able to rationalize how this cut fits into the overall delivery of health care. Certainly seniors are extremely concerned about the delivery of health care for all Americans, not just seniors.

MR. MacNeil: How serious a problem now is the refusal by doctors to see Medicare patients because they are not being reimbursed, they feel, sufficiently?

MS. McSTEEN: Well, we do hear from members across the country that they do have problems seeing a physician, particularly when they move into a new locality. But I think even more important is the fact that in a survey that we had last year about 60 percent of our members said we would pay more to be sure that we could see our own doctor. So it's extremely important that the accessibility is there, and you can see your own doctor.

MR. MacNeil: Well, thank you. Mr. Pollack, how serious is doctor refusal of Medicare patients now?

MR. POLLACK: Well, right now I don't think it is too bad a problem, but I think --

MR. MacNeil: It is happening.

MR. POLLACK: It happens in some places. It happens much more in the Medicaid program, which is a program for low income people, where the reimbursement rates are considerably lower than Medicare, which, in itself, is lower than private insurance. And it is clear that if you don't do something in tandem with the private sector, you're really going to have costs down here for doctors receiving reimbursements under Medicaid and Medicare, and over here in the private sector, and so there'd be a disincentive to serve these patients. That's why I think it's important that these reforms be taken together, as I believe they will be. These proposals will be enacted ultimately sometime this fall and they'll be enacted roughly at the same time that comprehensive reform will take place, which will be across-the-board in the public as well as the private sector.

MR. MacNeil: But just taking these cuts that have been announced as part of the budget plan by themselves, they would increase that differential you're talking about between the public and private and increase the disincentive for doctors, just taken in isolation, they would increase the disincentive for doctors to treat Medicare patients.

MR. POLLACK: In isolation, there'd be some increased disincentive, but I don't think we can look at it in isolation. And certainly the administration's proposal is not intended to be seen in isolation. President Clinton made it very clear that health care reform is going to be on the table in May and that he's going to push it through very vigorously, so although this came earlier as an introduction in terms of passage, it'll happen simultaneously.

MR. MacNeil: Do you agree with Ms. McSteen that they should have waited and put it as part of the whole package so they don't get senior citizens and others cared?

MR. POLLACK: Well, I think, I think the administration probably would have preferred that as well, but they have to deal with the federal budget, and the federal budget deals with federal expenditures as opposed to the overall health care plan that affects the private sector. But the main point is that in terms of enactment, those two things will happen simultaneously.

MR. MacNeil: Will senior citizens be hurt by these further cuts? This isn't the first set of cuts in Medicare.

MR. POLLACK: I think that senior citizens and, indeed, the entire population will be well served by serious cost containment, including these, these pieces of that, because as costs continue to escalate, seniors' prices are escalating as well. They're paying more in premiums and in deductibles and in co-insurance. And so the stake for senior citizens just like everybody else is to get these costs under control, so I think in the long run if President Clinton is successful, it will help senior citizens, it'll help people younger than senior citizens. It'll help businesses, which are really reeling from the costs, skyrocketing costs of health care.

MR. MacNeil: But, this is going to reimburse doctors less, whether it's part of a general reform program or not, or a cost containment program or not, and if it reimburses doctors and hospitals less, isn't that going to make it harder on the patients to get access, to find the doctors they want?

MR. POLLACK: Well, as we said, what doctors will receive will be, will be changed in the public and the private sectors. I'm not too worried about physicians, frankly. They've done very well. The average income after expenses of physicians, according to the AMA, was $191,000 in 1991. That's up from $130,000 five years earlier. So their incomes -- and by the way the average income for all Americans, full-time workers, is under $30,000. So physicians are doing very well. And I think that when we have some prudent cost containment which doesn't cut their income but it decelerates the increases in their income, I think that's going to serve the entire American population.

MR. MacNeil: Dr. Schild in Miami, are these cuts unfair to doctors?

DR. SCHILD: Well, let me preface my remarks by saying that physicians in this country are very concerned about the costs of health care, about access to health care, and about quality of health care. I believe that these costs will put a great deal of pressure on physicians and hospitals to cost shift. As was pointed out, we have already had cuts in reimbursement from Medicare over the past two to three years. If the cuts continue, then I have great concerns about access to care and quality of care for a segment of the population that really is growing most rapidly in this country and is most in need of medical care.

MR. MacNeil: How would that affect the quality of care? You obviously have a lot of Medicare patients in Florida, where there are a lot of retired people.

DR. SCHILD: Yes, sir. I would anticipate that most physicians, especially in South Florida, treat, about 50 percent of their practice are Medicare patients. I think it will affect the quality of care because I think many hospitals are working on slim margins now, and if they get increased cuts, then there will be less availability of technology. They won't have the money to continue to give the services that they give now. I think that physicians may have a problem in not being able to afford handling of these cuts in incomes. I would think that we should address the real problems of the costs of health care, so to speak, to address the disease and not just the symptoms.

MR. MacNeil: What are the real problems in the costs of health care in your view?

DR. SCHILD: Well, the real costs of health care are many and complex: The expensive technology that we are all so advantaged to have at this time, the increased cost in drugs, in pharmaceuticals, insurance costs, another thing is tort reform. A good example of that is that 20 years ago a DPT vaccine cost about $3. Today that same vaccine costs about $180. And the reason for that is that they had some reactions with high judgments. Only one company now makes the vaccine, and they cannot get insurance so they have to self-insure. It has been shown in a recent study by the AMA that if we had meaningful tort reform, we could probably reduce the cost of medical care $35 billion over the next five years.

MR. MacNeil: If these cuts go through, will they encourage doctors like you to turn Medicare patients away?

DR. SCHILD: Well, personally, I have never turned any patients away, whether they could afford to pay or not. I think that probably is the way that most of the physicians in this country are. I never ask whether patients have insurance, whether they have Medicare. I treat patients. My concern is the patient. My concern is the quality of care. And I think the great majority of physicians in this country feel the same way. But it will put a tremendous burden on both physicians and hospitals to shift costs. There aren't too many places left to shift.

MR. MacNeil: You mean to shift to patients with private insurance?

DR. SCHILD: That is correct. And of course, that is being ratcheted down, so there won't -- there will be an effect as far as quality of care is concerned, I think, and as far as access is concerned.

MR. MacNeil: Ms. Wait, what do you think of these proposed cuts?

MS. WAIT: Well, of course, I come to this as a budgeteer and the health care debate sounds an awful lot like the budget debate to us. Nobody wants to give anything up. Everybody wants more services. Nobody really wants to pay, or to be more accurate, they want somebody else to pay. The doctor says that if we do tort reform, they say we could save up to $35 billion over five years. Well, health care expenditures countrywide are about $900 billion and growing at the rate of 10 percent a year. That's $90 billion a year. I would love to be able to save $35 billion, but trying to finance health care reform with those kinds of savings is like trying to pay for cardiac surgery by having a bake sale. The way we're going to have to deal with this problem is the same way we have to deal with the budget problem. We're going to have to make some hard choices. Those of us who can afford are going to have to pay more, and most all of us are going to have to accept somewhat fewer choices than we have available to us today. And that's not music to anybody's ears but that's the way it is.

MR. MacNeil: So give us some examples of things that would make reality of what you're talking about.

MS. WAIT: The increase in Part B premiums that the President has proposed, Part B being the voluntary insurance program you can sign up for and if you do, they take a premium out of your Social Security check, and that part of the program pays for doctor bills.

MR. MacNeil: And outpatient treatment.

MS. WAIT: And outpatient treatment. And right now, Part B premiums cover about 25 percent of the cost of the program. The rest of the money is made up from yours and my income taxes, federal general revenues. The President proposes to let those premiums rise with inflation and cap them at 27 percent of program cost. We believe that you can raise Part B premiums quite considerably more than that provided you're prepared to protect the poor in the program. And nobody wants to do in the poor, whether it's in medical care programs or anyplace else. We have had exercise in hard choices all over the country. Our committee has, where people go through these choices, they're willing to talk about taxing the insurance value of Medicare premiums or to, to tax, for that matter, some portion of employer-paid health care premiums. They are prepared to impose co-payments on people for home health care. There are a number of ways you can save more money in the program, and we're going to have to do. Personally, I would be very much inclined to look at income-related premiums and deductibles. Most of the discussion in the health care reform debate so far has been about expanding access. We need to come back to reality and understand that we cannot sustain the rates of growth in the current health care system. We have to find a way to cut the amounts of money that we're spending, and we have to do that at the same time we are talking about expanding access.

MR. MacNeil: So far from being concerned about these cuts, you just think they're not enough?

MS. WAIT: Oh, I think they don't go nearly far enough, and I have sympathy for --

MR. MacNeil: Is that a signal to you of where the -- that the administration is going to be chicken about this and not go far enough?

MS. WAIT: I'll tell you, I am concerned about a government that is unable to consolidate Indian health care systems and veterans health care systems when we have empty hospital beds in both systems. I am concerned about a government that decided that we were going to charge the recipients of Medicare 50 percent of program cost for Part B coverage and it drifted down to 25 percent because we would never charge the beneficiaries of the program as much as we said we were going to do when we set it up. I'm concerned we're not real good at making hard choices, and it's easier to talk about raising taxes to pay for more.

MR. MacNeil: Are you saying, in other words, the administration, at least as it's revealed its hand so far, has not bitten the bullet but is dodging the bullet?

MS. WAIT: I would say that these are modest first steps toward the kinds of very serious decisions we're going to have to make, decisions that affect us, that require us to pay more for what we want if we can afford it. I think there are very modest steps in that direction, and I'm scared to death that people keep falling back on that scary thought that somehow government goods and services are free. If we can get the government to do it for us, we don't have to pay for it, and that simply isn't the case.

MR. MacNeil: Okay. Thank you all four. Jim.

MR. LEHRER: Listening with the rest of us for that discussion was the Secretary of Health & Human Services, Donna Shalala. Madame Secretary, welcome.

SEC. SHALALA: Thank you.

MR. LEHRER: First of all, let's start at the end there with Ms. Wait Cox and work backward. She says that first of all the government is not really good at hard choices. You all have made some, taken some steps, but they're modest, to say the very most about them. Generally, would you agree with that?

SEC. SHALALA: Well, I absolutely would agree. I mean, we're in this situation in health care because of unwillingness to make tough decisions. The government, the political system, the public in general, and you can tell from the debate we've just heard the difference between the perception and the reality. Everybody's been talking about cuts and yet we didn't cut anything. What we did was slow down the increase, slow down the growth. Actually that hospital, on average, the hospitals are expecting about an 11 percent increase, and we cut it down to 10 percent. And already people are, are screaming that we're going to destroy hospitals in this country. That suggests to you that health care reform is going to be real tough.

MR. LEHRER: Well, let's go through some of the specifics here. Ms. McSteen said, why did you not hold Medicare in isolation by itself from a cutting standpoint until you put together your Medicare -- I mean, your overall medical, your health care plan, because you cannot cut Medicare without taking care of the entire system at the same time?

SEC. SHALALA: Well, first of all, it's impossible to do health care reform or any other kind of reform in this country unless we do something about getting the deficit down. We took a number of - - we slowed down the increase and took no cuts, slowed down the increases for the doctors --

MR. LEHRER: You just said that, and I still called them cuts again. Okay.

SEC. SHALALA: The hospitals, for the doctors, for the laboratories, we tried to protect the beneficiaries as part of the process. Their payment will go up a little bit, but not as a percentage. The only reason they're going to go up is because the base is going to go up because of the increases. We had to make a down payment on health care reform, and that's exactly what we thought we were making. And we had to make a contribution to deficit reduction because without getting that deficit down, there was just no way we could handle a major health care reform proposal.

MR. LEHRER: Do you share the concern of the folks we just heard that this, this -- this proposal that you have on the table now, not the big one, the one that's on the table now, will be an incentive for hospitals and doctors not to treat Medicare patients?

SEC. SHALALA: I share -- the public perception concerns me that doctors are going to turn away patients of any kind, but I'd like to point out what the facts are. The facts are that 90 percent of the physicians in this country participate in the Medicare program. That's an all time high. That suggests that the payments to those physicians are pretty good if they're still participating in the program. But I would take no risks. I mean, the last thing we want to do in this country is reduce the number of doctors that are prepared to see Medicaid or Medicare patients.

MR. LEHRER: So how do you, how do you reduce the risk? The doctors say that there is going to be an accessibility problem, but you just disagree with that.

SEC. SHALALA: Well, some of this -- absolutely. Some of this is the chicken and egg process, because what they're doing is warning us if we slow down the increase by too much, the threat is that they'll withdraw and, of course, every single doctor that wants to reject a patient will call in the press and say, I'm rejecting patients now because I'm only getting 90 percent of what I perceive my costs are. The fact is that over the last few years the doctors in this country, their salary increases have been close to twice the cost of living. The hospital increases this year under, under our slowing down are going to be 10 percent. I don't know anyone in this country whose salary is going to go up by 10 percent. I don't know a lot of businesses who are going to be able to increase their costs by 10 percent. So, you know, there is some game playing, but our concern has to be about the perception, because what this is all about is perception, and what the American people feel deep in their hearts is an uneasiness and a fear that they are not going to be covered by health care. And that's why we have to have fundamental reform.

MR. LEHRER: So when Ms. McSteen says -- at the very beginning she said this whole proposal is a -- sent a chill not only down her spine but down the spines of people that, all the people that she represents, you understand that?

SEC. SHALALA: Absolutely. I understand it. Everyone I know shares the same chill. What this is all about and what health care reform is all about is peace of mind because there almost is not an American unless they work for government or work for corporations represented by a union that's been pretty stable in this country that has not had their health benefits either taken away or reorganized or cut or had the fear of trying, of thinking about moving to another company and being worried about the health benefits or has a child that's been, that's been very ill and discovered that their insurance company won't cover that illness.

MR. LEHRER: But if you do what you all are doing, which is to suggest, propose, reducing the payments that go to doctors, now - - I cut out the word "cuts" okay, but reduce the payments that go to hospitals and go to doctors and other health care providers, at the same time you do not reduce the cost. Does that not create a chill? In other words, Ms. McSteen said, doesn't that create a concern at least, oh, my goodness, my hospital, the hospital I go to, my small hospital, my doctor may not be able to provide for me anymore?

SEC. SHALALA: First of all, we were sensitive about the small hospitals, particularly in rural areas, so we've made some adjustments there. Hospitals are going to have to be more efficient. After all, what are their increase in costs? If the doctors' salaries are going up more than the cost of living, that's part of their increase in costs? If the doctors are using more procedures and that is the way they make money is by ordering more tests and things and if our research, if anyone's research shows that we're not necessarily getting a healthier country as these increases go up, they've got to explain what these increases are because when a doctor says it's technology what he really means is that that individual doctor may be ordering the use of that technology which adds to cost. And hospitals and doctors are part of both the problem as well as the solution. They know it. And that's why every person that spoke today spoke with some sensitivity that we're all in this together, and that's why we need major reform.

MR. LEHRER: A doctor might say on the question about technology, the tests and all of that, that he or she is protecting them from legal action, so that's the reason a patient comes in and says, I have a headache and the past you might say, well, take two aspirin, get a good night's sleep, you have an MRI, which is a very elaborate $2,000 operation because a doctor doesn't want to be sued if it turns out it's something else, maybe it's only 1 percent of a possibility. If it turns out to be that, that doctor faces legal action, so that's when Dr. Schild says to Robin, we want tort reform as well. Is that part of your package?

SEC. SHALALA: Well, it may be part of the mix, but it's also the economics of the mix. If you get paid by ordering more procedures and you also make the argument that I'm doing that because I'm playing -- because I'm practicing defensive medicine. There's a mixture there. There's got to be a mixture. If your salary goes up, if you play defensive medicine, I think that I'm both sympathetic to the issue of the need for us to make sure that we have the kind of legal reform that protects conscientious doctors, but I also fully understand what's going on in the system and that is there's a payment scheme that provides an economic incentive for doing more things when someone walks into a hospital or into a doctor's office.

MR. LEHRER: The administrator of the hospital in New Jersey, it was at Tom Bearden's piece at the beginning of the program, said that only 84 cents on the dollar of their costs is now borne -- is now covered by Medicare, expenses. That means according to her at least they're losing 16 cents every time they treat a health care patient. Do you have any sympathy for that, or are you saying to them go figure out a way to cut the 16 cents?

SEC. SHALALA: Well, but that 16 cents difference is determined by management. They determine what the salaries are of the doctors in that hospital, and there are lots of hospitals in this country that have been able obviously to survive very successfully and the average payment I think is about 90 percent of what they perceive their costs are. Those costs are determined by them, their salaries, the amount of technology that's used. So we also have to be realistic about what they're really saying to us. What I'm saying is that we're cutting the increase from about 11 percent to 10 percent for those hospitals, and they've got to explain to the American public why they can't live with a 10 percent increase. I'm also saying the perception is of people, the elderly, young families, lots of working people who aren't covered, they're scared to death out there, and no matter what the facts are and what the numbers show us, it's important that we respond to what they're frightened about, and that's what health care reform is all about and that's, that's precisely what the President is trying to speak to.

MR. LEHRER: So what you and the President are saying, okay, you may be afraid today, you may be scared today based on what's just in this budget proposal?

SEC. SHALALA: And what people say about what's in the budget proposal.

MR. LEHRER: Okay. But you're saying there's nothing in the budget proposal that they should legitimately be scared about?

SEC. SHALALA: What they should be scared about is a health care system in which the costs are going up by 10 percent a year, whether it's physicians' costs or hospital costs or lab costs. That's what's frightening, and that's what we can't afford.

MR. LEHRER: Okay. But would you agree that if you do not succeed in reforming the whole health care system then these people really do have something to be afraid of based on this proposal? In other words, if it's only the budgets, the budget proposals that come along, and you're not able to reform the system, then Ms. McSteen and the doctors and everybody else have a legitimate reason to be afraid?

SEC. SHALALA: They know and I know that if we don't reform the health care system we're not going to have much of a government left. If you look at the proportion of our budget that's accounted for by health care, if you look at what's happening to private business, this country is not going to be competitive, we're not going to have jobs in this country if we don't do something about health reform, and that's why we're all into this together, whether it's representatives of the elderly or of children or of the hospitals, or the very high quality physicians in this country. We're in this together because of the impact on our whole society.

MR. LEHRER: But Ms. Wait Cox says that she doesn't have a lot of faith in the ability of all of those people you just mentioned who are in it together when it comes right down to it to make the kinds of hard choices, the kinds of decisions this is really going to take.

SEC. SHALALA: Well, she's right too, because if it was easy to do, we would have done it already. The difference is a President that's willing to stake his career, his reputation and willing to say to the American people this is our No. 1 priority, unless we do this, we're not going to have an economic future. Whether you're sixty-five or whether you're three years old, unless we do this reform, we just are not going to have the kind of country we want.

MR. LEHRER: And that reform may mean making some hard choices about fewer fancy medical machines, maybe going a little further to a hospital, maybe having a little less choice in doctors?

SEC. SHALALA: Well, it's going to require some hard decisions. What specifically those decisions are I'm not willing to commit myself to at this point, but it is going to require some hard choices, and it is going to require us all pulling together. The President knows that and I think all the people who spoke tonight know that.

MR. LEHRER: The President said today that one of the things he made do as a way to finance not now the budget proposal on the table now but the biggie, the one that's coming in May, would be to increase taxes on cigarettes, and it's also been suggested alcohol and other, other sinful things. Now doesn't that create in the public's mind, hey, wait a minute, we may not have to make any hard choices, we'll just tax the people who smoke and drink?

SEC. SHALALA: Oh, we wouldn't get enough money out of those kinds of taxes to, to finance the system. We've got a lot of money in the system. We spend more than anyone else does on earth for a health care system. How we organize that financing scheme is a whole separate question, but certainly sin taxes are something Americans support if it's tied to health care reform, and of course, people like who care very much about reducing the number of kids that start smoking know that raising the cigarette tax has an impact on whether young people start or not. The elasticity there is very important in affecting the behavior of youngsters.

MR. LEHRER: So it's likely that would be part of it?

SEC. SHALALA: It's likely we'll look hard because that certainly is something the public supports.

MR. LEHRER: Sec. Shalala, thank you very much.

SEC. SHALALA: You're welcome. NEWSMAKER

MR. MacNeil: Finally tonight,a Newsmaker interview with British Prime Minister John Major, the first European leader to meet with President Clinton. In meetings yesterday, they discussed Yugoslavia, trade and Northern Ireland. Before Mr. Major flew home to England this morning he talked to Correspondent Charles Krause, who asked whether the U.S. plan to parachute relief supplies into Bosnia could be regarded as provocation by the Serbs.

PRIME MINISTER MAJOR: All of us want to be involved to the extent that we want the war to stop. It is particularly brutal, bloody, and nasty. And that is why so much effort has gone into seeking a diplomatic solution with the Vance-Owen talks. Everyone is concerned to that extent, but I think the President is dealing with a humanitarian problem. Nobody can be unmoved by the depth of suffering that is occurring there, and the problems of starvation and lack of medicines. Now I think this is an honest, an honorable, and rather brave attempt to deal with that in parts of the country where we can deal with it in no other fashion.

MR. KRAUSE: But if, in fact, Yugoslavs, the Serbs look at this as a provocation, if one of the U.S. planes is shot down, did the President indicate what the U.S. response would be?

PRIME MINISTER MAJOR: Well, there's clearly a determination to avoid that sort of effect. That's one of the reasons why the planes will actually deliver the food aid from relatively great heights, rather than fly low to the ground which in a situation where there was peace one would attempt to do. If it was just a question of reaching unaccessible areas, then one would clearly go in as low as possible. But here because of the potential danger, the planes will deliver the aid from, from rather high up. That's part of the logistical problem of actually getting it there. But I think great efforts will be made to ensure that the pilots aren't at risk.

MR. KRAUSE: But there's almost no military operation of this kind where a plane would not be at risk.

PRIME MINISTER MAJOR: Now, I'm not going into that. We are dealing with an unprecedented circumstance in recent years. One of the things that has changed is the bi-polar world, the two great power blocs, no longer exist. The Soviet empire has disappeared. And regional conflicts are starting to reappear. Old hatreds have re-emerged. That essentially is what has happened in former Yugoslavia, in Bosnia. And so we are dealing with a situation that no one has had experience of in recent years. We're dealing with it with a twin-track approach effectively, the political approach seeking a negotiated settlement, and the humanitarian approach. The concept from time to time that it's capable of easy military solution is patently untrue. Some people have said, well, look at the problems of Iraq, why don't you go in there in Bosnia and deal with the problem? I must say I think they haven't thought that through in any way. If one looks at Yugoslavia and at the terrain, it is not practicable to go in and hold them apart in the way some people would wish. It's a wholly different proposition. To take Sarajevo, itself, which was where this talk originally originated many months ago, if you look at Sarajevo, it doesn't remotely resemble Iraq, where it was possible to deal with the provocation. It resembles perhaps more Beirut or perhaps even Dien Bien Fu in terms of its topography. So we need the twin track approach that we're following. I'm sure that's the right way.

MR. KRAUSE: Some people though, on the other hand, would ask, especially in this country, why the United States should get involved at all. What's at stake for this country and for your country, for the West?

PRIME MINISTER MAJOR: Well, you say, why should the United States get involved? Perhaps from within the United States the particular world role of the United States isn't always appreciated. I said a moment ago we no longer are a bi-polar world. There is only one superpower left in the world. It is the United States. It is effectively in terms of economic and military power the leader of the free world, and to that extent leadership has both advantages and it has obligations. The United States traditionally has taken up those obligations and it's seeking to do so at present.

MR. KRAUSE: One of the things that you've talked about is the negotiating process that's underway. Do you have any reason to believe that when the talks resume next week in New York that there is going to be any settlement of the conflict in Bosnia?

PRIME MINISTER MAJOR: Well, I can't be certain whether or when there'll be a settlement, but I think I'd put the point back to the other way. Some months ago many people anticipated no movement whatever will come out of the negotiations. What Cy Vance and David Owen has done thus far has been remarkable. There's still some more to be done. The map patently is not satisfactory to all three parties. The process is, but the details as set out on the map are not. It will be very difficult, but I know of no other alternatives than to keep trying, and the progress steadily, painfully, but securely is being made.

MR. KRAUSE: Will there come a time when the United States and the West should impose the settlement in Bosnia, rather than allow the parties to continue negotiating and continue pulling each other?

PRIME MINISTER MAJOR: I don't think anyone is talking about sending in the military, a military contingent to make the peace. I don't believe that is practicable. It would require, it could only be done by NATO. It would be a massive deployment of NATO. We're not talking about ten thousand, twenty thousand, forty thousand, fifty thousand troops. You would be talking of hundreds of thousands of troops, and you would be talking of leaving them there for many years, and you would be talking about one of the most potentially bloody conflicts that one could possibly imagine in those terrains. Nobody is talking in those terms.

MR. KRAUSE: And would you oppose that?

PRIME MINISTER MAJOR: I don't think it would work. I don't think it would be appropriate.

MR. KRAUSE: Let's turn to Northern Ireland, which obviously has come up during your visit. Did the President raise the issue of sending a U.S. envoy to Northern Ireland?

PRIME MINISTER MAJOR: I think, if I may say so, the United States in terms of the funding it's helped for peace in the past has made in terms of the investment there, has made a material and practical contribution in Northern Ireland, and I think that is important. No one else can make the peace in Northern Ireland, other than the parties negotiating in the talks that the British government have instituted and will continue. People coming to Northern Ireland to determine the situation, to remove misconceptions and to report on facts are welcome.

MR. KRAUSE: Will the United States be sending someone to do that?

PRIME MINISTER MAJOR: Well, that's a matter for the President, and that's not concluded yet and wasn't agreed in our discussions.

MR. KRAUSE: It was not agreed to by you?

PRIME MINISTER MAJOR: The President will no doubt consider that further.

MR. KRAUSE: Would you be willing to accept outside mediation from either the U.S. or the U.N. to help resolve the problem?

PRIME MINISTER MAJOR: I don't believe it would, I don't believe it would remotely resolve the problem. The only way of continuing is by the agreement of the parties to continuing in the talks that we have established. I see no prospect of any other alternative being successful in enabling parties to get together and reach a settlement that would last. That's what we need, a settlement that would last. To last, it has to be acceptable. To be acceptable, it has to be agreed and not enforced. So the only way I think is the way we're proceeding.

MR. KRAUSE: A last couple of questions on trade issues. Do you think that you have resolved the issues raised by President Clinton earlier in the week regarding Airbus Industry and the other problems that apparently have arisen?

PRIME MINISTER MAJOR: We spent most of our time on trade matters dealing with the Uruguay round, with the GATT talks, and for a need for an agreement there, and we are entirely of one mind on that issue. On the subject of Airbus, I think there's a good deal of misunderstanding about Airbus. The agreement for the manufacture of the large aircraft like Airbus is a joint agreement signed between the European Community and the United States, Boeing a part of that agreement, so are the participants to Airbus. There's been a lot of misunderstanding about subsidies. As far as the so-called "subsidies" in the European Community are called, they are launch aid. Not only are they launch aid, they are perfectly legitimate under the joint agreement signed by both parties, and not only that, they're actually repaid. They are repaid by levy on sales and once the sales proceed, the levy begins to pay back the launch aid that has actually been granted. And in terms of one of the two Airbuses that is already beginning to happen, so I think there's a good degree of misunderstanding about that.

MR. KRAUSE: Do you think though in general terms that this administration will be more likely to be tougher in the area of trade disputes than the Bush administration was?

PRIME MINISTER MAJOR: Many of the trade disputes that people are concerned about at the moment were trade disputes in the last administration as well. There are continuing trade disputes, and the fact that the new administration has led people to look at the dispute and say, oh, is this a new approach, every government in the world looks to protect within the freedoms of international trade the legitimate aspirations of its own industry, not just the United States, everybody else. But I have not a shred of doubt that both the United States last administration, this administration share with the United Kingdom a belief that free trade is the way ahead and that artificial protection is not. I don't have any doubt about that after talking to both the President and to other members of the administration.

MR. KRAUSE: There was considerable speculation, especially in your country, about how you would get along with President Clinton. Now that you've finished the meetings, what were your impressions of our new President?

PRIME MINISTER MAJOR: I think the speculation was overdone and it was wrong. Before we had met, we had a series of telephone conversations. They'd been lengthy. They'd been very friendly. I don't think there will be the slightest stress or strain in our personal relationships. Our conversations could scarcely have been easier. I think they could scarcely have gone better. But I don't think that that is based just on personal relationships. The essential point as the relationship between the United States and the United Kingdom is partly old historical links. Of course they are important too, both sides. But predominantly it is shared instincts and shared interests, shared instincts on how to deal with problems and shared interests in the way to deal with Iraq or Yugoslavia or help the reform progress in the Soviet Union or move towards a trade agreement. I think that has been the position for a long time, remains the position today and always will I hope.

MR. KRAUSE: You had a long relationship with President Bush and now you've met with President Clinton. Are there differences both in terms of the two men and in terms of their policies?

PRIME MINISTER MAJOR: Well, policies will unfold. The new administration hasn't put the whole of its administration together again. I can only judge on the basis of my personal relationship with them. I liked George Bush. George Bush became not just a political ally in the United States. He's a man I admire, a man I liked, a man I got on extremely well with. I don't think there will be any difference whatsoever in the relationship that I will have with President Clinton.

MR. KRAUSE: Prime Minister Major, thank you very much.

PRIME MINISTER MAJOR: Thank you very much. RECAP

MR. LEHRER: Again, the major stories of this Thursday, President Clinton announced humanitarian airdrops of food, medicine, and other supplies into Bosnia. No combat aircraft will be involved, he said. A summit meeting between Mr. Clinton and Russian President Yeltsin was announced for April 4th, and Sec. of State Christopher said Israeli and Arab negotiators have been invited to come to Washington in April as a possible prelude to resuming peace talks in May. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the NewsHour for tonight. We'll be back tomorrow night with a Newsmaker interview with Vice President Gore, plus our regular Friday political analysts, Gergen and Shields. I'm Robert MacNeil. Good night.