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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 50, No. 1 January 1994
KENTUCKY PROVIDER TAX
The recently enacted Kentucky tax on physicians' gross
revenues discriminates against physicians in an arbitrary manner
and is therefore unconstitutional, ruled Judge Roger L.
Crittenden on November 23, 1993, in a case brought by AAPS member
Stuart Yeoman, MD (see AAPS News Sept, Nov, and Dec 1993).
The case is styled Smith et al. v. Kentucky Revenue
Cabinet et al.
``There is no reasonable basis to single out these health
care providers to pay special taxes to support the Medicaid
program. This program benefits the state's residents as a whole
and there are no justifiable reasons for arbitrarily designating
physicians to pay for it. Section 59 [of the Kentucky
Constitution] was designed to restrict the legislature from
favoring or disfavoring certain groups, however advantageous it
may be to do so.''
The judge noted that Kentucky had rewritten a previous law
that taxed only Medicaid providers, in order to avoid a loss of
federal funding. The federal Medicaid Voluntary Contribution and
Provider Specific Tax Amendments of 1991 (Pub. L. 102-234)
restricted federal financial participation in states whose
programs were partly funded by impermissible health care related
taxes. Such taxes constitute the functional equivalent of a
kickback in return for increased Medicaid reimbursement.
The federal government did not mandate a tax on all
providers; it simply permits such taxes.
``Federal permission does not provide sufficient rationale
to overcome Section 59 of the Kentucky Constitution,'' Judge
In addition, the judge invalidated the Health Care Data
Commission because it was appended to a revenue bill and is
unrelated to raising revenue. The Kentucky constitution requires
that a bill relate to no more than one subject, thus preventing
the legislature from sneaking hidden provisions into law without
``The Commission's authority to gather information applies
to all health services performed in the state, not just Medicaid
services. The Commission is authorized to collect data not only
on cost but also on the `quality and outcomes of health
services','' noted Judge Crittenden. ``The Commission's
prescribed duties do not relate to raising revenue but to
monitoring the medical treatment of every citizen in the state of
Having invalidated the Data Commission on the grounds that
it violates the constitutional prohibition of omnibus
legislation, the judge did not comment on the issue of whether it
also violated privacy rights or the Fourth Amendment to the US
Constitution by permitting unbridled agency investigations of
The judge enjoined the Data Commission from taking any
action and the Revenue Cabinet from collecting any further taxes.
Furthermore, the Revenue Cabinet was ordered to remit refunds on
taxes already paid by plaintiff physicians and HMOs within 90
The defendant, the Kentucky Revenue Cabinet, asked for a
stay pending an appeal to the state supreme court. The stay was
Plaintiff's attorney Kent Masterson Brown called the
decision a ``total victory for the courageous physicians'' who
took on the State.
In addition, Mr. Brown felt that ``the judge's reaction to
the Health Care Data Commission is heartening for those who fear
the increasing role of government with respect to patient privacy
and unlimited government access to health care data under
Clintonista health reform. The legislature created the Kentucky
Health Care Data Commission to do just what the Clinton plan
would require-and the dicta in this decision are a good
indication of what government, legislatures, and regulators can
expect from citizens and the courts if such commissions are
Kentucky Physicians Respond to Tax
Even before the court decision, resistance was underway
among Kentucky physicians.
One doctor crumpled his tax return into the size of a golf
ball and mailed it to state tax collectors. Others wrote lengthy
letters complaining of fascism and threatening to leave the
state. Some refused to write numbers inside the boxes on the
returns, making it impossible for the forms to be processed by
optical scanning (Gil Lawson, Courier-Journal 11/10/93).
According to the Revenue Cabinet, 36% of the providers
subject to the tax failed to pay it, or to inform the state that
they were retired or inactive. And 44% of the returns were
completed incorrectly (Courier-Journal 11/12/93).
Medical organizations said they were unaware of efforts to
resist the tax. Their message to physicians was ``you must do
what you have been legislated to do.'' Had the tax not been
declared unconstitutional, delinquent physicians could have been
subjected to penalties up to 40% of the tax owed plus interest.
If they failed to pay up, their property would have been subject
to seizure (ibid.).
The public and the media were not particularly sympathetic
to the doctor's plight. However, they had little understanding
of the implications of the Health Care Data Commission, according
to plaintiff physician Stuart Yeoman.
If the Data Commission is introduced in a separate bill and
subject to public debate and scrutiny, it should encounter much
more resistance, Dr. Yeoman thought. Newsmen had no awareness of
the implications of the Data Commission; they thought it was
simply a mechanism for to collecting a tax.
Clintonista Sales Campaign in Full Swing;
AAPS Members Ask Questions
The American College of Physicians, the American Academy of
Family Physicians, and the American Academy of Pediatrics are
among two dozen organizations chipping in $5,000 each to the
Health Care Reform Project to advocate ``health care reform.''
The Project has hired the DC-based public relations firm of
Chlopak, Leonard, Schechter, and Associates, at $20,000 per month
(Legal Times 10/11/93).
Other members of the Project include American Airlines;
AARP; AFL-CIO; American Federation of State, County, and
Municipal Employees; American Nurses Association; The Catholic
Health Association of the United States; Children's Defense Fund;
Chrysler Corporation; Citizen Action; Families USA; The League of
Women Voters; National Association of Children's Hospitals and
Related Institutions; National Association of Social Workers;
National Council of Senior Citizens; National Education
Association; National Health Policy Council; Older Women's
League; Service Employees International Union; Southern
California Edison; and United Mine Workers.
AAPS has the names and telephone numbers of the press
contacts of these organizations if you would like to call them
for further information.
The Democratic National Committee (DNC) is sponsoring a
series of town meetings, featuring spokespersons for the
Administration and Democratic congresspersons. Hillary Rodham
Clinton herself is also making appearances, as is former Surgeon
General C. Everett Koop, MD.
Dr. Koop denies that he has sold physicians out. He sits
next to Hillary Rodham Clinton in order to serve as a moderator
in the discussion between policymakers and the medical community,
not as an endorser.
``Right now the various factions are yelling at each other
like football players in the huddle during the fourth quarter of
a losing game. Only the coach can call the play; only the White
House can provide that kind of leadership,'' he writes (``Don't
Just Say No,'' Hippocrates Nov/Dec 1993).
Koop believes that our health care system is a ``tyranny''
for some Americans, and that the President now ``desires a
constructive dialogue'' with the physicians that he excluded from
the Task Force (ibid.).
So far, the coach has excluded the opposition from equal
opportunity to participate in the carefully orchestrated town
halls. Selected panelists are allowed to give only brief
presentations, often on short notice. Written questions from the
audience are screened.
Hillary Rodham Clinton requested to attend a meeting with
the Medical Association of Georgia. Some physicians with
principled objections to the Plan were outside picketing. Among
them were AAPS President, Charles McDowell, Jr., MD, AAPS
Director W. Daniel Jordan, MD, and AAPS members Nancy Lord, MD,
and Joel Smith, MD. Dr. Lord, Libertarian Party candidate for
Vice President in the 1992 election, burned a replica of a Health
The Arizona Medical Association was permitted to have two
panelists at a Phoenix meeting where Ira Magaziner appeared.
However, ArMA authorized Dr. Jeffrey Singer to say that they felt
this did not represent a fair opportunity to present their views.
Dr. Singer, Vice President of the new Arizona chapter of AAPS,
organized a press conference outside the meeting hall, with
Sydney Hoff-Hay of the Lincoln Caucus and other concerned
citizens. Citizens carried a poster portraying the
organizational structure of the Clinton Plan, as drawn by
Representative Dick Armey (R-TX). Dr. Singer presented the case
for free-market alternatives to the Clinton Plan. Paid agitators
tried to shout him down.
When Dr. Singer remarked to one heckler that his sign was
not visible on the radio, the man replied that his job was to
make Dr. Singer nervous.
AAPS Director Jane Orient, MD, was invited to give a three-
minute presentation on a panel in Tucson. (A congressman needed a
physician in private practice to complete the ``provider''
Dr. Orient pointed out that ``universal'' does not mean
100%. Federal government employees have demanded an exemption.
`` `Universal' means `all the rest of us.' It also means
mandatory or compulsory,'' she said.
``In the Health Security Act, the word `mandatory' occurs 24
times, `prohibit' 51 times, `penalty' 59 times, `obligation' 62
times, `enforce' 90 times, and `limit' 239 times.''
Mr. Richard Veloz, assistant to Ira Magaziner, ignored her
question about why the Task Force has been so reluctant to
divulge information about its operations. Instead, he stated
that her reference to the ``new criminal penalties'' (a phrase
also included in the materials accompanying her invitation to
speak) was an example of the fear and insecurity that people
always have when confronted with ``change.''
He denied that the criminal penalties are really new, and
stated that no one would be treated like a criminal unless he or
she really is a criminal. (See AAPS Legal Supplement #5.)
The press reported that ``Orient's accusations were an
abrupt break with an otherwise congenial tone of the event''
(Tucson Citizen 12/4/93).
At the December AMA meeting in New Orleans, members were
urged not to ``start drawing lines in the sand,'' but to curb
attacks and take a cooperative attitude.
Citizens who favor a free-market approach are organizing
their own town halls, often with the cooperation of congressional
representatives. For information about meetings in your area,
call Citizens Against Rationing Health, (202)546-6555 or the
American Legislative Exchange Council (ALEC) at (202)547-4646.
AMA Supports Using RICO Against Protesters
The anti-racketeering law (RICO), enacted in the 1970s to
combat organized crime, has increasingly been used in business
disputes. In a series of cases, the Supreme Court has refused to
narrow its scope. The law can be used to seize property (such as
the home and life savings) of individuals who are never even
charged with a crime (see the Freeman, July 1993 and AAPS
News June 1992 and Jan 1993). It is now being aimed at
right-to-life groups who block access to abortion clinics. The
7th Circuit Court in Chicago ruled that RICO didn't apply to
anti-abortion groups because they did not have the economic
motive required by the law. Abortion-rights advocates say the
law requires no such motive.
The AMA along with the American College of Obstetricians and
Gynecologists filed a brief amicus curiae in favor of
plaintiffs in the case of National Organization for Women v.
Scheidler (see p. 3).
Physicians will be the next target of asset seizures as the
scope of RICO is broadened still further under the Clinton Plan
(see next month's Legal Supplement).
Pennsylvania Medicare Recoupment May Foreshadow Future
Recoupments by Other Medicare Carriers: Physicians Must Know
Their Legal Rights
Pennsylvania Blue Shield, the Medicare carrier that
administers Part B in Pennsylvania, New Jersey, Delaware, and the
District of Columbia, is attempting to recoup about $12.6 million
in alleged Medicare overpayments from 3,000 physicians and
clinical laboratories. According to the Bureau of National
Affairs (4 Medicare Report 1431, BNA, 11/19/93), Blue
Shield conducted an internal audit of its records, uncovering a
``clerical error'' that resulted in ``paying more for certain
panels of laboratory tests than it would have paid if the
component tests were billed separately.''
According to David Sayen, a spokesman in the Region III
Office of the Health Care Financing Administration (HCFA) in
Philadelphia, new Medicare fee schedules adopted in 1993
eliminated the potential for such error, but during the preceding
three years, the fact that fees were capped for individual tests
but not for panels of tests created the opportunity for such a
After discovering the alleged error on its part,
Pennsylvania Blue Shield sent letters to physicians and
laboratories, giving them 15 days to object to having future
Medicare payments offset by the carrier to make up for the
alleged overpayments. Blue Shield also notified physicians and
laboratories that they would have a ``grace period'' of 30 days
before recoupment would be initiated, after which interest would
begin to accrue on the alleged overpayment at the rate of 13.6%.
According to BNA, Pennsylvania physicians and laboratories
strongly objected to the recoupment on the grounds that they were
not at fault for the carrier's alleged error and were being
Due to these objections, Pennsylvania Blue Shield put its
recoupment plans on hold, ``pending the outcome of discussions
with HCFA.'' According to the spokesman for the carrier, the
decision as to whether to proceed with the recoupment rests
entirely with HCFA.
Most importantly, BNA reported that HCFA's decision with
respect to the Pennsylvania recoupment will apply nationwide to
other HCFA regions where any similar situation may arise. Region
III was simply the first region to be audited; other HCFA regions
will also be audited to determine if their carriers made similar
Physicians should be aware of their legal rights if notified
of a recoupment action. First, don't agree to anything with the
carrier either orally or in writing. At worst, such an agreement
can result in a total waiver of physicians' rights to keep the
alleged overpayments. At best, it can amount to an admission of
liability for an alleged overpayment, which can be used against
the physician in administrative and judicial proceedings to
contest the contemplated recoupment.
Second, the physician should immediately retain competent
counsel as soon as he receives notice of the recoupment. Counsel
should notify the carrier in a formal legal document that the
physician objects to the recoupment, that the physician is
totally without fault, that the recoupment is contrary to equity
and good conscience and constitutes the equivalent of retroactive
rulemaking, violating the physician's rights under the Medicare
Act, 1395 et seq., and the US Constitution. The
document should demand a formal administrative hearing to contest
the recoupment before an offset begins or alternately, without
waiving the right to a pre-recoupment hearing, a hearing as soon
Under 42 U.S.C. §§1395gg, HCFA may not recoup an
alleged overpayment if the physician is without fault and the
recoupment would be against equity and good conscience.
Additionally, the physician has the right to a hearing and appeal
The Legal Service will serve a Freedom of Information Act
request seeking all relevant documents. These will be made
available to any AAPS member subjected to HCFA harassment.
Your PAC has been virtually dormant for two elections
because of a paucity of talent that fits our criteria for
support. But with Bill and Hillary forcing ``health care'' as
the issue to advance their totalitarian drive, plenty of natural
opposition has arisen, and AAPS-PAC has something to offer.
I have already had many calls from AAPS members requesting
consideration for specific candidates. The US Congress has been
our focus in the past, but certain State races may receive
consideration if the committee feels AAPS-PAC has a chance to
further a free-market agenda. One such consideration is Henry
Jordan, who has a good chance to become South Carolina's
A rising star in Arizona may be J.D. Haworth, whose heart
knows freedom and whose ear recognizes AAPS.
PAC contributions may be sent to AAPS-PAC, 1601 N. Tucson
Blvd. Suite 9, Tucson, AZ 85716. No corporate contributions
can be accepted, and contributions are not tax-deductible.
James Coy, MD, AAPS-PAC Chairman
AMA Attorneys Speak on RICO
On Congressional intent: ``[A]t least one member
of Congress opposed to the legislation appears to have
specifically envisioned the possibility that it would be applied
to politically motivated groups....''
``The fact that RICO has been applied in situations not
expressly anticipated by Congress does not demonstrate ambiguity.
It demonstrates breadth.''
``The statutory definition of a RICO enterprise encompasses
`any' organization, individual, or group of individuals
associated in fact....'' [Is this not guilt by association?--
Ed.] `` `[A]ny legal entity' quite clearly encompasses such
organizations as non-profit corporations.''
``RICO defines racketeering as any act or threat that is
unlawful under certain state or federal criminal laws....The
court of appeals' adoption of the economic motivation requirement
is precisely the sort of creative RICO-limiting interpretation
not intended by Congress....''
On protesters' motives: ``Appellant's professed
unselfish motivation, rather than a justification, actually
identifies a form of arrogance which organized society cannot
AMA and ACOG amicus brief, US Supreme Court
AAPS welcomes Drs. Luis M. Albuerne of Houston, TX; Fred
Aldrick of West Des Moines, IA; Brad Alexander of Highland Park,
IL; Edward F. Arnett of Martinsburg, WV; Gordon P. Baker of
Seattle, WA; William L. Benson of Tacoma, WA; Gerald Bernstein of
Seattle, WA; Bernard Bettasso of Joplin, MO; Paul T. Bettinger of
Ogden, UT; Jesse Blackman of Fremont, NC; F.M. Bonner, III of
Houston, TX; Carl F. Brunjes of Spokane, WA; Jon L. Cheek of
Shreveport, LA; Joel E. Colley of Scottsdale, AZ; Patrick W.
Connelly of Osh Kosh, WI; Manuel Coto of Orlando, FL; Ron Cypher
of Butler, PA; Daniel A. D'Auria of Medford, NJ; Lawrence De
Angelis of Springfield, NJ; Thomas J. Degan of Edmonds, WA;
Oliver Drabkin of Evergreen Park, IL; Dan Dugaw of Olympia, WA;
Gordon W. Eller of Cape Girardeau, MO; George C. Ellis of New
York, NY; Robin Y. Feigelis of Park Ridge, NJ; Catherine Fisher
of Sun City, AZ; Richard Fisher of Sun City, AZ; Miguel Franco of
Houston, TX; William Frankl of Wynnewood, PA; Jay S. Friedman of
Scottsdale, AZ; James D. Fuchs of Lake Jackson, TX; Rocco A.
Fulciniti of White Oak, PA; Ronald L. Furedy of Seattle , WA;
Dennis K. Gabos of Pittsburgh, PA; Frank Gazzo of Cheektowaga,
NY; Alex S.Y. Go of Anaheim, CA; Charles J. Godreau of Dedham,
MA; Eugenia C. Goodman of San Antonio, TX; Michael Gordon of Fort
Lauderdale, FL; Frank H. Gregg of Austin, TX; Lawrence J.
Guzzardi of York, PA; McClure H. Hall of Seattle, WA; Richard S.
Herdener of Spokane, WA; James K. Hill of Zionsville, IN; Scott
Hillmann of Phoenix, AZ; William Holmes of Lewistown, MT; Harald
Huff of West Point, NE; Allan E. Inglis of New York, NY; Lanny L.
Johnson of East Lansing, MI; Margaret A. Kaiser of Oakland, MD;
Bobby Joe Kennedy of Austin, TX; Kevin S. Kennedy of Tacoma, WA;
Robert F. Kerr of Bellevue, WA; Paul Khoary of White Plains, NY;
V. Kiledjian of Memphis, TN; William R. Kilpatrick of Scottsdale,
AZ; Daniel Kim of Decatur, GA; Jacob J. Kornberg of Puyallup, WA;
Steven Kunkes of Fairfield, CT; Thomas S. Lanava of Charleston,
WV; Wallace R. Leachman of Spokane, WA; Diane Lefebvre of
Atlanta, GA; Philip L. Leggett of Houston, TX; Mike Leppert of
Germantown, TN; Lawrence Liebmann of Phoenix, AZ; Richard Limoges
of Philadelphia, PA; Franklin R. Long of Sacramento, CA; Douglas
J. Loughead of El Paso, TX; R. James MacNaughton of Greenville,
SC; J. Laurence Manwaring of Warrenton, VA; Stephen J. Marks of
New York, NY; Leila Martin of Atlanta, GA; William Martin of
Waxhaw, NC; Michael Mateo of Huntingdon Valley, PA; Kraig C.
McGee of Pocatello, ID; E. S. McKenzie, Jr. of Chapel Hill, NC;
George McSwain of Bradenton, FL; Michael Mikkelson of Puyallup,
WA; Glen Morgan of Ocala, FL; Jon R. Morgan of Columbia, SC; John
Neblett, Jr. of Jackson, TN; Gary Nichel of Tacoma, WA; Douglas
W. Nicolarsen of Boise, ID; Sean C. O'Donovan of Richmond, VA;
Glen N. Peterson of Oakland, CA; Ed Preston of Durham, NC; Philip
G. Prioleau of New York, NY; Dennis Raphael of Colorado Springs,
CO; Doris J. Rapp of Kenmore, NY; Floyd Reifein of Atlanta, GA;
Jay Reynolds of Mead, WA; William J. Rice of Phoenix, AZ; John P.
Ries of Coos Bay, OR; Roger Robinett of Puyallup, WA; Bruce D.
Romig of Puyallup, WA; Stephen L. Rose of Houston, TX; Anne
Rottman of Gainesville, FL; Thomas M. Ryan of Spokane, WA; Steve
Salisbury of Logan, UT; Horace Kimbrell Sawyer, Jr. of Tucker,
GA; Kenneth I. Schlesinger of Charleston, SC; John M. Sherman of
El Paso, TX; Ronald L. Silver of Chicago, IL; Richard Snodgrass
of Moline, IL; Rita M. Snow of Spokane, WA; Kurt Sprunger of
Muncie, IN; Gerald Stagg of Mt. Pleasant, TX; Martin F. Sturman
of Melrose Park, PA; Phillip G. Sutton of Houston, TX; Debra D.
Tabor of Galveston, TX; Joseph J. Timmes of Annandale, VA; Mark
Tomski of Puyallup, WA; Thomas G. Troop of Lewiston, MT; William
F. Ural of Middlebury, VT; Michael S. Vaughn of Birmingham, AL;
Peyton Weary of Charlottesville, VA; Steven Weinberg of Denton,
TX; Hugh M. Wilson of Charleston, SC; Robert A. Wohlman of
Bellevue, WA; C.F. Wurster of Boise, ID; and the Northwest Cancer
Center of Seattle, WA.
New student members are Shonda Asaad of WV and Eric Dorn of
Other People's Money . . . Other People's Lives
Physicians for Patient Power, headed by AAPS member Steven
Reeder, MD, of Dallas, has produced an outstanding 13-minute
videotape along with information kits and brochures, explaining
why we spend $400 billion more on medical care than we
did 5 years ago, and how to solve the problem by putting
patients back in charge. Write to them at 7777 Forest Lane Suite
C-621, Dallas, TX 75230 or call (214)661-7373.
Feb. 18, Regional meeting, Hyatt Regency, Bellevue, WA.
Tentative program: Dr. Lois Copeland; Michael Walker of the
Fraser Institute, Vancouver, BC; Peter Ferrara, Heritage
Foundation; Kent Masterson Brown; Rep. Phil Dyer of
Washington State; Drs. Estelle Yamaki and Neal Shonnard on
state physicians' response to Washington health-care reform;
Citizens Against Rationing Health. Call Tim Schellberg at
(206)459-8622 for information or registration.
Feb. 19, AAPS Board of Directors meeting, Bellevue.
Oct. 12-15, 51st annual meeting, Atlanta, GA.
Congressional Conservatives Go on the Offensive.
Just before the Thanksgiving Congressional recess, Senators
Don Nickles of Oklahoma, Orrin Hatch of Utah, and Connie Mack of
Florida introduced comprehensive health-care reform legislation,
``The Consumer Choice Health Security Act of 1993'' (S. 1743).
The bill has been referred to the Senate Finance Committee.
The companion to the Nickles bill in the House of
Representatives is HR 3698, introduced by Congressman Cliff
Stearns (R-FL), whose cosponsors include most of the House
Republican leadership, including House Minority Whip Newt
Gingrich of Georgia, Dick Armey of Texas, Henry Hyde of Illinois,
Tom Delay of Texas, and Dennis Hastert of Illinois.
With a total 25 cosponsors, including Senate Minority Leader
Robert Dole, the Nickles bill has emerged as the leading Senate
alternative to the Clinton Plan. The immediate political effect
of the Nickles-Stearns initiative has been to eclipse the
``managed competition'' package among Senate Republicans, taking
the wind out of the sails of Senator John Chafee (R-RI), who had
been looking for a way to reach some kind of accommodation with
the Clinton Administration and who had been encouraged all year
by the backing of the powerful Dole. While Dole is still a
cosponsor of Chafee's ``managed competition'' bill, the ``Health
Equity and Access Reform Today Act of 1993'' (S. 1770), Dole's
timely support for the Senate conservatives has shifted the
political gravity among Senate Republicans.
At the same time, all of the big conservative dogs haven't
barked: Senator Phil Gramm (R-TX) is also reportedly drafting a
health-care reform bill. Gramm, with characteristic rhetorical
color, says that if the Clinton bill, with its restrictions on
choice and higher prices for taxpayers, becomes fully known,
voters will be hunting liberal Congressmen with dogs next year.
Clinton's huge 1342-page bill, ``The Health Security Act''
(S. 1757), replete with even more ``technical corrections'' to
the October 27th draft, is also now on the table. Introduced
without fanfare by Senate Majority Leader George Mitchell (D-ME)
and 29 members of the Senate, including Jim Jeffords (R-VT), it
is the only Senate bill with more cosponsors than Nickles's
``consumer choice'' proposal.
Elements of the Consumer Choice Bill
The Nickles-Stearns bill is a major overhaul of the tax and
insurance system and constitutes the most comprehensive
alternative to the Clinton Plan to date. Its key elements include
- Medical Savings Accounts. Each family would be
entitled to one Medical Savings Account and would be able to
deposit $3000 per year plus $500 for each dependent into the
tax- free account. Funds could be rolled over year after
year. The funds in the MSA could be used by families or
individuals to pay medical bills directly or health
insurance premiums. For depositing funds in a Medical
Savings Account, a family would be entitled to a 25% tax
credit for the deposits.
- Tax Credits For Health Care. Individual tax credits
would replace the current tax exclusion for employer-based
insurance. The bill provides tax relief to all individuals
for their medical expenses. The tax credits would be
effective on January 1, 1997. The credits would be
structured according to income. In other words, families
with greater medical costs compared to family income would
get larger credits. Families with costs below 10% of gross
income would be eligible for a credit reimbursing 25% of
those costs; if costs were between 10 and 20% of gross
income, the credit would reimburse 50% of the costs; if the
medical costs were 20% or more of gross income, the credit
would offset 75% of the costs. The tax credits would be
refundable, meaning that if the value of the credit is more
than the tax liability or a family's tax liability, the
government would pay the difference. In this respect, for
lower income families, the Nickles-Stearns tax credit system
is much like the earned income tax credit or a voucher for
lower income individuals and families.
- Insurance Reforms. The bill calls for guaranteed
issue of insurance policies. Insurers, moreover, could not
cancel or refuse to renew coverage of a health insurance
policy, except for nonpayment of premiums and for
misrepresentation or fraud. Health insurers would be allowed
to vary premiums on the basis of age, sex, geography, and
health risk, but insurers could not exclude coverage of any
pre-existing medical condition. The bill makes provision for
insurers to give incentive discounts to individuals and
families to promote healthy lifestyles and to provide
screening for the early detection of disease. Laws at the
state level mandating benefits would be preempted by the
federal legislation. At the same time, families would be
required to purchase a minimum, catastrophic benefits
package. According to Senator Nickles, ``Society should not
have to pay the price for irresponsible individuals who
refuse to purchase insurance and then expect us to pick up
the tab when they become seriously ill or injured.''
- Employer Provisions. While individuals and families
would still be able to purchase health insurance through
their employer, this would not be their only option. Under
the tax and insurance reforms, individuals could purchase
insurance from other groups, including unions, farm bureaus,
professional organizations, business associations and trade
groups, or even religious organizations. Employers would
have the legal responsibility to disclose the monetary value
of the employment-based health insurance package, and if
employees opt to purchase elsewhere remit that value in the
form of cash wages. Employers would also be responsible for
adjusting workers tax withholding to reflect the new credits
and deducting premiums from employees' paychecks to send
them to the plan of the employee's choice.
- Medical Malpractice Reform. The bill puts a limit of
$250,000 on non-economic damages, limits lawyers' fees,
provides for periodic payment of any award that exceeds
$100,000, and limits the liability of a physician for
damages to the percentage of fault, as determined by ``the
trier of fact.'' The bill also provides for rules to settle
malpractice cases through arbitration.
- Anti-Trust Reform. The Attorney General, in
consultation with the Secretary of Health and Human
Services, is required to promulgate guidelines under which a
health care joint venture may be exempted from anti-trust
The Nickles-Stearns bill is financed in a budget-neutral
fashion by changing the tax code, replacing the multi-billion
dollar tax breaks for employer-based insurance with a national
tax credits, plus limiting the growth in Medicare and Medicaid.
A Cooper-Chafee Deal?
Senator John Chafee (R-RI) and Congressman Jim Cooper (D-TN)
have been meeting on a weekly basis to try and reach a common
ground. There are two key areas of disagreement between Cooper
and Chafee. The first is the question of whether health care
alliances should be able to compete in the same area. Chafee
thinks yes; Cooper thinks no. A second point is whether Chafee's
individual mandate to purchase health insurance kicks in too late
(2005) and is properly drafted.
While Cooper and Chafee are talking with each other, the
White House is likely to open up a dialogue with both of them.
But while the White House is signalling an interest in talking
with both Cooper and Chafee, Cooper's objections to the Clinton
Plan are significant and not easily negotiated away. Cooper is
strongly opposed to the employer mandate, the global budget, the
way in which the Clinton Plan finances health care reform, the
heavy regulation in the health alliances, the politicization of
the standard health benefit package, and the ease with which the
Clinton Plan enables states to adopt a single payer-system.
Moreover, Cooper thinks that the cost of the prescription drug
benefit is not entirely clear, recalling previous experience with
such a benefit.
Cooper also realizes that the White House caved in to
Senator Wellstone and the Congressional single-payer advocates in
the House by easing the administrative obstacles to states'
adoption of a direct government-run system in order to broaden
support for the Clinton Plan among liberals. That gamble by the
Administration has apparently paid off-at least in the short run,
because many of the Congressional supporters of the Clinton plan
in the House are also sponsors of the McDermott bill. However,
this deal with the Left makes it nigh impossible for the
Administration it to get back the ``center'' for any genuine
negotiations with either Cooper and Chafee and the ``managed
competition school'' or Senate conservatives led by Nickles.
Meanwhile, even as Ira Magaziner and friends talk about
opening up talks with the Congressional ``moderates,'' liberal
interest groups such as Families USA are taking a tough line on
dissenting Democrats in Congress, attacking Cooper and his bill
as insufficiently reformist, far too short of what they really
want: full-scale nationalized health insurance. And it is
dawning on more and more folks on Capitol Hill: the
Clinton Plan, with its global budgets and regulatory alliances,
provides the infrastructure of a nationalized health insurance
White House Reactions.
Ever since Hillary's emotional outburst at the insurance
industry last month, all of the Sixties Kids at the White House
team are taking a deep breath, trying to cool off and get in
touch with their feelings again before they reach out and get in
touch with the feelings of the rest of us.
The first effort has been to try and win the support of
``health care providers''-translated into non-wonk English,
doctors. In the meantime, the White House team has shown
industrial-strength chutzpa, marred only occasionally by signs of
testiness over some pretty straightforward criticism of their
complicated reform proposal. In a recent appearance before the
Chamber of Commerce, Ira Magaziner insisted-after repeating the
Administration's familiar mantra, the Six Principles, including
``simplicity''-that, instead of debating health care reform on
broad philosophical terms, the national debate would be best
served by all participants focusing on the details.
Naturally, with the huge Clinton plan there are a lot of
details to focus on-thousands of them to keep us all busy and
distracted while the broader philosophical issues are ignored. In
the same breath, Magaziner told his audience that the Clinton
plan with its vast array of new bureaucracies, boards, panels,
and regulations actually simplifies the current health-care
Some things are negotiable and some things are not.
Magaziner told his Chamber of Commerce audience that the
Administration's differences with Senator Chafee and Congressman
Cooper are negotiable. But differences with Nickles and the White
House are not within the realm of civilized discussion because
the Nickles bill does not provide universal coverage. Magaziner,
in a creative attempt to reframe the terms of the emerging
political debate, then characterized the political situation as a
debate among advocates of a Canadian-style system, represented by
Wellstone and McDermott, and ``managed competition,'' represented
by the Cooper-Chafee gang. The appropriate resolution: the
``centrist'' Clinton Plan.
Not to be outdone by the relatively unimaginative Magaziner,
last month, writing in the Wall Street Journal, Alice
Rivlin of OMB went so far as to describe the Clinton Plan as
``conservative.'' George Orwell, call your office!
Senate Turf Battles
Senator Daniel Patrick Moynihan (D-NY), Chairman of the
Senate Finance Committee, is reportedly livid. Moynihan got the
worst of all possible deals in the assignment of the Clinton
Health reform plan: drafting legislation to pay for all the
goodies to be delivered by Senator Edward Kennedy (D-MA),
Chairman of the Senate Committee on Labor and Human Resources.
Moynihan and Kennedy disagree, for example, over whether or not
the employer premium payments are or are not a tax, at least for
purposes of committee jurisdiction.
The jurisdictional disputes between Senate committees go far
beyond personal pique or Capitol Hill power struggles. At stake
is the character and quality of the legislation itself. Moynihan
has hardly been enthusiastic over the expansion of the public
sector into the health field, remarking to the media earlier this
year that a payroll tax of about zero percent would be ``just
about right'' to finance health-care reform. Needless to say,
liberals on Capitol Hill are ecstatic over the assignment of most
of the Clinton bill to the Kennedy Committee.
In any case, the upcoming debate over health care reform
could very well be complicated by a thunderous clash of the
Senate's Irish Titans, and a lot of lesser mortals with their own
agendas could be crushed in the collision. This even includes
little people at the White House.
AAPS News Legal Supplement #5 January 1994
by Genevieve M. Young
Criminal Liability and Penalties Under the Clinton Plan
1. Federal Health Care Offenses
Over thirty pages of the Clinton Plan are devoted to describing five new forms of criminal liability for American citizens along with a wide range of criminal penalties for ``Federal Health Care Offenses.''
The Federal Health Care Offenses include: (1) Health Care Fraud, (2) False Statements, (3) Bribery and Graft, (4) Theft or Embezzlement, and (5) Misuse of National Health Security Card or Unique Individual Identifier Number.
Since 1987, when the Medicare and Medicaid Patient Program Protection Act (MMPPPA) became law, doctors have had to accustom themselves to the possibility of criminal liability, but the Clinton Plan's offenses are a minefield for all Americans, both patients and doctors.
The Clinton Plan's list of offenses cross-references pre-existing federal offenses related not only to the Medicare and Medicaid programs, but also the criminal laws for government contractors, such as defense contractors, and laws currently enforced by the IRS and US Customs. In addition, because under the Clinton Plan health care would be a mandated employee benefit, crimes formerly applicable to employee benefit plans covered by the Employee Retirement Income Security Act of 1974 will now apply to health alliances, health plans, and funds related to those alliances and plans.
The application of criminal penalties highlights the Clinton administration's goal of nationalizing medicine into a public utility, much like electricity or water, and turning medicine into a highly regulated, government-owned commodity controlled by federal authorities. Under this scheme, all medical services, all medical personnel, and all medical equipment are merely the subject of government contracts.
This month's legal supplement will detail the criminal offenses and penalties outlined in Clinton's blueprint for health reform. Civil monetary penalties, exclusion, asset forfeitures and other forms of punishment will be explained in the next issue.
Please bear in mind that your patients - not just yourselves - will be subject to these new forms of criminal liability, and everyone will be required to pay for the privilege of being subject to these laws.
Federal Health Care Offenses include criminal conspiracies to violate the law, as well as actual violations. A conspiracy is proven agreement of at least two persons to violate the law. A crime consists of proven intent to break the law and proof that the law was actually broken. The government's burden of proof in conspiracy crimes and in actual crimes is to prove that the law was broken ``beyond a reasonable doubt.''
2. Health Care Fraud
Health care fraud is defined as the knowing execution or attempt to execute a scheme or artifice (1) to defraud any health alliance, health plan, or other person, in connection with the delivery of, or payment for, health care benefits, items, or services or (b) to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by or under the custody or control of any health alliance, health plan, or person in connection with the delivery of, or payment for, health care benefits, items, or services.
Health care fraud is punishable by fines (up to $50,000) or imprisonment for not more than ten years, or by both fines and imprisonment. If the violation results in ``serious bodily injury,'' (as currently defined in existing federal law in connection with the crime of tampering with consumer products, such as soft drinks), the person shall be imprisoned for life or any term of years.
``Serious bodily injury'' means bodily injury which involves a substantial risk of death, or extreme physical pain, or protracted and obvious disfigurement, or protracted loss or impairment of the function of a bodily member, organ, or mental faculty.
In plain terms, what this means is that if a doctor and patient agree to contract for medical services outside the system (engage in ``health care fraud''), and the patient experiences ``serious bodily injury,'' the physician may be faced not only with a malpractice lawsuit, but with the prospect that both the patient and the doctor could wind up in jail for life, and/or be fined $50,000.
3. False Statements or Claims
Physicians who serve Medicare and Medicaid beneficiaries are already familiar with this crime, through the MMPPPA. Under the Clinton Plan, patients would also be liable for making false claims, on penalty of a $50,000 fine and/or up to ten years in jail.
The definitions of false statements are broad, including the use of any false statement or entry, or any false writings or documents. In the past, these laws have been applicable, for example, to IRS filings and US Customs forms.
False statements include any ``frauds or swindles'' by ``radio, television, or wire,'' and thus may include statements made in advertising.
4. Theft or Embezzlement
Theft or embezzlement from a health alliance, health plan, or a fund connected with an alliance or plan is punishable by a fine of up to $50,000, and/or ten years in jail. Persons most likely to be in a position to commit this sort of crime would be the employees of the health alliances, the health plans, and the funds connected with those plans.
5. Bribery and Graft
The ``direct or indirect'' offer, acceptance, or solicitation of ``anything of value'' to or by a health care official is a crime punishable by up to a $50,000 fine, or five years in prison, or both.
This crime can be committed by an administrator, officer, trustee, custodian, counsel, agent, sponsor, or employee of a health alliance or health plan, including state or federal officials, or by anyone covered by the health plan (i.e., patients), or by any employer whose members are covered by the health plan, or by a person who provides benefits to the plan (i.e., doctors, nurses, etc.).
In plain language, patients may not offer, and physicians may not receive, Christmas gifts or other forms of grateful acknowledgement!
6. Misuse of Card or Identifier
This is a whole new crime, which can be committed by anyone who requires the display of, requires the use of, or uses a health security card for any purpose (other than for the purpose of obtaining an item or service covered by the Clinton Plan), or requires the disclosure of, requires the use of, or uses a unique identifier number for any purpose not authorized by the National Health Board.
Anyone who commits this crime can be fined up to $50,000 or imprisoned for two years, or both.
Of course, since the National Health Board has not yet made a determination of what constitutes an illegal use of the card, this crime is vaguely defined and may not be enforceable as a constitutional matter, but rest assured that the unconstitutionality of a law will not prevent its enforcement. The Administration has sent a proposal to Congress that would limit constitutional challenges to this health plan! But that is a matter for another legal supplement.