1601 N. Tucson Blvd. Suite 9
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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 47, No. 8 August 1991


Physicians were ``betrayed,'' say spokesmen for organized medicine. Even Rep. Pete Stark (D-CA) is dismayed by the Relative Value Scale (RVS) fee screens that were published in the June 5 Federal Register. He accused White House Chief of Staff John Sununu and the Office of Management and Budget of a deliberate effort to ``make sure that the nation's doctors have reason not to trust the government and have reason to resist any expansion of national health care'' (BNA's Medicare Report 6/28/91).

(Stark's remark should not be construed as showing sympathy for physicians. He has also stated that Medicare cuts would simply mean that a rural doctor couldn't buy a Porsche.)

The AMA agreed with the RVS in principle, trusting that it would be implemented in a fair and equitable manner and that it would not be used as a budget-cutting device. While total expenditures for physicians' services will not be reduced, they are projected to be about $3 billion less in 1996 than they would have been under the current system.

The AMA criticism focuses on the conversion factor, which was cut by 16% to compensate for the increase in volume projected by HCFA. The conversion factor is multiplied by the relative value units to give the fee. HCFA has determined the conversion factor to equal precisely $26.873, ``based on lack of data'' (to quote one of HCFA's own more felicitous expressions) and numerous assumptions.

There are few data to show how physicians respond to cuts in fees. One limited 1976 study of Colorado physicians supports a 50% ``volume offset.'' Another study found that expenditures per beneficiary increased almost 30% during the 1984-1986 Medicare fee freeze (Medicine & Health 7/1/91). Still fewer data exist for increases in fees; HCFA assumes no response by ``winning'' physicians.

All Physicians May be ``Losers''

Because of the low conversion factor, the anticipated gains under the RVS have been halved and the losses doubled. Internists will see a reduction of about 4% rather than the expected 14% increase in their Medicare fees. Family prac- titioners may be the only ``winners.'' However, a modest increase in fees for office visits could be cancelled out by several other factors:

1. For drugs administered in the office, physicians will be allowed to charge only 85% of the wholesale price.

2. Physicians will not be allowed to charge for ad- ministering an injection in the course of a visit (unless it involves chemotherapy).

3. With some exceptions (e.g. lumbar puncture trays), the cost of supplies is ``included'' in the fee for an office visit.

4. No fee may be charged for reading EKGs done in conjunction with a visit. According to HCFA's interpretation, a preoperative EKG ordered by a surgeon and read by a cardiologist who does not see the patient is part of the surgeon's visit. (In other words, almost all EKGs are part of a visit, and only the ``technical component'' may be billed.)

5. Nonparticipating physicians may have been compensating for low reimbursements by balance billing. Their new limiting charges-125% of the fee schedule amount in 1992 and 115% thereafter-might be less than their current MAAC.

6. No added payment will be allowed for modified codes, say for prolonged detention, extra travel, or late hours.

7. No one knows how the new coding system for office visits and consultations will map onto the old one (the ``cross- walk'' problem); physicians may find their visits effectively downcoded.

Market Responses

In a free market, supply and demand are brought into equilibrium by the price mechanism.

When the normal mechanism is disconnected, ``behavioral adjustments'' occur instead of a price change. HCFA has attempted to deal with this phenomenon by plugging escape routes. For example, ``border crossing'' to obtain higher reimbursements by physicians or lower charges by patients is to be minimized by making fees uniform over a sufficiently large geographic area.

During the world's 40 centuries of experience with wage and price controls, two types of adjustments have predominated: (1) cuts in quality and (2) decreased availability. Because the RVS would pay ``limited license practitioners'' such as chiropractors and optometrists as much as physicians for services with the same code, more services may be rendered by such practitioners. Instead of doing more work for less pay as HCFA assumes they will, physicians may do less of the work that pays poorly. Specialists may no longer have time for routine office visits. Physicians may stop accepting Medicare patients. (The percentage of physicians taking new Medicare patients dropped from 83% in 1989 to 79% in 1990).

Some physicians, who see the RVS as the salvation of primary care physicians, say that it must be defended against ``Nean- derthal proceduralists.'' The AMA fears that the low conversion factor ``threatens to undermine physician payment reform.'' But free market advocates hope that it does.

Comments on the fee screens must be received by HCFA at PO Box 26686, Baltimore, MD 21207, by August 5. Refer to BPD-712-P. For additional information, call AAPS at 800-635-1196.


Oregon Cuts Funding for 122 Medical Services

The Oregon legislature has decided to draw the line at medical service #587 in order to pay for health coverage of 120,000 uninsured residents at an added cost of $28 million (instead of the $45 million needed to extend the current benefits package).

``Nonessential'' services that will not be covered include treatments for: acne, psoriasis, myasthenia gravis, trigeminal neuralgia, hydrocele, congenital anomalies of the female genitalia, tendinitis, chronic bronchitis, cholesteatoma, sar- coidosis, sprains, acute conjunctivitis, synovitis, candidiasis, erythema multiforme, acute tonsillitis, and metastatic cancer with less than a 10% 5-year survival rate.

The state hopes to put the plan into effect in 1992 but will need a waiver from federal Medicaid rules.


Administrative Waste and Magical Thinking

According to a June 4 study by the General Accounting Office, a single-payer health insurance program similar to Canada's would save enough in administrative costs to finance insurance coverage for the 30-plus million uninsured (BNA's Medicare Report 6/14/91). The same argument has been made in the New England Journal of Medicine (324:1253-1258, 1991) by Steffie Woolhandler and David Himmelstein of Harvard Medical School and the Public Citizen Health Research Group.

Woolhandler and Himmelstein claim-and the media frequently repeat-that the US devotes from 19.3 to 24.1% of medical expenditures ($400 to $497 per capita) to administration, while Canada spends only 8.4 and 11.1% ($117 to $156 per capita) in this way. However, their assumptions are dubious. As pointed out by Robert Doherty of ASIM (Internist May, 1991), they attribute the total overhead for physicians' offices, excluding malpractice insurance, to administration.

Reducing the administrative overhead (in their view) requires ``simplification,'' for which the sine qua non is ``uni- versal comprehensive coverage under a single, publicly ad- ministered insurance program.'' The assertion that savings automatically follow from the destruction of the private insurance industry has been called ``magical thinking'' by Carl Schramm of the Health Insurance Association of America.

Woolhandler and Himmelstein make no effort to determine how much of 37% increase in US ``administrative'' costs between 1983 and 1987 is due to acts of Congress and regulations of HHS. Nor do they suggest using Shriners' hospitals as a model, rather than the Canadian government, although they note that these hospitals devote only 2% of their revenues to administration.

``The synchronous growth of bureaucratic profligacy and unmet health needs is reminiscent of Dickens' somber tale of six poor travelers who were relegated to outbuildings when the hostel built for them was fully occupied by its charitable administrators,'' say Woolhandler and Himmelstein.

Yet they would they prescribe more of the same.


News Briefs from Canada

Medicare Dying. Because of cuts in the federal budgets, transfer payments from Ottawa to provincial health plans may cease, causing the death of the Canadian national health plan

as early as 1994, according to a report by the Toronto Board of Health. When the federal government no longer transfers cash, it will lose the ability to enforce the Canada Health Act, and provinces will be free to institute private insurance and extra billing (Globe and Mail 7/7/91).

Doctor Suspended for Exceeding Quota. Dr. Robert Perron was suspended from the staff of Cité de la Santé Hospital in Laval, Quebec, solely because of surpassing his annual quota of 107 deliveries. The hospital attempts to force women to go to other hospitals far from home to give birth. ``We simply can't afford to become a giant baby factory,'' said the chief adminis- trator; it would compromise other health-care services. Many women could safely give birth at home or in birthing centers, but government policy prevents development of these options (Globe and Mail 6/7/91).

Bankruptcies Reach Record High. Compared with 1990, bankruptcies were up 130% in Toronto and 77% across Canada despite a supposed easing of the recession.

``Governments have created a negative atmosphere for anyone trying to do business in this country,'' said a senior economist at the Canadian Imperial Bank of Commerce. He pointed to record high interest rates and never-ending taxes (Sunday Sun 5/25/91).

Lengthy Surgery Referred to Oregon. Ontario physicians are only allowed to bill for two hours of endometriosis surgery. Even if they are willing to work without payment after that, there is the problem of getting the operating room and other staff for the seven hours that might be needed. The solution: a network for referring patients to a physician in Bend, Oregon (Today's Health 12/90).

Administrative Expenses Unknown. For years after introduction of Ontario government health insurance, the Ontario Medical Association tried to get permission for access to actual government books, without success. The two government levels claim very low costs, but the bureaucrats have a penchant for fudging the figures. A classic example of their phony account- ing: when I was chairman of the Subcommittee on Tariff for the Section of Otolaryngology of the OMA, the health ministry came out with an incredibly high figure for the average annual earnings of ENT specialists. I had done my own survey of all such specialists and my figure was very much lower. After discreet research, I discovered what had happened: the bureaucrats had decided that if such a specialist earned less than a certain arbitrary figure, he couldn't possibly be in full- time practice and his name was expunged from their list! (William Goodman, MD, Toronto).

A New Specialty? The quantity of medical services per capita is higher in Canada than in the US, especially for ``evaluation and management'' services (N Engl J Med 323:884-90, 1990). Canadian emigrant Robert B. Gervais, MD, of Mesa, AZ, suggests one possible reason: ``Canada is slowly becoming a nation that `specializes' in treating the healthy or minimally sick and avoiding the truly sick....Those who provide eye exams to healthy 20 year olds, blood checks monthly to healthy 60 year olds, etc., are happy to see the super-specialized providers `punished' for doing `too much' care.''

AAPS Solidifies Victory over HHS in Actions Regarding Laboratory Billing

Last year, AAPS won a significant victory in the US Court of Appeals for the Sixth Circuit when that Court ruled that, under the then-existing law (42 U.S.C. §13951(h)), nonparticipating physicians could lawfully bill for clinical diagnostic laboratory services on a nonassigned basis. (See AAPS v. Bowen 909 F.2d 161 (6th Cir., 1990).)

The Department of Health and Human Services (HHS) petitioned the Sixth Circuit for a rehearing, but that court-all 15 judges- refused. HHS never asked the US Supreme Court to review the case. Instead, HHS went to Congress, which was then considering the legislation that became the Budget Reconciliation Act of 1990. HHS managed to insert into the enormous legislative package an amendment to the Medicare Act that forces nonparticipating physicians to bill for clinical diagnostic laboratory services only on an assigned basis. In addition, the amendment made new requirement retroactive for five years. In this way, HHS attempted to undermine the effect of the decision of the Sixth Circuit by obtaining authority from Congress to sanction physicians for direct billing even though this was perfectly legal at the time.

Within four days of the signing of the Omnibus Budget Reconciliation Act of 1990 by President Bush, AAPS filed suit in the US District Court in Toledo, OH, challenging the constitutionality of the retroactive effect of the new Act. AAPS argued that the new Act was an ex post facto law and that it was an unconstitutional invasion by Congress into an area reserved to the courts (see AAPS News 12/90).

HHS has moved the Court to dismiss the second AAPS lawsuit. The only means by which HHS believes that it could prevent the Court from declaring the amendment unconstitutional is to assure the Court that it will not enforce the retroactive provision. According to HHS, this would render the issue ``nonjusticiable,'' or no longer ``ripe'' for judicial intervention.

AAPS has strongly contested in Court the arguments on the issue of ``ripeness.'' Still, the documents filed by HHS confirm the inevitable victory of AAPS in protecting physicians who, up until the effective date of the new Act (Nov. 5, 1990), billed for clinical laboratory services on a nonassigned basis. Eileen Boyd, Assistant Inspector General, stated that:

To impose sanctions under §1833(h)(5)(D) of the Act, the OIG must prove that a physician violated the statute knowingly, willfully, and repeatedly....We believe that the Sixth Circuit decision would provide substantial support to an argument by physicians that they reasonably believed that the statute did not apply to them, and they therefore could not knowingly and willfully have violated it....

The fact that Congress made the statute retroactive does not alter this burden of proof....Although Congress can rewrite the law, it cannot rewrite the past concerning what was in a physician's mind when he failed to take assignment for laboratory services performed in his office.

HCFA and OIG have agreed that cases based on violations of the statute occurring before the November 5, 1990, amendment should be referred to the carrier. Where the carrier finds that a nonparticipating physician has violated the assignment provision for laboratory services after November 5, 1990, it will warn the offending physician of the amended statutory provision and that continued disobedience will result in reference of the matter to OIG for sanction....

[A complete copy of the memorandum is available on request.]


The Soviet Lesson for America

Soviet bureaucracy's major ``achievement'' was the total alienation of the individual from the decision-making process, and from any real participation in the life of society....

The only difference in America is that the Soviet people were subjected to abrupt, forced alienation while we are now in a slow process of voluntary alienation. Citizen's responsibilities were taken from the Soviet people; we are handing them over freely. So, what took 70 years in the USSR might take 270 years here, but this is only a quantitative and not a qualitative difference....

Any bureaucratic machinery has an innate tendency to grow. Even Stalin could not reverse this process, and we do not have Stalin's tools at our disposal. The only device left to us is ... the power of the purse...[the] reduction of spending through control of taxation.

Excessive taxes occur when people pay to shift the burden of their personal responsibility...onto the shoulders of bureaucrats hired to do needed tasks. This is a form of ransom. ``I pay my money-you do the job.'' This liberal credo is the time bomb which eventually will destroy our society....

[W]e must increase two things: 1) direct personal involvement ... in the lives of our communities, 2) charitable donations....Properly run charitable organizations direct more than 70% of the collected money to the cause they support. This is much better than the efficiency of our federal bureaucracy....

Yuri Tuvim, PhD, former Soviet citizen

[Call AAPS for a complete copy of Dr. Tuvim's article in The American Conservative.]


The Price of Federal Money

What all of us at Hillsdale College fear is the next invasion of bureaucratic power....Already discussed in bureaucratic memoranda is the idea that tax exemption is really a loss of government revenue: as if the government already owned all of our earnings, and merely lets us keep some at its own pleasure.

[Hillsdale has never accepted a penny of federal funding.] They might as well announce, ``You take our money, we own you''....What is especially galling about this is that ``federal'' money was forcibly extracted from us in the first place. When they ``give'' some of it back, it comes not with strings attached but chains.

George Roche, PhD, Imprimis 10/90

[Dr. Roche, President of Hillsdale College, will be the banquet speaker at the AAPS annual meeting in Lexington, KY, October 18.]

New Members

AAPS welcomes Drs. Carl S. Axibal of Cape Coral, FL; Thomas J. Berger of Great Falls, MT; Stephen Berque of Westwood, NJ; Vivian K. Bethala of Emerson, NJ; John N. Carlson of Sarasota, FL; Philip L. Case of Freehold, NJ; Frederick F. Fakharzadet of Parasmus, NJ; Joel Fischer of Mt. Laurel, NJ; Raymond D. Fowler of Great Falls, MT; Ronald Freireich of Riverdale, GA; Saul B. Gilson of New York, NY; David J. Goldberg of Westwood, NJ; Kenneth E. Green of Crestwood, KY; Robert B. Hill of Haddonfield, NJ; Martin C. Hyman of Roselle Park, NJ; Carl R. Lepis of Asbury Park, NJ; J.W. McMillen of Beaver, WV; Ernest Aubrey Murden, Jr. of Portsmouth, VA; Donald Nathin of Dumont, NJ; Reynaldo O. Olaechea of Crossville, TN; Fred Palace of Morristown, NJ; Larry E. Patterson of Crossville, TN; James H. Peoples of Kinston, NC; Juergen Relestock of Santa Ana, CA; Lawrence A. Rosen of Ridgefield, NJ; John H. Scott III of Pikeville, KY; Robert T. Williams of Murray, KY; Terry Wood of Winchester, KY; Hsn-Vai Wu of Somerset, NJ; Ira Zucker of Westwood, NJ; and Morris Imaging Associates of Morristown, NJ.


Nominating Committee Report

The nominating committee, chaired by Donald Quinlan, MD, submits the following slate:

President: John Boyles, Jr., MD

President-Elect: Nino Camardese, MD

Secretary: Donald Quinlan, MD

Treasurer: R. Lowell Campbell, MD

Directors: Lois Copeland, MD; W. Daniel Jordan, MD; Andrew Mance, MD; Charles McDowell, Jr., MD; Gregory Polito, MD; and Joseph Scherzer, MD.



To be considered at the annual meeting, resolutions must be submitted, in writing, to Resolutions Committee Chairman R.S. Jaggard, MD, 10 E. Charles St., Oelwein, IA 50662, by September 17.


A Surgeon Comments on the RVS

In a community of 7,000 with a shortage of physicians, a board-certified Fellow of the American College of Surgeons is not able to limit his practice to general surgery. Sometimes, he

manages, on his own, a patient who might be referred to five specialists in a large clinic. Yet his fees are to be downgraded. He writes to HCFA:

Additionally, because I do have to manage so many of my surgical patients' problems, I will see them back repeatedly for their heart or lung problems after their surgery and yet, HCFA has denied these visits, saying these should be bundled in with the postoperative care...If this continues, I am going to have to demand that my patients, once I have operated on them, start seeing general practitioners or internists for their medical problems as I cannot afford to keep seeing them, using up valuable office time, without some recompense. The bottom line is, I am working 70 hours per week...Yet you are going to punish me...by declaring I am paid too much. Therefore, I am protesting the RVS and the whole concept.

Indeed, I would like to state that the government should admit that they have no place in guaranteeing medical care. If medical care is declared a right, then I think food, housing, heat, electricity, water, etc. should all be declared rights and supplied to those who cannot afford them....

If the government insists on managing medical care, then medical care will become like the NASA catastrophes, the Hubble telescope, the S&L crisis, the impending bank failure catastrophe, and the Post Office. Indeed, the only purpose of governments is to wage war....

If we are unwilling to abandon the concept of the government providing health care, the government [should accept] that it can afford only a two-tiered system. Let the government state what they will pay for each procedure and then let the free market system take it from there....If the doctor has an overwhelming practice, which I find is my situation, he can set an additional fee....Any attempt at leveling out care by paying just one fee and not allowing balance billing will result in further rationing of care...Those that will suffer first will be those that we have the most hassles from. That is Medicaid and Medicare. I have fewer hassles from those that have no third party payer and in fact, they receive the best care. I am tired of bureaucrats saying the poor are not receiving care when I know that I treat them all the time. I don't worry about hustling them out of the hospital faster as insurance companies and Medicare want us to do....

Donathan M. Ivey, MD, Crossville, TN

[Copies of AAPS comments on the RVS available on request.]


AAPS Calendar

Oct. 17-19, 1991. Annual meeting, Lexington, KY, Griffin Gate Marriott.