Hospitals Could Pay Price to Mend Medicare

Medicare could pour salt on the wounded hospital industry.

Seeking a cure for its own financial woes, Medicare may pull the knife on hospitals in an effort to save itself. Otherwise, the tax-funded health insurance program -- forced to cover massive crowds of aging baby boomers -- could wind up bankrupt in just 15 years.

The government issued its dark prognosis, essentially cutting seven years from Medicare's life expectancy following its latest annual checkup of the big insurance program. In a startling report published Tuesday, the government warned that Medicare needs swift -- and drastic -- treatment if the program hopes to survive.

"The projections in this report continue to demonstrate the need for timely and effective action to address Medicare's financial challenges," the study concludes. "We believe that solutions can and must be found to ensure the financial integrity" of the Medicare program.

As early as this year, the study determined, Medicare will begin spending more money on health care coverage than it will actually collect from taxpayers. From there -- as expensive new drug benefits kick in -- Medicare's condition is expected to rapidly deteriorate. Under certain scenarios, the study found, Medicare could run out of money in eight short years.

To be sure, Medicare costs are rocketing. The study projects that Medicare expenditures, as a percentage of the gross domestic product, will jump from last year's 2.6% to 3.4% in 2006. The report goes on to say that Medicare will actually cost more than Social Security by 2024. By then, of course, the government expects Medicare to be insolvent unless steps are taken -- soon -- to save it.

"The early introduction of reforms increases the time available for affected individuals and organizations -- including health care providers, beneficiaries and taxpayers -- to adjust their expectations," the report states. "The sooner the solutions are enacted, the more flexible and gradual they can be."