captioning sponsored by macneil/lehrer productions >> brown: the world reacted with caution today after north korea announced the death of its leader, kim jong-il, and state media pronounced his son the nation's "great successor." good evening. i'm jeffrey brown. >> ifill: and i'm gwen ifill. on the newshour tonight, we look back on the dictator's rule, and ahead to what's next for the isolated nuclear nation. >> brown: then we update the payroll tax stalemate with white house advisor gene sperling and house republican jason chaffetz. >> ifill: from our colleagues at the center for investigative reporting, we have the story of unusual and possibly fraudulent billing practices at a chain of california hospitals. >> there is a substantial amount of waste in the medicare program, and a lot of it comes from fraud.

we're talking about billions and billions of dollars of fraud that isn't uncovered. >> brown: and we look back at the life and legacy of vaclav havel, the czech leader, writer, and dissident. judy woodruff talks to former secretary of state madeline albright. that's all ahead on tonight's newshour. major funding for the pbs newshour has been provided by: >> intelligent computing technology is making its way into everything from cars to retail signs to hospitals; creating new enriching experiences. through intel's philosophy of investing for the future, we're helping to bring these new capabilities to market. we're investing billions of dollars in r&d around the globe to help create the technologies that we hope will be the heart of tomorrow's innovations. i believe that by investing today in technological advances here at intel, we can make a better tomorrow. >> and by bnsf railway.

>. the william and flora hewlett foundation, working to solve social and environmental problems at home and around the world. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> brown: north korea marked the passing of power today, to a scion of the same family that's ruled unchallenged since world war ii. official media reported kim jong-il had died after 17 years in power, bequeathing the communist country to his youngest son. as state television reported it, word of kim's death affected everyone from the news reader to officials depicted as sobbing at the moment they heard the news to

ordinary people shown grieving on the streets of pyongyang for the dear leader. >> he loved us so much that once he came here in the freezing weather and walked all the way up to the third floor. he asked us to work hard to feed the nation. >> brown: the regime reported the 69-year-old kim jong il died early saturday after suffering a heart attack as he toured the country by train. he had suffered a stroke in 2008. kim took over the leadership in 1994 on the death of his father, kim il-sung, the founder of modern day north korea known as the great leader. both men ruled an isolated, hard-line communist state with few allies. china though has long been among them. in beijing today a foreign ministry spokesman praised kim's memory. >> he made important contributions to developing north korea's socialist cause and promoting good neighborly and cooperative relations between china and north korea.

we believe the north korean people will definitely be able to turn sorrow into strength and remain united as one, to continuously push forward their socialist cause. >> brown: kim had ruled for 17 years, appearing in public with and sometimes sat rised outside the country for his hair-do, platform shoes and jump suits. he was said to have a taste for western films and cognac. but there was a very dark side. oppression of all dissent and, like his father, kim continued a military-first policy with 1.2 million troops under arms. north korea periodically showed off missile launches, including one even today. and kim's pursuit of nuclear weapons kept the world on edge, especially after 2006 when the north conducted the first of two underground test explosions. last year a conventional weapons clash drove the two koreas to the brink after the

north sank the south korean warship, killing 46 sailors, and then fired on a south korean island. today on word of kim's death, south korea's military went on high alert and the seoul government called emergency cabinet meetings. >> peace and stability in the korean peninsula is the first priority for the future of south korea. this situation should not be a threat to peace and stability in the korean peninsula. in order to maintain stability, we must be thoroughly prepared. >> brown: american troops in south korea did not go on higher alert, but kim's death could delay u.s. decisions to reengage the north on ending its nuclear program and on providing new food aid. under kim, north korea has been chronically unable to feed its population of 23 million. a famine in the late 1990s reportedly killed more than 200,000. afterward, more north koreans

began trying to escape the repressive regime. the problem has only marginally improved. the country still relies heavily on food aid, and many children are mall nourished. in washington today, secretary of state hillary clinton voiced hope for improved relations after meeting with the japanese foreign minister. >> we both share a common interest in a peaceful and stable transition in north korea, as well as in ensuring regional peace and stability. we reiterate our hope for improved relations with the people of north korea and remain deeply concerned about their well being. >> brown: part of any such hope will depend on kim's chosen successor: his youngest son kim jong-un who is proclaimed as great successor to his father. the younger kim is believed to be in his late 20s. last year he was made a four star general and vice chairman of a key commission in the ruling workers party.

kim jong-un's first major task: overseeing the state funeral for his father scheduled for december 28. for more, we're joined by jennifer lind, an assistant professor of government at dartmouth college. she has written extensively about korea and asia. and victor cha, a former bush administration official, a senior adviser at the center for strategic and international studies and a professor at georgetown university. i'll start with you. in this extremely opaque country, what do we know about kim jong il and his legacy? in what ways was he important in the end? >> well, he was important in many ways obviously to the lives of north koreans and the lives of people all over the world. he was not important in good ways. he was responsible for, as a young man, working under his father, he was said to be responsible for many terrorist acts, including the bombing of the k.a.l.airliner in 1987.

recently under his watch, he was responsible for the murder of the 48 sailors on the ship. under his watch, north korea experienced a terrible famine in which one, perhaps two million north koreans perished, starved to death. and to this day, as has been mentioned there's tremendous malnutrition in north korea. kim jong il also brought his country out of the nuclear non-proliferation treaty and acquired nuclear weapons. so this is a dismal legacy indeed. >> brown: victor cha, what would you add to that? >> three things. the first is that the cultic personality. all of this about the great leader, the dear leader, the next successor, all of these things were things that were actually created by kim jong il when he was the understudy to his father. there was a competition among the family members about who would succeed him.

he created this personality cult as a way to gain favor with his father. as we see in terms of this today is thanks to him. secondly, i think most importantly we should remember that, i mean, north korea truly did become a nuclear weapons state under kim jong il. in a north korean narrative that's the great security contribution he's made to the country. the third and one i don't think people focus on but is very important for the future of the country is in many ways you could say that the legacy of kim jong il was that he also created markets in north korea in the sense that he allowed the country to go bankrupt. he allowed the ration system to fail and basically let the people fend for themselves. they created markets. >> brown: let me stay with you. we now look at the... at this moment we're in. how big a moment is it? and how much do we know about who holds power? who decides whether where we go next? >> i think right now it seems very calm. but i think this is actually a very, very big moment. only a few days ago, if you had asked any analyst in north

korea what would be the most likely condition under which the north korean regime could fall apart, i think the number one answer would have been sudden death of kim jong il. that's where we are today. again things are quiet now. they probably will remain quiet through until the memorial service at the end of the month. but i think all of us will be looking for signals to see whether they can carry off this transition. it's going to be difficult. >> jennifer lynn, the chosen successor, kim junk un, as we said, is said to be in his late 20s. that's about all we know about it, right? what more can you tell us? >> we know very little about him indeed. i hear some speculation that he's a fan of western basketball. i hear he spent some time in switzerland at school in geneva. some people haveen fired from this that he's somewhat of an internationalist. and the facts seem very tenuous and the inferences

even more tenuous. basically we don't know much about him at all. the one thing that i can say we probably can fairly conclude about him is is that he wants to live. he wants to survive. for that reason, he's likely to continue to maintain the kind of government that his father, who also wanted to stay in power, kept up in north korea. so the same level of repression in order to dissuade military coups or revolutions and also the same level of isolation from the global economy. >> brown: that means, victor cha, that he has to consolidate power with the military and with various back shuns there. >> he does. the number one mission for him, i think, is to try to get the military generals, both older and younger, and try to rule from that particular vantage point. there are real problems here. when kim jong il his father took power in 1994 he had basically been training for this for nearly two decades. the junior kim has maybe 15,

25 months under his belt. >> brown: he was really unheard of before that. >> completely unheard of. and we know very little about his ability to consolidate power. we know nothing about his ideology. every new north korean leader given the nature of the state has to have an ideology. they have not cultivated that for him. it really is a blank slate. and not a good situation. >> brown: when you look at, of course, the big question out there, the outstanding question nuclear proliferation, start with you, victor cha, what are the possibilities here? what are the fears and what are the potential hopes? >> well, i mean, the hopes were before the death of kim jong il that the united states and the members of the six parties were going to get back to a negotiation that would be preceded this week by announcements of a food aid package for north korea and more bilateral talks between the u.s. and the north koreans to get back to the nuclear negotiations. that is all on hold now for the foreseeable future. for the united states, the big problem now is that if we get

news, any bits of information that there's some problems in north korea, we have a whole different nuclear problem on our hands now. that is the potential for loose nuclear weapons. a country that is a nuclear weapons state that tont have a leadership. that is a far more difficult problem than what was already a difficult problem when it came to nuclear weapons in north korea. >> brown: jennifer lind, how do you read the nuclear proliferation issue going forward in. >> i agree that the good outcome is not very good. and the bad outcome is truly terrifying. so the good outcome from the standpoint of nuclear security is that kim jong unsuccessfully consolidates power and maintains control over the arsenal. i think would be quite unlikely to relinquish that arsenal given north korea's security problems that it finds itself in. that's the good news which again from our standpoint, we'd like to see the

denuclearization of north korea so that's really not good news at all in our view. the bad news would be, as i said, terrifying. it would be if kim jong un fails to consolidate power and we see a regime collapse or a civil war in north korea where we're no longer sure who has authority and who actually has the nuclear weapons. and possibly seeing those nuclear weapons disappear into global black markets. that would be, of course, a truly horrifying scenario. >> brown: what of the other main player here, china, the foremost ally of north korea for all these years? do you see... do they have a dominant role in deciding some of these questions we're talking about? >> well, i certainly think they have more of a role than any of the other parties could play quite frankly. they have eyes on the ground in north korea. they have already said they're going to support this leadership transition. so in many ways the ball is in china's court in terms of how they're going to convey information about what's happening inside the regime and the extent to which

they're going to be willing to work with the united states and south korea once we get some sort of news that things may not be going well inside of the regime. china thus far has been quite unwilling to have these sorts of discussions, but i think the current situation really calls for it. >> brown: briefly, you're saying that everyone is looking for hints. >> it's all going toe trying to read tea leaves but the stakes are incredibly high. >> brown: victor cha and jennifer lind, thank you both very much. >> thank you. >> ifill: >> ifill: still to come on the newshour, the showdown over the payroll tax cut; allegations of medicare fraud; and remembering czech president vaclav havel. but first, with the other news of the day, here's hari sreenivasan. >> sreenivasan: a merger that would have created the country's largest cell phone carrier is cancelled. at&t announced late today it is dropping a bid to buy t-mobile u.s.a. for $39 billion. the justice department had sued to block the deal as anti- competitive.

the announcement came after the stock market closed with another round of losses. the dow jones industrial average was down 100 points to close at 11,766. the nasdaq fell 32 points to close at 2523. nearly a thousand people have died in severe flooding in the philippines, and as many as 800 more are missing. the flooding hit late friday night after a tropical storm dumped 12 hours of heavy rain on mindanao, in the south. cities were under a state of emergency and rescue teams were still searching for survivors and victims today. some of the recovered bodies were buried in mass graves, after funeral homes filled up. troops in egypt opened fire on protesters in a fourth day of violence. 14 people have died since the trouble erupted on friday. but a top general defended the use of force today, and he charged there's a plot to topple the state. david kirkpatrick of the "new york times" outlined the struggle in a skype interview from cairo.

. >> the civilians activists are agitating for an end to military rule. and the military council has indicated over time that it would like to carve out forist for it self-a perm nant role and probably protection from civilian scrutiny of its budget as well. so, we're seeing the negotiations over how much power the military is really willing to give up playing out in the streets as kind of a preliminary skirmish to what's going to happen when we have a duly elected parliament. >> sreenivasan: that full interview is available online at our web site. the syrian government has signed a deal to accept arab observers, part of an effort to stop mounting bloodshed. officials from syria and the arab league took part in a ceremony today in cairo, egypt. it lets observers in for one month, with the option of extending that stay. in damascus, the syrian foreign minister insisted the regime is serious and not just stalling for time.

>> we would not have signed the protocol unless our amendments on it had been adopted no matter what the circumstances were. but after applying those amendments and since we are seeking a political solution to this crisis as soon as possible, along with their partnership, i can now say that the signing of the protocol is the beginning of cooperation between us and the arab league. >> sreenivasan: the announcement came on a day when activists said up to 70 soldiers were gunned down by government troops as they tried to desert near the turkish border. at least 30 other people died in attacks elsewhere. it continued a wave of street violence that churned over the weekend. protest leaders said at least 21 people were killed on sunday as troops and rebels fought each other in northwestern syria. hopes have dimmed for 39 workers missing in icy seas after an oil rig disaster off eastern russia. it happened sunday in the sea of okhotsk. a drilling platform was being towed during a fierce storm when a wave caused it to capsize.

14 survivors and ten bodies were plucked from the water. there were unconfirmed reports of life rafts being spotted in the water today. the leading republican presidential hopefuls were back on the road today, with just over two weeks before the iowa caucuses. mitt romney won the endorsement of a top republican from neighboring illinois, senator mark kirk. the "des moines register" endorsed romney on sunday. and newt gingrich, who's been leading in recent polls, campaigned in iowa, where he has been criticizing the power of federal judges. the president of florida a&m university will keep his job while the school probes the hazing death of a marching band member. the university's board today rejected a call by the state's governor to suspend president james ammons. there has been criticism that he did not do enough to prevent hazing. the victim, 26-year-old robert champion, died last month after a severe beating. the state medical examiner has ruled it a homicide. those are some of the day's major stories. now, back to gwen. >> ifill: house republicans

dealt the senate and the white house a surprise setback today as leaders vowed to reject that tax cut compromise passed over the weekend. >> on this vote the ayes rl 89, the nays are ten. >> ifill: for a few hours on saturday it appeared a two month extension of the payroll tax cut was a done deal. but hours after the senate voted house republicans phoned in to a conference call and rebeled. the short-term compromise, they said, lacked serious spending cuts. by the next morning, house speaker john boehner was rejecting the bipartisan senate bill outright. demanding that congress enact a full one-year extension of the year-old tax cut. >> two months is just kicking the can down the road. the american people are tired of that. frankly i'm tired of it. >> ifill: back on capitol hill this morning, boehner drove that point home saying both sides need to return to the bargaining table and stay as long as needed. >> the president asked for a full-year extension. we agree with the president. democrat leaders have said the

same thing over the last two weeks, that we should do this for the full year. why do we always have to go to the lowest common denominator? it's time for us to do our work. we're prepared to do our work. >> ifill: the senate adjourned for the year after saturday's vote. and senate majority leader harry reid said they've done their part. in a statement, he said, "i will not reopen negotiations until the house follows through and passes this agreement that was negotiated by republican leaders and supported by 90% of the senate." the white house remained in lock step with the senate democrats. >> we expect the congress to pass it, the house to pass it. you know, the alternative is americans waking up on the first of january and trying to figure out, okay, how am i going to budget... how am i going to make ends meet with $1,000 less this year? because the house republicans refuse to vote for something

that 83% of senate republicans supported. >> ifill: if the house and the senate cannot reach agreement the payroll tax will come back full force for 160 million americans on new year's day and jobless benefits also extended in the senate bill will begin to run out for the long term unemployed. we asked both sides today whether this latest stalemate can be resolve. i spoke with gene sperling director of the national economic council a short time before the house was scheduled to vote on the matter. gene sperling, thank you for joining us. did this rejection by the house catch you totally off guard? >> i think the whole country was surprised to hear this. i mean, gwen, you had 89 senators, nearly 90% of the united states senate decide that they were going to meet the president's basic principle that with a two-month extension to ensure that congress did not go home while letting taxes go up to 160

million americans or letting 2.5 million americans who are still looking for work get cut off unemployment benefits in the first two months. this was a compromise that would give the congress the time to work with the president to do a full-year extension and hopefully more to help get jobs going. sure, when 90% of the united states senate agree on something and my view is that about the only things these days 90% of the united states senate agree on are probably mom, apple pie and chocolate ice cream. if they supported with this compromise with the speaker of the house knowing it, everybody expected this to pass. it's a very sad moment if a small contingency of republicans in the house of representatives are now willing and able to hold back this national consensus and do something that could lead taxes go up 160 million americans as we go into the new year. >> ifill: the house has to agree as well. as you know, john boehner says this is just insufficient,

kicking the can down the road. why isn't it? >> that's not what he said. i think the house... the speaker of the house knew very well the negotiations that were going on. it had 89 votes. he said it was a good deal. we all understand what happened. this was an agreement. this was a compromise for everybody to extend tax cuts for 160 million americans and unemployment benefits for those looking for work. it was an agreement, and again even perhaps despite the speaker of the house's endorsement, a small contingency of republicans is able to hold this up. i'm still hopeful, gwen, because i'm an optimist, that tonight sanity will prevail and enough republicans will join democrats in at least extending tax cuts for 160 million americans because i can't understand why anyone would want to break this compromise and put ourselves in a situation where taxes are going up when our economy still has a long way to go. >> ifill: speaker of the house

says, by the way, that he did not endorse this at all. i wonder whether there was ever any direct conversations with the house speaker and the white house or the senate democrats. >> you know, gwen, i think it's pretty obvious that this time of conversation, negotiation, was known by everybody. everybody knew this was an agreement going on. you know, i think it's fairly obvious what happened. there was a strong bipartisan agreement which a segment of the house republicans have blocked or threatened to block now. and again i just have to hope that the overwhelming support of the american public for ensuring that taxes are not going up an average of $1,000 next year for a typical family, 160 million working americans will prevail and that common sense will prevail tonight. >> ifill: if that's so critical, why not bring the senate democrats back to come up with a compromise? >> i think what the president said is let's go ahead and do

this two-month extension. it's not every day that you get 90% of democrats and republicans to agree on something in this town. we gave a cooling-off period. we gave some space. let's pass the two-month extension. this president is more committed than anyone to working any hour, any time to get the full year extension but let's not look a compromise, you know, in the mouth. let's not reject this. again, this is 90% of the united states senate. democrats and republicans, the overwhelming number of americans at home would like to see congress at least extend tax cuts for 160 million americans and extend unemployment insurance. that would give us the time to work out a year-long extension which is at the least this economy needs to get a little more juice for jobs and to start bringing unemployment down. >> ifill: the republicans say you have the time. you have two more weeks to do this. theoretically if what you really want is the house to sign on, you folks have been

counting noses getting those to, 26 votes you need to get the house republicans to approve the senate deal. >> gwen, the president of the united states proposed this over 100 days ago in the beginning of september. the president of the united states has been out across the country calling for extending the payroll tax cut, extending unemployment insurance, putting workers back to work, fixing jobs, fixing schools and roads and bridges so the president was out there early and often. we would have loved to have gotten even a bigger deal earlier, but the republican leader, mich mcconnell and virtually the entire republican party in the senate loy wng the harry reid the senate majority leader came to agree that this was the best they could do right now and this would give us the time that would most assure us the ability to extend the payroll tax cut for 160 million americans. nobody is more for extending this for a year than the president. no one has fought harder. no one was out there earlier. >> ifill: mr. sperling take it

or leave it at this point? >> take it or leave it? i think what i would say is that let's hope that common sense prevails in the house of representatives today. that enough republicans, just 20, 30, 40 would join with their republican colleagues in the senate and house democrats and pass this. let's have a positive surprise for once. >> ifill: white house economic advisor gene sperling, thank you very much. >> thank you, gwen. >> ifill: shortly after that interview we sought the view from the house republican caucus. i spoke with representative jason chaffetz of utah. welcome. let's go back to the saturday conference call where members of the house republican caucus said, no way to this deal that had just been voted on that morning in the senate. what happened? what were the objections? >> well, the speaker threw out what the senate had done. for literally an hour-and-a-half there was a chorus of member after member from coast to coast expressing frustration that we as the house republicans and democrats, too, had joined us

in doing the responsible thing and passing a year-long extension. but that package also had a number of other things in it. so for the senate to just line up in punt formation and say, we'll just do this in 60 days we feel like it's a punt of their responsibilities. it's the irresponsible thing to do. it exacerbates the problem. >> ifill: the white house spokesman had been saying today that this is something that the republicans saw coming, that the speaker gave a tacit nod to. and therefore they say there's a little bit of theater going on here. what is really going on? >> no, i think the speaker did the responsible thing. he threw it out to the membership of the house. it's not controlled by just the speaker. there are members who get to vote on these things. and the way our government is set up, you know, the senate has been known to make a few mistakes along the way. i happen to think they made a mistake. we disagree. we think uncertainty is slowing down job creation and job growth in this country. by punting this for just another 60 days creates uncertainty for workers and

for businesses. it is not going to help our jobs to the economy to the extent that it could if we would pass something for a year. >> ifill: what you're objecting to is the contents of this bill or the length of time that would be implemented? >> all of the above. part of the problem and the challenge here is we got rid of things like the doc-fix which is very important to the medical community. we got rid of accelerated depreciation or 100% expensing for businesses. those things came out of the bill. epa regulations came out of the bill. so the content is problematic. the fact we're going to have to revis it this again in february, nobody wants to do that. i happen to actually agree with the president's first position on this. he said at the beginning that it was inexcusable to pass anything short of a year. i agree with it. now he's changing his mind. i just think we have more responsibility and should be doing more in the house, in the senate, doing our jobs and passing something for a year. that's what the marketplace needs. >> ifill: i recall when the president said he wanted it for a year, republicans said

they didn't want it at all. now that he says he wants it for two months republicans are saying they want it for the year. >> we came up with a compromise. we passed out before the senate, we passed out a bill in a bipartisan way with overwhelming numbers and sent to it the senate. we too have done the responsible thing. but we did it for a year, as per the president's request. >> ifill: republican senators, brown, heller, lugar and collins came out and said this is irresponsible. there are people who are going to see their taxes go up on new year's day as a result of inaction by the house in particular. what do you say to them? >> well, the house is trying to do the responsible thing. a, get it passed before the end of the year and b, pass it for a year. if you were to talk to most employers and most people they would agree that a year would be better than two months. i think the president would actually agree with that. we're taking a very responsible position here. the senate wants to go have bingo night and go on vacation. we're saying, no, let's stay and get this done and get it done for a year. >> ifill: it sounds like your

argument is more with senate republicans since this was a pretty overwhelming vote on the senate side not senate democrats and not the white house. >> all of the above. i think the senate as a whole got this wrong. it happens from time to time. that's the way our constitution was set up so that you had this back and forth. this is the healthy part of the process. but now that we're here, we're back in washington d.c. going to be voting tonight. it's get it right and pace it out for a year but get some of this other stuff back in here that will help jobs and the economy. that's what it's all about. >> ifill: any chance that there will be 25 or 26 house republicans who won't agree with you and therefore it will go over tonight. >> perhaps. but i for one, i'm about as conservative as they come. i would be... i disagree with what the senate did. i think they actually got this wrong. i guess there's always a chance. that's why they play the games on sunday. we'll see. >> ifill: the people in the senate, a lot of the senate democrats, the white house, they are all saying that this is take it or leave it.

if taxes go up on january 1, it's essentially your fault. what do you say to them? >> that's kind of comical. it just sounds like political gamesmanship. take it or leave it. all these grandiose statements. the house has passed something. the senate has passed something. they should go to the conference committee, try to come up with a reasonable compromise between the two and then allow us to vote on that. that's a 200-plus year history of the united states of america. we're not trying to ask for something new. let's find something between the two and i think we can get there. >> ifill: the flip side of the argument and i'll rephrase it another way. jay carney at the white house saying what you are in effect are doing is you're playing politics with the paychecks of 160 million people. >> no, i'm trying to do it for a year where the senate and the president are now arguing that 60 days is better. i would disagree with that. there are also some very important things in here like deal ing with the doc-fix and dealing with how businesses do expensing. these types of things that will actually help jobs and the economy. if you have a senior at home who is worried about getting somebody on medicare to find a doctor and that doctor doesn't

know what the reimbursement rate is going to be, that's a problem. we're trying to solve it right now because that's going to hurt our economy moving forward. >> ifill: if this is an intraparty disagreement are there conversations going on between senators and members of the house about how to come up with a conclusion that everybody can agree on? absolutely. that's why we're back in town. i was not expecting to be here in washington d.c., but the house republicans and the house democrats, we're back at work. and the senate should come back to work as well. >> ifill: jason shafts, congressman from uwe saw, thank you very much. >> thank you, gwen. >> >> brown: america spends more than $500 billion every year on medicare for elderly patients. now, as the cost of health care rises, many are examining exactly how that money is spent. our partners at the center for investigative reporting have conducted a year-long probe into one prominent hospital chain's medicare costs.

in an online report released sunday, the center's california watch project examined whether the chain is attracting the toughest medical cases, or is exaggerating conditions in order to increase revenues. our version of that story is reported by lance williams of california watch. >> reporter:. >> turns them around. so when prime purchased a hospital in san diego last year, this woman knew there would be changes especially after a meeting with the new owner. >> it was very much there's a new sheriff in town. >> reporter: her job is a medical coder was to prepare summaries of patient illnesses for medicare reimbursement. she said that ready told doctors how to diagnose patients he had never seen. >> there were several diagnose he was suggesting, highly

recommending. they were told they were look for those opportunities whenever possible. >> reporter: it turns out many diseases share similar symptoms, but more severe diseases are reimbursed by the medicare at higher rates. >> he encouraged the fists to stop documenting fainting or dizzy spells and instead the term autonomic nerve dysfunction which reimburseed at a higher rate. >> reporter: medicare pays about $7,000 to treat a patient who has fainted, even if there are other medical complications. but a patient with a nerve disorder and a major complication can net the hospital $12,500. >> he made the comment that autonomic nerve dysfunction is such a vague description that no one could ever question the use of that code in the medical records. >> reporter: she says what ran through her mind was.... >> this is crazy. how can i get out of here. >> reporter: her co-worker was at the same meeting. >> with dr. ready, it really

just felt like he was coaching the doctors to say what he wanted them to say. you're not allowed to do that. >> reporter: prime insists their billings are accurate and legal but refused an on- camera interview. california watch uncovered a pattern of suspicious diagnose. state medicare data for 2010 shows that out of 468 cases of autonomic nerve disorder, 360 were reported by prime hospitals. 90 times more often than the average california hospital. >> very surprising. it rather does sug sqeft that they're applying a very liberal definition or very liberal criteria to what they consider an autonomic nervous system disorder. >> reporter: this doctor is a leading nerve disorder specialist at the university of california san diego. >> i've only seen two cases in the last 13 years where it would be appropriate to label a problem of a patient as an ought nom ib nervous system disorder.

extremely rare. >> reporter: and it wasn't just a single disease. california watch found that prime hospitals reported unusually high rates of a long list of extremely serious medical conditions, from malignant hyper tension to severe malnutrition. we found one of the strangest examples in rural shaft a county where prime has reported a seeming outbreak of a rare disease. typically seen in children during famines. our investigation led us to this county resident. >> i've never heard that word before. i never heard a doctor, nurse or any other medical personnel tell me that i had that disease. >> reporter: when darlene went to the emergency room at the county regional medical center in early 2010 she was seeking treatment for complications from diabetes. >> my kidneys weren't functioning well. i was retaining fluids. it was causing fluid to build up around my heart and making

it hard for me to breathe. >> reporter: with her permission we obtained her hospital records and through the freedom of information act her medicare bill where we found this number, 260, the code for the disease. >> i have no idea how that could have happened. it's obvious just looking at me that i don't qualify for that. >> reporter: but someone said personnel were under intense pressure to document certain ailments. she worked as a coder at prime's desert valley hospital and says just one word on a patient's medical record can make an enormous different. >> the word protein, malnutrition. so that is the word that they wanted the doctor to basically put in there. >> reporter: moderate malnutrition is a sign that code 263. but use the term protein malnutrition and the industry standard billing software points to the code 260. do doctors realize that this is happening?

probably not, says smith. >> it is never brought to their attention. the word protein, malnutrition is brought to their attention. so they just write down that terminology. >> reporter: state records show that reports of this disease at the county hospital began soaring after prime bought the hospital in 2008. we're talking about millions of dollars. this man owns a medical coding company. he canceled his contract with prime over professional differences. >> there are 14 hospitals in prime health care. if this level of inappropriate documentation is going on, that could be as much as $100 million if it were true. >> reporter: still it's hard to determine how this man got caught in this trend. she says she's overweight. one e.r.doctor called her well nourished. >> i couldn't believe it. it just doesn't seem possible that they could use some kind of a code for a disease that i don't even have.

obviously i don't have it. >> it's a huge problem. there is a substantial amount of waste in the medicare program, and a lot of it comes from fraud. >> reporter: former federal prosecutor jamie bennett investigated a case against a baltimore hospital,. she says a change in medicare reimbursement rules is being exploited by some hospitals. >> what we quickly found is that they responded to it by significantly increasing the use of diagnoses that by coincidence would really increase the reimbursement to the hospital. and not in a way that was legitimate. >> reporter: with recent cases of alleged medicare fraud in tennessee, maryland and texas, bennett estimates nearly 20% of medicare costs are due to fraud. >> we're talking about billions and billions of dollars of fraud that isn't uncovered. >> reporter: back in california two insurers,

kaiser and heritage, have filed lawsuits accusing prime of exaggerating patient conditions and fraudulent billing practices. prime has denied the allegations. in a detailed written statement, prime spokesman wrote, "codes are not the actual definitions of the diseases, and they are not error proof. here at the prime medicare guidelines although they're imprecise." a medicare spokeswoman declined to comment. but this woman said it was time to quit the company earlier this year. >> i was thinking about whether or not some governmental agency would be walking through the door and handcuffing us all and subpoenaing records and carrying them out in boxes. >> reporter: three california congressmen have asked medicare to investigate suspected fraud in prime's billing. and the f.b.i. has recently begun interviewing former prime employees. >> a few

weeks ago, prime healthcare services added a 15th hospital to its network, purchasing an interest in harlingen medical center in texas. it also plans to acquire hospitals in new jersey and hawaii. for more on this story, find a link to the center for investigative reporting's web site on our site. >> brown: finally tonight, the extraordinary life of vaclav havel: writer, dissident and president. judy woodruff has our remembrance. >> woodruff: thousands of czechs braved the freezing cold in prague today to pay their respects to former president vaclav havel who died sunday at age 75. a renown playwright who fought soviet rule of the former czechoslovakia for more than 20 years, havel went from dissident to leader almost overnight. after the so-called velvet revolution of december 1989

when czechs and slovaks took to the streets to demand an end to communist rule. the communist government fell. on december 29, 1989, vaclav havel was elected president. four years later, his country split in two, forming the czech republic and slovakia. havel served as president of the independent czech republic for ten more years, retiring in 2003. after news of havel's death spread, thousands gathered at the monument of the velvet revolution in downtown prague to lay flowers and light candles. vaclav havel spoke with jim lehrer on the macneil/lehrer newshour in february 1990 shortly after he was elected president. >> you believe that there is something basic in all human beings that relates to freedom? they know what freedom is or even know they never lived through it, even though they may not have even read about

it? >> i have no doubt about it. i think that this is a part of the nature of man, the desire for freedom, for dignified lives. of course, man is also a weak creature with many bad qualities. it depends on which of his qualities in a certain social situation and in a certain climate prevail, which qualities will awaken. the totalitarian system was masterful in how it managed to mobilize all the bad qualities. >> lehrer: what has been the damage of that mobilization of the bad qualities of your people for 40 years?

>> the damages are enormous. spiritual, material, environmental, cultural, political. >> lehrer: what about on the psyche of the people? >> this is naturally the most important thing. the dark traces left by the era of totalitarianism in the human mind where it is difficult to do away with. this is a very demanding job. >> lehrer: is there something that has happened to you and your country for the last few months? >> this is a great drama with features of all genres from greek tragedy to absurdist drama, but it is a place so

thrilling and so peculiar that no earthling could have invented it and written it. >> woodruff: and joining me now to discuss the life of vaclav havel is former secretary of state madeleine albright. she is a native of czechoslovakia. you were just saying to me, you were with president havel when he came here to the newshour in 1990. you remember something about that visit. >> well, i'm very glad to see that again. i'm glad to be with you. what happened was that i knew that he didn't want to look into people's eyes. because he said that when he was being interrogated during the communist period and had been taken to jail, that if you looked directly into somebody's eyes they can persuade you. you can see that so clearly in this interview where he's looking down. i kept saying to him as we kept... came over here, you have to look at jim. you have to look up. i clearly had no influence.

>> woodruff: what was he like? i mean, he clearly was anything but the typical politician. >> the most amazing man in terms of the combination of somebody with massive moral authority, great courage for having espoused the concept of democracy, freedom throughout a very difficult communist period. a very modest man. and somebody with a fabulous sense of humor. and the idea of being able to see the absurd in situations. he was a combination of many different aspects. tremendously interesting to be with. >> woodruff: you were saying to me that the time he spent... he made the decision to stay in czechoslovakia. he could have left. on a number of occasions during communist rule. why did he stay? >> because we talked about this a lot. he stayed because he felt he had an obligation to the czechoslovakian people to be there and to talk with them,

teach with them, write about it. he kidded about the fact, "just imagine, i could have just been a screen writer in hollywood." he did have the opportunity to leave. he made a deliberate choice not to. >> woodruff: did they put him in jail and prison several times. that made it hard for him? >> very hard. they followed him and they harassed him. when he wasn't in jail they harassed him. there was a time that he just wanted to travel from prague to the capital of slovakia as a citizen. they kept following him and trying to figure out what he was doing. partially because he was like a magnet for people who disagreed with the system. so the system was afraid of him. they either harassed him for hut nim the jail. >> woodruff: is that why they didn't put him away permanently, why they didn't do more harm to him? >> i think they knew that he did have a following. also that people in the west knew about him. and the very interesting thing,

judy, he would say to me while he was president and later that it was very important for those of us in the west who believe in democracy to shine the light on the dissidents because if people know who they are, then they are less likely to be put away. as you put it. i think that from his own experience, he knew if we all paid attention to what was going on, the chances were that even the most horrible dictators would not execute people. >> woodruff: how did he take the politics? >> i think he actually liked them. i mean, he didn't think he would. >> woodruff: he was president for 14 years. >> right. i think initially, you know, he was kind of... those pictures were fabulous. he was swept on a wave into the castle. in czech they said havel to the castle. he was a really popular leader. he couldn't believe that he was really there. i mean, he still dressed in black t-shirts and jeans. he was very kind of '60s.

he began to realize the seriousness of it. he knew how to strategize. he had a very keen political sense. but he did not want to be like the old communist leaders. he didn't want to ride around in big black cars. he had his own car with a little red heart on it. he loved to go out and talk to the people. >> woodruff: you were saying that he signed all his letters with a little heart. >> still does. he signed it with a red pen for the heart and a green pen for his signature. he had this great sense of humor. he kind of felt he was making a little bit of fun of everything at the same time. >> woodruff: you were saying he loved music and being with musicians. you saw him just a couple of months ago. >> i was in prague in october for his 75th birthday. i'm so glad i was there. he loved this group called plastic people of the universe who were czech-style hippies. they all showed up in october. they were... they had long gray hair but they still played great rock'n'roll.

he loved jazz. when he came to the united states we would go to jazz clubs. then the plastic people of the universe showed up here. so he did love music. so much about the czech revolution was about music. >> woodruff: what do you think his legacy will be? >> i think his legacy will be that here was a person who felt so deeply about freedom and democracy and respect for human beings, i think he's one of the great figures of the 20th century. he is one of the people that was able to be a part of overthrowing a dicta tar... dictatorial system by talking to people and understanding what the elements of democracy really are and respect for each other and elevating. he had moral stature. the president in first czechoslovakia and then the czech republic in many ways is a ceremonial role. so speaking out and having that strong moral fiber, people just knew that he told the truth.

to people who had only heard lies. so i think that's his legacy. >> woodruff: finally, madeleine albright, what more do you think he would have liked to have done? >> i think he probably would have liked to have written more plays. he missed being a playwright. he did write a play a couple of years ago "leaving," what it was like to leave high office. many of us could identify with it. i think he talked about wanting to write plays and keep appeal to go people through that medium. rather than politics. i think he felt that he could speak more truth in a way through writing plays. >> woodruff: former secretary of state madeleine albright, a friend to vaclav havel, thank you very much. >> thank you, judy. >> ifill: again, the major developments of the day. the world reacted with caution after north korea announced the

death of its leader, kim jong- il, and state media pronounced his son the nation's "great successor." at&t dropped its bid to buy mobile usa for $39 billion. the merger would have created the country's largest cell phone carrier. and house republicans vowed to turn back a senate compromise designed to extend the payroll tax cut for two months. online, there's much more about vaclav havel. hari sreenivasan explains. hari? >> sreenivasan: on our world page, our foreign editor, mike mosettig, reflects on visits the czech president made to the newshour studio. for more on north korea after kim jong-il, read a q&a with korea expert katy oh. ray suarez previews his reporting trip to morocco, where there's a different twist to the arab spring. and on art beat, two filmmakers discuss their documentary about a brutal african warlord who found redemption by becoming a christian evangelist. all that and more is on our web site, newshour.pbs.org. jeff? >> brown: and that's the newshour for tonight. on tuesday, we'll look at what's left behind in iraq, as u.s. troops pull out.

i'm jeffrey brown. >> ifill: and i'm gwen ifill. we'll see you online, and again here tomorrow evening. thank you, and good night. major funding for the pbs newshour has been provided by: >> intel. sponsors of tomorrow. >> and by the bill and melinda gates foundation. dedicated to the idea that all people deserve the chance to live a healthy, productive life. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. captioning sponsored by macneil/lehrer productions

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