Volume 62, No. 2 February 2006
Warlords compete for territory and slaves. Courtiers compete
for influence with the king. Bureaucracies compete for resources.
Gladiators were forced to compete to entertain the spectators.
Not all competition is healthy.
There is, however, no substitute for free competition as a
means of lowering prices and improving customer service.
Moreover, competition is "a tool for finding answers that we
don't have," write Michael Cannon and Michael Tanner in their new
book, Healthy Competition: What's Holding Back Health Care
and How to Free It, published by Cato.
What is the best football team? How much should an MRI cost?
What is the most effective treatment for an illness? While there
is no ultimate answer for such questions, there is a best answer
under the circumstances, and finding it requires what Friedrich
Hayek called a "discovery procedure."
Healthy competition requires an open market with a wide
range of potential competitors, including upstarts and
innovators. It also requires a constant process for evaluation
and feedback for products and services, this should best come
directly from the users themselves.
Competition in the heavily regulated arena of American
medicine is increasingly of the zero-sum, divide-the-spoils type.
The government or an elite committee with quasi-governmental
authority has already decided the answers. Or it decides which
questions shall be researched, which range of answers shall be
considered, and which conclusions may be published, through its
stranglehold on funding.
How much money shall be spent on Medicare? Which hospital
services shall be lucrative, and which nonremunerative? What
certificates must a person hold to do drug-abuse counseling in a
federally funded facility? How soon is a person in hospice care
supposed to die? What types of screening tests are worth paying
for, or perhaps requiring? What number of level-4 visits or 88305
pathology services is "just right"?
Congress "decides" such things in behind-the-scenes horse-
trading contests. Or it delegates the decision to unknown,
unaccountable bureaucrats (or prosecutors) at HHS or CMS or the
Department of Justice.
Federal aid to education led to federal standards and
complaints of "teaching to the test," with neglect of other
material and a disastrous decline in basic literacy, such that
many patients can't read the label on a pill bottle.
The "test" for physicians who want to be paid and get a good
quality rating is to evolve from the CMS Physician Voluntary
Reporting Program Measures. There are thousands of possible
interventions for thousands of conditions of primary concern to a
patient perhaps revealed only by taking the time to do a level-5
consultation. But physicians are eventually to be graded on the
chosen set. For now, they are "asked" to report "voluntarily"
(without extra pay), certain "G" codes.
Never mind existing controversies or future innovations.
The important items are: use of aspirin, beta blockers, ACE
inhibitors or angiotensin receptor blockers, warfarin,
antidepressants, influenza and pneumococcal vaccines, antiplate-
let drugs, and osteoporosis treatments; measurement and control
of hemoglobin A1c, blood pressure, and low-density lipoprotein;
annual assessment of function and pain in osteoarthritis; anti-
tobacco counseling; assessment of bone density, fall risk,
hearing, and urinary continence in the elderly; mammography; and
antibiotic and thromboembolism prophylaxis.
For coronary artery bypass, there's a G-code for using the
internal mammary artery, and one for documenting why not.
Which financing method provides the best value? How can we
find out, when the competition is heavily constrained by the
federal tax code and state insurance regulations? The Shadegg
bill, which would have allowed purchase of insurance across state
lines, never made it to a vote. The oxymoronic concept of
"managed competition," the basic idea of the failed Clinton
Health Security Act, lives on. (One prime example is the Federal
Employee Health Benefits Program.)
How is information technology best used? The chosen players
in the "American Health Information Community" will determine
what system must be used for all medical recordkeeping. And how
will its "voluntary" adoption be forced?
HHS Secretary Leavitt envisions turning the medical
community into something like a network of PCs. As HHS pays more
than 40% of the nation's medical bills, it is "the only place
where there's a concentration enough of power to make this happen
in the market" (transcript of AHIC meeting).
Because so many managed-care entities use HHS price controls
for "shadow pricing," the clout of HHS is greatly amplified. Low-
end price competition is greatly handicapped: it is difficult to
compete with "free" services.
Antitrust law is supposed to protect competition, but since
insurers are exempt, it has the opposite effect in medicine.
Since 2001, the government has filed 27 complaints against
physician groups (comprising 13,000 physicians) for rejecting a
payer's offer and insisting on jointly determined compensation
terms. Almost all signed "consent orders," noted the Voluntary
Trade Council. Meanwhile, insurers merge, although the DOJ did
recently require a divestiture in UnitedHealth Group's
acquisition of PacifiCare health systems.
Healthy economic competition is about creating value, not
cutting up "the pie." Rewards must be freely offered by the
individual customer, not extorted by force from the collective.
The law must apply equitably and not advantage powerful special
interests. Only patients can judge whether medicine achieves its
purpose of healing or comforting the sick. The goal of current
unhealthy competition is to consolidate government and favored
corporate power and further its social objectives.
Competition: Here and Abroad
Specialty Hospitals. The Milwaukee Heart Hospital
offered the most complex operations, carefully benchmarked its
results, operated at high efficiency, and achieved top marks for
patient and staff satisfaction. It lasted one year. It was
hindered by the Specialty Hospital Moratorium imposed by Congress
and doomed by anticompetitive practices of local "nonprofit"
hospitals. While hospitals and legislators say it is a conflict
for doctors to own even a small share in a hospital, no one says
it is a conflict for hospitals to own doctors. About 90% of
primary-care doctors in southeastern Wisconsin are owned by
hospitals. Large hospitals near Milwaukee told its physicians
which heart specialists they could use, and choked off the Heart
Hospital's referrals (Bruce C. Wilson, Wall St J
Favors to Insurers. Blue Cross/Blue Shield plans were
given outrageous preferences in state enabling legislation,
writes Greg Scandlen. All kinds of antitrust violations, such as
tying arrangements, were allowed, and they were given huge breaks
on reserve and capitalization requirements based on the fiction
that providers would bail them out of financial difficulty.
HSAs Shackled. The silly maximum deductible amounts for
HSA-qualified insurance plans must be liberalized, writes Frank
Timmins. As with any financial institution, HSA banks must have
large deposits to mitigate administrative expenses. No one wants
to manage $500 checking accounts.
Medical Tourism Booms. According to the newspaper
Times of India, 150,000 people traveled to India for
medical care last year, mostly from the U.S. Numbers are growing
15% per year and should bring $2.3 billion annually to the Indian
economy by 2012. Thailand is wooing General Motors; orthopedic
procedures can be done there at 10% of the U.S. cost.
Canada Fears Private Competition. As Canada's first
private primary care center opened in Vancouver, critics said it
will undermine health care (Canadian Press 11/25/05).
The Manitoba government threatens to fine a private center $5,000
for allowing a patient to pay for a medically necessary MRI
(Canadian Press 11/23/05). In exchange for $41 billion
in federal money, provinces agreed to set out guidelines for
acceptable wait times, but haven't yet done so. Average actual
wait times decreased by one day (National Post
2006 Index of Economic Freedom
In 2006, the United States ranks ninth in economic freedom
on the Heritage/WSJ index (down from fifth in 1995), tied with
Australia and New Zealand, and behind Hong Kong, Singapore,
Ireland, Luxembourg, Iceland, the UK, Estonia, and Denmark. With
rapid liberalization, Estonia's per capita GDP doubled between
2001 and 2004, and support for freedom remains strong. As Mary
Anastasia O'Grady notes, quick change is best: "Gradualism risks
stagnation and even reversals, because the benefits are not
evident enough to impress the electorate and generate momentum"
(Wall St J 1/5/06).
In 1985, the "Celtic tiger" made a U-turn from the usual
European policies, slashing taxes and government spending. Its
GDP grew 167% between 1984 and 2002, and it moved from one of the
poorest to one of the most prosperous countries in Europe
CPOE Increases Mortality
Although computerized physician order entry systems are
supposed to prevent errors, in actual operation CPOE was
associated with a 135% increase in mortality at the Children's
Hospital of Pittsburgh. Possible reasons include a decrease in
face-to-face interactions of personnel; diverting a physician
from the bedside to a computer screen; and a delay in obtaining
emergency medications that now have to come from a central
pharmacy (Han YY et al., Pediatrics 2005;116:1506-1512).
Today, the U.S. GDP is $12.5 trillion; the national debt,
$4.7 trillion; combined Social Security, Medicare, and Medicaid
spending, $1.0 trillion; and annual cost per worker, $5,681. If
present trends continue, by 2030 GDP will be $35 trillion; the
national debt, $48 trillion; combined SS and Medicare/caid
spending, $6.3 trillion; and cost per worker, $32,221.
James Knight, M.D., former president of the San Diego County
Medical Society, writes: "Congress just authorized a new fence
along the Mexican border, ostensibly to keep out illegal aliens.
In 15 years, it will be used to keep people with any accumulated
net worth from fleeing the country as the U.S. is `forced' to
implement asset-based taxation!"
Dr. Knight points out that seizing all the wealth of the top
10% of Americans might extinguish part of today's debt but would
have no effect on future debt accumulation. All the rich being
poor, taxing workers would be the only revenue source.
"Insurance Does Not Participate in My Office"
"I never did understand why we allowed the insurance
industry to imply that it was the doctor who was not
participating," writes R. Anders Rosendahl, M.D. Dr. Rosendahl,
who specializes in thyroid surgery, does not accept
Medicare, Medicaid, or any other health plan of any kind.
"We accept cash, checks, credit cards, I.O.U.s, payment
plans, and we take care of the truly poor at no charge." If the
patient's cell phone rings during the exam, he's not truly poor.
After 30 years at the Texas Medical Center in Houston, Dr.
Rosendahl left 22,000 charts behind and moved to Lakeway, a small
town outside Austin. His practice was featured in Physicians
Practice, Nov/Dec 2005, headlined "He Does It His Way." He
said some of his colleagues thought he was crazy; others ask for
his advice. His patients think he offers medical care as it ought
to be and once was. His overhead decreased dramatically. While
his income dropped somewhat, he expects to be as busy as he wants
to be within a year. His website is www.thyroidcancer.com.
Feb 11, 2006. Board of Directors meeting, Houston, TX.
Sept 13-16, 2006. 63rd annual meeting, Phoenix, AZ.
Medical Information Subject to PATRIOT Act
Under the controversial Section 215 of the USA PATRIOT Act,
commonly called the "library provision," both medical and tax
records can be obtained under a gag order with a National
Security Letter (NSL). Although it is theoretically possible for
a recipient to consult an attorney and challenge an NSL in
federal court, there is a one-year criminal penalty on divulging
that an NSL has been received, even when there is no attempt to
obstruct justice. An effort was made to remove the criminal
penalty, as well as to explicitly require that the records be
somehow connected to a foreign power. The final form of the
reauthorized Act has not yet been determined (Congressional
U.S. Attorney General Alberto Gonzales testified before
Congress that no medical records had yet been requested, but that
the government needed to retain the power to get them (Joy
Buchanan, Daily Press 12/29/05).
OIG Plans to Exclude Thousands
In its 2006 Work Plan, the HHS Office of the Inspector
General writes: "we anticipate...the exclusion of several
thousand providers from participation in Federal health care
programs." Actionable conduct includes "failure to provide
services that met professionally recognized standards of care."
In the second half of 2005, civil money penalties were up
632%. OIG excluded an average of 10 providers a day, and recouped
$2.8 billion in audits and "fraud" investigations in FY 2005
(Medicare Compliance Alert 12/12/05). There were 537
criminal and 262 civil actions. HealthSouth agreed to a
settlement of $325 million (BNA's HCFR 12/7/05).
Equal Under the Law?
While the OIG is eager to mete out what many consider to be
a professional death sentence exclusion from federal
programs the U.S. attorney hesitated to pursue a criminal
conviction in the fraud case against Blue Shield of California.
The reason: "the potential collateral consequences..., including
debarment from all Government contracts and exclusion from the
Medicare program, could have been devastating to Blue Shield,
which depended heavily on doing business with the Government."
The consequences at first seemed "disproportionate." When it was
recognized that the corporation was unlikely to be excluded from
all contracts, the criminal case was brought, and
pursuant to a plea agreement Blue Shield paid a $1.5 million
fine. The parallel civil proceeding resulted in a settlement of
Blue Shield employees were pressured to pass the Contractor
Performance Evaluation Program (CPEP) at all costs. The company
tried to argue that it was entitled to all of its administrative
costs; the government argued that time spent falsifying records,
destroying documents, and "whiting out" information was not an
allowable cost (see USABulletin, June 1997, and "Report
from a Medicare Whistleblower," Parts 1 and 2, J Am Phys Surg 2003;8:87-88, 114-116).
"There is no law that says computers have to be more
important culturally, economically, or scientifically than any
other technology that's been around for awhile. Some day,
computers might be exactly as exciting as oil burners or toaster
David Gelernter, Wall St J
Voluntary Reporting: Evidence Against
Some physicians fear that data from the CMS Voluntary
Reporting Program (see p. 1) will be used to file False Claims
Act (FCA) allegations against those who score below average on
"quality of care." Concerns arise from the push by the government
to use the FCA to question poor medical judgment and prosecute
providers for negligence. The program's advocates say the
government is not currently planning to use the information
against physicians, but only to help compliance staff avoid
allegations that they billed for services that weren't provided.
The program is a step toward P4P (MCA 11/14/05).
Physician Fined for Ordering Excess Pain Meds
Family physician Joan Benson, M.D., of Bangor, ME, agreed to
pay more than $100,000 in state and federal fines for
overprescribing oxycodone and morphine to a complex patient with
intractable pain. Unbeknownst to the doctor, the patient's
husband was diverting some of the drugs. Gordon Smith, executive
director of the Maine Medical Association, said that Dr. Benson
was a "fine, compassionate physician." He feared that the U.S.
Attorney's aggressive handling of the case would make other
physicians fearful of prescribing appropriately for pain
(Bangor Daily News 10/18/05).
Government Retaliates Against the Defense
After losing a case alleging "Shaken Baby Syndrome," the
prosecution retaliated against prominent defense witness John
Plunkett, M.D., by prosecuting him for alleged false swearing on
two minor, non-material issues.
Dr. Plunkett is the author of an article on short-distance
falls that called into question the theory behind SBS (Am J
Forensic Med Pathol 2001;22:1-12). He has testified in more
than 100 cases and consulted in more than 400.
Other defense witness report feeling intimidated even
though Dr. Plunkett was acquitted at trial.
A selective prosecution to silence witnesses would probably
be a first, writes law professor Carol Henderson.
Expert witnesses have been sued for allegedly
misrepresenting their credentials or violating professional
standards. But Henderson says she has never before heard of an
expert being prosecuted criminally for apparently good-faith
testimony on a subject about which scientific opinion is deeply
divided (ABA Journal, December 2005).
Tip of the Month: I respectfully disagree with the
statements that "physicians cannot agree among themselves to do
anything about PPO contracts" because that would be "antitrust
collusion [that] has repeatedly been prosecuted."
Having worked as an attorney in antitrust law for a decade
and having successfully defended antitrust claims at trial, I can
tell you that antitrust law is exaggerated to intimidate doctors.
Doctors who avoid price-fixing agreements and joint boycotts have
little to worry about from antitrust law.
There is a vast amount of productive activity that would not
qualify as price-fixing or joint boycotts. Individual rejection
of PPO contracts combined with free speech is legal. Also legal
are complaints about unethical provisions in PPO contracts and
refusals to agree to them. Many types of collective actions by
doctors, if properly devised with reasonable justification, would
Andrew Schlafly, Esq.
EMRs and the "Blended Pay" Scam. Anthem's Blue Cross
Blue Shield of Ohio "encouraged" doctors to use electronic
medical records. Then it found that physicians who did so could
more easily document their care and so were billing for 25% more
level-4 services costing Anthem $1 million more in physician
payments through September. So instead of paying for actual
services rendered, Anthem began "blending" levels 3 and 4 into a
single payment rate. In the New York City area, Cigna has been
"blending" rates for levels 3, 4, and 5 since 2000. This tactic
is another variation on the other scams that Medicare introduced,
such as the bundling scam ("correct coding initiative") and the
automatic downcoding scam.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
Resign Now! Another piece of the mask has been ripped
from the face of the EMR. Since the EMR permits more complex
codes to be more accurately billed, the payers simply reduced
their payment rates. So one of the benefits of the EMR, highly
marketed to physicians by the AMA and the AAFP, of perhaps being
fairly compensated for our work, turns out to be a complete
farce. I hope physicians will have the courage to tell these
payers what to do with their "blended" rates by withdrawing from
Everest Whited, M.D., Pflugerville, TX
Pathology Codes. There is no doubt that the
government's limiting 88305s to two per site per day would have a
devastating effect on most real practitioners of pathology. The
88305 is their bread and butter. Of course, we all hope it won't
really happen and that our staunch organizations will be able to
pull off a delay or a compromise. Just like they stopped the
hospital corporations' pillaging of the wimpy Part A "pass
through." But in the long term, the only thing that has any
chance of working is to quit Medicare and Medicaid.
John Minarcik, M.D., Skokie, IL
Seniors' Drug Costs. As bread and circuses crowd out
other spending, the result will be poor medical care for people
stuck on Medicare, a growing acceptance of the idea that the
elderly should be killed off when their QALYs are too low, and an
increasingly serious attempt to loot the assets of privately held
pharmaceutical companies all in the name of quality and cost
control. Then there will be a demand for tax increases, to the
detriment of the economy; anybody worried about the U.S. barely
hanging in the "free" segment of the Heritage/WSJ economic
freedom index? We should take Part D behind the barn and kill it
while it is still small enough to handle.
Linda Gorman, Independence Institute, Golden, CO
Saying No to Part D. A premium of $37/mon comes to
$444/yr. If you're one of the 70% of seniors who expect to
continue to have less than $500/yr in prescription drug costs,
you are entering negative-value territory if the deductible and
copayments top $57. A large percentage of Part D participants
will probably be high users, meaning that premiums will rise,
causing more to drop out (if they can). Those of us familiar with
community rating and guaranteed issue know the rest of the story:
it's called the "death spiral."
Sean Parnell, Heartland Institute, Chicago, IL
Know When to Fold It. The vast majority of physicians
have agreed to play the game set by third-party payers. But they
don't have to pick up the hand the third parties have dealt them
or even sit at their gambling table. In the quiet of their
conscience, they can just say no. They will enter a much better
world. No need to scrutinize 50-page contracts, or hire three
billing clerks, or worry about not getting paid.
Robert S. Berry, M.D., Greeneville, TN
"Reverse Bundling." Rumor has it that the Canadian
government has delisted some procedures, and that some doctors
have illegally stretched the definition of delisted procedures
and require patients to pay for services that are supposed to be
"free." Apparently, government chooses to look the other way to
avoid jailing doctors and thereby exacerbating the doctor
shortage it created.
Robert P. Gervais, M.D., Mesa, AZ
As Bad as Slavery? Given the net present value of
projected government deficits for each American under the age of
18, Americans are bequeathing $900,000 in debt to each child.
This means that future generations will be consigned to
indentured servitude for much of their working lives to pay the
debts accumulated by previous generations. Next to slavery and
Jim Crow laws, this may be the greatest injustice ever inflicted
on so many Americans. If Americans really loved their children,
they'd be driving to Washington to demand a change.
Craig Cantoni, Scottsdale, AZ
Charity. Physicians should not provide charity to third
parties, only voluntarily to needy patients.
Milton Kamsler, M.D., St. Augustine, FL
Happy with an MSA. We self-funded a high deductible
even before the law was enacted and have had a Medical Savings
Account for several years. It has saved us a lot of money. If we
get all the medical care we need, with no hassles or
obstructions, the most it can cost is the premium plus the
Zvi Herschman, M.D., West Hempstead, NY
Legislative AlertThe Budget Battle Continues
It's not over! The big health policy issues physician
payment in Medicare, and the variety of Medicare and Medicaid
changes are still not settled as this goes to press.
Here's where things stand. The Budget Reconciliation bill,
if enacted and signed by the President, would cut federal
spending by an estimated $39.7 billion. The Medicare savings
would amount to $6.4 billion over the period 2006-2010; the
Medicaid savings would amount to $4.7 billion over the same
period. No big bucks here, but some pretty important policy
provisions. The Administration and Congressional Republicans are
hailing the legislation as the first serious attempt to control
entitlement spending in years, while the Congressional Democrats
are roundly condemning it as a heartless attack on the poor and
On Dec 19, the House passed the budget bill shortly after 6
a.m. by a relatively close party-line vote: 212 to 206. Having
enacted the bill, House members left Washington for the Christmas
recess. On Dec 21, the Senate passed the bill by 51 to 50, with
Vice President Cheney breaking the tie. But the conclusion to
Senate deliberations was a bit messier.
The closeness of the Senate vote was largely attributable to
the defection of "moderate" or "liberal" (take your pick)
Republicans: Susan Collins and Olympia Snowe of Maine, Mike
DeWine of Ohio, Lincoln Chafee of Rhode Island, and Gordon Smith
of Oregon. Medicaid policy has been the flashpoint. For example,
Sen. Smith opposed the final bill largely because he opposed the
changes, small as they were, in Medicaid. The Congressional
Budget Office projects that, under current law, Medicaid is
expected to grow 7.7% between 2006 and 2015. Under the budget
bill, CBO projects a minimal reduction to a ten-year growth rates
Still, for the Senate liberals this is apparently too much.
Senate Minority Leader Harry Reid (D-NV) said the budget bill
"rips and tears" at Medicare and Medicaid. The Center on Budget
and Policy Priorities bemoans the cuts to programs that serve
low-income Americans. While Sen. Smith seems to feel that federal
Medicaid spending increases should not be restrained, it will be
interesting to see how state Medicaid spending in Oregon is
projected to increase, and how Oregon taxpayers will be expected
to finance it.
For Congressional conservatives, there is an important
political lesson here: When it comes to entitlement spending,
there is no volume control on the Left. Sustained
screaming is guaranteed. The decibel levels are roughly the same
whether spending restraints are large or small. Thus the
opposition by Sen. Smith and his Democratic colleagues is to be
expected, no matter what is proposed. Therefore, conservatives
might as well enact serious changes in entitlement programs, and
provide themselves with a good set of ear plugs.
Opposition to Medicaid changes, among other things, inspired
parliamentary creativity. Before final passage, Senate Democrats
resorted to a parliamentary maneuver designed to force
Congressional reconsideration of the entire budget bill. They
deleted three provisions in the final bill that they claimed
violated Senate rules for considering budget reconciliation
measures. Clever maneuver. Now, because the three provisions were
deleted, and the language of the House and Senate-passed bills
must be identical, the budget bill must go back to the House for
another vote. This would mean that Speaker Dennis Hastert would
have to call the entire House back to Washington to pass the
altered bill to get it to the President's desk before the New
Year. Or, he could ask for unanimous consent from the Minority.
Since House Minority Leader Nancy Pelosi (D-CA) has already
expressed strong disapproval of the House-passed budget bill,
that's obviously not in the cards at least not as this essay
goes to press.
What this means is that the Leftist coalition (AARP,
Families USA, the Emergency Campaign for America's Priorities,
the National Partnership for Women and Families, etc.) that
campaigned vigorously against the Budget Reconciliation
bill largely because of their objections to Medicaid
changes will get yet another bite at the apple. They think they
have a chance to beat the Republican majority in the House, and
hand Bush yet another setback in Congress. So, over the next few
weeks watch the pressure build to reverse the House vote on the
What's at Stake in the Unfinished Budget Fight
For doctors, patients, health care policy aficionados,
and taxpayers all, what's at stake? With Medicare, there's a
bunch of "cats and dogs," special interest stuff, including
provisions relating to hospitals, rehabilitation facilities, and
payment for imaging, oxygen, and durable medical equipment. With
Medicaid, there are likewise administrative and program changes,
including provisions that are broadly described as addressing the
problems of "waste, fraud, and abuse," such as preventing states
from double billing the federal taxpayers for Medicaid
prescription drugs and requiring documentary evidence of
citizenship for Medicaid eligibility. Beyond these administrative
issues, here are the main health policy items:
Medicare Physician Payment. If nothing is
changed in current law, Medicare payments to physicians will go
down. The budget reconciliation bill would block the
implementation of payment reductions that are scheduled to go
into effect under the formulas, including the sustained growth
rate (SGR) update, that have been enacted in current law. The
pending bill authorizes $7.3 billion for physician payment over
the period 2006-2010. Instead of the 4.4% reduction scheduled to
take effect in 2006, the bill would freeze the physician update
for 2006. In other words, that would be a 0% update. Well,
nothing is better than less than nothing; even though that's a
metaphysical impossibility, it's sound mathematically.
While providing a temporary fix, the bill does nothing to
alter the flawed Medicare physician payment system. It would
require that HHS study the SGR system with a view toward offering
an alternative, and report those findings next year. Another
study. That's it.
The Medicare "pay for performance" provision, tying
physician payment to the submission of HHS formatted quality data
information, which was included in the Senate version of the
bill, was dropped in the House-Senate conference. Conspicuously,
the provision will start to apply to other providers. Growing
physician opposition to the provision's red-tape requirements
derailed it this year, though the proposal is not dead. Look for
a resurrection of the "values purchasing scheme" next year. The
Bush Administration and the leaders of CMS are apparently wedded
to the idea. Watch for lobbyists for other professional medical
organizations trying to make "a deal" on new pay-for-compliance
rules. The right position, of course, is No Deals. Roll back red
tape; don't increase it.
The final bill retained a goofy, fiscal-year-end 6-day
Medicare payment delay for medical professionals. A gratuitous
insult. Perhaps some enterprising conservative will propose an
amendment to delay congressional pay at the end of the year to
achieve "budget savings." Don't hold your breath.
Medicare Advantage Program. The final bill
also dropped the Senate's proposed $10 billion cut in the
Medicare stabilization fund, the temporary incentive program
designed to encourage private plans to participate in the
Medicare Advantage program, particularly in rural areas of the
Specialty Hospitals. The original Senate bill
had a provision, authored by Senators Charles Grassley (R-IA) and
Max Baucus (D-MT), to retain restrictions on the expansion of
specialty hospitals first enacted in the Medicare Modernization
Act of 2003. The Senate provision would prevent doctors from
referring their Medicare and Medicaid patients to hospitals or
other medical facilities in which they have a certain level of
Since hospitalization is heavily concentrated among the
elderly, the direct impact of this provision was to virtually
halt the expansion of specialized hospitals over the past two
years. Now, in the normal functioning of an economy, economic
specialization is a good thing. The division of labor in an
increasingly complex economy increases productivity and enhances
price competition. Professor Adam Smith, the author of The
Wealth of Nations (1776), has written about the virtues of
specialization and the division of labor extensively, and members
of Congress might even want to sneak into the library to check it
all out for themselves. Naturally, the hospital industry is
opposed to the expansion of specialty hospitals for a lot of
high-flying reasons, but the real truth, you will be shocked to
learn, is that they don't want the competition. In the House-
Senate Conference, the conferees agreed to retain the provision
for six months in the final bill, and order HHS to do a study on
it, and come back with recommendations. That fight, then, is not
Medicaid Prescription Drugs. The bill imposes
an upper payment limit for "multiple source drugs" of 250% of the
average manufacturer price. For drug pricing generally, it would
require generic prices to be included in calculating Medicaid
drug rebates. The bill would also require the states to collect
Medicaid rebates on drugs administered by doctors to Medicaid
Medicaid Long-term Care. The bill addresses
the continuing and deepening problem of Medicaid as a long-term-
care payer for the middle class and above. Among other things, it
would require individuals who apply for Medicaid long-term-care
coverage to disclose large annuities, and it would improve income
reporting. Perhaps more importantly, it would specify that
persons with a home equity of $500,000 (or $750,000 at the
discretion of the states) would no longer be eligible for
Medicaid coverage of long-term care. In 2007, states would be
authorized to provide a range of home and community-based
services as an "optional" benefit under state Medicaid plans
without first securing waivers from HHS; it would also authorize
"cash and counseling" programs.
The long-term-care provisions, particularly the new asset
limitations governing Medicaid coverage for nursing home care,
have stirred the intense opposition of the powerful AARP, which
has pledged to reverse them.
Medicaid State Flexibility. The bill provides
$283 million in funds for the State Children's Health Insurance
Program (SCHIP) for targeted states. More importantly, the bill
would enable the states to determine for themselves the best
arrangements for cost sharing and premium payments. It would also
enable states to offer alternative benefit packages to certain
Medicaid beneficiaries, and allow states to impose cost-sharing
requirements for "non-preferred drugs" and for the use of non-
emergency medical services in hospital emergency departments.
Finally, the bill allows states to cover certain disabled
children in families with incomes up to 300% of the official
federal poverty line, while funding a new demonstration program
in which the principle is that the money will follow the
beneficiary. Money following the patient! Pretty radical stuff.
These Medicaid flexibility provisions would accelerate the
reform agenda that is already underway in several states, notably
Florida and South Carolina. The Bush Administration is interested
in aggressively promoting Medicaid waivers for states that want
to pursue new and innovative approaches to Medicaid coverage.
Meanwhile, the Bush Administration's Medicaid Commission, which
has a strong conservative presence, is pondering its next set of
Medicare Drug Entitlement Is Now in Effect
After two years of planning and preparation by officials
of CMS arguably the greatest exercise in central planning in the
agency's central-planning history the massive Medicare drug
benefit has gone into effect. According to HHS, more than one
million have signed up for the new stand-alone drug plans, and
they expect another half million to be signed up in January.
Medicaid-eligible seniors are automatically enrolled; seniors
with Medicare Advantage plans and employment-based retiree
coverage, which will henceforth be subsidized by federal
taxpayers, are also counted in the enrollment figures. By the
latest HHS count, more than 21 million seniors would have
prescription drug coverage by January 1, 2006. HHS expects to
enroll a total of 28 to 30 million beneficiaries within the first
year of the program, which would accord with CBO projections of
29 million in enrollment. A lot of predictions have been made on
all sides of this issue about what will or will not happen. One
thing is certain: Nobody yet knows how we are going to pay for
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.