1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

The Association of American Physicians and Surgeons, representing thousands of physicians in all practices and specialties, was established in 1943 to preserve the practice of private medicine. AAPS is dedicated to the Oath of Hippocrates and to protecting the sanctity of the patient-physician relationship.


The right of senior citizens to use their own resources to obtain the medical treatment of their choice is one of the self-evident, unalienable rights recognized in the United States Declaration of Independence. If a citizen may not exercise the liberty to use his own property to protect his own life, then the government has violated his basic human rights.

Title XVIII (Medicare) of the Social Security Act was passed as an entitlement to help senior citizens pay their medical bills, not as a barrier to private medical care.

In order to administer the Medicare program and to protect the public Treasury against the burgeoning costs of this entitlement, Congress has passed certain laws, and the Health Care Financing Administration (HCFA) has implemented certain regulations. It is proper that these laws and regulations are triggered by the filing of a claim on the public Treasury. It should be self-evident that Medicare regulations do not apply to private medical care, that is, medical care that is not paid for by the federal government.

The stated purpose of S. 1194 could probably be achieved in a single line-- that the regulatory authority of the HCFA is restricted to medical services for which a HCFA form 1500 is filed and Medicare reimbursement is claimed. We believe that its authority is already restricted by the U.S. Constitution, but such a statute would clarify the ambiguity resulting from Medicare carriers' publications and certain recent statutes.

We are opposed to S. 1194 in its current form because of a provision that would require patients and physicians to inform the federal government of all private medical transactions involving a person who, by reason of age or disability, has become eligible for Medicare Part A or Part B. The effect of S. 1194 would be the opposite of its stated purpose. Moreover, this provision is, in our view, unconstitutional.

Although the reporting provision has been referred to as the "Anti-Fraud Provision," it actually turns the entire law into the "Medicare Beneficiary's Restricted Freedom to Contract" Act. It is apparently introduced to appease those who believe that physicians are greedy and Medicare beneficiaries feeble and gullible.

An analogous law would be a Citizen's Right to Freedom of Speech Law providing that publishers may print and citizens may purchase written materials as long as they inform the government of each transaction, filing a form equivalent to the HCFA 1500 (which has name, address, Social Security number, diagnosis, and procedure codes) with officials believed to favor the Alien and Sedition Act passed during the administration of President John Adams. The reporting provision might be just as reasonably called an "Anti-Fraud Provision," based on the assumption that publishers are greedy and readers stupid and gullible.


Social Security Act of 1965

In addition to the U.S. Constitution, the foundation for the right to private contract is found in the statute that established Medicare:

1801. Nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which Medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.

1802. Any individual entitled to insurance benefits under this title may obtain health services from any institution, agency, or person qualified to participate under this title if such institution, agency, or person undertakes to provide him such services.

1803. Nothing contained in this title shall be construed to preclude any State from providing, or any individual from purchasing or otherwise securing, protection against the cost of any health services.

These provisions were a promise to the American people. Without them, Medicare could never have been enacted. If they are effectively abrogated, then how can the American people place any faith in any promise made to them by the federal government?

Stewart v. Sullivan

In 1992, The Association of American Physicians and Surgeons initiated a lawsuit to establish the right to private contract. The case, Stewart v. Sullivan (816 F.Supp. 281 D.N.J. 1992), brought by five Medicare beneficiaries and their private physician, Dr. Lois Copeland, former president of AAPS, was vigorously contested by the Department of Health and Human Services.

Yet it was apparent that HHS did not want a Court to decide the constitutionality of a de facto ban on private contracting -- U.S.. attorneys made the remarkable statement in open court that they did not know the source of the statements by Medicare carriers that were chilling the exercise of this right. The Judge ruled that plaintiffs had not proved the existence of the alleged HHS policy and that the case was therefore not ripe.

Since the decision in this case, HHS has never, to our knowledge, made an unambiguous statement that senior citizens enrolled in Part B are forbidden to spend their own money to obtain a medical service that might be covered under Medicare, without filing a claim.

Numerous letters have queried the Department about this issue. Replies have been carefully worded, to the effect that the official "can't say that private contracting is legal." Generally, letters refer to a statutory obligation for physicians to file claims. Very often, physicians fear to serve Medicare beneficiaries as private patients because of such statements, even in the absence of a clear statement that private contracts are actually illegal.


Private contracting improves access to medical care.

If senior citizens are forbidden to purchase medical services privately, then they are forced to depend solely on the federal government for needed medical care. If certain treatments are unavailable because of federal rationing (a consequence of price controls even if rationing is not explicit), then the citizen may lose his life or suffer avoidable pain and disability. Although it is claimed that most physicians are still serving Medicare beneficiaries, this is cold comfort to senior citizens if their doctor has retired early, closed his practice to Medicare recipients, has a three-month wait for an appointment, or can only afford to spend five minutes with them.

It is very difficult to measure such covert rationing. However, repeated AAPS surveys have shown that the majority of respondents restrict their Medicare practice in some way. Results of these surveys detail for the first time the impact of Medicare enforcement and regulations on patients' access to care. Some findings:

  • Almost one-half (46%) report restricting services to Medicare patients;
  • About 12% accept no new Medicare patients;
  • 18% accept new Medicare patients only under special circumstances;
  • Medicare pays only 50% of the doctors' actual fees;
  • More than 56% report they lose money on Medicare patients because allowed fees do not cover overhead;
  • More than one-third (37%) have had trouble finding referral physicians for their Medicare patients;
  • More than 70% say they are considering early retirement.

Perhaps the most disturbing finding is that almost three-fourths (74%) of physicians who restrict services to Medicare patients do so because of "hassles and/or threats from Medicare" or fear of fines and prosecution by federal or state law enforcement agencies.

Physicians have traditionally been willing to care for patients who are unable to pay or are unable to pay the full fee. However, they do resent demands to work at their own expense for patients who are more affluent than they are. Moreover, if they are forbidden to collect a market price from those willing and able to pay it, they are less able to be generous with the poor.

Increasing numbers of physicians prefer to receive no payment at all rather than deal with the HCFA. And a majority of them (66%) would provide pro-bono care to Medicare patients if they could receive a tax deduction worth an average of 75% of the Medicare fee -- in preference to filing a claim with the HCFA for the full amount allowed, at least for bills less than a few hundred dollars. In other words, the majority consider even the IRS to be less onerous than the HCFA.

Even patients who do NOT choose to exercise their private option receive the benefits of having it available. Those who do opt for private care relieve the burden on the federal Treasury; in fact, the tax revenues that fund Part B would increase. This will become increasingly important as the date of Medicare bankruptcy looms nearer. All senior citizens need the security of knowing that a private alternative is available if a financially constrained agency denies payment for a service they believe is worth paying for.

Private contracting protects patient privacy.

Some patients wish to contract privately simply because they do not want federal bureaucrats to have access to their medical records. Additionally, they may fear that the information may leak from the bureaucracy to other areas. Some have a realistic fear that knowledge of their condition may affect their employability or reputation. But all Americans have the right to consult a physician in confidence.


The bill as written requires that physicians who engage in private contracting provide HCFA with "the minimum information necessary to avoid any payment under part A or B for services covered under the contract." It has been suggested that this take the form of a "dummy claim" identical to the HCFA form 1500.

The requirement to file a HCFA form 1500 is likely to diminish the availability of services to senior citizens. In effect, a true private contract will no longer be available. The entire expensive and onerous burden of claims filing will be imposed although no benefit whatsoever is forthcoming. And of course the benefit of patient confidentiality will no longer exist.

The imposition of the reporting requirement discriminates against patients simply because of Medicare eligibility (age or disability) and American citizenship. (Aliens may see an American physician without the intrusion and oversight of the federal government.) Less obviously, it may discriminate against patients who have a medical need (as opposed to those who are receiving a noncovered service such as cosmetic surgery) or who have chosen not to enroll in a Medicare HMO (services outside the HMO are not covered).

The reporting requirement violates the rights of physicians by treating them as suspected criminals. The lawful act of providing a medical service to a patient without burdening the taxpayer subjects him to suspicion of trying to defraud Medicare. He must report an activity to which HCFA has repeatedly demonstrated its hostility, in effect inviting an audit, which is inevitably costly and vexatious.

The reporting requirement burdens both patients and physicians by imposing on them an additional cost.

Government requirements are generally defended by referring to a "balance" between public needs and private burdens. In this instance, the rationale is to deter fraudulent double billing. However, this rationale has no merit. The fraud against the taxpayers would lie in the filing of the claim for Medicare reimbursement, not in collecting the private payment. Yet the private payment is the one that invites the governmental scrutiny. And other mechanisms are more than adequate for detecting fraud. If the patient receives an Explanation of Medicare Benefits form, he knows that a Medicare claim was filed. Patients who are intelligent and attentive -- we believe the majority of Medicare beneficiaries -- would react with outrage. The prospect of having even one such patient in his private practice should deter the most unscrupulous physician from "double-dipping."

The perils of this reporting requirement extend far beyond the Medicare program. It would establish a dangerous precedent for forcing citizens to report on a wide variety of lawful activities. If the government has the right or the need to know about a senior citizen consulting a doctor for arthritis, is there any personal action that should be immune from surveillance?

Indeed, one personal activity that should logically be next is the purchase of food and sundries by persons eligible for food stamps. The analogous provision would force grocery store owners to file a form with the federal government reporting all cash purchases by persons eligible to receive food stamps, whether they use them or not.

5. REMEDIES FOR FRAUD The Medicare system promotes fraud in many ways: by encouraging "assignment of benefits" (paying the provider instead of the beneficiary); by encouraging electronic claims submission; by not requiring copayments for certain services (e.g., laboratory and home health services, which are not coincidentally the most commonly involved in large-scale fraud); and by not requiring an "Explanation of Medicare Benefits" (EOMB) form for all services.

Studies should be undertaken to identify the most common areas of fraud, specifically addressing the area of assigned vs. unassigned claims. Private companies have found that when fraud is suspected, a simple notice that the provider will no longer be paid on an assignment basis leads to an immediate end to suspect claims, saving millions of dollars. If providers fear that patients may pocket the insurance reimbursement without meeting their financial responsibilities, a dual-payee check could be used.

In summary, a serious effort to combat fraud, which would not violate the civil rights of patients or physicians, would involve the following:

  1. Outlawing the assignment of benefits.
  2. Requiring copayments on all types of services.
  3. Requiring the carriers to send an EOMB for every claim.
  4. Revising the EOMB so that a person of normal intelligence could understand it easily.
  5. Reducing the huge volume of claims filed for trivial sums of money (thus reducing administrative costs as well as making it easier to detect fraud). Congress could repeal the requirement to file claims before the deductible is met and encourage the use of Medical Savings Accounts.

Suggested Alternative to the Reporting Provision

Instead of reporting all private contracts or filing "dummy claims," we suggest that the EOMB would be a much more effective mechanism for deterring and detecting fraud without violating patient privacy or increasing administrative costs to both physicians and the government.

The EOMB should include a plain-English explanation of services provided, and by whom, instead of just incomprehensible codes. Patients would be advised that if they have paid privately for any services which have been reimbursed by Medicare, that they should report it as potential fraud. The form could also include an 800 number for patients to call if they had a question or suspected fraud.

Simply, if a doctor tries to "double-dip" Medicare, the patient will have clear proof to provide to Medicare. An army of millions of seniors will be able to monitor potential fraud.


It is the basic right of senior citizens to receive and physicians to offer medical services without filing a Medicare claim whenever no Medicare reimbursement is to be claimed. Congress should repeal all laws that restrict that right, and HCFA should be restrained from actions that impede or deter the exercise of that right.

The right should not be further impaired by the unconstitutional burden of filing a "dummy claim" under the specious rationalization that this will deter fraud.

S. 1194 should be amended so that it accomplishes rather than destroys its stated purpose, and it should be passed in amended form.

Congress should seriously address the problem of fraud, which can be solved only by removing the incentives, not by impairing the civil rights of patients and physicians or subjecting them to increasingly intrusive government surveillance of their private lives.

The Association of American Physicians and Surgeons is ready to work with Congress to achieve these goals.

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