FRED DE SAM LAZARO: The one thousand bed Henry Ford Hospital in Detroit is the centerpiece of a giant integrated health system with an annual budget of $1.6 billion. The network includes several suburban primary care clinics and a large health maintenance organization. Despite the name, the health system is not part of the Ford Motor Company. Henry Ford Hospital has a top notch reputation for scholarship and research and attracts well-heeled patients from across Southeast Michigan, some from far beyond. At the same time, its emergency room serves thousands of poor and uninsured neighbors in the Central Detroit location.

DOCTOR: (talking to patient) Can you point with one finger where you feel the pain the most?

FRED DE SAM LAZARO: Many have challenging diseases or are victims of violence. Henry Ford is also the last stop in the formal medical education of Dr. David Portelli.

DR. DAVID PORTELLI, Resident: It provides a unique opportunity to see different types of pathology, patients who perhaps have not taken very good care of themselves, or who have not been taken very good care of, and you see end-stage late manifestations of their disease, as well as some of the more garden variety type things from outside the system, so it provides a diverse potpourri of pathology and, therefore, your training is enhanced.

FRED DE SAM LAZARO: Portelli is one of the more than six hundred residents at Henry Ford, making its program one of the largest in graduate medical education in the country. Its director, Dr. Glenn Davis, says Medicare is chiefly responsible.

DR. GLENN DAVIS, Vice President, Academic Affairs: This amount varies by region, by hospital, over a fairly wide range, but could be anywhere from thirty-five to a hundred thousand dollars a year per house staff, so that when we talk about Medicare contribution to health systems education programs, you're potentially talking, when you talk about a program the size of this, 650 house staff and fellows, you're talking about multi-million dollar, tens of millions of dollar impact on the, the bottom line of the hospital and health system and its capacity to conduct graduate medical education.

FRED DE SAM LAZARO: Specifically, Medicare provides about $38 million each year to Henry Ford in subsidies for medical education. The hospital receives a further $20 million in what are called disproportionate share grants, money to compensate hospitals that care for large numbers of uninsured patients. When bills for routine care for Medicare patients are added, Medicare, along with Medicaid, bring in $400 million a year. That's a quarter of all revenues to the entire Henry Ford health system. Under Republican reform proposals, all Medicare payments for medical education, disproportionate share programs, and actual services would be reduced, in Henry Ford's case, by as much as $317 million over the next seven years. That adds new stress to a facility already reeling from cutbacks in private sector income. Henry Ford's chief administrative officer, Peter Butler, says big Detroit employers have pressured health care providers to lower their prices.

PETER BUTLER, Administrator: It is not just the Medicare/Medicaid side. In this marketplace, the employer community is finally becoming very aggressive in exercising their purchasing power. In our shadows here is General Motors, a very large employer, our own HMO will be reducing its premiums next year, not less than inflation, an actual reduction in premiums. When you couple that with any of the scenarios for Medicare or Medicaid reductions, we will have somewhere between a sixty and seventy-eight million dollar shortfall starting in January, immediately, under any scenario.

FRED DE SAM LAZARO: Despite the financial stresses, Butler remains optimistic that Henry Ford Health System can reinvent itself in much the way the Ford Car Company did a few years ago. As an example of what he calls an improved health care model, Butler points to efficiencies in this new unit, designed just for patients with congestive heart failure. The patients come straight to this unit's reception desk, instead of a distant central admitting area. The unit has its own pharmacy, and pneumatic tubes move specimens to the lab or blood to the unit. The number of job categories has been reduced to just three, instead of the usual thirty, all of which means patients are wheeled across the hospital for service, and they deal with far fewer providers and technicians.

PETER BULER: We have to cross-train people to do some functions maybe they hadn't previously done. It might be a nurse reading an EKG, instead of a technician reading an EKG, a new skill maybe for that nurse but it, again, eliminates one person coming on the floor perhaps that might have done that in the past and creates a greater continuity of care and coordination for the patient. We've seen about a 17 percent reduction in costs under this process. We've seen tremendous, most importantly, patient satisfaction results, the highest in the entire hospital.

FRED DE SAM LAZARO: Butler is optimistic that efficiencies, size, and diversification will help Henry Ford through rough years ahead, which analysts expect many other hospitals may not survive. Even at Ford, not everyone is upbeat. Dr. Christopher Lewandowski is head of emergency medicine.

DR. CHRISTOPHER LEWANDOWSKI, Head of Emergency Medicine: The emergency departments around the country are the safety net for society as a whole so that if there are severe cuts in Medicare, drops in funding, even cuts in Medicaid on a state level, this tends to increase the volume of patients that we see here, because they are unable to get care other places.

FRED DE SAM LAZARO: To some analysts, Henry Ford could be a microcosm of the health care system a few years hence under Republican reforms. Princeton University Professor Paul Starr.

PAUL STARR, Princeton University: It is going to be a system with a large number of people at the bottom, probably fifty to sixty million people with no health insurance coverage at all, who will be dependent on very limited public facilities; public hospitals and clinics are probably going to shrink. So it's going to be a very divided society. Then I think the level just above that will be people enrolled in, in managed care plans where the managed care plans are under very sharp economic constraints, and then above that, I think people enrolled in the medical savings accounts, executives and others with much more generous coverage, will enjoy a lot of the traditional system that will continue above that, so, more or less, I think a three-tiered system.

ROBERT MOFFETT, Heritage Foundation: Well, that's--I think that's extreme. I don't accept those figures.

FRED DE SAM LAZARO: Robert Moffett of the Heritage Foundation says the poor and uninsured will continue to receive health care, only in a more efficient system, where states and the private sector are allowed to innovate. More urgently, he says, the proposed reforms will stave off even worse financial crises in Medicare.

ROBERT MOFFETT: The gravity of this is that if we do not control the health care spending and the Medicare system, in particular, we are going to be faced again with very unpleasant consequences. So far, the American people have come to realize that the Medicare system is in grave financial condition, that Medicare hospitalization program is facing bankruptcy. Next year for the first time in the thirty-year history of Medicare, the Medicare hospitalization fund is going to be paying out more money than comes in.

FRED DE SAM LAZARO: Regardless of what Congress and the administration eventually do to solve the program's financial woes, officials at Henry Ford Hospital say they are reconciled to a future in which less and less money comes in from Medicare.

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