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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 57, No. 12 December 2001


At the recent AAPS Board of Directors meeting, Past President John Dwyer, M.D., of Illinois, asked: "What is Plan B?" What will we do if our challenge to the HIPAA Privacy Regulations fails? All lawsuits against the government are a long shot-and these days the government, as our Protector against Terrorists, receives even more deference.

All lawsuits take a long time to adjudicate. The government has already asked for and received a 30-day extension for responding to our complaint. Their first response is now due early in December. The enforcement deadline, however, remains the same: April, 2003. Compliance with the transaction code standards by insurers-the key to establishing a national data base of medical records-is earlier: October, 2002.

It is virtually certain that your office will be noncompliant with some portion of the 1,500 pages of the rules come April, 2003. It is absolutely certain that you could be accused of noncompliance should you, for some reason, be targeted.

Like the other penalties in HIPAA, punishments are harsh. Potentially, you could spend a year in prison for using a bit of lawfully acquired information before getting the patient to sign a form (see Donna Boswell's presentation at the 2001 spring meeting.)

There is no reason to expect that you will be able to obtain more reliable guidance on these regulations than on Medicare rules. The General Accounting Office (GAO) "could not have been more stunned" to discover the error rate in official CMS sources about billing. According to Leslie Aronovitz, GAO Associate Director for health financing and public health services, speaking at our annual meeting, the GAO placed 60 telephone calls to carriers, posing frequently asked questions from carriers' own web sites. Only 15% of the answers were correct; 50% were incomplete and would lead to denials if followed, and 35% were blatantly incorrect.

Silver Bullet compliance seminars are being offered throughout the land. From them you might be able to learn the list of 649 types of "business associates" with whom you will need a compliance agreement (yes, the janitor is one). After outlining some of the details, attorney Vickie Yates Brown advised: "Pray that the AAPS lawsuit succeeds."

The AMA offers to "help" with compliance, but is definitely not working to help overturn the regulations. The reason: The AMA actually chairs the National Uniform Claim Committee (NUCC), with the HCFA/CMS as a critical partner. The uniform claims and the national data base are the rationale for the privacy regulations-and a "huge step toward the federalization of medicine," stated Ms. Brown. The regulations assure a lucrative revenue stream for the AMA, which triumphantly announced a major victory:

"The intention and primary goal of the AMA's CPT-5 Project was to have CPT chosen by the Secretary of HHS as the national standard procedure code set for physician services. This Final Rule [Standards for Electronic Transmission] represents an unequivocal success for the AMA's effort and investment in CPT-5" [ notice on every page of NUCC site].

There is one obstacle in the path of establishing a cradle- to-grave medical dossier on all Americans: the lack of a unique patient identifier. This was once again defunded by legislation introduced by Rep. Ron Paul, M.D. (R-TX). This year-by-year effort needs to be made permanent, although the federal government is seeking an alternate method to connect the data. (See www.house.gov/paul and capwiz.com.)

Though seminar ads emphasize the privacy regulations, remember that October, 2002, is the month in which all data submitted to insurers will be in a conduit to the government, in the format of the standard transaction code set. "There is no latitude," stated Ms. Brown. If you do business with any insurer, you will soon have to transmit electronically.

There will be a radical change in most medical practices by October, 2002, or April, 2003: either to attempt HIPAA compliance, or to stop submitting insurance claims.

It is likely that most practices will obtain a stack of new forms, as from the Kansas Medical Mutual Insurance Company, attempt to carry on business while pretending to comply, and hope that the Office of Civil Rights doesn't target them.

Alternatives include: (1) Retiring from the practice of medicine; (2) Participation in a campaign either to refrain from work or to demonstrate the effects of minute attention to compliance, with a bureaucratic roadblock at every step, until the regulations are withdrawn by HHS or repealed by Congress; (3) Civil disobedience, with or without publicity; (4) Changing your practice to make the rules inapplicable. Only (3) or (4) can protect your patients' privacy, and (3) carries heavy civil or criminal penalties.

Option (4) may be impossible if the government successfully argues that the rules are triggered by using any piece of information that has ever been in electronic format anywhere. Such an extreme position may not pass constitutional muster, even in today's courts. HIPAA could be the stimulus needed for practices to perform an administrativectomy and free themselves from all third parties. HIPAA-free offices would transmit information only to patients or-orally-to medical professionals directly responsible to patients. Patients would have to file their own insurance claims-if any.

Unthinkable? Older clinicians know that before Blue Shield, most doctors didn't "take insurance." Before Medicare Part B, Blue Shield, managed care, and other first-dollar-coverage schemes, most physician services were not covered. Costs were lower, most patients paid, and fewer physicians experienced bankruptcy. The first to try it may prosper most.

AAPS Re-Affirms: No Right to Medical Care

At the 58th annual meeting, the General Assembly of AAPS passed the following Resolutions, with no nays being heard (full text posted here).

Resolution 2001-1: Be it resolved that: the Association of American Physicians and Surgeons declares that medical care is a not a right that can be bestowed by the state and that any laws, regulations, or policies that attempt to establish a government-mandated entitlement to medical care are not only unconstitutional and therefore illegal, but immoral and inimical to the physician's ethical principles; and AAPS will actively oppose any initiatives to legislate such a "right" or entitlement.

Resolution 2001-2: Be it resolved that: AAPS oppose continued and increasing government interference, supervision, and control in the practice of medicine; promote the immediate repeal of all laws, regulations, and policies that allow direct or de facto supervision or control over the practice of medicine by federal officers or employees; and call for a moratorium on any further laws, regulations, or policies that authorize government control over the practice of medicine.


Officers Elected

Officers for FY 2001/2002 are:

President: Robert Urban, M.D., of Belle Vernon, PA

President-Elect: Chester Danehower, M.D., of Peoria, IL

Secretary: Charles McDowell, Jr., M.D., of Alpharetta, GA

Treasurer: R. Lowell Campbell, M.D., of Corsicana, TX

Elected to three-year terms on the Board of Directors are:
Samia Borchers, M.D., of Dayton, OH; Melissa Kline Clements, M.D., of Oklahoma City, OK; David MacDonald, D.O., of Renton, WA; and Hilton Terrell, M.D., of Florence, SC. Claud Boyd, Jr., of Augusta, GA, will serve for one year.


HIPAA Risk Matrix

Just developing a "map" for HIPAA compliance at CentraState Health Systems took several months and extensive outside consultation. The resulting matrix listed all the entities to which information is sent; the reasons; security issues (such as use of mail or FAX or a "workstation vulnerable to unauthorized viewing"); minimal use policy; and requirements for a business agreement, consent, or authorization.

Additionally, the privacy officer needs to find out what the state laws are (www.ncsl.org), especially in California ( www.leginfo.ca.gov), with attention to statutes, regulations, and case law. Then, one needs to determine whether or not the law is preempted by federal law (the process is outlined at www.aha.org/hipaa/hipaa_home.asp). All states where your patients reside must be checked. HIPAA also requires compliance with other federal privacy laws that you might not be in compliance with already (the Privacy Act of 1974; FOIA; ERISA; the Electronic Standards in Global National Commerce Act; Gramm- Leach-Bliley; the Food, Drug, and Cosmetics Act; and OSHA standards) (HIPAA Compliance Alert 11/01).


AAPS Calendar

Sept. 18-21, 2002. 59th annual meeting, Tucson, AZ.


Dan Burton Chosen for Shining Scalpel Award

"In recognition of his outstanding service to the American people in cutting through the jungle of misinformation to reveal the truth about vaccine mandates," the Shining Scalpel Award of AAPS was conferred on the Hon. Dan Burton (R-IN), who has courageously persevered with controversial hearings on vaccine- related issues, such as conflicts of interest in the committee that "recommends" vaccines. Beth Clay accepted the award in the Congressman's absence.


Eliminate the Agent?

In a book entitled Health Networks: Can They Be the Solution?, Thomas Weil makes the point that medical care in Germany and Canada is 25% cheaper than in the U.S., despite flagrant overutilization of hospitalization, even if one adjusts for lower physician pay and less utilization of technology. George Fisher, M.D., in a HealthBenefitsReform discussion asks: "Would you care to guess where the other 25% goes?"

The best solution Weil can devise is a combination of the three failed approaches of regulation, brutalized competition, and micromanagement. But as Greg Scandlen points out, all of these rely on supply-side rationing, as opposed to patient-driven care in which patients self-ration based on their own values, resources, and preferences.

There is also the "agency problem" of employers negotiating insurance contracts on behalf of employees-and also of third parties acting on behalf of others. It is not just a problem of betrayal of trust, as Dr. Fisher points out, but of the former agent taking charge, and those formerly in charge (physicians, in his view) becoming vassals.

The key problem is that the "normative question" is "to determine how much redistribution is to be required." James Blumstein states that physicians wishing to return to 1965-75 are "not being realistic." He is undoubtedly correct.

If medical care-and the fruits of redistribution (legal plunder)-are taken to be a right, as implied in the 1965 establishment of Medicare, the result is inexorably a complete government takeover. Can we change direction? In many, the entitlement mentality seems to be fixed in stone. Congress could help by expanding MSAs and private contracting, but shows no sign of acting soon.

Change will not come from the top down. It will start with a few bold physicians and patients declaring independence and asserting their rights. October, 2002, could be the last opportunity. What will you do?

* * *

"...it does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people's minds."
Samuel Adams

Coding Case to Be Reheard En Banc

In an unusual action, the Fifth Circuit Court of Appeals granted a petition for rehearing en banc in the case of Peter Veeck v. Southern Building Code Congress Intl, No. 9940632 (see AAPS News March 2001). AAPS filed a brief amici curiae in support of Veeck's right to post building codes on the Internet, together with Eagle Forum Education and Legal Defense Fund.

"The First Amendment right of free speech protects Veeck's actions, and precludes SBCCI's ownership of the law," AAPS argued. "Robust public debate about the law can only take place if the law itself is freely restated, copied, and criticized." Amici have encountered similar infringements on free speech. In the case of the AMA's CPT billing requirements, "a restatement of its absurd complexities and ambiguities, replete with criminal sanctions for violations, would itself constitute a powerful criticism of government requirements."

Virtually all states now provide electronic access to statutes, regulations, and judicial opinions over the Internet, promoting a more informed citizenry. "The lone exception to freely available, electronic legal requirements is material withheld ... due to a proprietary interest asserted by private entities like SBCCI."

"Currently, private organizations like the SBCCI and the AMA can tailor their codes, with the force of law, for the benefit of their own financial interests." CPT codes, by "constantly changing in trivial ways," provide a "prodigious revenue stream to the AMA as it sells the revised versions."

The development of codes in the public domain, with unfettered access to the law, has worked well, as demonstrated with the Uniform Commercial Code (UCC). This model should also be applied to building and medical codes.

The full brief is posted at here. Funding was provided by the American Health Legal Foundation.


AAPS Wins Round in Pediatric Rule Case

On October 26, Judge Henry Kennedy, Jr., of the U.S. District Court for the District of Columbia denied the government's motion to dismiss the case of AAPS et al. v. United States Food and Drug Administration (Civil Action 00- 02898 (HHK), see AAPS News April 2001).

AAPS argued that the FDA's rule would reduce the number of available drugs and hence inhibit the physician's ability to practice effectively. The government argued that plaintiffs had no standing to sue and that the matter was not ripe for adjudication. The court ruled that "agency's policy has crystallized, as the FDA has already begun enforcing the rule in ways that may cause delays in drug approval."


Tainted Prosecutions of Tainted Claims

Physicians are very nervous about the Stark rules against self-referral, and for good reason. A particularly harsh enforcement "tool" that they should be aware of is the use of the False Claims Act, with its triple damages and per-claim fines. In a September 2000 letter to Rep. Pete Stark (D-CA), the Justice Department stated that it is pursuing 50 false claims cases alleging illegal self-referrals, all brought by whistle-blowers (Medicare Compliance Alert 10/22/010).

In fraud prosecutions under the anti-kickback statute, prosecutors must show a mens rea of knowing participation in an illegal arrangement to exchange referrals for remuneration, and prove that a violation occurred "beyond a reasonable doubt." In contrast, under the FCA, the mens rea element is satisfied by merely showing, by a preponderance of the evidence, that the defendant acted in "reckless disregard" or with "deliberate indifference to the truth or falsity" of the claim submitted. "Tainted claims," which are neither false nor fraudulent in themselves, may still be actionable under the FCA because the defendant requested payment from the government while allegedly in violation of a separate law.

The tainted-claims approach under the FCA creates a private cause of action, though Congress did not. Because the funds "recovered" are ultimately the source of appropriations for future antifraud action, both the private plaintiff and the public prosecutor have a financial incentive to proceed. This can corrupt the process in a manner not unlike the "kickbacks" that the Stark rules are intended to deter.

An extensive analysis by Dayna Bowen Matthew in the Indiana Law Journal, Summer 2001, concludes that the tainted-claims approach is based on a faulty economic assumption that all referral fees are harmful. Further, such litigation is "more effective at serving the financial self-interest of both government and private enforcers than at actually reducing the incidence of fraud."


Dr. Krizek Files Petition for Writ of Certiorari

In a petition to have their case (see AAPS News Sept. 2000) heard by the U.S. Supreme Court, Dr. and Mrs. Krizek claim: "The government has `won' in this case through legal criteria created ex post facto and applied retroactively.... Dr. Krizek has been judicially punished for some sort of alleged billing transgressions, even in the absence of proven damages. Yet, the petitioners have never had a fundamental question answered...: what exact legal standard have they breached?"

Key questions include: (1) Does alleged injury to the Government's sovereignty, without proof of actual economic damage, establish standing to sue civilly under the False Claims Act? (2) Does allegedly incorrect use of the AMA's CPT codes, which are privately copyrighted, not promulgated as a rule under the Administrative Procedure Act, and utilized by the Government pursuant to a contract, constitute injury to sovereignty, as contemplated in the Stevens decision?

In Stevens (529 U.S. 765 at 772-773), the court held that to have a valid claim for damages under the FCA, the Government must seek "compensation for, or [to] prevent[] the violation of a legally protected right." The Government does not possess a legally protected right to interpret CPT codes, petitioners contend.

Testifying at Dr. Krizek's trial, Dr. Tracy Gordy, current chairman of the AMA's CPT Editorial Panel, stated that CPT codes are "guidelines" and not legal mandates.

This case highlights a key dilemma: Does the CPT have the force of law, or not? If so, the AMA's copyright is threatened. If not, how can physicians be criminally prosecuted or civilly fined for coding disputes, and why do they need to have an expensive plan to comply with a non-law?

Petitioners also argue that in making an award of restitution for unjust enrichment, the District Court substituted its own judgment for that of both HCFA and the doctor in determining what constituted a "proper" medical treatment, thus threatening physicians' freedom to make medical decisions.

The brief is posted here. The American Health Legal Foundation helped support this Petition.


No Legal Obligation. Recently, Upstate Medicare sent me a letter threatening OIG sanctions if I fail to file claims with Medicare HMOs. In 1998, Congressman Ron Paul investigated this question and wrote that "my staff ... has been assured by [HCFA] that a physician who does not take assignment and is not part of a Medicare HMO network incurs no legal obligation to file with Medicare when treating a patient enrolled in a Medicare HMO. Furthermore, the physician does not have to abide by Medicare's price controls."

Nevertheless, the Blue Bunglers, having misinterpreted the law, have wrongfully informed my patient that I "have a contractual obligation" to provide her care free of charge. I have signed no contract with Medicare or any HMO, for professional ethical reasons. Truth and actual laws don't deter the Blue Bunglers in their ongoing efforts to destroy my patient- physician relationships. When proven wrong, there is never any consequence for their egregious misdeeds. HCFA/ CMS has consistently told them that they have no obligation to write back to patients to tell them the truth. The truth is irrelevant to this evil, destructive bureaucracy.
Lawrence R. Huntoon, M.D., Ph.D.


Sisyphus Must Stop. From an open letter to Diane Lardie, National Director, Universal Health Care Action Network: Your support of the government as the answer is totally wrong.... [T]he government is the biggest corporate monster to defeat if genuine Universal Health Care is to become available. An elephant is a dog designed by a committee, while HCFA/CMS is a hippocampelephantocamelos (from Cyrano de Bergerac) designed by Congress. In no way can you decry "corporate" waste without condemning government waste more. The megabureaucracy model fails without fail.

The answer is Medical Savings Accounts. MSAs create an ownership experience with all its psychological benefits, fostering and teaching freedom, self worth, and enterprise.
Samuel Nigro, M.D., Cleveland Heights, OH


Role Reversal. At the start of the 20th century, it was believed to be the government's duty to protect the public from snake-oil salesmen who failed to deliver what they promised. Today, the public needs protection from low-life politicians who promise paradise but can't even deliver a first-class letter.
Gerry Smedinghoff, Actuary, Scottsdale, AZ


Opted Out. It is more than a year since I opted out of Medicare. How sweet it is! I want to thank AAPS and Andrew Schlafly for helping me to get out.
Richard Ucci, M.D., Stamford, NY


Pass It Along. A gentleman from Hawaii, who was born in China, called AAPS after visiting his ophthalmologist's office, where he saw our Thanksgiving pamphlet. He asked for permission to reprint. He plans to stand out in front of high schools and pass it out. He is disgusted with our schools and with other restrictions on our freedom.
Anne, President, Grassroot Grannies


Caution on Bylaws. I appreciate your sending me an example of the pitfalls in signing bylaws. I used this information in my presentation to the MEC, along with a petition signed by 60 doctors on the medical staff. It turns out these rules were recommended by Tenant lawyers and originated from the California Medical Association. There is now a committee assigned to getting rid of the thing; I am co-chairman.
Linda W. Wilson, M.D., Culver City, CA


Carrier Error. It has become clear that Arthur Pagan, Branch Chief for CMS in Dallas, does not understand Medicare rules and terminology [or] misconstrues them so as to illegally deny claims to my patients. Additionally, it is interesting that Medicare carriers are required to have a 95% accuracy rate and the Texas carrier admittedly falls below that standard. How much further would it fall if CMS did not cover for it? What is the amount of money involved in a 5% error rate for the carrier? Note that every physician is supposed to be 100% accurate in claims filing.
Richard Swint, M.D., Paris, TX


Are You Next? A friend and son of one of my patients was arrested, handcuffed, and put in jail today for "insurance fraud" [billing for the midwife's services at a birthing center]. He is one of the most honest physicians that I know. And I learned that Munson Medical Center is being audited, soon after receiving some of the highest marks in the country from JCAHO. The insanity is running wild.
Michael Harris, M.D., Traverse City, MI


Trade-Off. The average American could save $300,000 over a lifetime by buying moderately priced cars for cash, keeping them for 10 years, and investing the savings. Americans complain about having to pay for life-saving technology, but willingly buy cup holders, CD players, and leather seats. As a former human resources executive, I know that low-wage earners commonly go without medical insurance to buy a $30,000 car. Rather than endure withdrawal from the opiate of the masses-an overpriced status symbol-we expect business and government to subsidize medical care, making it more expensive for everyone, especially the poor.
Craig Cantoni, Scottsdale, AZ

Legislative Alert

Displaced Workers

While Medicare reform, Medicare prescription drugs, and the Patients Bill of Rights (PBOR) have clearly been knocked off the Congressional table by the September 11 terrorist attacks, the issue of medical insurance for displaced workers is very much on the agenda. Without any assistance, many of these workers will be left without private coverage, and their plight will fuel the Left's campaign for a complete government takeover of American medicine-a goal recently repeated by Senator Kennedy during the summer debate on the PBOR.

The Left, as noted previously, has a simple plan: enroll these previously working families in the welfare program- Medicaid. Sen. Max Baucus (D-MT) proposes to earmark $17 billion to subsidize 50% of COBRA coverage for displaced workers and to allow states to extend Medicaid coverage.

Congressional Republicans are proposing to put aside $3 billion dollar for these folks, but they are not entirely clear about how it is to be spent. Sen. Charles Grassley (R-IA) is proposing to give states grants to provide coverage to displaced workers, but he limits assistance to COBRA coverage.

Sen. Jim Jeffords (I-VT) is proposing an advanceable, refundable tax credit, which makes sense, but he restricts the credit to COBRA coverage, which doesn't. A better idea is to broaden the debate into the bigger question of the tax treatment of medical insurance, and how it limits portability, choice, and ownership of medical insurance. Congress could build on Jeffords's proposal by extending the tax credit to all displaced workers, whether or not they have COBRA coverage, and allowing them to use the credit for any private plan they wish, including medical savings accounts. Once again, the issue is not money; it is structure. How you organize the financing and delivery system is key, and there are only two major ways to do it: through government programs or through the private market. Now is a chance for the free-market folks on Capitol Hill to make a compelling case. We'll see whether they do.

Medical Cost Increases

Hewitt and Associates is projecting cost increases between 13 and 16% next year, following a pattern of sharply rising premiums. Indeed, the Center for the Study of Health System Change says that in 2001 premium increases amounted to 11%. This is the highest increase in employer-based medical insurance since 1992, when large firms reported an annual increase of 10.9%. In 2001, those firms reported increases of 10.2%. So, for all intents and purposes, America is back again to the spending debate that kicked off the "health care reform" debate in the early nineties, converging in the presentation and defeat of the ill-fated Clinton Health Care Plan.

Why are costs going up? There are several factors, including the aging of the population and the development of new therapies, particularly pharmaceuticals. Also, medical liability costs are rising dramatically, reflecting a rise in jury awards, now averaging $3.49 million (NY Times 9/10). Some malprac- tice insurers are increasing premiums by more than 30%. Hospital spending accounts for 43% of the cost increase, according to the Center for the Study of Health System Change, representing the largest jump in medical spending.

Aging of the population is probably the biggest factor driving up the costs. In 1920, life expectancy was 54 years. Today it is 76. While persons over 65 today make up 12.5% of the population, they account for 34% of hospital expenditures.

Are we spending too much? Let us assume that leftist policy analysts are generally correct: Americans are spending too much on medical care-a big assumption. Even so, it does not logically follow that either the White House or Congress knows what we should be spending. There is no algebraic formula in Senator Kennedy's bottom drawer that will reveal, like the Oracle at Delphi, what the right level of spending is for the citizens, individually or in general. The contrary assumption-that some government official has some special competence in this area-is not borne out by experience, either in Medicare, Medicaid, the British National Health Service or the Canadian system.

What we say for certain is this: In an advanced society, where people are living longer, are healthier and wealthier than ever before, and are free to have access to high-quality care, we are likely to have a high level of spending.

The current debate is, for those of us who came of age in the 60's, quite ironic. We were routinely treated in college seminars to tirades against the powerful military-industrial complex and the war profiteers who made billions out of burning villages in Vietnam and elsewhere, and told that money wasted on cruise missiles and B-1 bombers would be better spent on medical care or hospital construction. Then, medical spending was a good thing, and the more, the better.

A more important question is this: Are we getting value for our money? And the answer is-on balance-probably not. The reason: medical care is the only sector of the American economy that is not subject to the ruthless discipline of a consumer-driven market. Most of the population is insulated from direct costs through an outdated third-party payment system, in which people use insurance to pay for routine medical expenses, so there is no normal collision of supply and demand. A socialist system guarantees lesser value for money and a remarkable level of inefficiency in the financing and delivery of wheat, widgets, or medical services. The free market, on the other hand, is the most ruthless mechanism designed in history to control costs and allocate limited resources efficiently. Without a free market in medical care, we have no mechanism to assure value for money.

The FEHBP Premium Hikes

The Federal Employees Health Benefits Program, the largest group health insurance program in the world, is projected to have an average premium increase of 13.3%. Federal employees union chiefs are going wild, and say that the FEHBP increases prove that the market-driven structure for insurance doesn't really work after all. On October 16, the House Subcommittee on Civil Service and Agency Organization, chaired by Rep. Dave Weldon (R-FL), held a hearing on the premium increases, and invited a range of witnesses, including the District of Columbia Commissioner of Insurance Lawrence Mirel, who argued strongly for the inclusion of Medical Savings Accounts in the popular program, and this writer, who made the same argument for MSAs and then some.

The Left has a different take on this, of course. The National Treasury Employees Union is asking Congress to given them a seat at the table so they can help the Office of Personnel Management (OPM) keep the pressure on Big Insurance. One of its top recommendations is to give OPM authority to purchase drugs and other benefits at big discounts on the theory that a government monopoly of purchasing would guarantee economies of scale. So the government would become the customer, and vendors, doctors, and hospitals would henceforth be beholden to the government instead of the patients. While we are at it, why not have the government monopoly purchase food, clothing, and housing, so we can all enjoy the economies of scale of socialism on a grand scale?

If FEHBP becomes like Medicare, then it will have the same dynamics as Medicare. The government will purchase the services, but households will still pay 100% the costs-in a different way. Will a Medicare style system control costs? It all depends upon how you measure cost. A government system can cut spending, while the actual cost to individuals and families, in terms of out-of- pocket expenses as well as the denial of care or the loss of access to care, can soar. In 1997, the Congress reduced payment for hospitals, nursing homes, and home health care agencies. The result was a crisis in which 2,000 home health agencies shut down. Employers have done much the same thing through HMOs-and employees and their families have borne the cost.

The new Bush team at OPM is not buying any of this, but the professional career civil servants there still like the idea. They have been hankering for years to turn the FEHBP into something that looks the Medicare program.

The FEHBP increases should be worrisome to everybody, not just federal workers and retirees. Since the FEHBP has a superior historical record of cost control, the increases are an ominous indication of even higher premium increases in the rest of America's employment-based medical insurance system.

FEHBP cost increases surely reflect broader changes in the market, particularly the growing patient demand for high-quality prescription drugs. But there are also factors, peculiar to the program, which are not inherent in its structure. The first is the artificially skewed demographics of the federal workforce, which is significantly older than the private sector workforce and aging rapidly. Not only do older worker have higher costs, but a disproportionately large portion, about 40%, of FEHBP policyholders are retirees. In sharp contrast, many private companies have ceased or limited coverage for retirees.

A second reason for cost increases is the recent tendency of OPM to break with what the Congressional Research Service has described as its "passive" management (they didn't meddle much) and the adoption of a active, aggressive, regulatory approach during the Clinton years. Between 1990 and 2001, the Executive Branch, either independently or sometimes at the urging of Congress, made 44 specific decisions relating to health benefits. If understood as ancillary to the basic statutory benefit, these additions have the equivalent economic impact of the benefit mandates that are a prominent feature of state medical insurance laws. Whatever the merits of any particular intervention, mandates impose higher costs. So why are leftists in Congress so surprised that their premiums are going up? They are getting a taste of their own medicine. At least there is some small measure of justice in this world.

So Goes Maine?

The state legislature of Maine, toward the end of its last session, voted to set up a commission to work out the details of a government monopsony ("single-payer health care system"). Of course, they have plenty of models to choose from: our own Medicare or Veterans Administration; the Canadian system that is a walk across the border; or the British National Health Service, the groaning Mother of All Socialized Medicine, a mere 5-hour plane trip away. It is not as if the commission were charged with reinventing the wheel. The inside betting is that the Maine Commission will look a few miles north and adopt the Canadian system. They are to make their recommendations to the State legislature in March 2002. So, Maine is off and running to socialized medicine, right?

Well, not quite. The broad, attractive themes of superior socialist efficiency, an end to HMOs and administrative costs, and sentimental appeals to the equality of universal coverage really never quite cut it. The commission is not likely to complete its big job on time. It is really not so simple. The Commissioners will have to ask some really tough questions. For example: Will state employees and legislators be enrolled in the same system as everybody else with no favoritism in medical treatment? Or, as in so many cases, will there be a double standard-separate treatment for the rulers and the ruled? Will Maine citizens be forced to give up their private plans? Will they have access to private plans or the right to choose private plans instead of the government plan? Will they have a right to contract privately with their doctors and pay cash directly for medical services without penalties or regulatory obstructions? Will Maine citizens who are on Medicare or Medicaid or state and federal employees be compelled to enroll in the single-payer plan? And will they seek, and get, a waiver from the Bush Administration to make that happen? How will they pay for it? Some form of payroll tax, cigarette or alcohol tax, or general revenues? How can they raise the level of taxation as high as they must and keep business in the state? How do they prevent their legislation from becoming the Vermont Economic Redevelopment Act of 2001? How will they control costs? Will they set budgetary limits on spending? And if they do, will they forbid private medical spending? Will they impose price controls on doctors and hospitals? And if they do, how will they prevent shortages in the quality and quantity of medical services? If government officials take over the responsibilities, and create the equivalent of a giant government HMO, will Maine citizens have a right to sue government officials who deny them coverage for medical service? Will patients have redress against those whose regulatory actions result in injury and death? Will there be a patients' bill of rights for patients? Just a few questions.

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