The MacNeil/Lehrer NewsHour

INTRO

ROBERT MacNEIL: Good evening. The big trouble spots of the world were relatively quiet today, which allowed Democratic presidential politics to get some attention. We look in particular at the state of Maine, where a lot of other candidates hope to slow down Walter Mondale this weekend. Jim?

JIM LEHRER: Robin, we also have major reports on two stories pegged directly to this date, September 30th. It's the end of the official fiscal year, and thus the beginning of a new approach to saving Medicare from bankruptcy, one that includes holding down the cost of kidney dialysis treatments. Andit's the one-year anniversary of the Chicago Tylenol murders. Nothing has happened to the killer, but a lot has to the Tylenol manufacturer. We also have news updates on the Middle East, cancer-causing pesticides and the economy, among other things.

MacNEIL: It's still a year and a month to the election, but presidential politics rears its head with a vengeance this weekend. It started today. former Vice President Walter Mondale got the formal endorsement of the nation's largest teachers union. Tomorrow Mondale hopes executives of organized labor will do the same and recommend that the full AFL-CIO convention endorse him next week. Also tomorrow, Democratic activists in Maine have a chance to vote for their favorite Democratic candidate in a straw poll that's attracted almost as much attention as a primary. Jim?Mondale Endorsements

LEHRER: The largest block of delegates at the 1980 Democratic convention was the NEA union member schoolteachers. And as a bloc, they went for the renomination of the Carter-Mondale ticket. For that reason and others, the NEA endorsement today of now-presidential candidate Mondale came as no real surprise. In announcing the endorsement, NEA President Mary Hatwood-Futrell had kind words for all of the Democratic candidates, but said in the final analysis Mondale was clearly the one.

MARY HATWOOD FUTRELL, president of National Education Association: -- fine candidates. There was one candidate whose qualifications for the presidency of the United States of America are unparalleled. Walter Mondale has served his state and his nation with distinction. His record clearly demonstrates a willingness to listen to and work with teachers. Walter Mondale understands what America's classrooms need. He has convinced the elected national leadership of the National Education Association, and I might add, a tough crowd to please, that a Mondale administration will not pass the buck on educational reform.

LEHRER: Shortly afterward a happy Mondale came by in person to share a confidence.

WALTER MONDALE, Democratic presidential candidate: At this moment I would like to unburden myself of a secret that I've held in my heart for a lifetime. I have always liked teachers.

LEHRER: NEA President Futrell said her organization put 300,000 volunteers in the 1980 political field, and there's a hope of upping that to 750,000 or even a million this time. She said NEA also hoped to raise between three and four million dollars for 1984 candidates across the country, including Mondale. Robin?

MacNEIL: For Mondale, by most opinion polls an early frontrunner, this weekend is the chance, as an Associate Press writer put it, at the triple crown, counting the NEA, AFL-CIO and the Maine straw poll. But in Maine, Mondale faces a lot more competition than he doeswith labor and the teachers. Judy Woodruff looks at the effort Mondale and the others have been putting into Maine.

JUDY WOODRUFF [voice-over]: It is this sort of scene that comes to mind when somebody mentions the state of Maine. Picturesque coastal towns, nature up close, and a rugged existence closely tied to the sea.But the busiest industry in Maine in recent months has been not fishing but politics, the door-to-door kind, on behalf of some very well-known candidates. [on camera] Tomorrow, about 2,000 Democrats from every corner of Maine will gather at a convention. These people, most of them party activists, will vote for their favorite presidential candidate in what's been called the superbowl of this year's straw polls.

Well, so what, you're probably thinking. The Presidential election is more than 13 months away, and you're right. But for the Democratic contenders, this straw poll in the nation's remote northeast corner has taken on an importance far beyond the actual role that this state will play in selecting the next president.

[voice-over] The frontrunner, Walter Mondale, has spent nine days in Maine just in the past month, all to stave off any further challenge to his frontrunner status.

Mr. MONDALE: There's going to be so much press, so many cameras at Augusta, there's been nothing like it since the Titanic went down. And it's all coming together this Saturday in Augusta.

WOODRUFF [voice-over]: Mondale is spending more than $100,000 here and using dozens of workers from outside the state, like Julie Gibson of Alabama, who we found trying to win one more delegate.

DELEGATE: What are your arguments today?

JULIE GIBSON, Alabama Mondale worker: Well, today I guess the main thing we've got to talk about is just that, you know, right now Mondale is way ahead here, we just need support.

MIKE FORD, Mondale national field director: It's very simple old-time politics. It's all direct personal contact. We know who the 3,200 delegates are, and the idea is to create a personal relationship with as many of them as you can.

WOODRUFF [voice-over]: But Mondale's had a lot of help here too from organized labor. Some unions have ordered their members to get involved.

UNION MEMBER, [phone canvas]: Will you be supporting Walter Mondale at the straw poll? Beautiful. That's great.Do you need a ride to [unintelligible] or any other assistance on October 1st?

WOODRUFF [voice-over]: Union leaders boast that they can influence one third of Saturday's votes.

CHARLES SHERBURNE, Maine AFSCME: They have their family members and stuff, where I would say we would have an impact on six or seven hundred of them.

WOODRUFF [voice-over]: The biggest threat to Mondale is Alan Cranston, who has been in all of Maine's 16 counties, not once, but twice. [shots of Cranston campaigning] His own people say he's got to do well to keep him number-three ranking, something they say is vatal for fundraising.

ALAN CRANSTON, Democratic presidential candidate: I will do all a president can do to end the arms race and avert the danger of nuclear war.We risk surrendering ourselves to an absolute and eternal darkness.

WOODRUFF [voice-over]: Appealing to the strong anti-nuclear sentiment in Maine, Cranston has moved most of his national staff and scarce resources here, including his son Kim.

KIM CRANSTON: Any of these people, they shouldn't call, I'll let him know.

CRANSTON STAFFER: They saw your dad Friday night.

WOODRUFF [voice-over]: The most surprising effort is being made by South Carolina's Ernest Hollings, who would love to prove that he has appeal someplace other than the South.

ERNEST HOLLINGS, Democratic Presidential candidate: Now is the time to talk sense to the American people, and we'll need someone who has reached out if we're going to beat Ronald Reagan now and that's the whole idea here of us Democrats on a Sunday afternoon.

WOODRUFF [voice-over]: Without the money or the professional organizations of the other two, Hollings is relying instead on Maine supporters to carry the ball for him.

DAN WARREN, Hollings Steering Committee: The only problem is he hasn't been able to meet as many people as we'd like him to. That's all. So when we're up against some very big campaign organizations. But I think we're chipping away, and whenever we can get the candidate there I think we do well.

WOODRUFF [voice-over]: Oh, and then there's John Glenn. He's been avoiding Maine for the past two months, but he's hired one of the state's best political organizers. John Diamond insists his efforts are aimed not at tomorrow's popularity poll but at statewide caucuses next year when Maine takes its first official step at electing a president.

JOHN DIAMOND, State Representative, Maine: Here in Maine, at least, it makes more sense to conserve all our resources to go after a much broader group of Democrats than simply to focus on 2.000 convention-goers in October of 1983 when the Maine caucus is in March, 1984.

WOODRUFF [voice-over]: However, Glenn is returning to Maine to be at tomorrow's convention, and some guess that with a powerful speech he could do surprisingly well. The results are in the hands of a lot of Maine Democrats who aren't used to this kind of attention.

KAREN JACKSON, teacher: Well, I've had contacts with Senator Cranston's son, Senator Mondale's son. There are various staff people and a phone all from Senator Cranston himself.

REED COLES, Democratic town official: In the case of the Mondale campaign, one of their staff people was extremely insistent that he come down and meet personally and talk with me in my house. He wouldn't take no for an answer, so I finally let him do it.

WOODRUFF: Are you going to vote for Mondale now?

Mr. COLES: As a matter of fact, I am.

WOODRUFF: Is it like being wooed? I mean, what does it feel like? Do you feel like you're much desired? JANE ROY, labor negotiator: I think my emotions have fluctuated about it. Initially I was very interested.At times, very blase about it. Oh, another invitation ot a reception. Well, you know.

WOODRUFF [voice-over]: But for the most part, it's been a lot of fun.

Mr. COLES: It was a very enlightening and enjoyable experience to see some of these people who are in Washington and talk to them and listen to them and just get some sense of how they really think, and not hear the stated positions but what they are like as people, what the quality of their thought is, what their personal habits are almost, you know: how fast they talk, how slow they talk. Do they look around, do they crack jokes, do they smoke?

WOODRUFF [voice-over]: But some Democrats up here have real questions about whether there should be a popularity poll at all.

PETER SCHWINDT, businessman: What bothers me about a campaign being started this early is when they start campaigning they usually stop doing what we elected them to do, mainly to make tough decisions.We're just doing a preview of -- to a whole series of months of more previews leading to a primary leading to a convention.

WOODRUFF [voice-over]: The man who came up with the idea of holding this straw poll, however, says it's entirely proper.

BARRY HOBBINS, Maine Democratic Chairman: Well, I don't believe it's too early to begin the process, and I believe that the earlier the process will give a lot of candidates an opportunity to break out of the parochial mode.

WOODRUFF: That's an awful lot of influence for a small state like Maine, isn't it?

Mr. HOBBINS: Well, I think it's more appropriate in the state of Maine than, I think, in New Hampshire. And I know that my friends in New Hampshire might disagree with that, but I think the Democratic Party in Maine is more reflective of the Democratic Party throughout this country than it is in New Hampshire.

WOODRUFF [voice-over]: That argument does't impress the skeptics.

Mr. SCHWINDT: I know what will happen. The losers will say it really didn't mean anything, and the winners will say well this just shows that I'm a very strong candidate, and there's no stopping me.

WOODRUFF [voice-over]: But all of that is of no consequence to Julie Gibson and her potential Mondale delegate who, in case you're curious, finally made up his mind.

DELEGATE; Well, I might as well do it today. Everybody else is telling me I should.

Ms. GIBSON; Yeah, well, you know, you've got -- you got Donnie and all those guys, you know, all your representatives, everybody, so you had to get on -- get on the train. Why don't you put your button on?Yeah. Mondale man. All right.

MacNEIL: The Democrats will have a lot of competition for people's attention in Maine this weekend. The potato harvest is in full swing; it's homecoming weekend at the University of Maine; and the Boston Red Sox are saying good bye to their revered star of 23 years Carl Yastrzemski. We have one more political story. Tonight, the U.S. Civil Rights Commission technically goes out of business because its authorization has expired. Reauthorization is being held up by wrangling between the White House and critics in Congress. Last May President Reagan nominated three candidates to replace three sitting commissioners.The Reagan nominees, all Democrats, are lawyer Morris Abram, Stanford University researcher John Bunzel, and Catholic University law professor Robert Destro. Civil Rights groups claimed that Mr. Reagan was packing the commission with conservatives and ruining the commission's independence. Mr. Reagan denied the charges and claimed the right to make the changes. But it appears tonight that politically the President does not have the votes to get his nominees through the Senate Judiciary Committee, even though the Republicans control it. Committee Republicans have joined with Democrats to fashion a compromise that so far the White House won't accept. Jim?

LELRER: Here to explain that compromise is one of its key Republican authors, Senator Arlen Specter of Pennsylvania. Senator, the latest fersion of this compromise, as I understand it, is one that you and Senator Robert Dole, among others, have worked out. What is it, in a nutshell?

Sen. ARLEN SPECTER: Senator Biden has been involved as well --

LEHRER: Democrat of Delaware, right.

Sen. SPECTER: -- and it involves preserving the institutional independence of the commission by providing that people can be replaced only for cause by providing for eight-year staggered terms so that no longer would the Civil Rights Commission have indefinite or unlimited terms with the issue outstanding as to whether the President can replace on his own say-so, and it is designed to reach what has been a perceived problem that the President would have had challenged the institutional independence of the commission by naming five of the six commissioners. And I do not think that the President intended that, but it has caused quite a controversy so that we think this will accommodate the interests of all involved and will be a good practical solution and will permanently authorize the Civil Rights Commission so the issue doesn't arise every few years.

LEHRER: As a practical matter, how many of the three new commissioners that President Reagan wanted would he get under this compromise?

Sen. SPECTER: It depends on how we work it out in the final analysis, and the President would like to have all three of his nominees, and I think there is a strong argument in his favor as a matter of fairness because it would balance the commission four on one side and four on the other, because one of the President's prior nominees votes more often with the other side. Some contend that the President should get only two of the nominees, and we have a week's extension to see if we can work out an agreement on this three to two. And my own thinking on it is that it is more important to settle the matter and not to have a controversy over civil rights because it could flare up and it could be a very emotional issue. We all agree on the ultimate objective of civil rights, and as I said earlier today, if it's two to three to three to two it's not a ballgame we're playing. I'd like to see the President get three, but if the votes are not there, then I'm prepared to support a resolution of it so we can get on with the commission's work.

LEHRER And the votes are not there as we speak? For the President, excuse me?

Sen. SPECTER: They are not there. We have gone through this in an extended fashion, and the votes are not there for the President.

LEHRER: Why aren't they there, Senator? You're a Republican. The Republicans have in numbers more than the Democrats. What's the problem?

Sen. SPECTER: The concern that many of us have, and Senator Dole has been at the center of it, and I have the concern, that there is an appearance that there is a challenge to the institutional independence of the Civil Rights Commission. And I do not think it is in the President's interest to have this kind of a controversy exist. Now, I think the President is pro-civil rights, but his best foot is not being put forward to have this controversy.

LEHRER: Where do matters rest now as far as the White House is concerned? What is their position, as you understand it, on this compromise?

Sen. SPECTER: The White House wants to get the matter resolved, and they have asked for an additional week's extension that I was cooperative in arranging today, as was Senator Dole and as were others. They would like to have all three of their nominees. They would like to have three as opposed to two. And it remains to be seen whether a compromise can be worked out, but if it can't, as we said earlier today, Senator Dole and I and others, that we feel that the matter has to be resolved, even if the President's three cannot prevail and if he has to settle for two.

LEHRER: In other words, he either goes along with you all or he loses?

Sen. SPECTER: Either he persuades all the parties that he ought to have three or, if it comes down to a vote, the most he can get is two.

LEHRER: Do you expect this thing to be resolved this next week?

Sen. SPECTER: Yes, I do. I'm very optimistic that it will be resolved. There has been a tremendous amount of negotiation. Senator Thurmond has been very active in it; Senator Laxalt has; Senator Biden has; Senator Dole has brought forth new ideas; and I think that we'll bring it to a conclusion, and I think we really have to in the national interest.

LEHRER: Senator, thank you very much. Robin?

MacNEIL: In economic news, the government announced another indication that the rapid recovery from recession is slowing down. For the first time in a year the index of leading economic indicators went down last month by one-tenth of a percent. The index is used to predict trends in such areas as manufacturing, employment and prices. Commerce Secretary Malcolm Baldrige said the lower figure was no cause for concern, adding that a few monthly declines are a normal part of the transition from quick growth in the first stages of a recovery. Jim?

LEHRER: Nothing startling or significant happened in or about Lebanon today, believe it or not. The peace was not breached in Lebanon as the four-man ceasefire committee representing the four major Lebanese factions worked at getting things back to relative normal. There was also, for a change, little or no Washington rhetoric on the subject following the Congress' final action yesterday in the Senate on the 18-month War Powers compromise. The only words of consequence uttered here today were those of Egyptian President Mubarak. He talked to reporters at the White House after seeing President Reagan.

HOSNI MUBARAK, President of Egypt: The ceasefire must continue so that efforts to bring about national reconciliation in Lebanon be given the chance to succeed, and succeed they must. Lebanon has seen much bloodshed and destruction, and it deserves the lasting peace and the stability and the real opportunity to reconstruct the country. The key to a breakthrough is the complete withdrawal of Israeli and other foreign forces. The authority of the Lebanese leadership over the entire country must be consolidated. Short of this, the situation will remain tense and explosive. At the same time, we must not neglect the Palestinial problem. In this regard, I welcome President Reagan's assurances that he remains committed to the peace initiative of the 1st of September, 1982. The time has come to reactivate this initiative with a view to secure the participation of Jordan and the representatives of the Palestinian people in the negotiations.

LEHRER: Also, Mr. Reagan told reporters afterward U.S. policy in the Middle East has not changed.He was responding to a report in today's Washington Post which said the U.S. is adjusting its approach to lessen Soviet influence in Syria. Robin?

MacNEIL: On the seacoast of Japan the Japanese today gave up the search for wreckage from Korean Air Lines Flight 7. Nothing had been found for six day. But the U.S. Navy said it is continuing to search for the plane's two flight recorders, although the time limit on the signals they send out has just about been reached.The signals are designed to last about 30 day, and the plane was downed 29 days ago. Today the Navy told us they have no new reason to hope they will find them, and no reason to give up, either. We'll be back in a moment.

[Video postcard -- Islesboro, Maine]

LEHRER: The government took strong action today against a pesticide. It's name is ethylenedibromide, called EDB, which has been used mostly in the South, California and Hawaii to combat fruit fly devastation of citrus trees and other crops. The Environmental Protection Agency banned such agricultural use on an emergency basis effective immediately. It also issued an order prohibiting its use for anything else after 30 days. The agency said tests show EDB contains a cancer-causing chemical, and traces of it have shown up in groundwater in several states. Some 20 million pounds of the pesticide are used in this country annually. Robin? Medicare Payments

MacNEIL: Our next major topic tonight comes from our medical beat. Tomorrow the government's plan to cut the costs of Medicare goes into effect. Washington will start paying fixed rates for hospital treatment of the elderly and disabled. Until now hospitals set their own fees for services and charged on a case-by-case basis.Under the new system, known as prospective payment, hospitals will be paid predetermined rates for 467 different procedures, no matter how long the patient is in the hospital. If hospitals can deliver treatment for less than the fixed rate, they can keep the change. But they lose money if they can't keep their average costs within the limits. Medicare is one of the Social Security system's trust funds. The government says it'll run out of money by the end of the decade unless costs are controlled. In 1967, two years after it began, Medicare cost the government only $800 million. This year the estimated cost is $57 billion. One part of the new cost-cutting program got a headstart this summer and, as we discovered this week, it is getting mixed reviews.

[voice-over] When the government started looking for ways to cut Medicare costs, one area that caught its eye was the kidney dialysis program. Kidney dialysis is a process that filters a patient's blood three times a week through a machine called an artificial kidney. Dialysis has kept thousands of people alive who would have died of kidney failure. But it's expensive, costing as much as $25,000 a year per patient. In 1973 Congress ordered Medicare to shart paying for the treatment of all patients with severe kidney disease. The following year the program was fairly modest, with 18,000 patients and a cost of $228 million. But by 1982 the number of patients had swelled to 72,000 while the costs jumped more than sevenfold, to $1.8 billion. Government studies have found that when patients do their own dialysis at home it's 30% cheaper than when it's done in a hospital or a clinic. But most patients, 83%, prefer to get their dialysis at a hospital or a clinic, where nurses and technicians run the machines. To cut costs, Medicare is now giving hospitals and clinics a financial incentive to send patients home. Under the new rates, dialysis centers can make substantial profits on the leasing of equipment and supplies to home patients while they may barely break even or lose money on patients treated in their clinics. Medicare hopes the new rates will double the number of patients on home dialysis. But some doctors and patients fear that the new incentives will cause serious problems, and one patient group has filed suit to stop the new rates. That organization is the National Association of Patients on Hemodialysis and Transplantation.Its president is John Newmann, a Boston man who has been on dialysis himself for almost 12 years.

JOHN NEWMANN, dialysis patient: Well, our feeling is, particularly the black, the elderly and the poor will be severely disadvantaged. These regulations encourage home dialysis. The incentives are for centers and physicians, but not for patients. Not everyone is fit for home dialysis. You need a partner to help you out. It's a procedure on which your life depends, and you need to know what to do in an emergency. You need an extra room. You'll have additional water and electricity costs, and you have to be physically stable and psychologically fit to take your life into your own hands, and that's not for everyone.

MacNEIL [voice-over]: Dr. Theodore Steinman is the director of the dialysis unit at Boston's Beth Israel hospital. He is equally worried about the effect of the new rates.

Dr. THEODORE STEINMAN, Beth Israel Hospital: Many of our patients are in nursing homes or have elderly spouses or have no spouse whatsover. So many of our patients have no next of kin, have no dialyzing partner. Many of our patients on limited incomes do not have the physical space to do it. Many of our patients are so medically unstable that it would be a catastrophe to try to place them in a home dialysis setting because of problems with dropping of blood pressure, because of severe anemia, because of heart disease. I would be condemning people to death to send them to a home dialysis facility.

MacNEIL [voice-over]: But not all doctors agree that the new rates will be a problem. Dr. John Sullivan is head of the dialysis unit at New York Hospital, where about 30% of the patients are in home dialysis.

Dr. JOHN SULLIVAN, New York Hospital: New, if you're running a large center with patients on dialysis, it's more efficient of your time to do all the patients in a center without having to worry about training patients for the home. But after you've handled patients for many years, you realize that some patients do much better if they can be encouraged to be independent. This, of course, requires more time and effort on the part of the doctor and the nursing staff as well as the social worker and the nurse. But it can be done. Most centers don't want to take that extra time to do that.

MacNEIL [voice-over]: Carolyne Davis is head of the Health Care Financing Administration which oversees Medicare.

CAROLYNE DAVIS, Health Care Financing Administration: I think probably the general kind of anxiety that is felt out there is because we are asking for a change in behavior. We're asking for a change in the way we think about the system of delivery of care. I think in the past there's been an assumption that we had an open checkbook and whatever was spent was perfectly appropriate to be done in the name of quality. And what we are saying now is the programs, in terms of health case, the costs are escalating so rapidly we've got to begin to get a handle on these costs. One way of doing that is to try to give the incentives back to the individual institutions to better control their costs. As they make known what the costs of practice patterns are, they are really asking the physicians and the nursing staff and the others who deliver care to change some of their behavior and to be more aware of what their behavior costs.

DOCTOR: Dr. Owens saw you this morning, talked to you? All right? Do you understand what's going on, right? Okay. No belly pain?

MacNEIL [voice-over]: To ensure that costs are cut, Medicare is also reducing its fee for dialysis by some $1,500 a year per patient, and that worries patients and doctors, who say it could force some dialysis centers to shut down or reduce the quality of care. Already because of the changes in the Medicare rates, Boston's Brigham and Women's Hospital is phasing out its outpatient dialysis unit. Its director is Michael Lazarus.

Dr. MICHAEL LAZARUS, Brigham and Women's Hospital: So we then find ourselves in the dilemma that we now are reimbursed for out-of-hospital, outpatient dialysis at a rate considerably below what it costs us to do it, and the hospital has elected to discontinue the service of outpatient dialysis here, and we will refer all patients to out-of-hospital centers.

MacNEIL [voice-over]: Half the kidney patients in the country go to private clinics like this one in Boston for their dialysis. And these clinics, too, feel threatened by the cuts. Dr. Edmund Lowrie is senior vice president of the Boston-based National Medical Care Corporation, which runs 161 clinics nationwide.

Dr. EDMUND LOWRIE, National Medical Care Corporation: I guess the real question comes is, when do you cut fat and start cutting down into meat, and maybe even into bone? And I'm afraid that the -- that the new rates, the new reimbursement rates were calculated upon old and stale data. They're supposedly cost-based in nature, but because the data is so inadequate, I'm afraid that there -- that most centers will ultimately find themselves cutting beyond the fat and into meat and into bone.

MacNEIL [voice-over]: But one pioneer in the field, Dr. John Merrill, who helped develop kidney dialysis, sees both benefits and drawbacks in the new rates.

Dr. JOHN MERRILL, dialysis pioneer: Well, I think the good things will probably outweigh the bad things. One of the bad things, as I mentioned before, is forcing people to go on home dialysis when that's the last thing they want. The good things are that it will make doctors and freestanding units and even hospitals take a good hard look at how they can save money. So I think that these are rules that we can live with. But I think the overall effect on the cost to the federal government is going to be much less than the legislators expect. I think it'll mean less -- it will certainly mean less compensation for the doctors who are doing dialysis, but on the other hand, with new techniques it's going to be possible to take more patients than it would have been, and I think the two will balance out.

LEHRER: The federal government's effort to control health care costs is under the jurisdiction of the Health Care Financing Administration. The agency's administrator is Carolyne Davis, who we just saw on the video tape. She was the dean of the school of nursing at the University of Michigan before joining the federal government. You heard what Dr. Merrill just said. He questions in the final analysis whether it's going to save any money.

CAROLYNE DAVIS: Well, let me say that for the first year that the program is in effect in terms of the new rates, we expect in the fiscal year '84 to save $180 million.

LEHRER: Is this overall or just on kidney dialysis?

Ms. DAVIS: That's just for the kidney dialysis program.

LEHRER: I see. In other words, you just think Dr. Merrill is wrong?

Ms. DAVIS: Well, I do believe that we can deliver quality care and the new rate system. As a matter of fact, 127 new facilities have requested an approval to have a provider number, and we think that that's indicative of the fact that these facilities believe that they can deliver high-quality care for our dialysis patients with that rate.

LEHRER: So the free enterprise system is at work --

Ms. DAVIS: It is indeed.

LEHRER: So some of them may close down and say no thanks, as we heard the man say, but there are going to be others who say we can do it for that price?

Ms. DAVIS: Absolutely.

LEHRER: And you're convinced that the quality of the care is not going to suffer, is that right?

Ms. DAVIS: Absolutely not. I think what people fail to realize is that this is a rate system that is set up and let's say if it's a hospital we had said we would pay on the average $131. That is the same price, irregardless of whether the patient is being dialyzed in the facility or at home. We know that the average cost for the home dialysis is $97. Now, that is an incentive for the institution to begin to teach their dialysis patients how to do their own home dialysis.

LEHRER: And they get to keep the difference between $97 and $131 --

Ms. DAVIS: Yes, but they haven't mentioned that.

LEHRER: I see. And that's the whole principle behind all of these changes, the additional ones that go into effect tonight, is that right?

Ms. DAVIS: That is absolutely right. We wanted to redefine our reimbursement system so that instead of having a cost system where the more that the institution spent, the more we paid. To give the institutions an incentive to change their behavior. The best way to do that is to create a reward, and the reward is that if, when we've set our fair price, they come in under that, we aren't going to take that money back from that institution. We're going to say, "Fine, that's your profit." On the other hand, when you create that kind of a reward system, you also have inherent in it a risk. And the risk is, if they go over that fair price, then they are the ones that will have to eat that. They cannot turn around and charge our beneficiaries additional monies to make up that, and I think that's important.

LEHRER: You used the term "fair price." How were these fair prices arrived at, in very simple terms?

Ms. DAVIS: All right, in very simple terms, we collect the material from each hospital each year in terms of their costs. They must file that. We took that material and we looked at that. We also have the records from all of our patients because we paid those bills. We really put that material together and developed the rates from that.

LEHRER: I see. Overall, out of these 400-plus programs, how much money do you hope to save?

Ms. DAVIS: Well, in the first two years, because we're bringing this program onto a new system and we realize that the hospitals need time for that, we have said that the system will make no additional savings from what the federal government under the congressional mandate last year required. For example, under the fiscal year '84, the industry is to save $1.4 billion this year irregardless of whether the prospective payment system was in effect or the cost-base system was in effect. In the out years --

LEHRER: This will do it, right?

Ms. DAVIS: In the out years, however, we know that it has the potential, once behavior patterns have changed, to save money.

LEHRER: Thank you. Robin?

MacNEIL: While hospitals around the country are busy adjusting to the changes, those in New Jersey are conducting business as usual. That's because the federal plan is modeled after a New Jersey plan that began three years ago. How it affects patients is now being studied by a committee headed by Dr. Frank Primich, president of the medical staff at Riverside General Hospital in Seacaucus, New Jersey. Dr. Primich, you heard some people in that tape say that the new cost-cutting will affect the quality of medical care. You've just heard Ms. Davis saying no it won't. What's been your experience with the state system in New Jersey?

FRANK PRIMICH: Well, our experience is just now beginning to show signs that this is occurring.

MacNEIL: That what is occurring?

Dr. PRIMICH: That there is a cutting in the quality of care. In other words, a logical projection has to anticipate that this will happen on the basis of the fact that if you put a lid on costs and lower them, if along with that you add the costs of compliance with the regulations, something has to give. What gives is the expenditures designed to deliver quality care.

MacNEIL: Can you give us an example?

Dr. PRIMICH: There are any number of examples that are already in effect. One is that if an individual needs a certain medication that is expensive, they are beginning to find that it is not available in the hospital pharmacy. The pharmacy is stocking a preparation that is less expensive and, very frequently, less effective.

MacNEIL: What about on the flat payment for procedures? Do you find any cut in quality there, reduction in quality there?

Dr. PRIMICH: There we face the pressures that exist for early discharge of the patient. In other words, once you establish that the hospital is going to be paid the same amount, regardless of the length of stay, within certain parameters -- so-called trim points -- then, the sooner that patient is discharged, the greater "the profit" or the less the loss, depending on the given situation, so that there are pressures to discharge patients, at this point in the game, marginally early. In other words, where conceivably I might intend to discharge a patient tomorrow, the pressures exist, discharge them today.

MacNEIL: What kind of pressure? How do you feel that? The hospital says, "Can't you get them out of here sooner?" is that --

Dr. PRIMICH: Yes, precisely. There are -- this is all supposed to be an educational process for the doctors. We are -- we have meetings, we have seminars. We are told, "This is the problem." And, since hospitals and doctors are mutually dependent, in other words, the hospital can't function without doctors -- they tend to forget that nowadays -- and we know that we cannot function without the hospital. But the point is that for our own self-preservation, we must make these cuts that they suggest. Otherwise, the hospital will become insolvent, and I will not have a place to practice. That's the pressure at this point.

MacNEIL: Or if you were a doctor who was chronically leaving patients in too long, from the hospital's point of view, they might find it convenient to sever your connection with the hospital. Is that the kind of threat that's --

Dr. PRIMICH: Well, that problem has always existed, and it will continue to exist. There are many other ways of handling that, if they so chose.

MacNEIL: To put it --

Dr. PRIMICH: Now the pressure is being put on the doctors who do not do that.

MacNEIL: To put the situation in a nutshell, are you worried enough about the situation that you think the experiment, this flat-fee experiment has failed and should be reversed in New Jersey?

Dr. PRIMICH: Very definitely yes.

MacNEIL: Thank you. Jim?

LEHRER: Ms. Davis? Do you think the New Jersey experience relates to what's happening nationally, what you all are pushing?Did he give you second thoughts, in other words?

Ms. DAVIS: No, not at all. I've visited the New Jersey system several times. I've talked with a number of hospital administrators and I've talked with physicians within the state. There is quite a difference of opinion between some of the physicians in the state because as recently as two days ago a physicians' advisory panel that has been empowered to look over a period of years at what's been going on with the system recently issued a report which indicated that they did not find any serious impairment on the quality issue at all as it related to some of the factors.

LEHRER: So Dr. Primich is in the minority? Are you in the minority in New Jersey, Doctor?

Dr. PRIMICH: No, sir. I am here representing the Medical Society of New Jersey, which is the majority of practicing physicians in New Jersey. And there is unbelievable unanimity of opinion on this one issue, which is very rare in organized medicine.

LEHRER: Let me ask you some of the specifics that Dr. Primich raised. First of all, the pressure to discharge patients early. Is that a good ting or a bad thing from your perspective?

Ms. DAVIS: I think that it's a good thing in terms of beginning to make fruitful planning, in terms of early discharge. Oftentimes we've found, and I know, as a practicing nurse, having been in the hospital, sometimes patients have come right up to the date of discharge without having had a plan thoughtfully developed between the doctor and the nurse in terms of teaching them about their medications and about their diet and other kinds of activities that are needed to have before they go home. That can actually, if that hasn't been done, delay the patient from being ready to go home for another day or two. It's those kinds of activities, beginning to thoughtfully plan that kind of early discharge for teaching, that I think is going to be important. Secondly, I know of times when they've forgotten to orderly process some of the laboratory reports and the x-rays, times they have not been, in terms of deciding which tests should be done appropriately before another test, and you've had to hold a patient in an extra day. These are the kinds of things that I think we're going to see differences on.

LEHRER: What's wrong with that, Doctor?

Dr. PRIMICH: First of all, that type of planning has been in effect for a long time, and the system does nothing to add to that. The other thing Ms. Davis mentioned was the fact that she's spoken to hospital administrators. New Jersey's system has a very unique feature to it. There is an element of the uncompensated costs: unpaid hospital bills are programmed into the rates that are charged. This is the part that appeals to the hospital administrators. Every hospital administrator I've spoken to has said that the system is cumbersome, the regulations are constantly changing and difficult, and that the costs and the bother of the system is something they would be very happy to do without if someone would only find another way to pay them for their uncompensated costs.

Ms. DAVIS: I think there's no doubt about the fact that the New Jersey system is different than our system. The doctor is right in that. Our system does utilize the type of per-case payment, but it is not an all-party payment system. However, I've spoken to hospital administrators. Obviously I've spoken to different administrators than he has --

LEHRER: Different ones. You all are obviously talking to different people all the time.

Ms. DAVIS: We must. I must say I've been around the country recently talking to other hospital administrators who are getting ready to move into this system. Recently I was in Minneapolis and in Chicago, and the hospital administrators and the physicians that I've talked to in these areas are convinced that they can begin to make significant changes that won't impact on quality of care. I want to add one thing on quality, if I could.

LEHRER: Sure.

Ms. DAVIS: We did a long-range study in terms of the impact on quality because this system was built on 10 years of demonstrations, in terms of prospectively set rates, and what we found is that, looking at 600,000 Medicare beneficiaries and 2,700 hospitals over five years, we found no change in quality. What we did find was that there was an awareness of cost-effective decision-making in the system.

LEHRER: Thank you. And thank you, Doctor. Robin?

MacNEIL: [Since] such a large part of the economy today is government activity, it's probably important to note that the federal government will stay in business. The House of Representatives rushed through a stop-gap spending bill to keep the federal agencies from running out of money at midnight, when the fiscal year 1984 begins. We'll be back in a moment.

[Video postcard -- Kanawha River, West Virginia] Tylenol One Year Later

LEHRER: A year ago tonight the news was dominated by a mass murder in Chicago, the killing of seven innocent people by a most insidious method -- putting poison in capsules of the pain reliever, Extra-Strength Tylenol. The killer has still not been caught; the case is not closed. But the story of Johnson, the manufacturer of Tylenol, has come to a conclusion a year later. The company has been widely praised for its handling of the crisis, of presenting a textbook case of how to turn around a nightmare. Charlayne Hunter-Gault tells us how they did it from the day it began one year ago with news reports like these.

REPORTER, WGN Chicago [Day 1]: At first Mary Callaman's death stumped authorities.The only medication she had taken was Tylenol, Tylenol purchased at this Jewel in Oakrow Village. But then came the answer from the Cook County medical examiner's office that Tylenol had been tampered with.

[Day 2] Doctors called in reporters to spread the word. They had found cyanide in the Tylenol Extra-Strength capsule bottle found in the Callaman home in Oakrow Village, and they had found cyanide in the Tylenol Extra-Strength capsule bottle found in the Janus home in Arlington Heights.

REPORTER, Independent Network News [Day 2]: Good evening. Authorities are searching for a person they describe as a madman, as a sixth person has died after taking a Tylenol capsule laced with cyanide.

REPORTER, WPIX, New York [Day 3]: The recall is completed. Until the crime is solved, the product will stay off the market.

POLICE CAR LOUDSPEAKER: Cyanide-contaminated Tylenol has been responsible for three deaths in the area and [unintelligible]. Do not take Tylenol --

CHARLAYNE HUNTER-GAULT [voice-over]: The Tylenol story attracted worldwide attention. All the news was bad. Almost instantly sales collapsed and public confidence in the product plummeted. How did Johnson & Johnson, the makers of Tylenol, regain the public's trust? We first asked David Meeker, an independent public relations expert.

DAVID MEEKER, PR expert: From the beginning of the crisis they made a decision to be open and honest with the media and to communicate through the media to the public the real scope of the crisis.

HUNTER-GAULT [voice-over]: Early on, Johnson & Johnson Chairman James Burke held a teleconference in New York.

JAMES E. BURKE, Johnson & Johnson chairman [November 11, 1982]: In every sense of the term this has been a national tragedy, and everyone in America shares a part of that grief that it imposes.It has introduced us to a new form of terrorism and brought the potential for new fears and concerns close to our homes.It has alerted the consumer to new dangers and touched off a revolution in consumer packaging that eventually will reach all areas of the marketplace. I will begin by stating that as a company we have made the unequivocal commitment to rebuild this business under the Tylenol name. We are coming back.

Mr. MEEKER: The key for the company to do the right thing was to recall the product, to take steps to change the packaging, to make sure that the company's manufacturing process was in no way to blame, and then to communicate all of that activity to the public.

PHIL DONAHUE [November 15, 1982]: So your campaign then will make no reference to the tragedy?

Mr. BURKE: No. Now, at the moment the monies that we're spending, basically we've done two things. One is we've come back with a tamper-resistant package, and the second thing -- our research also showed us that at the height of the crisis, 35% of our Tylenol users threw it away, put it down the john or threw it away to get rid of it because it was such a frightening experience. So the other thing that we are doing is we are going to give that back to them. We have an offer at the moment, you can call and get a coupon worth $2.50 on any Tylenol package, and further, we will run that in Sunday newspapers this month and next month because we feel the best thing we can do with our money is to get our customers to come back to Tylenol.

HUNTER-GAULT [voice-over]: Larry Feinberg follows the drug industry as a securities analyst for Dean Witter.

[interviewing] How would you characterize Tylenol's comeback from a marketing standpoint?

LARRY FEINBERG, Wall Street analyst: I think we can characterize is at nothing short of a spectacular marketing rebound in the product in that Tylenol's market share prior to the poisonings approximately one year ago was about 37% of the U.S. over-the-counter analgesic market. It dropped as low as 7% right after the poisoning, so it was really down there, and it has come back very strongly. My current estimates indicate that Tylenol has recaptured 80 to 90 percent of its previous market share. It's running at about 30% of the U.S. over-the-counter analgesic market. But I think the real key was the innovative marketing campaign, particularly the use of $2.50 coupons, which was a unique type of marketing strategy. No one had ever marketed a product, or re-marketed a product, in this case, using coupons large enough to essentially get an entire size of the product in the consumer's hands for free.

HUNTER-GAULT [voice-over]: The recovery of Tylenol has become such a classic marketing story that it is being taught by Harvard Business School Professor Stephen Greyser.

STEPHEN A. GREYSER, Harvard Business School: The coupon, which operationally provided the equivalent of $2 1/2 worth or so of free product to consumers, in my view, was timed very delicately, and the important thing from a consumer-behavior perspective would be to stop former Tylenol customers from making a second pruchase of an alternative brand which might develop a brand loyalty to that other brand.

HUNTER-GAULT: What kinds of things did they do in terms of repackaging the product?

Mr. FEINBERG: Well, I think it was part of the strategy to be the first one back on the market with a safety container, with a tamper-proof container. There was much talk after the poisonings about mandatory standards for repackaging all over-the-counter products in tamper-proof containers. Johnson & Johnson was aggressive in becoming the first company to do it, and their triple-safety-sealed packaging has become basically the industry standard.

HUNTER-GAULT: But this was a multi-faceted strategy, wasn't it?

Mr. FEINBERG: Certainly an integral part of the remarketing campaign and something that had us concerned a little bit at the beginning was getting doctors and pharmacists to reuse, to represcribe the product to their patients. Studies I have performed approximately a year ago showed that approximatley 80% of the users of Tylenol were first referred to that product by a doctor or a pharmacist. So it was very important in remarketing the product to get doctors and pharmacists back on the side of Tylenol.

PHARMACIST: The company was terrific as far as handling the problem because they let you know that it wasn't their fault, that it was an outside problem.

PHARMACIST: When it first happened the company sent us telegrams to take it off the shelf, and the company then subsequently sent us letters instructing us how to get credit and return all the Tylenol we had in stock.

HUNTER-GAULT [voice-over]: Clearly in the minds of consumers the campaign has worked.

TYLENOL CUSTOMER: But I think they're doing whatever they can with sealing the capsules and everything and bottles to make sure that people can't get in and do what they're doing. I give them a lot of credit for bouncing back. I think that could have very easily closed them down and that they did go to the expense of putting out promotion on TV and everything, saying that they're doing their best to protect their products. It's a good product and I think it's worth protecting.

Prof. GREYSER: I personally describe it as one of the great rescue acts in the history of marketing, or perhaps in the history of business. At the same time, ironically, I think it is fair to say that, despite this so-called great succes, that this is a whole operation which has cost the company millions and millions of dollars and never should have happened.

HUNTER-GAULT: And that's not the end of the Tylenol story. The millions of dollars spent on bringing the product back was at the expense of profits. They are depressed because competition is at an all-time high. In addition, an entirely new kind of pain reliever is now awaiting government approval, and it's expected to provide even stiffer competition. The other part of the Tylenol story is the investigation into the seven Tylenol-related deaths. Here to give us an update on that is the head of the Illinois Department of Law Enforcement. He is James V. Zagel, who directs 10 investigators working on the case. Mr. Zagel, what is the status of the investigation now?

JAMES V. ZAGEL: It's a very active investigation.Ten investigators is a rather large complement. There's only one other case in my department that has more officers, and they have a lot to do.

HUNTER-GAULT: Do you have any suspects or any leads that you can discuss?

Mr. ZAGEL: No, we've never discussed particular leads, but we do have a substantial number of leads that are being meticulously followed.Some of them are new and some of them are leads that we dealt with once before and are relooking at.

HUNTER-GAULT: Is the investigation centered primarily on Chicago, individuals in Chicago and limited to the Chicago area?

Mr. ZAGEL: Well, there's nothing inherently limited about it. We've had to check out facts and circumstances and individuals all over the country during the course of this investigation, and we still have to do so.But the fact is that we have never found any evidence to link the occurrences in the Chicago area, the Tylenol occurrences in the Chicago area, with anything else anywhere else in the country.

HUNTER-GAULT: All right, as you know probably better than anyone else, the case is now a year old. Why is it taking so long?

Mr. ZAGEL: Well, I don't know that you can have a standard for a case taking too long or too short a period of time. Basically, almost everybody who is working the case is pretty optimistic about it, and the reason we're pretty optimistic about it is because we've had a lot of experience in investigations of ths sort, and I personally, and every investigator assigned to the case, has been involved in cases which took longer to solve and, frankly, cases which at the year's anniversary we had less ot go on than we have in this case.

HUNTER-GAULT: So you basically feel that you have things that feed this optimism, that you will solve the case sometime soon?

Mr. ZAGEL: I feel that we will solve the case. How soon we will solve it, I don't know. You never really know how close you are to a solution until after you solve the case, and then you look back and then you can say where you were close and when you were far away.

HUNTER-GAULT: All right, Mr. Zagel, thank you. Robin?

MacNEIL: Just to keep you up to date on another story we've been following this week, Continental Airlines pilots and flight attendants go on strike tomorrow in protest against big pay cuts. The airline, which declared bankruptcy last weekend, said that it would continue operations despite the strike, but a spokesman for the pilots union said the walkout would shut the airline down. Jim?

LEHRER: Again, the top stories on this Friday night, and they're mostly about politics. Walter Mondale got the endorsement of the largest teachers union, and he goes for a similar nod from the AFL-CIO and the Democrats of Maine tomorrow. A compromise on the makeup and life of the Civil Rights Commission still awaits White House approval, and the government has banned the use of a pesticide known as EDB on farm products. Finally, for the record and as something to ponder over the weekend, the 1983 fiscal year does end at midnight tonight, Washington time. At that exact moment the U.S. government officially expects to have run up a debt of $210 billion during the last 12 months. That will bring the total national debt to $1,360 billion. To use a favorite measurement of President Reagan's, if all of those dollars were put in a stack it would extend 67 miles high. Robin?

MacNEIL: Finally, the domino theory was put to yet another test today.In Sheffield, England, a building contractor had to take down the 120-foot tower at an old foundry, and he decided to do it with complications. John Thirlwell of the BBC tells us how he did it.

JOHN THIRLWELL, BBC [voice-over]: The scene, a former steel foundry due for development by a brewery.

DETONATOR: Three, two, one, go.

THIRLWELL: Two thousand dominoes, a little ingenuity and 19 pounds of gelignite were to complete the clearance of the site. [dominoes falling] First, the mortal domino tower exploded, and then the real thing.

MacNEIL: Good night, Jim.

LEHRER: Good night, Robin. Have a nice weekend. We'll see you on Monday night. I'm Jim Lehrer, thank you and good night.