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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 55, No. 2 February 1999
"Are you a doctor? " asks a patient in an
episode of the NBC television series The
"I am today, " responds Jarod. His training at
the Center, which abducted him from his family in
infancy, equipped him to penetrate any organization, in
whatever capacity he chooses. Now that Jarod has escaped
from the Center, it is devoting enormous resources to
The Center has an imposing headquarters, huge
archives of computerized data, unlimited money, a
helicopter, an on-call squad of "Sweepers, " and a
brilliant staff. It is controlled by a shadowy Triumvirate.
Its agenda is shrouded in fog. It is, of course, purely
From the Internet, you can download publications
from a nonfictional entity called The Center for the
Health Professions, headquartered at the University of
California at San Francisco (see http://futurehealth.u
First on the list of Center Programs is the Pew
Health Professions Commission. The National Fund for
Medical Education and the Robert Wood Johnson
Executive Nurse Fellows Program are among more than a
Members of the Pew Health Professions
Commission include Robert Graham, Executive V.P. of the
American Academy of Family Physicians, and several
luminaries who held leadership positions on the
Interdepartmental Working Group of the Clinton Task
Force on Health Care Reform (Stuart Altman, Uwe
Reinhardt, Troyen Brennan, and Phil Nudelman).
Documents of particular interest are those entitled
"Reforming Health Care Workforce Regulation "
(RHCWR) and "Strengthening Consumer Protection:
Priorities for Health Care Workforce Regulation " (SCP).
The latter recommends "periodic competency checks for
all health care professionals. "
"These recommendations should not be seen by
health professionals as an infringement on their
prerogatives. Rather the recommendations allow health
professionals to insure that all practitioners deliver care in
ways that help, not harm, the public, " stated Ed O'Neil,
executive director of the Commission. "This is the best
assurance that managed care organizations are not
the only voice for real quality in health care "
(BNA's Health Care Policy Report 10/26/98,
Key explicit features of the Pew Commission
- Centralization. National
standards and regulations, supervised by a national
advisory body (as in the Clinton Plan), would override
local and state law. Global standards are ultimately
envisioned. Barriers to "international mobility of
competent health care practitioners " are to be identified
and removed; international trade agreements (NAFTA and
GATT) are cited (RHCWR).
With easier interstate mobility for "qualified "
practitioners (and impervious barriers for the "nonqu-
alified ") comes the prospect of importation of compliant,
low-cost labor that might be unable to meet state
The desired outcome is apparently to facilitate the
establishment of "integrated delivery systems " and to
enhance "workforce planning " and "resource
allocation. " [Incidentally, the Pew Charitable Trusts' -
interest in central, global economic planning is not
restricted to medicine. It also funds an ambitious program
to persuade private industry to support global energy
rationing under the Kyoto Treaty.]
- Higher status for nonphysicians. A
broader scope of practice for nonphysicians, based on
"competency " as opposed to traditional requirements, is
a key objective. Not surprisingly, nursing associations are
"key stakeholders. " The leveling effect should not be
mistaken for a move toward greater independence for all
professionals, but as a means to weaken the "petit
bourgeois or self-employed. "
- Compliance. If "less than 10% of
all inadequate medical practice is due to a lack of
practitioner knowledge " (RHCWR), then required
courses and examinations would not suffice. "States
should require that their regulated health practitioners
demonstrate their competence in the knowledge, judgment,
technical skills, and interpersonal skills relevant to their
jobs throughout their careers " (SCP). The preferred
model, from Ontario, Canada, involves "targeted office
visits...to ferret out substandard practitioners. " It
includes random chart reviews and retesting to assess
competence according to articulated practice
guidelines (RHCWR). "Personal character
assessments " might be entry requirements (to weed out
the "disruptive "?).
Not mentioned in Commission
- A right to maintain
patient confidentiality, which is a hindrance to data
collection and central planning: "The burden in
disclosure decisions rests with those seeking to restrict
access to information " (RHCWR).
- Due process rights. All concern
about licensure boards has to do with inadequate penalties,
or slow or inadequate investigation of complaints. There is
no acknowledgement that the vast majority of complaints
are groundless, or that physicians can be (and have been)
deprived of their livelihood unjustly and without an
adequate right to defend themselves.
- Free market regulatory
mechanisms. The most important real protection for
patients is the freedom to choose their own physician and
medical treatment─-without being confined to the
Commission's "range of safe options. " The most
important quality assurance comes from free exchange of
information; the duties implied in an individual patient-
physician relationship; and collegial relations of free men
From content and omissions, it is clear that
commissioners are pretenders. They pretend to be white
knights protecting consumers. They pretend to have the
mantle of science and the consent of physicians, as well as
the constitutional─-indeed the godlike─-authority to
determine what is just and ethical.
From "A Marxist View of Medical
Care " by Howard Waitzkin, M.D., Ph.D.
(Ann Intern Med 1978;89:264-
"[P]rofessionalism, elitism, and
specialization...divide health care workers...and prevent
them from realizing common
interests....Bureaucratization, unionization, state
intervention, and the potential `proletarianization' of
professional health workers may alter future patterns of
"[T]he private sector drains public resources
and health workers' time, on behalf of private profit and
to the detriment of patients using the public sector. "
"Along with other institutions such as the
educational system, family, mass media, and organized
religion, medicine promulgates an ideology that helps
maintain and reproduce class structure and patterns of
"Advocates of a `vanguard party' believe that
historically all successful revolutions have resulted from
the efforts of a small vanguard who hold consistent
From a former Clinical Scholar of the
Robert Wood Johnson Foundation (RWJF):
"Large foundations, particularly the RWJF, are
pernicious influences on our system of health care. They
carry on their activities under the banners of access and
quality and buy off academicians and legislators with grant
money in ways the benefactors of those foundations never
intended....From 1973-1974, I saw first-hand the people
and processes that pay lip service to patient care, but
promote a system of socialized medicine run by an
academic elite. When the program at Duke challenged the
scientific legitimacy of their concept of constructing clinical
guidelines, Duke was booted out of the program. The same
small band of ruthless academicians has run the
foundation with an iron hand for the past 30 years. Now
they are invading our school system and further
distracting the schools from their primary goal.... "
From New York in 1998, Dr. Lawrence Huntoon
writes: "Watching the widespread implementation of
`Clinical Pathways' in our hospitals,...one cannot help but
be reminded of how the Nazis reinvented German medicine
using a technique called
coordination, bringing into line, elimination of
opposition'─-Cassell's German Dictionary,
1958]. In today's Newspeak, Gleichschalt-
ung would probably be called `integrated delivery'
or the `realignment of hospital and physician incentives.'
This technique involved appointing mediocre but
bureaucratically compliant professionals to infuse the
entire profession with Nazi ideology. "
"JOBS Inc....will continue with the
concept of bringing students from [Communist] China to
Jamestown Community College....As we move forward in
attempting to consolidate government, school systems,
health care with the overall goal of reducing taxes, this is
an opportunity that would appear to be perfectly timed "
[WCA Healthcare System Updates, 8/14/98].
IPRO, self-styled "Experts in
Defining and Improving the Quality of Health
Care, " to a neurologist who had discharged
patients under a relevant DRG in 1997: "IPRO will
continue to monitor hospital-based practice activities in
New York State in our ongoing efforts to promote optimal
stroke prevention therapy [warfarin] for patients with
atrial fibrillation. " The same neurologist was cited by
IPRO for a "Level II quality issue " for diagnosing
Binswanger's disease wrongly (in the opinion of a reviewer
who had never heard of that disease); for not working up
a slightly elevated hematocrit in a chronic heavy smoker;
and for not extensively discussing the presence of
nonsignificant prerenal azotemia in a patient who had
trouble swallowing and refused intravenous fluids.
Ethics forum, AMA Interim Meeting,
Dec., 1998, an item for the semantically challenged:
"Throughout history, doctors have participated in the
torture of prisoners. Determining what constitutes torture,
as well as doctor participation therein, proves to be a
difficult task. Is verifying health in the midst of torture
incompatible with the physician's role as a healer?
Can doctors act as agents of the state and participate
in the torture of prisoners in the name of the greater
good? (AM News 12/7/98).
The AMA's American Medical Accreditation
Program (AMAP), the Joint Commission on Accreditation
of Healthcare Organizations (JCAHO), and the National
Committee for Quality Assurance (NCQA) are joining
forces to bring consistency to their "independent " efforts
to define and monitor
quality. The currently redundant and conflicting measures
are said to make it difficult for the public to make
"apples-to-apples comparisons among health care
providers. " And physicians are "confused about how
they are being judged. " Some say the collaborative effort
is a response to the threat of Vice President Al Gore's
planned Forum for Health Care Quality Measurement and
) [or is it a good cop/bad cop ploy?]
The AMA has representatives on the governing
bodies of a number of accreditation organizations. The
1997 AMA JCAHO Commissioners were: Yank Coble,
Timothy Flaherty, Palma Formica, Richard Frankenstein,
William Jacott, Randolph Smoak, and Richard Tompkins.
The Joint Commission was established in 1951 by the
AMA together with the ACP, the AHA, the ACP, and the
Canadian Medical Association (the last withdrew in 1959).
JCAHO accreditation is required for participation in
Medicare and Medicaid.
AMAP is being aggressively promoted as a
"central component of the AMA's standard setting
activities "; the AMA's 1999 budget projects a $3.7 million
loss for the program. As of last October, only 261
physicians had received AMAP accreditation. Many
physicians are finding it quite difficult to meet AMAP
criteria regarding written policies and procedures. This
fact may "quiet the skeptics who contended that the AMA
would be tempted to water down accreditation standards
in lieu of alienating members " (AM News
The AMA has sent "guidelines " on how to
diagnose and treat alcoholism in older patients to 100,000
primary care physicians (only $2.50/copy). Selected
physicians also received an AMA Quality Care
Alert promoting beta blockers after myocardial
infarction, together with a Quality Care Alert
Questionnaire asking whether they had read the alert (and
if not, why not). Jane Orient, M.D., is recipient number
NCQA is seeking official Washington stature as
the arbiter of quality in health plans. NCQA, which
primarily assesses the quality of plan administration rather
than clinical care, is heavily subsidized by the managed-
Feb. 20, 1999. Board of Directors meeting, Dallas.
Oct. 12-16, 1999. 56th annual meeting, Coeur
Criminalizing "Mistreatment "
A sentinel event in Montana is the introduction of
Senate Bill No. 75 by Democratic Senator Halligan, at the
request of the Department of Justice.
The bill would establish an extremely broad duty
to report to the county attorney and the Medicaid fraud
unit any incident in which there was "reasonable cause to
suspect that an older person or a person with a
developmental disability ... has been subjected to abuse,
sexual abuse, neglect, or exploitation. " It provides that
the Medicaid fraud unit, "when appropriate, shall
investigate and initiate criminal proceedings, " and in
addition, shall refer for collection or sanctions any cases
involving overpayments, inappropriate use of services, or
other improper activities discovered in the course of its
activities. The subpoena powers now residing in criminal
prosecutors would be expanded to Medicaid fraud unit
A new criminal offense is created: "mistreatment
of [a] patient, " applying to anyone who receives
compensation for caring for a patient and who,
"without lawful authority, fails to provide
a patient with food, shelter, clothing, or services necessary
to maintain the physical or mental health of a patient. "
Presumably, causing bodily injury or defrauding a person
are already covered under existing statutes. However,
bodily injury that purportedly results from medical
malpractice may become a criminal, rather than a civil
"A person convicted of the offense of
mistreatment of a patient shall be imprisoned in a state
prison for a term not to exceed ten years or be fined an
amount not to exceed $50,000, or both. "
Another new criminal offense involves failure to
maintain for five years all records necessary to "fully
demonstrate the nature and medical necessity of goods,
services, items, facilities, or accommodations for which a
claim was submitted... ", even if no payment was
received. Negligent failure to maintain the records carries
a fine of $500, but intentional destruction or concealment
of such records carries a prison term of one year.
Under cover of preventing elder abuse, this
statute appears to create a vastly expanded authority for
fishing expeditions by the Medicaid fraud control unit.
Moreover, it appears on its face to create a legal
responsibility to provide unlimited services to a patient,
once any compensation is received, while implying that a
provider may deny services and even starve a patient to
death upon obtaining the legal authority to do so.
Who can understand what constitutes
"mistreatment "? It could mean providing too little, too
much, an inappropriate or unapproved service, or it could
simply mean failure to satisfy a patient, a family member,
or a bureaucrat.
Whatever the intentions of this bill's proponents,
its enactment could have the effect of making it extremely
difficult for any elderly or disabled person to find a
caregiver willing to assume such awesome liability.
Incrimination of Self and Others
Public confession or self criticism, methods
developed by Chinese Communists, are being ever more
widely deployed in American entitlement programs.
Recall that in 1966, the Supreme Court handed
down the Miranda ruling that required police to inform
suspects of their Fifth Amendment protection against self-
incrimination before an interrogation
In 1998, the federal government encourages all
physicians and medical facilities to voluntarily report any
fraud or billing errors that they discover, in the mere hope
that their punishment will be more lenient. The OIG
"encourages " the culprit to place the overpayment in an
interest-bearing escrow account pending final settlement.
There is no guaranteed protection against criminal liability
under the False Claims Act, although self-reporting might
be a mitigating factor in the sentencing guidelines.
Few providers reportedly came forward during a
demonstration project (MSSNY's News of New
York 12/98) although one New Jersey hospital paid
$840,000. The government refrained from seeking treble
damages or other sanctions from that hospital
(BNA's HCFR 11/4/98).
The Inspector General's voluntary disclosure
guidance is posted at http://www.dhhs.gov/
Attorney Gregory M. Luce warned that entering
the protocol constitutes a waiver of attorney-client
privilege, and there is no guarantee of
confidentiality of information. This means that a
potential qui tam relator could use it in a whistleblower
Lewis Morris, deputy associate general counsel
for the HHS IG said the main reason for voluntary
disclosure is that "you don't want us in your buildings, "
where employees might offer still more incriminating
Backing up voluntary disclosure are more
incentives for informal law enforcers (informers), such as
billing companies─- primarily the mitigation of penalties
that could be imposed on the company for subsequent
wrongdoing (BNA's HCPR 12/7/98). In
general, cooperation with government is not enough: one
must be instrumental in securing convictions and even this
may be insufficient to avoid exclusion (Civil Money
Penalties Reporter, Fall, 1998).
Law Enforcement Updates
DOJ's information exchange program will help
private insurers petition for a share of assets forfeited in
health care fraud cases. Insurers may be able to claim
qualified statutory immunity from civil liability for making
certain information disclosures to government
(BNA's HCFR 11/4/98).
Since the False Claims Act was expanded to
include Medicare in 1986, DOJ claims to have recovered
$2 billion. "To those inclined to gut the False Claims Act
[due to overaggressive use in minor billing errors], here
are two billion reasons why we need it more than ever, "
stated Senator Charles Grassley (R-IA)
AMA: Leader on Global Ethics
Some local medical societies have protested that
the $250,000 annual AMA expenditure for the World
Medical Association is just a perk: international travel for
AMA leaders. However, the money also buys three seats
on the 15-member WMA Council. AMA leaders are very
active, and in 1997 AMA past president Daniel
( "Stormy ") Johnson was the unopposed candidate for
The WMA was founded in 1947, when in the
wake of the Nuremberg Trials, "it became apparent that
only the medical community could develop a workable
code of ethics that would serve the profession as well as
governments and individuals around the world. "
According to the 1997 Board of Trustees report,
AMA ethical positions often serve as a model for WMA
Can Solo Physicians Make the Grade? I
called the AMA's AMAP Program recently and asked
whether they had any contract with the government for
implementing AMAP as the national standard. The person
answering the phone said she didn't know but would get
back to me (she hasn't, six months later). But she did send
me a description of AMAP's requirements and said that
"President Clinton has already recognized AMAP as a
national standard. "
As I watched my wife help a narcoleptic patient
to her car today, I thought about AMAP and how we
didn't have a "written procedure " to cover that kind of
thing and hence could be cited for the deficiency. I also
have only one examination room in my office, which is
perfectly adequate for what I do, but I wonder whether it
would meet AMAP's criterion for an "adequate number
of exam rooms [plural]. "
The solo fee-for-service physician in private
practice is slowly but surely being degraded and viewed as
not providing quality care "by definition "─-AMAP's
Lawrence R. Huntoon, M.D., Ph.D.,
Profiling. Insurance companies have
started to "profile " physicians like criminals or cattle to
be slaughtered. A "state-of-the-art episode treatment
grouper " groups claims into "episodes of care " and
"filters out " claims unrelated to episodes for which the
specialist is responsible. Patient mix is adjusted for age,
sex, and severity of illness for "apples-to-apples "
comparisons among specialists for "quality
measures "....Today, a patient wanted to make an
appointment, and we found out we were not "invited " to
be a "preferred provider " because our "claims volume
with them was negligible. " The fact that for 22 years we
were a participating provider with considerable volume is
meaningless; thanks to managed care, our volume has
shrunk to about $10,000. Because this amount is
"negligible, " we are not profiled; since we are not
profiled, we cannot be asked to join; since we cannot be
asked to join, we cannot get any patients;....
Medicine is supposed to be an independent
profession, not a cattle-ranch operation or a totalitarian-
type networked insurance-police bureaucracy,
manipulating questionable data in the name of cost
management. The only object seems to be to manage the
few solo practitioners into obsoleteness, so that only the
highest volume specialists can survive. In the 21st century,
physicians' practices will resemble insurance mergers, i.e.
marriages of elephants reigning and trampling over
standardized and McDonaldized herds in an unfathomable
jungle of bureaucracy.
Let's start profiling accountants, engineers,
scientists, and above all, attorneys.
Marion Redlich, M.D., Alexandria, VA
Medicare's View of Specialists. Unless I
misunderstood, an official of Transamerica Occidental Life
Insurance told me by telephone today that a specialist by
definition cannot document "complexity of medical
thinking " because "since they are a specialist, the
complex medical decision-making is not warranted because
it is easy for a specialist to make complex medical decisions
by virtue of the fact that they are a specialist "
[sic.]. This non-oncologist, non-physician,
who had not even seen my patient, was absolutely certain
that I was wrong about the medical decisionmaking in her
Linda W. Wilson, M.D., Culver City,
Competency Tests. From a letter to
George Mitchell, Chairman, Pew Health Professions
Commission: I read in disbelief about your organization's
proposal to further harass doctors and nurses with
competency tests and on-site inspections....What about
lawyers, corporate executives, lawyers, teachers, lawyers,
accountants, stockbrokers, lawyers, judges, politicians,
[Medicare carrier officials], etc.?....I am not at all
surprised that you were once a Senate majority leader. A
similar gang of irresponsible politicians is now trying to
turn medicine over to thieving con-artists known as
Who is going to do the testing? And what
happens if a physician, who daily practices good medicine
and has satisfied patients, vast experience, and peer
respect, fails the test? Will you destroy his livelihood and
deprive his patients of his care?
It's a classic tactic, used by the power-hungry
since the beginning of history: create a crisis, develop a
bureaucracy, make villains and victims, and then rush in
with the appropriate stormtroopers to save it, gaining
control and milking the system for your own self-righteous
glorification in the process.
Gary K. Keats, M.D., Clearwater, FL
Monopoly. I object to comparing
Microsoft with the HCFA/ AMA monopoly on CPT
coding, which is government-granted and enforced by law.
[Another example of true monopoly is TCI cable:]
competitors are deterred by the courts, backed up by
government agents with guns. Microsoft's business
practices may be unfair, but it is by no reasonable
measure a monopoly.
Steven J. Adler, M.D., Seattle, WA
Employers Have to Get Out of the Medical
Insurance Business. In speaking at two executive
conferences recently, this was my theme. Three-fourths of
the audience agreed with me. What drove the point home
was this question: With whom do you, as an employee,
have an insurance contract? It dawned on them that as
individuals they have no contract with anyone: It's their
employer who has the contracts. Bingo. That simple idea
turned on a lot of light bulbs.
Craig Cantoni, Capstone Consulting,
Legislative AlertA Dawn of Hope?
Despite the process of Presidential impeachment,
one can smell something different, and far sweeter, in the
Washington air concerning health care policy. Perhaps it's an
emotional hangover from the festivities of the Holiday season.
Perhaps it is just wishful thinking that the next Congress
won t belly up to the same old bar and order another round of
the same old regulatory rotgut for what ails us.
Yes, one can expect the Capitol Hill gang to go
through the same old motions. Expect Congressman Charlie
Norwood (R-GA) to reintroduce his "patient bill of rights "
to curb HMO abuses. Likewise expect Clinton and his allies
to reintroduce their own version, and Senator Minority leader
Thomas Daschle to insist that he and his colleagues will settle
for nothing short of a new avenue for patient lawsuits against
employer plans in 1999. More litigation on top of more
regulation. And even higher levels of uninsurance.
Today, according to the recent Census Bureau
estimates, America s uninsured number
approximately 44 million at any given time.
According to the 1997 Kaiser/Commonwealth National Survey
of Health Insurance, 73% of those who are or recently were
uninsured are in working families. And nearly half of these
working uninsured people report having difficulty paying the
costs or getting access to care. Instead of micromanaging the
insurance market, federal and state legislators might start to
consider how to expand that market to benefit more families
and reverse the trends.
And yet there are positive signs. Even the heavy
imbibers of the same old stuff are starting to realize that their
own policies are driving up costs and increasing the numbers
of the uninsured. Since the enactment of the Kennedy-
Kassebaum Bill of 1996, the Balanced Budget Act of 1997,
and several other regulatory initiatives, the
counterproductive results just may be getting the notice of
politicians. Among the ruins of whatever it is that the
politicians in places like Washington State and Kentucky think
they have been creating, future political fossil hunters might
yet find evidence of intelligent life.
Consider Maryland, of all places. In the wake of
Maryland Governor Parris Glendening s convincing victory in
the November election over conservative Republican Ellen
Sauerbrey (Maryland s would-be answer to Margaret
Thatcher), Mike Miller, President of the Maryland State
Senate and a leader of one of the most liberal state legislatures
in the country, recently opened a big meeting in Annapolis.
The purpose: to discuss the need to overhaul Maryland s
regulations of the health care system. That right! Annapolis.
A town where the few gainfully employed Republicans have
been reduced to a fringe group nursing their battered self-
esteem at the corner bar. Imagine what could happen in places
where conservatives legislative caucuses attract a respectable
number of budding statesmen!
Cogitations Among the Captains of Industry
Equally important is what goes on in the
heads of the big guys who travel around the Republic at
30,000 feet. The November 1998 issue of Business
and Health carried a remarkable article by two
Cornell University Professors, Roger Battistella and Daniel
Burchfield. Their conclusion: positive change is inevitable.
The combination of the return of rising costs, aggressive
government regulation of benefits at the federal and state
level, the threat of litigation, and shareholder pressures to
keep compensation expenditures reasonable, will force
companies to move from the defined-benefits model of
employer health insurance to a system of defined-
contributions. The real options of the captains of industry are
closed. The big guys know that there is no political will in the
country to solve their problems through adopting a Canadian
style national health insurance system─-at least not yet. They
also know that they cannot get out of the mess they are in
simply by discontinuing employer-based insurance and
throwing their workers and their families out of their
coverage. A defined contribution, the Cornell
professors argue, is the only thing left. They write:
"The paternalistic relationship between business
and employee health insurance is on its last legs. The new
economy, featuring an older and more transient workforce and
competition from foreign firms unburdened by high labor
costs, is compelling American companies to rethink health
benefits. " Watch the response of corporate power brokers to
proposed changes in the tax treatment of health insurance.
With a defined-contribution system, the employees are in
charge of key health insurance and benefit decisions, and then
they have a direct interest in making sure that they get the
best value for money. Government mandates take on
the character of a metaphysical abstraction when they hit
the company s bottom line. But government interventions
and mandates and excessive regulation become less popular
when they hit the family budget's bottom line. The
survey research already bears out the fact that Americans are
not so enthusiastic about Government Good Deeds when they
have to pay the bill. For example, Chuck Rund of the
Charlton Research Company of San Francisco noted that
46% of Americans say they are unwilling to pay any
more for the right to an independent review of insurance
decisions. Only 13%, notes Rund, are willing to pay as
little as $10 a month extra in premiums for more government
protections or a right of independent review.
Rethinking Business as Usual
Not only are more people uninsured as a
result of federal and state legislation, but the best
prognosticators in the business predict higher medical costs,
not lower. According to an article by Milt Freudenheim, a
seasoned health care reporter, costs will jump from 8 to 20%
for many American workers and their families in 1999
(NY Times 11/7/98). Look for medical costs
to grow at more than 3 times the rate of inflation. A survey of
the nation s 50 largest companies and 1000 medium-sized
companies shows that HMO premiums are going up
by 8%. For small businesses, the cost increases will be
devastating, and they will start to drop their insurance.
There are two big reasons for the projected cost
increases. First, the HMO revolution is over, having saturated
the private employer-based market: 85% of all workers
are now enrolled in HMOs or other managed care
plans. There are now no other areas for HMOs to
penetrate. Much of the big cost control of the early to mid
1990s was attributable to the transitional savings that
companies achieved in moving employees out of traditional
indemnity plans and into managed care plans, not to any kind
of magic bullet. Second, managed care plans have not been
able to effectively weather the political and public relations
backlash that has accompanied their "management of care. "
One state legislature after another is passing laws to mandate
certain benefits and prohibit managed care companies from
doing the denial of "medically inappropriate or
unnecessary " procedures─-as termed by HMO officials─-
that they were designed to do. Curiously, both the Clinton
Administration and the leading proponents of "managed
competition " have largely escaped, pardon us, "censure "
for aggressively promoting the very form of "health care
delivery " that folks like Helen Hunt and Jack Nicholson now
find so downright objectionable on stage and screen.
A particularly pernicious side effect of the
evolution of the employer-based system is the continuing
consolidation of the health insurance industry itself:
fewer suppliers of health insurance and a less
competitive market. All in all, delightfully good news
for the academic and Congressional champions of Canadian-
style socialism─-if a defined-contribution or tax-based reform
doesn t cut the Canadian caucus off at the pass.
In recent years, HMOs were losing money, even as they
were gaining larger and larger shares of the employer-based
market. At the same time, the highly regulated industry went
through a frenzy of mergers and acquisitions. During
the last three years, according to the NY
Times report, 16 of the nation s 25 largest HMOs
were "swallowed up " by other managed care
companies. Freudenheim quotes Dorothy Finigan, a
benefits manager at J. Baker, a retail shoe chain hit by a 9%
"There are only a few national carriers left: Aetna,
Cigna, United Health Care. Because the number is so limited
they are calling the shots. " It s the kind of thing that the old
Marxists, between cheap beers at the Rathskellar, used to call
the "concentration of capital. " That s what happens before
the "immiseration of the proletariat. " The proletariat is
us, the poor slobs who pay the bills, work
hard and play by the rules, as a prominent Washington
Communicator might remind us.
These changes in the industry are precisely the ones that
conservative economists feared would happen through the
proposed "regional alliances " of the Clinton Health Plan.
But it's happened anyway, with a big assist from policies at
the federal and state level that resemble very much the
popularly rejected policies embodied in the 1993 Clinton
A Congressional Change in the Terms of Debate?
The Clinton Administration and its allies in Congress
want to focus once again on their "Patient Bill of Rights "
initiative, making it their top legislative priority. But one
detects stirrings in Congress, and a very different focus
among prominent and influential Members of Congress on
both sides of the aisle.
This past year, Congressman Bill Thomas
(R-CA), Chairman of the Health Subcommittee of the House
Ways and Means Committee, delivered remarks on several
occasions that caught his audiences by surprise. Thomas
emphasized that if America is to enjoy the fruits of a system
based on the principles of patient choice and competition, then
the Congress must overhaul the tax treatment of
health insurance. A similar case is being routinely
made by Congressman Jim McCrery (R-LA),
another influential member of the House Ways and Means
Committee. McCrery wants to replace the entire
system of federal insurance programs, Medicare and
Medicaid, with a defined contribution system,
enabling the eligible patients to use that government
contribution to pick and choose their own private health care
options with "minimal " interference from HCFA.
McCrery, like Thomas, also favors a national system
of tax credits for private insurance, replacing the current
tax system with a new tax policy targeted directly to
individuals and families.
Targeting tax relief directly to families is likely to rectify
the current imbalances that gear tax subsidies toward high-
income folks, who benefit most from the exclusive tax
treatment of employer-based insurance. Recent estimates from
the Lewin Group reveal that the average federal tax benefit
per family is a little less than $1000 per annum. For those
making between $15,000 and $20,000 per year it is $288. But
for those making $100,000 or more, it exceeds $2000 per
Even more curiously, the idea of using tax policy to
expand access to insurance coverage and promoting consumer
choice and competition, once confined to a limited circle of
thoughtful moderate and conservative Republicans, is now
starting to find favor in the unlikely camp of liberal
Democrats. For example, Congressman Jim
McDermott (D-WA), a psychiatrist by training and a
champion of Canadian-style socialism, has already introduced
a tax credit proposal. McDermott thinks─- correctly─-that
the Kennedy-Kassebaum bill has made the overall situation for
the uninsured in America worse, not better. The McDermott
bill would provide a flat 30% partially refundable tax credit
for Americans who do not have employer-based insurance.
Also not to be overlooked is a proposal by Senator
Barbara Boxer (D-CA) to expand dramatically
the personal deduction for health care.
It s too early to predict what, if anything, the next
Congress will do. If the political chemistry is right, and
partisanship could be put on hold for at least a decent interval,
perhaps serious statesmen in the House and Senate might be
able to keep a tax-based reform relatively clean, and targeted.
The Real Issue
A defined-contribution system may naturally and quickly
emerge, under the increasing economic pressures. But, as a
policy matter, changing the tax treatment of health insurance
is, of course, the real issue. If it is presented as it should be,
as a way to combat rising uninsurance and broaden access to
health care, then it is the ground on which those in Congress
favoring real patient choice want to fight.
Tax policy is also studiously ignored by those who
either don t know what they are talking about, or who are
obsessed with avoiding the subject of real market reform. The
agents of the Nanny State don t like such talk. The new
Nannies are big on obedience. They envision a nice neat
single-tiered health care system where everybody follows all
of the rules, fills out the right forms, collects all the right
data, and calculates, pays and charges all the right prices in
system run by the right people─-in a 21st century equivalent
of the Health Care Financing Administration (HCFA).
Beginning in 1999, perhaps the new Nannies too
will become obsolete.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage