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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
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Volume 48, No. 2 February 1992
MEDICAL CARE COSTS TOO MUCH
The Good Samaritan gave the innkeeper two denarii- about two
days' wages-to care for a man who been robbed, beaten, and left
Recently, a patient who had an uncomplicated appendectomy
was billed $2,650 for three days in the hospital-not including
the fees of the surgeon and the anesthesiologist. For many
Americans, that is more than two months' wages.
An appendectomy would not have been available at any price
2,000 years ago. But 30 years ago, an uninsured American could
still afford to pay for a routine operation.
Over the ages, the hours of labor required to earn most of
the necessities and the luxuries of life have steadily declined.
In comparison with other goods and services, the price of
hospital care is anomalous and outrageous. It is no wonder that
many Americans live in dread of medical expenses. A recent
survey showed that 55% of respondents felt that the high cost of
services was the most important health-care issue facing the
country. And 51% of the survey respondents thought that the
federal government had the primary responsibility to solve the
problem (Wall St J 6/28/91).
In calling for government intervention, many point to the
supposed efficiencies of a single-payer system, as in Canada.
Canada spends ``only'' 8.9% of the Gross National Product on
``health'' care, compared with 11.6% in the U.S. That's about
$1,990 (US dollars) per capita, versus $2,566 per capita in the
U.S. About $100 of the $576 difference is due to the lower
proportion of Canadians older than 65.
Do Canadians receive comparable care? Services received by
patients are difficult to compare. Canadians see the doctor more
often but have fewer CT scans. Is an office visit with a family
physician who sees 80 to 120 patients a day (as many Canadian GPs
must do to earn a living) the same as a consultation with an
American specialist? Is it the equivalent of a CT scan that
makes a definitive diagnosis?
Advocates claim that Canada has been able to contain costs
and eliminate waste. Yet medical expenditures there are rising
slightly faster than in the US (about 11% per year, double the
rate of inflation). Ontario Health Minister Frances Lankin
estimated that 30% of expenditures were ``waste'' (Toronto Sun
11/17/91). The tax burden is causing formerly docile Canadians
to stage a rally on the steps of Queen's Park: ``The tea parties
are forming and ready to board the boats'' (Toronto Sun 6/25/91).
(In addition to the income tax, Canadians pay an 8% sales tax
plus a 7% ``goods and services'' tax on everything, including
The costs of Canadian ``rationing by the queue'' are
difficult to calculate. Provincial ministries do not collect
data on waiting times. The Fraser Institute estimated that
productivity lost due to treatment delays was about the same as
that lost due to strikes and lockouts.
The proposed solution to the problems of Canada's
``disintegrating health care system'' may sound familiar: ``a
comprehensive national strategy, a major resetting of priorities,
a reallocation of funds, better management.'' The British
Columbia royal commission on health care made 650 recom-
mendations, the majority requiring the government to expand
bureaucratic control through thousands of additional regulations
(Globe and Mail 11/23/91).
Hospital administrators admit that the charges on their
bills are fictitious. The real source of the costs bears little
if any relationship to the attribution. There is no line item
for major cost components: cost-shifting, compliance with govern-
ment regulations, liability insurance, interest on construction
of unused capacity, legal fees, and claims-filing expenses.
Lacking good data for direct estimates of these costs, let
us apply a mathematical method called ``working backwards.'' What
should a three-day stay for an uncomplicated appendectomy cost?
A nice hotel room can be had for $80 a day, including
housekeeping. Patients with appendicitis don't eat much but
require intravenous fluids. Allow $20 for food and $200 for the
cost of solutions, needles, tubing, drugs, and expendable
surgical supplies purchased wholesale. Allow $200 for renting a
modern operating theater and instruments for about half an hour.
Over three days, it is doubtful that the actual care of the
patient required more than ten hours of the attention of nurses,
pharmacists, and other personnel; allow 10 hours times $20/hour,
or $200. The total comes to $860 or two weeks' wages at $10.75/-
What accounts for the other $1,790 of the bill? One
hospital administrator estimated that all bills could be reduced
by 41% if every patient (including those covered by Medicare and
managed care plans) paid the full charges. So the sickness tax
alone is $1,086. If the cost of compliance with regulations is
25% of the hospital bill, that would be about $391. The cost of
filing the average insurance claim is about $25 ($8 to $10
billion annually to process 400 million claims). These costs
alone total $1502.
Would-be reformers propose to increase nonmedical costs in
order to decrease medical expenditures. They have it backwards.
We should ask how to decrease worthless expenditures in order to
increase medical services per dollar.
The real Relative Value question is this: How many
bureaucrat-hours and reams of paper will replace one appen-
dectomy, one CT scan, or one Good Samaritan?
The Medical Insurance Idea
We live in a changing world, full of perils and hazards,
where goods and services are scarce. We are destined to work and
act to live. Action1 requires planning, appraising
uncertain future values, assuming risks, and avoiding losses.
Entrepreneurs direct capital into production based upon their
appraisal of future values. Unanticipated changes in the
physical world, changing values of consumers, and limited vision
of entrepreneurs result in losses.
Risks are of two general types: speculative risk and pure
risk. Speculative risk is the heart of entrepreneurial action.
It can result in gain or loss. Hedging may control (lessen) some
of the risk, but it also restricts potential for gain. Pure risk
involves only the possibility of loss or no loss. There is no
gain. The risk of dying is an example. Only pure risks (but not
all such risks) can be controlled through the market technique of
insurance. Insurable and noninsurable pure risks must be clearly
Insurance consists of pooling and transferring risks to
insurers who agree to indemnify (compensate) the insureds in the
event of a loss. Insurance requires estimating future losses on
the basis of historical data and statistical theory. Past
average losses for the population at risk comprise the historical
data. The insureds are a population sample. The sample average
will vary from the historical population average in each premium
period. This variation is the risk assumed by the insurer. As
the sample size increases or the premium period lengthens, the
risk decreases. Note that the risk prediction requires: (1) a
randomly selected sample from (2) a population with random
An insurance contract must define indemnifiable losses as to
time, cause, place, and amount. As a rule of thumb, when chance
of loss exceeds about 40% (as in insuring the life of a 99-year-
old man), risk and administrative expense, and thus the premium,
exceed the indemnification.
Adverse selection refers to the tendency of those with
higher than average loss expectancy to insure in greater numbers
than those with lower expectancy. This increases premiums and
causes those with lower expected losses to reject the insurance.
As this adverse selection becomes known to the insureds,
selection becomes increasingly adverse. Insurers control adverse
selection by restriction and classification of the insureds
(underwriting). For example, a man with terminal cancer will not
meet the underwriting standards for life insurance.
George Rejda2 lists the following requirements
for an insurable risk:
A list of definable sicknesses and disabilities can be
random events. Specifying a monetary amount for each of these
losses (events) makes it possible to write an insurance contract.
But prior lists, no matter how extensive, always fail to include
some of the rarer or yet-to-be-discovered illnesses, which in sum
represent considerable risk. And actual costs vary greatly from
any average monetary amount. These problems limit the
- There must be a large number of homogeneous exposure
- The loss must be accidental and unintentional.
- The loss must be determinable and measurable.
- The loss must not be catastrophic.3
- The chance of loss must be calculable.
- The premium must be economically feasible.
usefulness of such contracts. Historically, the early medical
insurance contracts offered specific indemnification for listed
illnesses and procedures.
People desire health and consider sickness and disability a
loss. Living and aging make complete health virtually impos-
sible, but medical care can remove some sickness and eliminate
some disability. With each new input of care, larger costs yield
lesser improvement. In a world of scarce goods and services,
medical care competes with food, clothing, shelter,
entertainment, etc. We evaluate the tolerable amount of sickness
and disability against the marginal cost of its removal.
Patients with medical care insurance have no interest in the cost
to the insurer and insist on receiving the full care that their
contract promises. There is no longer any sickness or disability
that is tolerable because there is no marginal cost.
Developments of new and alternate care frustrate efforts to
control indemnification by lists of exclusions (all care except
___. Theory predicts that undefined medical care cost indem-
nification will result in rising premiums, overall increases in
medical care costs, arbitrary interpretation of contractual
obligations, and even coercion of doctors to restrict care.
History has already confirmed this prediction.
The unfettered market did not create this medical insurance
monster. A growing stream of government programs and regulations
has resuscitated the monster each time it staggered under market
forces. In fact, the slide from defined medical loss insurance
to insurance of medical care costs would never have occurred
without governmental restrictions on the market. To the extent
that we have insurance of medical care costs-insurance of the
uninsurable-we have abandoned the market.
In our age, the market rarely returns once abandoned.
Indeed, when government efforts fail to resuscitate private
insurance, the outcry for government ``insurance'' rises. Of
course, government does not offer insurance, which is a free-
market phenomenon. Government imposes a scheme of taxes (rather
than voluntary premiums) and benefits that are arbitrarily set
and changed by government without contractual obligation.
Everyone participates; thus there is no adverse selection.
Government distributes medical care by legislation and regulation
(i.e. by rationing, not risk control). With no market, there is
no capital calculation and no information about patient values.
Soon the individual values the offered medical care less than the
other desirable goods he has forfeited to pay the taxes. The
people feel a decrease in the standard of living even as the GNP
If we return medical care to market distribution, we have
not abandoned the unfortunates who cannot afford the cost of
care. Before insurance, hospitals were largely charitable
institutions. Doctors frequently reduced fees and provided free
care for the indigent. The market has been the engine for social
wealth and peace: wealth to provide the means of charity, and
peace from the practice of charity. Why endorse untenable
insurance when charity has worked well and also serves to
strengthen the bonds of society?
A free market and charity are hallmarks of a free society.
Ralph O. Butz, MD, Chicago, IL
1``Action'' as used by von Mises in Human
Action; 2Rejda, George E., Principles of
Insurance 3rd ed., Foresman, 1989, pp. 21-25; 3As
defined by Rejda, ``catastrophic'' loss means that a large number
of exposure units incur loss simultaneously as in a flood.
Petition for Writ of Certiorari Filed in US Supreme
Court in Case of Caine v. Hardy
On December 23, 1991, a petition was filed requesting the US
Supreme Court to review the en banc judgment of the Fifth Circuit
Court in the case of Caine v. Hardy (see AAPS News, Nov.
1991, for a summary of the case).
The main question is this: Is there a cause of action under
the Civil Rights Act of 1871 (42 U.S.C. §1983) and the Due
Process Clauses of the Fifth and Fourteenth Amendments for a
physician whose medical staff privileges at a public hospital
were revoked without adequate notice or a hearing before unbiased
decisionmakers, in violation of the medical staff bylaws and the
Health Care Quality Improvement Act of 1986, 42 U.S.C. §11112 et
The petition also asks whether the Court of Appeals may
ignore the Federal Rules of Civil Procedure. Can an appellate
court decision be based on unsworn materials not presented at the
trial court level? Can the trial court refuse to allow a
plaintiff to amend his complaint to include alleged violations of
the First Amendment to the US Constitution?
Dr. Caine claims that he was denied procedural due process
at every stage of the peer review process, in retaliation for his
exercise of his right to free speech. (He protested the granting
of an exclusive anesthesia contract to the physicians who
instigated the peer review proceedings.)
The petition states:
A motion to dismiss under Rule 12(b) is not the place
for defendants to make factual arguments to induce a
conclusion contrary to that of the plaintiff as alleged
in the complaint. Fact issues are simply not decided
on a motion to dismiss a complaint....A federal court
cannot accept as facts or take judicial notice of facts
which lead to a dispositive conclusion without
affording the plaintiff an opportunity to contest the
facts assumed in that conclusion.
The petition states that the Court of Appeals departed so
far from the accepted and usual course of judicial proceedings as
to call for an exercise of the Supreme Court's power of
supervision over the lower courts.
The en banc Court of Appeals, in ruling against Dr. Caine,
stated that the failure of the defendants to follow hospital
staff bylaws was not a violation of the Fourteenth Amendment
because the act was ``random and unauthorized.'' Dr. Caine's
petition argues that this reasoning conflicts with recent
decisions of the US Supreme Court. In Zinermon v. Burch (494 U.S.
at 138, 110 S.Ct. at 990), the Court ruled that depriving a
psychiatric patient of the procedure set up to guard against
unlawful confinement was `` `unauthorized' only in the sense that
it was not an act sanctioned state law but, instead, was a
`deprivation of constitutional rights...by an official's abuse of
In an unanimous decision handed down recently, the Supreme
Court held that Congress enacted 1983 ``to enforce provisions of
the Fourteenth Amendment against those who carry a badge of
authority of a State and represent it in some capacity, whether
they act in accordance with their authority or misuse it''
(Hafer v. Melo, ___ U.S. ___, 112 S.Ct. 358, 363, ___ L.Ed.2d ___
The Petitioner states that the Caine v. Hardy decision
conflicts with well-established constitutional principles.
Allowing it to stand would leave citizens at the mercy of
government officials who abuse their positions of authority.
The Respondents in the case are permitted to file a response
to the petition within 30 days.
The federal government wants to know where all the clinical
laboratories are. If you don't voluntarily tell them where to
find you, and you keep doing lab tests, and they eventually catch
up with you, HCFA officials can assure that you pay huge fines or
go to jail.
Although the final regulations haven't been drafted for the
implementation of the Clinical Laboratory Improvement Act of
1988, more than 640,000 laboratories (including physicians'
office labs) have received six-page forms, due on January 29.
These are separate from the financial disclosure form sent by
HCFA in early September. The forms are electronically numbered
so that they cannot be reproduced.
The registration fee, which will be ``slightly more'' than
the $261 initially proposed, will be due after the regulations
are issued, if physicians decide to continue doing laboratory
work. To keep this option open, physicians must set aside up to
four hours to complete the form now.
Although the regulations themselves are not available,
physicians may purchase a book about them for $285-a small price
to pay to help avoid fines of $10,000 per day.
The number of tests exempted from regulations under a
certificate of waiver has been reduced from 28 to six: dipstick
or tablet reagent urinalysis, fecal occult blood, ovulation
tests, urine pregnancy tests, erythrocyte sedimentation rate, and
hemoglobin testing. All other tests are of at least ``moderate
complexity.'' Under the final draft rule, these would not have to
be supervised by a pathologist or Ph.D. level scientist; a
physician with at least one year of supervising such tests will
do (BNA's Medicare Report, 12/13/91).
CLIA Expected to Increase Cancer Deaths
The stimulus for intrusive federal regulation of all
clinical laboratories was sensational press reports about ``Pap
smear mills.'' None of these laboratories were certified under
the voluntary accreditation programs of the College of American
Pathologists and the American Society of Cytology. Ironically,
some of them were certified by HCFA under provisions of the
Clinical Laboratory Improvement Act of 1967.
The CLIA of 1988 ``represents a radical transfer of
authority for medical practice standards from expert health care
professionals...to federal regulators who have little or no
experience in the field of cytology'' (R Marshall Austin, MD,
PhD, CAP Today, Feb 1991). The expected result is an increase in
cervical cancer deaths due to significant increases in cost,
reporting delays, and impaired access for the poor. (Since
regulations similar to CLIA were implemented in New York State,
the price of Pap smears tripled.)
AAPS welcomes Drs. Frank J. Adcock of Cordova, TN; Padmini
Bhaskar of Seattle, WA; Kenneth L. Bussey of Champaign, IL;
William Cantor of Woodcliff Lake, NJ; Loren J. Carter of Decatur,
GA; Francis J. Cavanaugh, Jr. of Pittsburgh, PA; Fenwick Charters
of Mt. Pleasant, TX; Howard Chavis of New York, NY; D.R.
Cornelius of Mt. Vernon, WA; Brent W. Davis of Henryetta, OK;
David Debyle of Aberdeen, WA; Richard Finch of Baytown, TX;
Frederic G. Glatter of Highland Park, NJ; John Gragnani of
Glenroe, MO; George R. Green of Abington, PA; Harold Hanson of
Closter, NJ; J.E.B. Johnson of Lake Jackson, TX; Caroline and
Robert Johnston of La Porte, TX; Charles Lefler of Brevard, NC;
Donn Livingston of Olympia, WA; William H. Mahood of Abington,
PA; Steven A. Moralez of San Antonio, TX; Anita C. Murcko of
Phoenix, AZ; Theodore M. Onifer of Abington, PA; Dante R. Oreta
of Grayson, KY; Chris Penoyar of Shelton, WA; Richard A. Pollock
of Atlanta, GA; Charles Chip Potter of Reno, NV; Steven A. Proper
of Tampa, FL; T.N. Rengel of Wausau, WI; Bruce Rosen of
Englewood, NJ; Henry Rosin of Midland Park, NJ; John R. Sanders
of Greenville, SC; Hugh Schuetz of Olympia, WA; Pat Scotti of
Brooklyn, NY; Richard Sharrett of Scotch Plains, NJ; Robert
Shugart of Concord, CA; David Sperling of Avon, CT; Michael D.
Timmel of Ocoee, FL; Joseph Upton of Chestnut Hill, MA; William
C. Waters, IV of Atlanta, GA; Michael Weiss of Columbus, OH; and
Darrick Wells of Baytown, TX.
AAPS is also pleased to welcome new student members-from
Arizona: Kim Amjadi and Doug Freedberg; from Nevada: Stella
Horton; and from Ohio: Tina M. Bruns, Vic Buenconsejo, Cynthia D.
Caraballo, Constantine G. Economus, Shelly Heidelbaugh, David
Jackman, Richard Kessler, Umesh N. Khot, Richard Marger, Philip
E. McRill, Robert L. Miller, Mark Price, Amy Robins, Dave Rohner,
Donna Rupolo, Gina M. Stoessner, Matthew J. Tompkins, Kevin
Jerome Watt, John R. Wohlwend, and Shane A. Yates.
From the Utilization Review (UR) Front
The Office of Management and Budget (OMB) has proposed a PRO
budget of $650 million for the next three years, a drastic cut
from the current $955 million. The cut has provoked a strong
bipartisan protest from Congress, led by Sen. David Durenberger
``Adding insult to injury,'' OMB also suggests that only
half the PROs implement the vaunted Uniform Clinical Data Set
(UCDS) project, while half continue the current work plan, so
that costs and benefits can be compared. ``[The PRO's]
demoralization is now complete'' (Medical Utilization
12/5/91). OMB's action flies in the face of HCFA Administrator
Gail Wilensky's tireless promotion of this algorithm-based
``epidemiological tool'' as the means to revolutionize peer
review, quality assurance, and outcomes research. One
demonstration project in Milwaukee has already shown that its
nurses can reduce a chart to a set of UCDS data in only 45
PROs may have their responsibilities increased stilll more.
HHS sanctions chief James Patton and Inspector General Richard
Kusserow are frustrated by administrative burdens that have
caused the downturn in PRO sanction recommendations to the lowest
level ever (only 12 in 1991). They are hampered by requirements
that physicians be given corrective plans prior to a sanctions
recommendation and that fines be limited to the dollar amount of
contested service. Out of frustration, Patton recommends turning
the entire process over to the PROs themselves, which could then
act ``like [medical] licensing boards for Medicare.''
UR companies are cheered by a health care reform bill
introduced by Senate Finance Committee Chairman Lloyd Bentsen (D-
TX). The bill would allow them to keep medical review criteria
secret. It would override state laws that prohibit or limit
procedures used by qualified UR programs, force UR programs to
reimburse provider expenses for complying with review, define UR
as the ``practice of medicine'' (as a means of increasing UR
firms' liability exposure), or limit UR access to provider
PROs are also encouraged by recent federal court decisions.
In Goldsmith v. Harding Hospital, a district court dismissed a
physician's medical staff privilege case, ruling that due process
provisions of the Health Care Quality Improvement Act of 1986 did
not create a cause of action for physicians allegedly denied due
process. In Dozier v. Professional Foundation for Health Care,
an appeals court overturned a lower court jury verdict that
awarded compensatory and punitive damages to a physician
allegedly defamed by a PRO payment denial letter. Also, the
American Medical Peer Review Association sent congratulations to
counsel for the Illinois PRO for winning the case of Wood v.
Freedman, which established absolute immunity for PRO reviewers
(see AAPS News, Jan 1992).
Jan. 31, 1992. Board of Directors meeting, New Jersey.
Feb. 1, 1992. Medicine and Freedom: the Doctor, the
Government, and the Law, Pascack Valley Hospital, Westwood, New
Oct. 15-17, 1992. Annual Meeting, Seattle, WA.
Legislative Alert AAPS Report from Washington
Health Care Reform Takes Top Priority. Following the
stunning upset of former United States Attorney General Richard
Thornburgh by Senator Harris Wofford in the Pennsylvania Senate
race, virtually every elected official in Washington is
preoccupied with positioning himself on the emerging health care
debate. Because Wofford made health care a central issue in his
attack on both Thornburgh and the Bush Administration, there has
been a renewed emphasis within the Administration to come up with
a credible response.
The Democratic incumbent in Pennsylvania argued that every
criminal in America has a right to a lawyer, therefore every
working American should have a right to a doctor. Without being
specific about his own program for reform, Wofford's populist
appeal in recession-ridden Pennsylvania struck a responsive
chord, and Thornburgh, the previously overwhelming favorite, lost
a 40-point lead in the polls.
Over at HHS, Secretary Louis Sullivan and his team have been
saying nice things about a consumer-oriented approach, relying on
tax credits and free markets to assure access and control costs.
But Sullivan does not have the lead on health policy; it appears
to be centered in OMB, directly under the thumb of OMB Director
Richard Darman. The OMB/White House team is keeping a close hold
on its options. But President Bush wants something by January.
Democrats seem to be consolidating around an employer-
mandated approach. Senate Republicans seem to be rallying around
S 1936, introduced by Sen. Chafee of Rhode Island, and House
Republicans are both restive and fuzzy. In any case, politicians
in Washington have become dead serious about health care reform.
Without some response to what pollsters and pundits have
described as a growing crisis, their political survival is seen
to be dependent on having some sort of answer. The challenges
ahead for the medical profession loom even larger.
Relative Value Scale Final Rule. The November 15th
release of the Final Rule has ended any prospect of threatened
Congressional intervention, at least in the near term. Over the
three-week recess ending January 3, congressional staffers will
be sifting through constituent mail, looking closely for signs in
their own districts of the fee schedule's impact. Beginning on
January 1, 1992, the huge Medicare program will undergo the most
significant regulatory change in its 25-year history.
The Final Rule represents a substantial budgetary change
from the interim rule published last June 5th, which resulted in
deeper than expected cuts. Of course, it represents no
substantial change in policy.
The June 5th reductions resulted from HCFA's interpretation
of the Omnibus Budget Reconciliation Act of 1990, which required
``budget neutrality'' in 1992. The key problem for HCFA was the
calculation of the ``conversion factor,'' which included HCFA's
assumptions of the behavioral response of physicians ``losing''
under the new fee schedule. (The ``old'' conversion factor was
$26.87; the new CF is $30.42.)
After a storm of protest from physicians, a congressional
``remedy'' was introduced by Congressman Pete Stark (D-CA).
This would have reversed HCFA's implementation rules and restored
at least $7 billion in overall Medicare reimbursement for
Medicare physicians. Stark garnered 267 House cosponsors for his
measure. In the meantime, the Interim Rule
elicited more than 95,000 angry comments from physicians and a
thorough internal review of the policies required to implement
the law according to congressional intent.
Under the Final Rule, total Medicare spending for physi-
cians' services will increase 74% during the five-year transition
period, jumping from $27.3 billion in Calendar Year 1991 to $47.5
billion in 1996. The greatest single increase in Medicare
reimbursement under the new RVS Rule will be enjoyed by
optometrists, who will see an 41% increase in payments-per-
service over the next four years, and an overall 148% increase in
Medicare payments over that period. Virtually every medical
specialty will show an increase, with the largest increase
between 1991 and 1996 going to family practitioners, at 125%. The
smallest increase will be registered by anesthesiologists at 50%.
Originally designed by Harvard researchers to control runaway
medical costs, the RVS as implemented will obviously do nothing
of the kind.
While aggregate spending for all doctors will increase, the
RVS will cut payments per service in virtually every specialty:
Cardiology will see a 17% cut; gastroenterology, an 18% cut;
nephrology, a 9% cut; neurology, a 4% cut; pulmonary medicine, a
2% cut; urology, an 8% cut; radiology, a 22% cut; anesthesiology,
a 27% cut; pathology, a 20% cut; general surgery a 13% cut;
neurosurgery, an 18% cut; opthalmology, a 21% cut; orthopaedic
surgery, an 11% cut; plastic surgery, a 13% cut; and thoracic
surgery, a 27% cut.
In revising the rule, HCFA would not budge on its behavioral
assumptions, its projections about how physicians who ``lost''
under the new fee schedule would behave. HCFA still assumes that
if a doctor loses $10,000 because of fee reductions, he will make
up at least $5,000 by increasing volume. HCFA notes that volume
changes have historically occurred, but declines to state why.
(The AMA attributes the increases to changes in demand by
The Outlook for Relative Values. While most of the
acrimony and debate on the oncoming RVS centered on its budgetary
impact, the thorny problem of the ``values'' of the medical
services themselves promises to become even thornier. Thus far,
out of the 4,500 values HCFA got out of Harvard for its new fee
schedule, it has had to revise at least 1,000 of them. While HCFA
is quick to point out that the amount of revision for most of
these has been small, it acknowledges that this entire process is
going to be an ongoing task. A 120-day comment period is being
provided for the RVUs that have already appeared in the Federal
Register, even though these ``initial'' RVUs will go into effect
on January 1, 1992. [Watch for an AAPS Action Alert.]
Look for HCFA to publish a revised list of RVUs in the
Federal Register in the Fall of 1992, to take effect in January
1993. HCFA expects to update the ``values'' of the various
medical procedures annually. Once this process has begun in
earnest, it is likely that the decibel level will rise. Thanks
to advocates of central planning in Congress and willing ac-
complices in organized medicine, private practitioners can look
forward to these bureaucratic battles every year, as different
lobbyists for medical specialties will wrestle with each other
``True and Best'' Interpretation of the Law. HCFA's
changes to appease the Washington lobbyists for organized
medicine, plus Stark and Company up on Capitol Hill (who vowed to
save the RVS and keep ``faith'' with doctors) is an interesting
case study in bureaucratic politics. When HCFA published its
first set of regulations last June, resulting in so much
distress, it made the clear and unequivocal point that it was
following the law. Gail Wilensky, HCFA Administrator, stated for
the record, in testimony before Congress, that this was HCFA's
true and best understanding of the provisions Congress had
passed. In its November 15th release to the public, HCFA
admitted: ``Although we believe that the proposed policy was and
is the most obvious interpretation of the law, we have reexamined
the statute and believe that another interpretation of law can be
supported that maintains budget neutrality through the
Forget, for a moment, the policy winners and the policy
losers, the political ``outcomes'' game in the RVS saga.
Remember that these public servants have taken an oath to defend
the Constitution and laws of the United States-to the best of
Tort Reform. Republicans in both the Senate and the
House are making medical liability reform a key issue. It is
included in S. 1936, ``The Health Equity Improvement and Access
Act of 1991,'' introduced by Senator Chafee of Rhode Island. The
Chafee bill calls for the Secretary of HHS to set up an advisory
board on tort reform to make recommendations on a model
``voluntary alternative dispute resolution system.'' S.1936 also
calls for expedited malpractice settlements and uniform standards
for medical malpractice cases. Over in the House, Republican
members are making the case that defensive medicine is helping to
drive up costs, and that caps on attorneys fees and alternative
methods of settling disputes are a necessity.
The main effort in the House is bipartisan. Calling the
medical tort liability problem a national scandal, responsible
for over $20 billion annually in extra health care costs, Con-
gressmen Jon Kyl (R-AZ) and Charles Stenholm (D-TX) have
introduced HR 3516, ``The Medical Care Injury Compensation Reform
Act of 1991.'' The bill has 33 cosponsors.
HR 3516 authorizes the Secretary of HHS to make grants to
the several states to implement and evaluate ``innovative
systems'' to settle medical malpractice disputes. States will
have the primary responsibility of developing ``alternative
dispute resolution systems.'' At the same time, HHS will serve as
a clearinghouse for different state programs: a data bank of
information for states to learn what methods are most effective
in settling these kinds of disputes.
On the issue of tort law itself, HR 3516 declares federal
tort law to supersede state law only when the federal law is more
``stringent.'' Some of the key changes to tort law proposed by
Kyl and Stenholm include new standards for determining negligence
and new limitations on the damages plaintiffs can seek against
On the subject negligence, HR 3516 provides that no
defendant can be found to have committed medical malpractice
unless the defendants' conduct at the time he was giving care was
``not reasonable.'' The key damage limitations include a cap on
noneconomic losses at $250,000; mandatory periodic payments for
damages exceeding $100,000; a limitation of attorney's
contingency fees to 25% for the first $150,000 and 15% for all
amounts greater than $150,000. Punitive damages are limited to
twice the compensatory damage award.
Other provisions of the bill dealing with physicians include
a statute of limitations of two years from the time of the
injury; a limitation on the liability of obstetricians whose
first contact with the patient is the delivery of the baby. Such
doctors are not to be held liable for medical problems developed
during the term of the pregnancy, but only for actions during
labor and delivery.
For further information on HR 3516, please contact:
Representative Jon Kyl, 313 Cannon House Office Bldg. Washington,
D.C. 20515. All correspondence should be brought to the attention
of Cindi Berry.
HMOs and Medicare. Rep. Henry Waxman's Subcommittee on
Health and Environment, the second most important health panel of
the House of Representatives, is investigating reported cases of
poor performance and other deficiencies in Medicare's HMO
Last November 15th, the General Accounting Office (GAO), the
investigatory arm of Congress, reported to the Subcommittee that
HCFA has not been effective in regulating its HMO contractors,
and has been either unwilling or unable to enforce Medicare
standards on HMO's serving Medicare beneficiaries. Waxman called
upon HCFA Administrator Gail Wilensky to explain the agency's
case, noting that he supported managed care in the Medicare
program but expressed his disappointment with HCFA's enforcement
of its own standards. Wilensky promised to try harder.
Physician Referral and Ownership. Renewed
Congressional interest in this topic has been stimulated by a
report of the Florida Health Care Cost Containment Board that
conducted an in-depth study of physician business arrangements
and referrals. The study, released to the Subcommittee last
October, found that 44% of doctors in Florida had ownership
interests in medical facilities. A total of 91% of these doctors,
according to the Florida panel, were concentrated in specialties
that would be most likely to refer patients, such as internal
medicine and general practice. The other 9% were specialists such
as radiologists, pathologists and anesthesiologists. Over 41% of
these doctors had an investment interest in a diagnostic imaging
facility, an MRI or CAT scan complex, and 16% had investments in
The Florida report focused heavily on the diagnostic
business. About 93% of the diagnostic centers are owned by
physicians in Florida, either in whole or in part. Likewise, more
than 60% of the clinical labs are owned by doctors. The thrust of
the Florida report to the Ways and Means panel was that this set
of business relationships among physicians and this high rate of
referral did not improve ``patient access'' in ``underserved
areas,'' and that ``joint ventures'' were most frequent in high-
density and ``high-profit'' areas. The Florida study also con-
cluded that both utilization and prices were higher in physician-
owned clinics, medical centers, or diagnostic facilities.
Most witnesses who have thus far testified before the
Subcommittee on Health, including both business groups as well as
organized medicine, are in favor of legislation to make it
illegal for physicians to refer patients to facilities in which
they have a financial or ownership interest. (See AAPS
News, December, 1991, for the Health Law Commentary
concerning regulations about referrals of Medicare patients to
clinical diagnostic laboratories in which a physician has an