New York Clawback. The new instructions promulgated by
the N.Y. Dept. of Health for filing claims for "dual-eligibles"
(Medicare/Medicaid patients) are so costly and complex that small
practices will not be able to bear them. But just to make sure
that hospital-owned clinics will have a significant advantage
over solo practitioners, the new law provides that "hospital
based/freestanding clinic services" will receive the full
coinsurance amount, while independent physicians receive only
20%. To collect the paltry 20%, the physician will have to file
two Medicaid claims (plus the Medicare claim) for each service:
one for the deductible, and one for the coinsurance. Worse, the
State's claim processing system wasn't programmed to handle the
new rules when the law went into effect in July 2003. Because of
the "overpayments" made to physicians, the State will be "making
retroactive adjustments to recoup the payments made in excess of
the reduced coinsurance amounts for claims that have already been
submitted (July 1, 2003, through December 10, 2003)." This will
be done gradually, over several payment cycles in the first
quarter of 2004.
It's time for physicians to wake up and smell the frog.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Cognitive Dissonance. I understand that the current
crop of history students is being taught the evils of the past:
monarchs were immoral because they looted the people. Yet
students learn from the very same textbook that their progressive
government is moral when it loots every grandchild to shower
grandma with free drugs and medical care.
Robert P. Gervais, M.D., Mesa, AZ
Taxpayers Buy Cigarettes. I once did a survey of all
TennCare patients admitted to the emergency room: 85% of them
admitted to the triage nurse that they smoked. I asked them how
much they smoked and told them how much it cost. One pack per day
cost $1,000 per year, 2 packs $2,000. They had never done the
math. I really would have no problem with their smoking or
drinking if it weren't on the taxpayers' tab.
Robert S. Berry, M.D., Greeneville, TN
I once did the same: $3,000 per year amounts to $150,000
over 50 years. If a person saved this amount, and it doubled
every 7 years, the approximate life-time investment equivalent is
about $1.2 million. This shows that no one who has a little self-
discipline needs to be on welfare. Some patients got really angry
and said I had no right to make moral judgments. One reported me
for harassment. I decided it wasn't worth the risk. Government
control has built-in safeguards against correction.
Delbert H. Meyer, M.D., Carmichael, CA
Representation without Taxation. Under our progressive
tax system, many inhabitants do not pay income taxes, though
there are hidden taxes and sales taxes. Some even get "refunds"
for taxes they did not pay! Then there are "welfare" payments,
though they may be unconstitutional. It's time for a change.
Robert M. Webster, M.D., Jasper, GA
Freedom for All. Let me as a patient contract with any
insurer for anything we can mutually agree upon. Let me as a
patient contract with any physician for any service we can
mutually agree upon. No more pacts with the devil (like the AMA
teaming up with the trial lawyers for a "Patients Bill of
Rights"). Freedom for me means freedom for you and for insurers,
brokers, hospitals, and everybody else. One person's freedom
cannot be enhanced by diminishing another's.
Greg Scandlen, Frederick, MD
No Programs, No Mandates, No Systems! Too often, we get
trapped into the idea of "creating" markets, or devising complex
plans that "utilize market forces." You can't "direct" a market,
at least not very efficiently. Markets direct themselves. We are
usually best served by getting out of the way.
Sean Parnell, Heartland Institute
What About the Poor? We must demonstrate that the old
and the sick are the ones who get hammered when medicine is
centrally controlled by bean-counters. A group of disabled
Medicaid dependents in Colorado have organized to protect the
severely disabled from Medicaid. They want the cash to arrange
their own care. It's tough to argue that expanding Medicaid is
the best thing for the vulnerable when people intimately familiar
with the program sit there in wheelchairs and tell you you're
wrong. The educational voucher folks have been brilliant in
taking the moral high ground away from public schools. We need to
do the same for public medical care.
Linda Gorman, Englewood, CO
Why I Quit Medicare. It is illegal to accept money from
any Medicare beneficiary, beyond the fee rules, for any covered
service. If I accept 1 cent more for better or more timely
service, I am a felon, like in Cuba, North Korea, and Canada.
Even heavily socialized countries like England and France have an
extensive market for private care. Just walk in and pay.
Medicare has become a welfare program for the middle class.
Doctors hate it for the underpayment and endless hassles.
Patients hate it for the lack of access to the good doctors who
have quit and the third-rate care the "benefit" now buys. I want
my Medicare benefit to go into my HSA, so I'm in control of the
money. Then I'll be free.
Herbert Rubin, M.D., UCLA School of Medicine
Legislative AlertMedicare Fallout
Let's get this out of the way, so there is no
misunderstanding. The Health Savings Accounts (HSAs), in Title
XII of the Medicare Prescription Drug, Improvement and
Modernization Act, are clearly the most desirable provisions of
the otherwise flawed new law. But of course HSAs have nothing to
do with Medicare. Nonetheless, for the first time, all Americans
under the age of 65 will be able to take advantage of a more
robust form of medical savings accounts (MSAs).
The new law sets a cap on contributions at $2,600 for
individuals and $5,150 for families. For persons between the age
of 55 and 64, there will be a catch-up provision, allowing an
additional amount of $500, but capped at an additional $1,000 in
2009. Both employers and employees will be able to contribute to
these accounts tax free, and patients will be able to pay
directly for medical services. Already, Kay Cole James, the
energetic Director of the Office of Personnel Management (OPM),
the agency that runs the Federal Employees Health Benefits
Program (FEHBP), is exploring ways to extend the HSA option to
the FEHBP in 2004. Conservatives, libertarians, and champions of
the free-market policy all applaud the effort. It is a
significant victory for consumer choice and competition.
Now, let's get back to Medicare. The fallout from the
Medicare explosion continues, and the policy and the politics are
going to be affected in strange ways over the course of the next
three election cycles. If anyone in Congress or the White House
thought that the enactment of this legislation was going to take
Medicare "off the table," as they say, they don't belong in the
politics business. That business is for grown-ups. So, a few
observations while the dust is still settling:
It is far short of real Medicare reform. In terms of
the "premium support"/FEHBP style competitive model endorsed by
the Bipartisan Commission in 1999 and the Bush Administration in
2001, the provisions of the new Medicare law are far short of
Medicare reform. Tom Scully, Administrator of the Centers for
Medicare and Medicaid Services (CMS), admitted as much when he
told Professor Uwe Reinhardt of Princeton that "I don't know if
folks really understand this, but the reforms we're now talking
about are really quite modest by comparison with what was
floating around two or three years ago" (Health Affairs,
The "Premium Support Demo" is a fat target for the Left.
While Section 241 of HR 1, the House version of the Medicare
bill, provided for an FEHBP-style reform, in the final language
of the House-Senate conference report that provision was watered
down to a mere 6-city demonstration project beginning in 2010.
The proof that this was broadly understood to be a toothless
provision was evident when Senator Max Baucus (D-MT), in a
revealing November 24 Senate floor speech in favor of the bill,
told his Senate colleagues not to worry about it; it would be
I have heard some Senators claim that this is not
the Senate bill because it contains something called
premium support, and it has a so-called slush fund. Let
me remind Senators, the so-called premium support is
extremely watered down from what was in the House bill.
It is time limited to 6 years. Only six cities will be
demonstration projects. Low-income seniors in each of
those six cities will be held harmless.... In addition,
the premiums for those who are not low income are
limited to a 5 percent change. Fee for service Medicare
is held harmless in all respects in those six cities
where there may be a demonstration project. They are
held harmless in all respects, except the Part B
premium may go up by no more than 5 percent. Any other
change in these demonstration areas has to be enacted
by Congress enacted by Congress to extend, enacted by
Congress to expand, enacted by Congress to change.
What has happened in the past when we have had
these demos? They have been repealed. They have not
been extended. In 1997, Congress set up premium
support demonstration projects. Congress then rushed in
to repeal them as quickly as they possibly could. They
were gone. The same will happen here. Do my colleagues
know why? Because the dollars provided to private
plans in the premium support demonstration areas will
be much less than in other parts in the country. The
private plans will not be able to survive.
Mark my word, those plans, those physicians, and
those providers in the demonstration MSAs are going to
come to Congress and ask us to repeal it.
Will the Bush Administration or its successors really
champion an FEHBP-style program, with a will to see it succeed?
Good question. Last month, when HHS Secretary Tommy Thompson,
supposedly a champion of free-market competition, was asked
whether he thought the program would happen in 2010, he told Kate
Schuler of CQ Today, "I don't."
It is going to contain nasty surprises. They will
unfold over the next several months. Let's look at a prominent
one: A restriction on Medigap coverage for drugs. As
with all Medicare entitlements, Congress has standardized the
prescription drug benefit to be offered by private plans. And as
Robert Pear reports, the new law also prohibits Medicare
beneficiaries from buying Medigap coverage to cover the
deductible, the copayments, or the $2,850 "doughnut hole,"
because Congress wants to avoid duplication of the benefit and
end the Medicare beneficiaries' insulation from costs. According
to Pear, if a drug plan used a formulary, or a preferred list of
drugs, and a Medicare patient wanted to use a drug not on the
plan's formulary, he could appeal that decision but could not
resort to additional private coverage to pay the cost of the non-
formulary drug. (NY Times 12/7/03). Needless to say, for
millions of seniors who buy Medigap coverage this will be an
unwelcome development to put it mildly.
For the record: Medigap restrictions are not exactly a
surprise. Ed Haislmaier, Visiting Research Fellow at the Heritage
Foundation, called serious attention to this on July 17 ("How
Congress's Medicare Drug Provisions Would Reduce Seniors'
Existing Private Coverage," at www.heritage.org/
research/healthcare/bg1668.cfm), detailing the likely
consequences, but the Congressional leadership obviously felt
that this was not going to be a problem. As with so much else in
this legislation, they were wrong.
Its costs are going to be explosive. While the Congres-
sional Budget Office (CBO) estimated that the bill would cost
$395 billion in the first ten years, CBO Director Douglas Holtz-
Eakin, in a Dec. 8 speech to the Heritage Foundation, conceded
that the bill could cost as much as $2 trillion during the 2014-
2023 period, when the baby boomers will be enrolling in Medicare
in ever larger numbers. Meanwhile, liberals in Congress have
already backed legislation that would more than double the costs
of the first 10 years. Taxpayers and seniors alike are in for
Health-related spending in 2002 reached $1.6 trillion or
$5,440 per person, according to CMS economists. Drug spending
jumped 15.3% in 2002, slowing from previous years. But drug
spending is still expected to increase its share of overall
medical spending from 10.5% in 2003 to 14.5% in 2012 under
current law, without taking into consideration the impact of the
It means the Era of Big Government is back. As
opined in a remarkable editorial, "The most striking thing about
the new Republicanism is the way it embraces big government. The
Bush Administration has presided over a $400 billion expansion of
Medicare entitlements." (NY Times 12/28/03). This
expansion comes at a price, and both Left and Right will pay it.
The impending entitlement expansion will not only threaten the
Bush tax cuts, and any future tax cuts, but it could,
paradoxically enough, spell deep trouble for liberal-activist
government. Former OPM Director Don Devine, who served in the
Reagan Administration, predicted years ago that the end result of
the massive flow of dollars to retirees would otherwise be
devastating to liberal activist government for the rest of
society, so heavily based on the promotion of various social
policies and programs.
Cost containment means pain. As CBO notes, in an entitlement
program that pain can be administered through cuts in benefits,
reductions in eligibility, or cuts in payment for services. The
cuts translate into a reduction in quality and access to care.
The only "cost containment" that will work with the least pain,
and a pain that is easiest to relieve for low-income patients, is
the one Heritage, the American Enterprise Institute, and the
Progressive Policy Institute have all proposed: a "premium
support" financing system (a version of the defined contribution
approach). Perhaps when the inevitable "provider" fee cuts start
in 2007 and 2008, Congress will rethink the whole thing, and may
even go back to a reconsideration of the premium-support model.
Meanwhile, pass the anesthesia.
It's not the political slam dunk the White House
envisioned. Seniors, particularly those with solid drug
coverage, won't like this once they understand it. And they
will soon. Let's start with the polls. During the height of the
Senate debate, the Galen Institute hired John Zogby to test
approval of the Senate drug bill; almost three-quarters said they
didn't like it. More recently, according a poll released by the
National Annenberg Election survey, the support for the new law
dropped from 61% percent to 21% when respondents learned the
details (Palm Beach Post 12/31/03). Then, according to
the Kaiser Family Foundation, many voters still don't even grasp
the basic facts. After Congress enacted the Medicare law, only
39% of adults said that they knew it passed; 49% said they did
not know it passed; and 13% did not believe that the bill had
really passed after all. In a second Kaiser survey, conducted in
December 2003, 59% of seniors knew the bill had passed, but 40%
believed that the law did not pass. Meanwhile, there is no
nationally prominent conservative seniors' organization in the
country none that is countering the AARP on its support for the
legislation, and the AARP itself, not surprisingly, is already
losing membership over this mess. This is an historically
significant failure of leadership among seniors' organizations.
The Left is already plowing this fertile ground. Ron Pollock
of Families USA, no ideological champion of the free market, is
planning to visit 25 states in March and April to educate the
public on the new law (NY Times 1/6/94).
Senator Edward M. Kennedy (D-MA) says that he has only just
begun to fight, and has introduced legislation to roll back large
chunks of the Medicare law and fill up the "doughnut hole."
Likewise, Senate Minority Leader Tom Daschle (D-SD) dropped his
bill a Medicare "technical corrections" bill just before
Christmas. It would, among other things, end HSAs and kill the
FEHBP-style demo project. According to the Times,
Democrats will use every available means in the upcoming session
of Congress to amend or attack the new law.
It will mean more, not less, Congressional micro-
management of Medicare. Former HHS Secretary Donna Shalala
has already fired the first shot in what will likely be a mind-
numbing conflict over the technical issues involved in crafting
new regulations. In a recent Washington Post op ed
piece, Shalala writes, "The agency will have to make literally
thousands of decisions as it develops the rules and procedures
for this program, many of which will significantly affect
beneficiaries and prescription drug plans alike."
Needless to say, this congressional and bureaucratic excess
does not characterize the FEHBP, which is governed by very few
rules and an entirely different set of principles.
It sets the stage for price controls on drugs. The
pharmaceutical industry will see a significant volume increase in
its product and continue investment in research and develop-ment,
and thus the production of new drugs. But recent trends are
troubling. According to CMS, 35 new drugs entered the market in
1999; 25 in 2000-2001; and only 17 in 2002.
Expect the Left to ratchet up the case for drug price
controls, either directly or through government monopsony
purchasing of prescription drugs. Already, Senator Kennedy is
arguing that the Bush Administration and its allies in Congress
are putting corporate profits ahead of patients. That rhetoric
will ratchet up over the next several months. And none other than
John Rother, a top executive of AARP, has indicated that now that
the Medicare drug provisions are enacted into law, the next big
issue will be pricing of pharmaceuticals.
Although drug stocks may react positively at first, the
long-term impact of the bill on the drug companies cannot be in
doubt. According to June 11, 2003, report of the International
Strategy and Investment Group (ISI Group):
Even though the federal government would not act as a
monopsony purchase or drugs initially, we believe
that outcome is almost inevitable. Medicare is
already a fiscal train wreck waiting to happen. Add a
drug benefit, the cost of which is expected to increase
by 12 percent per year, and Congress will have little
choice but to pay far less for drugs in the future.
The long run threat to industry is significant
because with a universal drug benefit in place,
government will be purchasing more than half the drugs
consumed in the US [emphasis in original].
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.