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Volume 59, No. 8 August 2003


"This is the beginning of the end of the Medicare program," declared Rep. Jerry Kleczka (D-WI), referring to H.R. 1, the great 749-page bipartisan Medicare expansion which squeaked through over opposition from both extremes of the political spectrum (see pp. S1-S2).

While AAPS has been predicting an inevitable end for some time, the day of bankruptcy (probably not what Rep. Kleczka meant) can only be hastened by adding a prescription drug benefit without major reform.

No one knows what will emerge from behind the closed doors of the conference committee, which is likely to unveil its product just before a holiday or at another time when newspapers are not watching. Anyone who thinks that the proper alignment of the stars is not a good rationale for major legislation should speak up now.

First, what the prescription drug benefit is not:

It is not insurance. From Insurance 101, to underwrite a risk i.e. to offer true insurance three conditions must be present, as explained by Dick Matthews: (1) the potential claim must be very substantial; (2) the potential claim must be rare; (3) the claimant must not want the claim to occur.

Even if one insists on calling a third-party payment scheme insurance, George Fisher, M.D., points out that the drug benefit is more like a reinsurance scheme. "What is impossible to administer to the public is very simple to administer if the client is a primary health insurer. Blue Cross or whoever will take all the heat for the price control and the quality deterioration, the turn-downs and the pre-authorizations, the anger and the anguish. The government will simply make it overgenerous at first, and then squeeze it down later, letting the primary carrier dangle in the wind" (message 9934, HealthBenefitsReform Discussion Group).

The program is not a mere $400 billion commitment. It is an open-ended entitlement, like Medicare which by 1990 cost seven times as much as had been projected. The $400 billion is an estimate by the Congressional Budget Office (CBO) of the cost of the program over 10 years counting the three before it goes into effect. The next 10 years would be more than twice as expensive (USA Today 6/29/03).

The bill is not a "crucial reform" of Medicare, though headlined as such on the AMA's home page on July 6. "The idea of using the drug benefit as a carrot for real reform was dropped without a fight" (Wall St J 6/25/03). No real reforms will be implemented until 2010 at the earliest.

The bill does not offer seniors a genuine choice. As John Goodman of the National Center for Policy Analysis (NCPA) explains, seniors may get many choices among inferior plans while being denied the choice of one good plan and the bill could cause more than a third to lose their employer-provided coverage (Wall St J 6/27/03). A better plan would be to repeal current congressional mandates: it is illegal to offer seniors low-cost prescription drug coverage that is not bundled with other costly benefits (Investor's Business Daily 6/20/03).

What then is this program?

Some suggest (wishfully?) that it's a politically savvy move by conservatives to gain a filibuster-proof majority in 2004, and to sneak in Medical Savings Accounts, and to come back with a fix before the program takes effect.

Others say it's a "giant roll of the dice" with taxpayer money for a short-term political payoff (Wall St J 6/23/03).

For certain, it is a huge unfunded liability, on top of the $38 trillion by which promised Medicare benefits already exceed projected revenues over the next 75 years (ibid.).

Most importantly, the essence of the plan is increased government control even though the Senate defeated an amendment by Sen. Hillary Clinton that would have created a government bureaucracy to assess whether drugs were "cost effective" enough to be permitted under the program.

"Government will play an even greater role in deciding what drugs seniors get, how doctors and pharmacists are paid, how private medical information is distributed, and what drug companies benefit most. The plan moves America disastrously toward a complete government takeover of medicine," writes Rep. Ron Paul, M.D. (R-TX), a life member of AAPS.

With this package, the Republican Congress enacts still another piece of the Clinton Plan that it defeated in 1994, following up on SCHIP and HIPAA.

Who benefits from the bill? According to the New York Times, large employers will be able to shift some of their burden of retirees' drug costs onto the government [i.e. the next generation]. Some segment of the pharmaceutical industry apparently expects to benefit, as it reportedly spent $135 million lobbying for the bill, according to Rep. Paul.

Who will suffer? Small local pharmacies may be driven out of business, leaving seniors in rural areas without immediate access to drugs such as antibiotics (Post-Journal 6/19/03). All will lose the benefits of innovation and true price competition once the pharmaceutical industry becomes a virtual partner of the federal government.

The massive nonparticipation dreaded by the government in 1965 may yet occur. In Seattle, only 44% of physicians accept new Medicare patients, down from 71% four years ago. A 2003 survey by the AMA and the American Academy of Neurology found that more than 11% of neurologists no longer treat patients, and 33% have withdrawn certain services.

Even patients may opt out. Senior enrollment in voluntary Part B actually decreased from 33 million in 2001 to 32.7 million in 2002, while Part A enrollment was steady.

The effort to save American medicine clearly must not await action from Congress.

A Drug Plan that Works

Medical Savings Accounts (MSAs) have been available in South Africa for more than a decade. Unlike in the U.S., they have developed in a relatively free insurance marketplace.

Average discretionary medical spending is 47% lower for South Africans with MSAs. Properly designed MSAs appear to help control prescription drug expenditures, without adverse effects on patients' health ( www.ncpa.org/pub/st/st254).


Information Technology and Public Health

The internet is a powerful tool for disseminating news about public health threats. By Feb. 10, 2003, news of a "fatal flu in Guangdong" had reached 120 million people through text messaging, and untold numbers more through chat rooms and e-mail. The Chinese authorities, who had tried to cover up the outbreak, finally had little choice but to acknowledge it.

By the end of May, 2003, however, 117 people in 17 provinces had been arrested and charged with disturbing the social order by spreading SARS-related rumors. "SARS" is now a banned word. The government has the ability to search the country's entire volume of e-mail for possibly subversive words. "Anyone snared in its high-tech web can expect surveillance, intimidation, arrest, and prison." The cyber-police has tens of thousands of members and is capable of arresting internet users anywhere in the country (N.Z. Herald 6/17/03).


HIPAA Updates

Backup Your Finances. If you depend on third parties for your cash flow, your practice should secure a credit line sufficient to pay 90 days expenses, to replace revenue lost as a result of the transaction code sets (TCS) rule, according to Ellen Maltz of the Montgomery County Medical Society. Do it now; if all practices show up with credit applications on Oct. 16, many will be denied (HIPAA Compliance Alert 7/7/03).

OCR Receives 637 Privacy Complaints. The Office of Civil Rights (OCR) is investigating 260 complaints, has dismissed 124 mainly because they came in before the April deadline, and hasn't decided on a disposition for 253. Most frequent subjects are patients claiming they were denied access to their records, lack of privacy notices, or inadequate privacy safeguards in treatment settings. Several complaints originated with employees. OCR is developing criteria for referring complaints for criminal prosecution. See www.hipaapro.com.

HHS Asked to Delay TCS Enforcement. The National Committee on Vital and Health Statistics (NCVHS) has requested a 6-month period of "flexible" enforcement but not an extension of the deadline during which imperfect claims can still be paid. HHS has not said whether it will accept this recommendation. In a June 25 letter, NCVHS Chairman John Lumpkin, M.D., M.P.H., stated that "some providers are still in denial." Also, there is a "vast lack of knowledge" about how to implement the TCS provisions and no rulemaking regarding the substance of enforcement. Additional guidance is needed on how to handle claims that are submitted before Oct. 16 but require several rounds of handling before fully adjudicated. They could be denied because they are not in standard format.

Small Practices Need No Waiver for Medicare Paper Claims. A June 24 CMS memo reads "just continue to bill via paper" if you believe you meet the small-provider exception (less than 10 FTEs) to the electronic filing requirement.


HHS Plans to Track Medical Records

HHS Secretary Thompson has unveiled a plan to build a nationwide electronic system to track patients' medical records, based on SNOMED (Systematized Nomenclature for Medicine), a system developed by the College of American Pathologists (CAP) in collaboration with the British National Health Service and others. SNOMED has terms for more than 340,000 medical concepts possibly not including the next SARS.

The CAP signed a $32.4 million 5-year sole-source contract with the National Library of Medicine as part of the ongoing HHS National Health Information Infrastructure project.

This system will "prove invaluable in facilitating the automated exchange of clinical information needed to protect public safety, detect emerging public health threats, better coordinate patient care and compile research data for patients participating in clinical trials," Secretary Thompson said in a July 1 press release.

"Imagine what it would be like if you only had to provide your family and medical history once, and you were confident that your medical records were being interpreted in the same way by various health care practitioners," said Diane J. Aschman, Chief Operating Officer of SNOMED International.

HHS claims that the new system would cut medical errors and save $100 billion annually.


Revenue to Cover the Drug Benefit?

Although not officially counted as revenue, the fraud provisions in S. 1 "appear in part designed to secure revenue that would help pay for the drug benefit" (Medicare Compliance Alert 6/30/03). These will apply to all false claims, not just those involving prescription drugs. Civil monetary penalties would be increased from $5,500-$11,000 to $7,500-$15,000 per infraction, and the maximum CMP increased by 25%. More funds would be added to the federal health care fraud and abuse control account: $10 million in 2004, $15 million in 2005, and $25 million in 2006. If the federal government could extract an average net $100,000 per year from each of 400,000 physicians for 10 years, it could raise $400 billion in this way.


AAPS Calendar

Sept. 17. Board of Directors mtg, Point Clear, Alabama.
Sept. 17-20. 60th annual mtg, Point Clear, Alabama.
Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.

Lest we forget: "If what I tried before won't work, maybe we can do it another way. That's what we've tried to do, a step at a time, until we eventually finish this."
William J. Clinton, Sept. 15, 1997

speech to the Service Employees International Union

AAPS Calls for End to War on Lawful Drugs

In a June 26 press conference in Tucson, AZ, AAPS stated that the War on Drugs has come to mean a war on lawful drugs also and on the physicians who prescribe them and the patients who take them.

"Throughout the U.S., physicians are being threatened, impoverished, delicensed, and imprisoned for prescribing in good faith with the intention of relieving pain," stated AAPS Executive Director Jane Orient, M.D.

The conference was held at the office of Jeri Hassman, M.D., who has been indicted on 67 counts of federal drug violations, for 67 prescriptions to six patients. More than a dozen of her patients attended to show support for Dr. Hassman; many spoke to reporters. Several physicians also attended and explained how the climate of fear resulting from indictments like Dr. Hassman's is affecting patient care.

Dr. Hassman spoke of the need to keep "powerful and potentially dangerous prescription drugs out of the hands of the drug abusers and those who illegally sell them" and called for the DEA to "communicate and cooperate" with doctors. Doctors should not be forced to treat any patient complaining of pain as a criminal suspect.

AAPS suggestions for legal reforms are posted at aapsonline.org.

Dr. Hassman's trial is scheduled to begin July 29. On July 1, Judge David Bury denied a government motion for continuance. The prosecutor stated that the government was not ready for trial and was searching for an expert witness to replace the one relied on to bring the indictment.


Supreme Court Limits Forced Drugging

In a 6-3 ruling in the case of Sell v. United States (02-5664), the U.S. Supreme Court ruled that defendants could be forcibly given antipsychotic drugs for the purpose of rendering them competent to stand trial only in certain instances that "may be rare." Writing for the majority, Justice Stephen Breyer said that a court must find that (1) "important government interests are at stake"; (2) medication is "substantially likely" to render the defendant competent to stand trial and "substantially unlikely to have side effects that will interfere significantly with the defendant's ability to assist counsel in conducting a defense"; and (3) "alternative, less intrusive treatments are unlikely to achieve substantially the same results."

The fact that refusing drugs may mean continued lengthy confinement [without the need to prove guilt] substantially diminished the risk of freeing a guilty person without punishment and thus government's interest in drugging the prisoner, Breyer stated.

Dr. Sell has already been incarcerated for more than four years, with 20 months spent in solitary confinement and no other treatment offered (St. Louis-Post Dispatch 6/17/03).

The Bush Administration stated that 59 prisoners had been forcibly drugged in a recent year, with 45 eventually found fit to stand trial, while more than 200 accepted the drugs "willingly" (A Gearan, AP 6/16/03).

AAPS filed an amicus brief supporting Dr. Sell (AAPS News Nov, Dec 2002). The Court adopted arguments from the brief, which is posted at www.aapsonline.org.

"We are gratified that the Supreme Court sees no justification in the record for forcibly drugging [Dr. Sell]," stated AAPS General Counsel Andrew Schlafly. "We used to complain when the Communists engaged in such tactics. This should not occur in America."


Texas Restricts Forced Vaccinations

After seven years of work by parent activists, the Texas legislature passed a conscientious/philosophical exemption to mandatory vaccinations and Rep. Capelo is trying to get it repealed in special session. The bill also prohibits a health and human services agency from taking punitive action against a parent for declining immunization. This includes "the initiation of an investigation of a person responsible for a child's care ... for alleged or suspected abuse, or neglect of a child."

See www.vaccineinfo.htm for further information.


CMS Using Senior Spies, Consent Settlements

In Oct. 25 revisions to its program integrity manual, CMS orders carriers and fiscal intermediaries to activate a data tracking system for complaints from seniors alleging Medicare fraud. The Senior Medicare Patrol, which has 52 branches, teaches senior volunteers to train others to detect and report fraud. Since 1999, the program has received $28 million in HHS funding and has trained 31,173 senior trainers, who have educated 869,472 beneficiaries, who have generated 19,342 complaints. Claimed savings amount to $3 million to Medicare and $76.6 million to all payers. Informants are trained to report providers who offer to waive copayments and deductibles or who advertise free testing or screening, among other things (Medicare Compliance Alert 11/4/02).

AAPS has advised Congress that doing away with assignment of benefits, paying beneficiaries with a dual payee check to prevent them from pocketing the reimbursement, would reduce fraud to virtually zero. "If we had alert, informed consumers included in the financial equation, there would be no need for an army of spies and informers," stated AAPS Executive Director Jane Orient, M.D.

The Oct. 25 revisions also spell out rules for consent settlements, a "cheap and easy means for extracting payments from providers" based on extrapolation from a sample too small to be statistically valid. Providers have a grim choice of paying up or risking larger damages (ibid.).

See www.cms.gov.


Tip of the Month: Frequent demands are being made on physicians by carriers, hospitals, and even answering services to sign confidentiality or business associate agreements. The Kennedy-Kassebaum Act, now popularly known as "HIPAA," is the reason. But be careful: these contracts can include requirements that have nothing to do with HIPAA, such as promises to keep hospital financial information secret. It is particularly important not to admit to being a "covered entity" when you are not. If you are a "noncovered" entity because you do not engage in any electronic transactions, then you may want to write and initial on these contracts: "I am a `non-covered' entity under HIPAA, notwithstanding any statements in this contract or elsewhere to the contrary."


"Noncovered Entities" May Teach

Noncovered physicians may continue to serve as preceptors for residents and do not need to sign a HIPAA Business Associate Agreement to do so, according to John Nylen, COO of the Accreditation Council for Graduate Medical Education.


More Privacy Protection. An article in the church bulletin notified the congregation of a new policy: because of HIPAA, hospitals would no longer release information to churches so that clergy could visit the sick. The church now has to rely on family and friends. If you're old and have no family or friends, you're out of luck. The hospital has no form you can use to permit the release of your information to the church.

Perhaps the mere act of praying for sick people violates their privacy, as the prayor has failed to obtain a government- approved, HIPAA-compliant form to release information to God. Only the State, as Prime Healer, can have unfettered access to the database of personal health information.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


Translating the "Privacy" Notification. The "Notice of Information Practices" from my insurer states that my medical information will be available to one and all, including those who could harm or control me, without my consent. There is one exception: those individuals or entities that have absolutely no use for my information won't be able to get it.
Robert P. Gervais, M.D., Mesa, AZ


Who Owns the Medical Record? Years ago, records on patients were the property of the doctor. With the intrusion of government into medicine, the records became the property of the patient but were held by the doctor as required by law. The patient had control over who could review those records. The doctor could not forward them to anyone without the patient's knowledge and consent. In April, 2003, the property rights were apparently transferred to the agency that pays for the care. Government agencies, including law enforcement, and insurance companies can look at records at will. Doctors have to hand over the records even on the weakest allegations or suspicions of mistreatment or missed diagnosis [or improper billing or privacy violation].
Thomas R. Tibbels, M.D., West Point, NE


Payment and Information Flow. Years ago when HIV was new I needed a routine HIV test before surgery. The local health department had a three-month wait for an appointment. The local hospital was willing to do the test; however, it would not divulge the results without a counseling appointment. The wait for counseling was several weeks, too late to make the surgery date. My protests that I could handle a negative result were unavailing as were appeals that necessary care would be denied if I couldn't have the results sooner. The nonprofit bureaucracy's specialty was "caring," and it insisted on a professional being present to explain the results.

At a private lab, they asked who was paying. I said I was, in cash. I had the results in three days.
Linda Gorman, Englewood, CO


Physicians Do Not Need to Organize. They don't have to call their buddies to see what they are doing. They can do it without consulting anyone, in the privacy of their own office, in accordance with their own conscience. They can just say no to all insurance contracts.

Just say no to HIPAAcratic medicine. Just say no to 40-page contracts with lots of fine print. Just say no to hiring an army of billers to settle patient accounts. Just say no to serving as the fall guy for faceless insurers, informing patients that their insurance won't cover a needed procedure or test.

It is time to go on the offensive and not cower with every new twist managed care throws at us. Physicians will be much happier for breaking their addiction to managed-care contracts and resuming their position of serving only the interests of their patients.
Robert S. Berry, M.D., Greeneville, TN


Such a Deal! Not only did the doctors settle with Aetna for $150 for all their unpaid claims; they have apparently agreed to another AMA coup. From now on, doctors will not only have to buy the AMA code book every year; they're apparently going to have to buy some sort of AMA "best practice manual" as well! As The New York Times reports, "For doctors, one of the most significant changes was Aetna's acceptance of general guidelines for treatment that have been developed by the American Medical Association...." It looks as though the organization that represents just 21% of practicing physicians has found an additional source of revenue.
Stephen R. Katz, M.D., Fairfield, CT


Repeating the Error of 1965. The debate on prescription drugs and Medicare is beyond sad. Congress will undoubtedly pass a program, and in no more than 10 years people will look back and be outraged at how stupid we were. I wish I knew how to start moving back toward sanity.... All one can do is keep trying. If we give up, we certainly know [the outcome].
Mark Litow, F.S.A., Milwaukee, WI


Seniors Want Choice. I have worked in the "senior market" for more than 20 years and can say that the majority of seniors rich and poor want choice but are forced to take Medicare. We need a little consumer rebellion.... Maybe it's time for seniors to opt out of the Medicare program and demand that Congress give their equivalent Medicare dollars so that they can buy coverage or pay cash.
Joseph Lee Pugh, Diamondhead, MS

Legislative Alert

Medicare and Prescription Drugs: Reform or Ruin?

The biggest expansion ever in the Medicare entitlement just passed the House (H.R. 1) and Senate (S. 1), with the approval of the Bush Administration. In the aftermath of the House and Senate votes, the President commended the Congress, and the giddy self- congratulation is starting all around. The Honorable Gentleman from This State extends his thanks to the Honorable Gentleman from That State for his Cooperation. Cooperation, going along and getting along. Thus Congress finished the first stage of its short, but mammoth, debate on the future of the Medicare program.

Early in the morning of June 27, the Senate passed S. 1 by a lopsided vote of 76 to 21. Republicans voting against the Senate bill: Allard, Cornyn, Ensign, Graham of South Carolina, Lott, McCain, Nickles, Santorum, and Sununu. Democrats voting no: Byrd, Clinton, Edwards, Graham of Florida, Harkin, Hollings, Kohl, Levin, Reed, Rockefeller, and Sarbanes. Neither Lieberman, nor Kerry, two Democratic presidential contenders, voted on the bill.

The House of Representatives enacted H.R. 1 by a vote of 216 to 215. The squeaker says a lot about the debate. The House Republican leadership did not have the votes for the measure nailed down until late in the evening of June 26. Some of the key no votes among House conservatives included Richard Burr (R-NC), who favored a targeted benefit for low-income seniors; Jim De Mint (R-SC), who is a champion of consumer-driven medical care; Jeff Flake (R-AZ); and Charles Norwood (R-GA). Look beneath the smiling faces of the victors; the razor-thin margin reflects seething anger and the depth of the divisions that surfaced during the debate.

Though the House bill was indeed a massive entitlement expansion, Rep. Charles Rangel (D-NY) launched a tirade against Republicans laced with over-the-top references to the Jews going to gas chambers in Nazi Germany in the 40s; Joe McCarthy's investigations in the 50s; the dismantling of the New Deal, the Fair Deal, and the Great Society; and the oncoming destruction of Medicaid, Medicare and Social Security.

It is a debate nobody expected. The strongest Congressional proponents of real Medicare reform for example, Rep. John Shadegg (R-AZ) and Sen. Don Nickles (R-OK) emerged as the strongest opponents of the legislation, and many Members who were voting for the Congressional Medicare bills were doing so reluctantly, hoping against hope that these flawed pieces of legislation will somehow be "fixed" in a long and bitter summer House and Senate conference.

The Senate Disaster

Forget the size of positive vote. The Senate bill is profoundly bad policy. It was the product of negotiations between Senator Charles Grassley (R-IA), chairman of the Senate Finance Committee, and Sen. Max Baucus (D-MT), the ranking Democrat. There were no hearings at all on the provisions of the bill. Indeed, the very week before, the Senate Finance Committee called a quickie hearing, showing some semblance of Senatorial deliberation, at which they invited a panel to testify on general themes: Marilyn Moon of the Urban Institute, who insists that Medicare is an excellent model of "cost control" because the government can impose price controls on doctors and hospitals and the private sector can't, and Walton Francis, an expert on the functioning of the popular federal employees' program, the only consumer-driven medical insurance market that exists in the Cosmos. The Moon testimony was as expected, but the Francis testimony turned out to be irrelevant to the final Senate product.

In the aftermath of that hearing, Committee staff unveiled a 70-page outline of the bill on June 10, then called for a June 12 mark-up of the "bill," which turned out to consume 664 pages of legislative language. Committee members, who had not seen any of it, had 48 hours to absorb it all, and vote on it, and then the full Senate scheduled the floor consideration the following Monday, with a view toward voting on it by June 27, just in time for the July 4 recess.

The Senate Process

The White House issued a statement of support for the Senate bill, saying that though the Administration had some reservations about certain provisions, it was in favor of The Process going forward. But those who live by The Process can also die by The Process.

The reaction of conservative and libertarian policy analysts who actually took the time to read the Senate thing ranged from disappointment to disbelief. First, there is denial, then anger but acceptance is probably not in the cards here. The White House, which had committed itself to genuine reform of the Medicare program, found that this Senate product was bereft of any support among conservative economists and health policy analysts.

Massive Entitlement Expansion

Both the Senate and the House bill add a universal drug entitlement to a program that is already facing huge financial liabilities. This is terrible policy. Tom Saving, Professor of Economics at Texas A&M University and a Medicare trustee, says that the $400 billion Medicare drug benefit will add a whopping $7.5 trillion to the long-term unfunded liabilities of the Medicare program. Saving argues that if you limit the calculation to only today's Medicare beneficiaries and current workers, the additional Medicare unfunded liability is still huge $2.6 trillion. This is going to have a big impact on the taxpayers, and they don't know what is going to hit them.

For more than two years, conservative economists and policy analysts have warned that the creation of a new entitlement, no matter how politically popular it might be among the baby boomer liberals who run the AARP, will crowd out private coverage. But that, after all, is what the Left wants: the displacement of private sector coverage in favor of government coverage. The bigger the displacement, the better. Both House and Senate bills will force millions of Americans out of private coverage, and many, if not most, will be forced to pay higher out-of-pocket expenses for drug coverage. Now this is supposed to be a political slam dunk for the White House and its allies.

Then there is the chosen method of drug delivery. Both House and Senate authors have decided not to build on anything that exists in Nature, as Urban Institute President Robert Reischauer said, but rather something that is projected into the future by the congressional Imagination: a "drug only" insurance benefit. Will such a thing work? Hard to say, never saw such a creation before on Planet Earth. Most folks on Earth get their drug coverage through existing institutions, not products of arcane legislation. And regular insurance, whatever its faults, does do a pretty good job in securing competitive discounts on pharmaceuticals, and in coordinating with other benefits.

In the Senate bill, if there is an inadequate private participation, there is a government Fallback, which will be risk free. Private plans bear risk, the government doesn't, yet private plans are supposed to compete with the government?

The government drug plans are like other Medicare contractors, rather than competitive independent entities. Since roughly 50% of prescription drugs are purchased by Americans over 65, this provision is likely to help extend direct government control over drugs, a crucial element of the medical sector of the economy. Chalk up another point for Senator Ted Kennedy and the "Single Payer" caucus on Capitol Hill.

There is now, and always was, a better way. Instead of a new drug entitlement, the Congress should instead target monies to the minority of low-income seniors who need help.

What About Competition?

In the House bill, there is a genuine shot at real Medicare reform. Under Section 241, there would be a transition, beginning in 2010, to a new competitive model based on the Federal Employees Health Benefits Program (FEHBP). The system would be a premium support system, under which the taxpayers would make a contribution to the plan of a person's choice. Traditional Medicare would compete head to head with private plans. Moreover, the House bill lifts the caps and restrictions on Medical Savings Accounts (MSAs) in the Medicare program.

The Key Issue

The creation of a competitive system in 2010 is shaping up to be a key issue in the House-Senate conference. Rep. John Dingell (D-MI) is vigorously opposed to it, stating that younger retirees would gravitate to private plans, and older retirees would be left in traditional Medicare, unraveling the system.

The Congressional Left also makes the point that seniors don't care about choice of "plans"; they only really care about choice of doctors. If choice of plans is not important, then there is no reason to allow it. This worldview, however, is contrary to the facts. Indeed, a recent Zogby Poll, sponsored by the Galen Institute, found that 82% of all voters and 67% of seniors agree that seniors should have a choice of plans. Nonetheless, Sen. Ted Kennedy (D-MA) is calling the House's competition provision (Section 241) a "deal-breaker." Worse, Tom Scully, Bush's administrator of the CMS, is apparently no big fan of the House provision either. Said Scully, "Philosophically, you could make a good argument for [the year 2010 provision]. But and this is where we become concerned it could potentially impact premiums, and we are very concerned about protecting premium to make sure that they don't go up."

On June 24, Rep. J.D. Hayworth (R-AZ) and 42 other House conservatives sent a letter to Speaker Dennis Hastert and told him that they could not support any Medicare legislation if the crucial House provision was either "weakened or removed." In the days leading up to the final vote, many House members, angry over the entitlement expansion, made it clear that they wanted the House Leadership and the White House to stand behind serious reform.

In the Senate bill, the situation is very different. Senator Ted Kennedy (D-MA) perhaps said it best: "In fact, if you think Medicare should be privatized, then you should oppose this bill." Kennedy is right, of course; "private" plans will be private in name only, and they will be fortunate to survive under the stifling terms of the Senate legislation.

The Senate provisions governing the newly created "Medicare Advantage" plans are clearly flawed. While proponents say that they will introduce a system that looks like the FEHBP, this is not the case. The program will look more like the old, heavily damaged "Medicare+Choice" program, which has largely failed because of inadequate government payment and over-regulation.

There are several reasons for this. The proposed payment mechanism is based on Medicare's administered pricing, not market pricing. In the FEHBP, payment to plans is based on the weighted average of all competing plans in the program, i.e. on a real market price reflecting real conditions of consumer demand for alternative plans. Moreover, the so-called PPO option in the Senate bill is restricted to the three cheapest plans in a given region. Instead of establishing a level playing field where many plans and options can compete, the Senate bill sets up a government-sponsored oligopoly. Additionally, the Senate bill requires private plans to standardize their benefits; this inhibits the flexibility of benefit design. While fewer than 100 pages in the code of federal regulations govern the FEHBP, the Senate outlines a framework for a massive regulation.

The Political Stakes

The conventional wisdom is that Medicare prescription drug legislation takes the issue away from Democrats and solidifies Congressional majorities for the Republicans. Not so fast. The Zogby Poll cited earlier found that the Senate's complex drug benefit, once explained to seniors, is not so popular after all: 74% said that it was not as good as the coverage they have already. And, as CBO noted, under both the Senate bill and the House bill, millions of seniors with employer-based coverage are likely to be dumped out of that coverage into the government program, where many of them will have higher out-of-pocket costs. This will take explaining back home.

Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.