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

Volume 49, No. 4 April 1993


In remarking on the appointment of his wife to head the Health Care Task Force, President Clinton said that one of her many talents was her ability to ``bring people together around complex and difficult issues to hammer out consensus.'' The consensus was to be that of some people-the few who will be allowed access to the inner circle.

Believing that the perspective of private physicians ought to be included, AAPS requested to participate in the process (as did several AAPS members). AAPS was informed that the Task Force would be holding some public meetings, not yet scheduled, at which citizens and organizations would have an opportunity to present their views. Other meetings will be held behind closed doors. The names of persons advising the Task Force will also be kept secret to protect them from lobbyists.

Among the excluded groups is the AMA-even though the percentage of American physicians belonging to the AMA is approximately the same as the percentage of the population that voted for Clinton (slightly more than 40%).

The rebuff is especially painful because the AMA was willing to trade practically every principle for a ``seat at the table.'' In a letter to Ira Magaziner, the AMA expressed acceptance of ``spending limits'' on health care and a National Health Board to review prices and practices in medicine. They did ask for assurance that some patients would still be able to choose their doctors and for some antitrust relief so that the AMA could negotiate fees (NY Times 3/4/93).

According to AAPS Legal Counsel Kent Masterson Brown, the secret proceedings of the Task Force are simply illegal. Federal advisory committees must meet a number of requirements, as set forth in the Federal Advisory Committee Act (FACA) passed in 1972 and the Government in Sunshine Act. Among other things, ``each advisory committee meeting shall be open to the public'' and ``no advisory committee shall meet or take any action until an advisory committee charter has been filed.'' The charter must delineate the scope of the committee's activity, the estimated annual operating costs, the frequency of meetings, and the expected termination date.

The requirements do not apply if the committee is composed wholly of federal employees or if compliance would jeopardize national security.

Rep. William Clinger of Pennsylvania, ranking Republican on the Government Operations Committee, inquired whether he should introduce an amendment to FACA to exempt Mrs. Clinton and Mrs. Gore. Bernard Nussbaum, Counsel to the President stated that this was not necessary: ``It is our opinion that the Federal Advisory Committee Act (``FACA'') does not, and was not intended by Congress, to apply to the health care task force. The participation of the First Lady on the task force does not trigger application of the Act.''

AAPS filed suit in federal court in the District of Colum- bia, together with the American Council for Health Care Reform (a national public interest group concerned with insurance reform and unnecessary, costly government regulation) and the National Legal and Policy Center (a private foundation established to promote ethics in government). Oral arguments were heard before Judge Lamberth on March 5.

Government attorneys argued that ``FACA was intended to apply only to advisory committees containing government `outsiders' whose private interests could surreptitiously taint recommendations sought by government decision-makers.''

The government asserted that the words of the statute should not be interpreted literally but rather in their ``deeper and richer context.''

FACA's language, structure and purpose reflects a govern- ment ``insider/outsider'' dichotomy, whereby advisory committees comprised of government insiders are not covered by FACA, but those established by the government containing members of the private sector are.

Hillary Rodham Clinton is a government ``insider,'' the attorneys reasoned, not a ``regular member of the public.'' She is not an employee for purposes of triggering anti-nepotism laws (the ``Bobby Kennedy Rule''), but Presidential spouses are ``functionally equivalent to federal employees for purposes of FACA.'' The Dept. of Justice noted that the First and Second Ladies have a staff and an office paid for with federal funds.

``Presidents have long assigned their spouses functions related to the operations of government,'' the attorneys stated. ``Lady Bird Johnson headed highway and other beautification projects. Nancy Reagan campaigned against drug use.''

The government pointed to the singular importance of the Task Force. The President's health care reform proposals will be central to his overall economic recovery package. Clinton himself said the Task Force's workroom would be ``kind of like the war room we had in the campaign.''

The President needs to have ``substantial freedom to formulate policy recommendations free from excessive intrusion,'' the government argued. His efforts would be impeded by FACA requirements, such as the need to have committee membership that is ``fairly balanced in terms of the points of view represented.'' The US attorney surmised that Congress felt there was no need to apply FACA's safeguards to task forces having no private-sector members because ``they pose no risk of creating biased proposals.''

If FACA were enforced, it would be unconstitutional, the government argued further (see p. 3).

Opening the door to ``powerful lobbies and special inter- ests'' would mean that ``you can't get anything done,'' Clinton said (Associated Press 3/5/93).

A decision is pending as this article goes to press.

Physicians Shun Medicare

HHS Secretary Donna Shalala reassured a national television audience that most physicians participate in Medicare, and Pete Stark said that doctors ``must like [Medicare] fine'' because they're not dropping out. Both are mistaken.

Preliminary results of a Harris survey of 1,000 physicians showed that ``97% of the physicians are accepting new patients from a variety of sources, including Medicare.'' This was interpreted to mean that ``physicians aren't closing their doors to Medicare patients,'' although 59% said they had serious problems with Medicare reimbursement and 59% said their retirement is earlier than planned (Part B News 10/12/92).

A January survey by AAPS, with 460 responses tabulated, showed a far worse picture. Only 56% of physicians are accepting new Medicare patients on the same basis as others. At present, 30% accept new Medicare patients only under special circumstances, and 12% do not accept them at all. (In 1990, the figures were 21% and 11%, respectively.) Just over half of the physicians (51%) restrict the number of appointment slots available to Medicare patients, compared with only 15% in 1990. About 36% have experienced difficulty in finding another physician to accept a Medicare patient in referral. And 72%, about the same as in 1990, contemplate an early retirement.

Of those who restrict their Medicare practice, 58% cited limits on balance billing as the reason, while 71% listed cuts in reimbursement for certain procedures, 45% named the requirement that physicians must submit all claims, 40% named the new coding requirements, and 71% listed threats and other hassles by Medicare.

The problem seems to be with the Medicare program, not the Medicare patients. About 22% of respondents replied that they do offer, or soon plan to offer, care to Medicare recipients outside the Medicare program. More than half (56%) said they would like to offer private care outside Medicare but have not done so for fear of government reprisals. Only 16% said that they wanted to offer private care but that patients were not interested. And 2% agreed with the statement: ``I am opposed to allowing patients to forego Medicare benefits and the accompanying protections of Medicare regulations.''

Respondents reported a mean of 21 years in practice. Medicare patients constituted an average of 33% of their practice. The fee received for treating a Medicare patient averaged 49% of the regular fee.

A full tabulation of results should be available in about one month; for a copy send a self-addressed, stamped envelope to AAPS at 1601 N Tucson Blvd #9, Tucson, AZ 85716.


A Modest Proposal to Cut the Deficit

Obvious ways to cut the federal budget deficit...include: cutting medical research, stopping if not reversing the long-term trend to greater life expectancy, and steep increases in inheritance taxes. Such a plan would greatly reduce federal costs and enhance revenue. In fact, if the youthful, youth- and change-oriented Clintons have the courage to pursue such policies, the deficit could quickly turn into a surplus.

There are strong indications that such policies are under serious consideration in the secret deliberations on health reform at the White House. A major source of advances in health in the last 50 years has been the pharmaceutical industry, which has come under heavy criticism. There has been talk not only of capping prices but of reducing the lifetimes of patents. The combination would sharply reduce research by existing companies and freeze out investment in new, innovative companies.

The new secretary of HHS, who is a political scientist, not a physician, publicly defined her priorities as child immuniza- tions, Head Start, and AIDS. The first two have negligible effects on mortality, while AIDS affects primarily the young and accounts for only 0.8% of total deaths. Killers of the elderly- heart disease and cancer-were ignored.

What appears to be in the making is a policy basically similar to though less grisly than the one advocated by Jonathan Swift in 1729-namely, A Modest Proposal for Preventing the Children of Poor People from Being a Burden to the Parents or the Country by fattening and eating them. Instead of offending the now all-powerful Children's Defense Fund, curtailing medical research on diseases of the elderly would quietly put old people out of the way sooner. They would sooner cease to be a burden to themselves, their children, and the country.
Lawrence Cranberg, PhD, Austin, TX

``When planners try to make all people equal, they confront the inescapable paradox of equality: abolishing inequality requires massive government power. But power by its nature is unequal: there are those who have it and those who do not.''
Jarret Wollstein, The Freeman, Oct 1992


Robert S. Jaggard, MD, RIP

AAPS Past President Robert S. Jaggard, MD, died quietly at home on March 4, 1993.

Dr. Jaggard will live on in the hearts of all who have known him, as the one who showed us the way. He never wavered or compromised in his defense of freedom or Hippocratic principles.

In the hospitality suite at an AAPS meeting, he told us his response to the first temptation: the offer of $3 (a good fee at the time) taken from the taxpayers to pay physicians for work they had previously done without charge. He and his friend Dr. Henry Wolf of Iowa pasted 30 silver dimes to a poster that said: ``It is still possible to sell your soul for 30 pieces of silver.''

Dr. Jaggard and his wife Marybeth never missed an AAPS meeting. For years, he served as Parliamentarian and Resolutions Committee Chairman. Recently, he also served as editor of IATROFON, the voice of IATROS, the international association of private physicians. The last issue of JAG, entitled ``Good- Bye,'' was vol. 31, no. 3 of an ``educational report dedicated to Individual Moral Responsibility and the Free Enterprise System'' that he distributed to any interested person. His words reached farther than he ever realized. Even doctors from Tucson, AZ, have asked: ``Do you know that anesthesiologist from Oelwein, Iowa?''

Until a few months before his death, Dr. Jaggard practiced private medicine. An old AAPS sign in his office announced: ``I am not a government doctor.'' He always practiced what he preached: never using force against his fellow man, and not accepting the proceeds from the use of force by the IRS.

Dr. Jaggard was awarded the first Defender of Freedom Award given by AAPS, by unanimous vote of the Board of Directors at their meeting in Dallas, TX, on Feb 6, 1993.

Dr. Jaggard repeatedly taught us that ``there is no right way to do the wrong thing.'' Surely he can now say, ``I have fought a good fight, I have finished my course, I have kept the faith'' (2 Ti 4:7).

AAPS Files Suit to Open Health Care Task Force Meetings

On February 24, 1993, AAPS, joined by the National Legal and Policy Center and the National Council for Health Care Reform, filed suit in the US District Court for the District of Columbia (Civil Action No. 93-399). The suit asks for a preliminary and permanent injunction forcing the Task Force to comply with the Federal Advisory Committee Act, 5 U.S.C. Appendix. This would require the Task Force to file an advisory committee charter, to give public notice of its meetings in the Federal Register, to allow public participation and attendance at all of its meetings, and to permit the public to inspect and copy its minutes and other written records. The suit would also require all subgroups and subcommittees of the Task Force, including the ``Interdepartmental Working Group'' led by Ira Magaziner to comply with the same procedures.

The lawsuit hinges largely on the definition of a ``federal advisory committee'' within the meaning of the Act. AAPS maintains that the Task Force is such a committee, and that the committee is not composed ``wholly'' of full-time officers or employees of the federal government because Hillary Rodham Clinton does not and cannot hold such a position.

In support of this argument, AAPS relied upon Title 5 U.S.C. Section 3110, which is also know as the Kennedy Act. This forbids the President from appointing a relative (which includes his wife under the plain language of the statute) to a position of authority within the federal government. Additionally, AAPS referred to definitions of ``officer'' and ``employee'' found within other sections of Title 5.

Oral arguments before Judge Royce Lamberth occurred before a packed courtroom. Reporters from a number of news organizations, numerous Washington attorneys, and White House and Congressional staffers were in attendance.

In response to the government's argument that the First Lady enjoyed a special historical status that entitled her to consideration as a ``federal officer or employee,'' AAPS counsel observed that the vast authority invested in Hillary Rodham Clinton is unprecedented. The Task Force could affect the way that every American receives medical care, as well as altering the tax structure and the function of a major industry. This is hardly comparable to placing flowers along the highway.

The Justice Department also argued that the FACA, if held to apply to the Task Force, would violate the separation of powers doctrine by interfering unduly with the role of the President in developing legislation within his first 100 days of taking office. AAPS relied upon the US Supreme Court's decision in Nixon v. Administrator of General Services to argue that such a view would always render the Act unconstitutional; thus, none of the lower court federal cases construing the Act would have been handed down. Additionally, AAPS stated that such constitutional questions need not even be addressed because if interference with the President's power were substantial, the President could invoke the exceptions to the open meetings requirement of the Act under the Government in Sunshine Act, 5 U.S.C. Section 5526. The President has not even attempted to do so in this case.

At the conclusion of the oral argument, Judge Lamberth told the Justice Department to advise him if any meetings of the Task Force were to be held before March 12.


What Others Say About the Task Force

``The regime of openness in government has been built by a lot of people sympathetic to Hillary Clinton, said Peter Flaherty, President of the National Legal and Policy Center. ``Now she would just sweep away those statutes because they are inconvenient to her'' (NY Times 3/6/93).

Jonathan Lawniczak, senior health policy analyst at the National Council of Senior Citizens: ``We don't know who's doing what with whom in the task force'' (NY Times 3/5/93).

George Stephanopoulos, White House Communications Director, said he did not know how many people working on the President's plan were full-time government employees, temporary employees, paid consultants, volunteers, or advisors of some other type (NY Times 3/5/93).

``It is easier to find out who is in charge of military intelligence for the Joint Chiefs of Staff than to find out who is designing cost controls for President Clinton's health-care plan,'' stated reporter Robert Pear. That's why publications such as Health Care Reform Week ``charge hundreds of dollars per year for tidbits of information that in other contexts in Washington is normally public'' (NY Times 3/5/93).

``This is a very open process,'' said White House spokeswoman Dee Dee Myers, describing the functioning of the Health Care Task Force. But any official representatives of ``any interest groups'' would be precluded from having a regular seat on any working group: ``It would be a conflict of interest, we believe'' (Lori Santos, UPI).

Asked why the Health Care Task Force could not conduct more of its business in public, Donna Shalala said, ``I have no idea.'' Criticizing doctors for trying to maximize their income, she said, ``You need a systemic, structural change'' (UPI).

Laura D'Andrea Tyson, Chairman of President Clinton's Council of Economic Advisors, explained the purpose of health care reform in an interview on CNN's Newsmaker Saturday: ``We can really get a tremendous amount of savings from health-care reform. [The American people should think of it] not just as a way to improve access to those who are not covered, but to reduce the horrific costs that are on American companies and American workers'' (UPI).


West Virginia Lawsuit Fails

The lawsuit supported by LIFE for West Virginians challenging the Omnibus Health Care Cost Containment Act (see AAPS News June 1991), failed when the West Virginia Supreme Court voted four to one not to hear the case.

``We are all very disappointed,'' stated Jerome Arnett, MD, of Elkins, WV, as he praised the work of attorneys Henry Mark Holzer and Phillip Stowers. ``But we feel this project was absolutely necessary in order to protect our constitutional rights. These rights, however, seem to have been lost due to political influence on the West Virginia Supreme Court.''

Dr. Arnett also informs us that Sally Richardson, who spent two years on the WV Governor's Health Care Planning Commission, has been appointed to the Presidential Task Force on Health Care Reform. According to Lane Bailey, chief of staff to Sen. Jay Rockefeller, ``this task force is literally writing the health reform legislation that will become law.''

New Members

AAPS welcomes Drs. Ron Abrams of Mercer Island, WA; Baley Fred Allred of Jamestown, TN; Alex Baskous of Anchorage, AK; Joe R. Cannon of Abilene, TX; Kenneth D. Christman of Dayton, OH; Thomas Claytol of Crossville, TN; Juan Colon-Linares of Bradenton, FL; Claud V. DeShahago of Kirkland, WA; Steven A. DeStefano of Rancho Cucamongo, CA; Jack Dingle of Columbus, OH; Matthew C. Dobias of Lawrenceburg, TN; Richard A. Erdey of Columbus, OH; John D. Fisk of Bellevue, WA; Margaret Gaines of Renton, WA; Joseph A. Giordano of Sharon, PA; Orin M. Goldblum of Pittsburgh, PA; Howard Heringer, Jr. of Erlanger, KY; Dilip N. Joshi of Jamestown, TN; Valerie B. Kaiser of Albertson, NY; George Kakaska of Dallas, TX; Edward T. Kelley, Jr. of San Francisco, CA; Michael O. LaGrone of Bellevue, WA; K.B. Liegnar of Armonk, NY; Bert A. Lies, Jr. of Santa Fe, NM; Jose Matta of Bradenton, FL; Ann McCombs of Seattle, WA; Edward "Pete" McLean of Seattle, WA; Arthur H. Mensch of Alexandria, VA; T. G. Monaghan of Crossville, TN; Charles L. Nelson of Pasco, WA; Wallace Y. Nishikawa of Oxnard, CA; B. G. Norwood of Fayetteville, TN; Gary J. Proffett of Granada Hills, CA; Steven F. Reeder of Dallas, TX; Kenneth Reger of Bellevue, WA; Kenneth Reger of Bellevue, WA; Alan Rehmar of Columbus, OH; Joseph D. Robertson of Crossville, TN; Neal H. Shonnard of Puyallup, WA; Vicha Siri of Carrollton, TX; Craig D. Urban of Abilene, TX; W.W. Voelter of Abilene, TX; and Clayton D. Wilson of Lawrenceburg, TN. Henry Martinez of Anasco, PR, is a new student member.


Letters to the Editor

The federal government no longer appears to view health costs and reform in the spirit of cooperative effort. George Stephanopoulos in his remarks on Meet the Press Feb 14, 1993 clearly articulated that the administration plans to ``get the doctors and hospitals for they have caused the problem.'' The stealth health task force to date has not included practicing physicians in the dialogue but may do so as a late public relations event. [According to James Todd, MD, of the AMA, there are 50 physicians among the 400 persons on the Task Force but most are federally employed.] The recently initiated White House campaign (Tipper, Hillary, and town meeting events) to sell the public on the health reform package may be replete with medical community bashing. Indeed, the process has already started with the pharmaceutical industry and immunizations....

Since the Clinton Administration has initiated a confronta- tional campaign, medicine no longer has the luxury of evolution and compromise....Medicine...must refocus immediately to a direct people (patient) campaign....

It should be noted that the patient is the true ``special interest group.''
Robert Nirschl, MD, Arlington, VA


From a letter to Hillary Rodham Clinton, with copy of the Feb 18 Wall Street Journal article entitled ``The Medicare Plantation,'' concerning Dr. Lois Copeland's lawsuit (Stewart v. Sullivan):

Considering the complex task you have in reforming American health care, I have a suggestion that will improve the quality of care and save the government millions of dollars.

Probably there are hundreds of thousands of older people under Part B of Medicare who don't like it or need it. They would prefer and can afford to ``contract'' with their doctors for a confidential professional and financial relationship, free of dictates and interference from any third party....

The HCFA has threatened doctors and their patients with sinister penalties if they were to choose this free contract. There is no valid reason for that prohibition, and there is a recent court decision upholding that freedom....

[Allowing patients to contract] will restore freedom of choice [and] will induce physicians to enter and continue in the primary care of the elderly. The money saved can be used for the care of people financially less fortunate.
Thomas H. Coleman, MD, Denver, CO


``Right now, health care is purchased by 250 million morons called US citizens,'' [Wall Street J analyst Kenneth S.] Abramowitz said. Managed care, he said, will ``move them out, reduce their influence, and let smart professionals buy it on our behalf.''
National Journal, Oct 31, 1992


AAPS Calendar

AAPS has been scheduling a series of legislative seminars during the critical first 100 days of the Clinton Administration. Meetings were held in Florida March 4-6. If you wish to have a seminar in your town, please call headquarters at (800)635- 1196 or our Washington, DC, office at (202)296-6010.

Mar. 20. Freedom in Medicine Foundation, Dayton, OH. For information, contact Dr. Westbrock, (419)224-8983. Speakers include Kent Masterson Brown, Lois Copeland, MD, Robert Moffit, PhD, and Edward Annis, MD.

May 22. Board of Directors meeting and medicolegal seminar, Bradenton/Sarasota, FL.

Oct. 5-9. 50th annual meeting, San Antonio, TX.

Legislative Alert

Hillary's Recipe

It's deja vu all over again. The same problems that befud- dled the Clinton transition team are now blocking progress of the Task Force: balancing cost and access, while leaving the basic tax structure underlying the current system in place. The Democrats' transition team, composed of some of the best liberal Democratic talent in the country, couldn't satisfy the President. After getting the bad news on January 11th that his vaunted ``managed competition'' idea, even with price controls on doctors and hospitals, wasn't going to save any money, the President got angry and started shooting the messengers.

Judith Feder, Harvard political scientist and Pepper Commis- sion alumna, although still with the Administration, has suffered serious loss of stature. Stuart Altman is headed back to Brandeis. The President turned to the vaunted managerial prowess of his wife, who is assisted by Ira Magaziner

, senior economic advisor at the White House. But it's not working smoothly, according to Washington insiders.

The staffing of the Interagency task force is huge, and it looks as though they are trying to reinvent the wheel. It is estimated that between 300 and 400 federal agency pesonnel are being assigned to the task force, which is broken down into 20 different working groups. It is displaying symptoms of bureau- cratic gridlock.

It is possible that the President is unsure what to do in health care policy. While Hillary herself impresses Members of Congress as smart and confident, absorbing lots of information in her Capitol Hill meetings, she is taking a lot of notes but giving little indication of where exactly she will be going with all of this. Some Congressional sources fear that they will not be part of the solution, but on the receiving end of a compli- cated plan that is politically unworkable.

Recall the promise that the incoming Clinton Administration would expand universal access and save over $700 billion in the health care system through cost containment between 1993 and the rapidly approaching turn of the century. (As Jay Leno said, Clinton has broken so many promises that he's out of em, and is now into breaking Reagan's.) Feder's group said it couldn't be neatly done, and the transition team's 83-page report spelling out in precise detail how it can't be done has been leaked to the Washington Post.

In a dramatic February 22nd front-page piece by Dana Priest, the fiscal costs and trade-offs outlined in the confidential report are laid laid out in painful detail. An aggressive program of universal coverage would cost $175 billion over the next four years. Already, Clinton's deficit package is calling for an extra $243 billion in tax increases over the next four years, roughly 72% of the total deficit reduction package. Even if Clinton delays ``universal access'' until 1997, one year after the end of his first term, except for ``limited expansions,'' higher revenues will be required. But such a delay is a politically unattractive option for a President who promised universal access and is currently suffering from what veteral Washington reporter David Broder calls a ``trust deficit.''

The confidential report also offered the President an alternative. He could propose a combination of new government spending, estimated by Feder and company at $105 billion over four years, institute a national system of price controls on doctors and hospitals to help offset the costs, and cover every American by 1997. The President would have to go to the Congress and declare the current situation a ``national emergency'' in order to impose price controls on private-sector medical prices.

Perhaps the most dramatic revelation this month is Hillary Clinton's bold statement-again leaked by an administrative aide- that the taxation of medical benefits, as a key to reform through incentives for more prudent purchasing, is less important than reelection in 1996. This profile in courage means simply this: No genuine health-care reform. None.

Is Health-Care Reform Really Over?

If the federal tax code favoring employer-based insurance is left untouched, then there is and can be no genuine change in the system. On this point, there is an emerging consensus: left, right, and center. This holds true no matter which reform option one is backing, with the possible exception of employer mandates. Advocates of a Canadian-style socialized system know that the tax code would have to change. So do the advocates of managed competition-the Jackson Hole group led by Paul Ellwood and Alain Enthoven; the moderate Democrats' Progressive Policy Institute; and House Democrats like Jim Cooper and the Conservative Democratic Forum. So too do conservative and libertarian advocates of medical reform, such as the Washington-based Heritage Foundation and the Dallas-based National Center for Policy Analysis.

If change in the tax treatment of medical insurance benefits is politically off the table, then what's left? Logically, only an expansion of the current employer-based system to include the now uninsured at a huge cost of billions, coupled with price controls to partially offset this new huge cost, giving the public the illusion of cost containment while increasing costs in the form of new taxation and shortages of quality service. But price controls are not a reform of the system, whatever else they are. Thus, all of the current incentives that drive up costs will be left in place, the markets will remain distorted by the federal tax code, and the insurance and medical markets will be distorted even further by price controls. The effect of price controls will be the same as ever: capital investment and labor shifts to uncontrolled markets and a decline in the quality and quantity of medical services. A legal guarantee of access to health care is really a legal fiction of access, as in Canada, with fewer medical services available to meet a rising demand.

The Outlook

Capitol Hill observers are now increasingly convinced that Clinton will come forward with a comprehensive price control strategy with global budgets for public and private spending. In separate meetings with Congressional officials, HHS Secretary Donna Shalala said that price controls were on the table. While this strategy may be initially popular with the public-surveys show repeatedly that the general public is convinced that high cost of health care is traceable to greed, waste, and fraud (by doctors, hospitals, insurers, pharmaceutical companies, you name it)-it will compromise Clinton's position with advocates of ``managed competition'' in Congress, including many conservative Democrats, and possibly realign them with Republicans in both the House and Senate who are steadfastly opposed to a price control regime. The main objective of the ``managed competition'' proponents, after all, is ``price competition'' rather than broader competition on a wide range of insurance benefits rated by risk. But the very idea of mixing price controls and ``price competition'' is absurd.

Moderate and conservative members of Congress can withstand the assault of statist initiatives, including price controls, and fight back and win. Last year, after all, the pharmaceutical companies defeated the politically attractive Pryor amendment, making a strong counter case, backed up with solid information (see Legislative Alert, May, 1992). But they can't do it if the spokesmen for the private health care system, including pharmaceuticals, hospital associations, and organized medicine, cut the political legs out from under them. Incredibly, in the face of the Clinton Administration attacks on the pharmaceutical industry this past month, Mitch Daniels of the Eli Lilly Co. suggested, according to the Wall Street Journal, that the best strategy for the industry was one of ``pre-emptive surrender.'' If a Clinton proposal for comprehensive price controls runs into a sea of white flags before a political shot is fired, advocates of private medical practice can hang it up.

Is Managed Competition in Trouble?

Is managed competition just the latest health care reform fad, destined to go the way of Canadian national health insurance and ``play or pay''? It depends.

A growing problem for the orthodox managed competition school is that there are a growing number of sects and creeds and heresies that march under the same banner and are challenging the orthodox for the allegiance of the ``managed competition faithful.''

The idea is most closely associated with Professor Alain Enthoven, Professor of Public and Private Management in the Graduate School of Business at Stanford University and Paul Ellwood, MD, a Clinical Professor of Neurology, Pediatrics, and Physicial Medicine and Rehabilitation at the University of Minnesota. Dr. Ellwood is also the President and CEO of the Jackson Hole Group, the intellectual center of the managed competition approach to health care reform.

Another form of the managed competition school is the Gara- mendi Plan, a health care reform proposal designed by John Garamendi, California Insurance Commissioner. In the Garamendi proposal, employers are taxed on a per capita basis for each employee in their company, and the proceeds of this taxation are distributed to a health care purchasing cooperative. The cooperative then contracts with a number of health care plans. Those health care plans will provide a standard benefits package to the companies' employees and their families.

An increasing number of politicians have their own special intepretations of ``managed competition.'' Bill and Hillary, for example, claim to be believers, even though they apparently favor global budgets and price controls. So too does the Progressive Policy Institute, which has perhaps the most ``market oriented approach'' of the managed competition reformers, and also the Conservative Democratic Forum, whose bill is the main legislative vehicle of the managed competition reform movement. That bill (HR 5936), introduced by Congressman Jim Cooper of Tennessee and Mike Andrews of Texas is, in fact, a vehicle for an enormous expansion of political contol over the medical marketplace. Nevertheless, more and more business associations, insurance associations, and even organized medicine associations, such as the AMA, are converting to the managed competition faith, albeit with some reservations. Opposition to managed competition is building among small business associations and farmers' organizations.

What all managed competition advocates have in common is:

  1. Community rating for insurance- Every subscriber pays the same premium amount for a health insurance plan offering the same benefits, without regard to risk factors such as age, sex and medical status.

  2. Health Care Purchasing Cooperatives (Health Insurance Networks or Collaborative Networks)-either private or government-sponsored organizations that would contract with health insurers on behalf of individuals and employers. The idea behind these cooperatives is to pool the resources of small employers and individuals into larger groups in order to purchase insurance at rates that are affordable for businesses and individual employees and the self-employed.

  3. Taxation of health benefits. Most managed competition advocates favor the taxation of employee benefits in some form, either a limitation on the deductibility of the employer or a limitation on the current exclusion of the employee. In the proposals of Conservative Democratic Forum, tax deductibility for employers would be limited to the cheapest health care plan in any given geographic area that is contracting with a health care purchasing cooperative.

For all intents and purposes, this tax policy would favor managed care plans, such as Health Maintenance Organizations (HMOs). Virtually all managed competition advocates favor direct federal encouragement of HMOs either through the tax code or through other regulatory arrangements. (The managed competition tax revisions should not be confused with comprehensive changes in the federal tax code to provide tax credits to individuals and families for the purchase of health plans and services, regardless of the place or work and regardless of the kind of health care services employees choose.)

Cost Control

Econometric analyses do not sustain the notion that managed competition will control costs. Clearly, the Clinton proposal does not even begin to save money, and may end up adding another multi-billion price tag to the current system. On February 3, Dr. Robert Reischauer, the Director of the Congressional Budget Office (CBO), told the House Ways and Means Health Subcommittee, chaired by Congressman Fortney ``Pete'' Stark (D-CA), that managed competition will not control costs. After analyzing the the Managed Competition Act of 1992 (HR 5936), Reischauer concluded: ``CBO's preliminary assessment is that after initially rising above baseline levels for a few years, this proposal would leave national health care expenditures at approximately the same level that they would have reached otherwise. This result stems from the assumption that the board would select a comprehensive set of benefits for its accountable health plans. Initially expenditures would be driven up because more people would be covered by health insurance. But over time, this effect would be offset as some people shifted into groups, group or staff model HMOs because of the differential.''

The CBO estimate of cost savings was made on the basis of a 5-year projection. When Congressman Bill Thomas (D-CA), asked Reischauer if five years was enough time to determine the cost effectiveness of a proposal, Reischauer admitted it was not. While Reischauer's testimony did not help managed competition advocates in Congess, especially in light of the revelations of what the Clinton plan is likely to cost, it was no comfort to the free marketeers either. Indeed, Reischauer repeated the claim that the Stark proposal, calling for Medicare style controls on the private health care market would generate savings to the system. As Reischauer indicated, ``...we've also learned from our experience that cost control mechanisms that are effective restrain the freedom of consumers or providers in some way. Unfortunately the more effective mechanisms for holding down costs are also the more intrusive ones.... Cost control mechan- isms that effectively hold down expenditures in only one segment of the health care system may not generate systemwide savings because of cost shifting and other behavioral responses of providers. This means that the cost controls that are applied selectively to some groups of consumers or to some providrs, but not to others, are much less effective than those that are applied to the health sector as a whole.''

The representatives of organized medicine who in 1989 so strongly supported the RBRVS Medicare rules helped to fashion the chains of an imperial government regulation over their own profession. Only the invincibly naive could have ever imagined otherwise. Doctors should not forget.