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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 56, No. 7 July 2000
A campaign against "for-profit," "market-driven" medicine
was officially launched with an article in the Journal of the
American Medical Association in December, 1997 (Ad Hoc
Committee to Defend Health Care, "For Our Patients, Not for
Profit: A Call to Action," JAMA 1997;278:1733-1735). The
intellectual battle began long before and continues today, with
efforts focused on "proving" that for-profit medical enterprises
are wasteful, costly, and of lesser quality.
Although the Ad Hoc Committee claims that "our goal is not
the endorsement of a prespecified program for medical reform," it
is clear that socialized medicine is the predetermined objective.
What other "programmatic" solution promises "comprehensive,"
"equitable" care, "guided by science and compassion rather than
greed"? Many Committee leaders also back Physicians for a
National Health Program (PHNP).
The outrage is seemingly directed at managed care. It is not
third-party management per se, however, but rather private
ownership that is the real target. At the media event launching
the project-a "recreation of the Boston Tea Party"-the documents
dumped into the harbor were not managed-care contracts
or managed-care paperwork, but rather the annual reports of for-
profit health care corporations.
The Illinois Ad Hoc Committee states the goal of
"prohibiting business arrangements that allow
corporations and employers to control the care of
patients." Control by government is apparently not viewed as
The Rhode Island Ad Hoc Committee co-hosted a
Patient/Provider Summit with the Coalition for Consumer Justice.
The CCJ, as a "single payer group,...keeps its `eye on the
prize,' that is, universal health care" and opposes "increm-
entalism [which] prolongs the agony of working families."
The attack on private medicine is well-organized and is
gaining momentum. Both the practical results and the moral basis
of private medicine can and must be defended.
The assertion that for-profit hospitals spend more for
administration, by Ad Hoc Committee/PNHP gurus Steffie Woolhan-
dler and David Himmelstein (N Engl J Med 1997;336: 769-
74), is widely quoted. In 1994, administrative costs were said to
average 34% of total costs in for-profit hospitals, 24.5% at
private not-for-profit hospitals, and 22.9% at public hospitals.
"Perhaps it is time to ask whether our experiment with market
medicine has failed," conclude the authors.
This study falls far short of proving that for-profit
hospitals are less efficient. From the wage and salary costs
cited for clinical personnel (40.9% of total costs in for-profit,
47.6% in not-for-profit, and 48.7% in public hospitals), one
might conclude that for-profits have the most productive workers.
Or since capital costs (buildings, fixtures, maintenance, and
repairs) are considered mixed administrative and clinical, it
could be that for-profits spend more on state-of-the-art
facilities. No differential diagnosis was presented in this
economic CPC. Even more importantly, the article completely
ignores the question of why administrative costs are so
high, and specifically the role of government regulation: see pp.
For-profits are "also less safe," concludes Gordon Schiff,
M.D., of Cook County Hospital, in an editorial entitled "Fatal
Distraction: Finance v. Vigilance" (JGIM 2000;15:269-
270). A more accurate summary of the article discussed by Schiff
(Thomas EJ et al, "Hospital ownership and preventable adverse
events," JGIM 2000;15:211-219) would have been:
"Government hospitals the most dangerous." The
odds ratio for any preventable adverse event was 2.46 [95%
confidence interval 1.45 to 4.20] in minor, nonteaching
government hospitals; 1.57 [C.I. 1.03 to 2.38] in for-
profits; and 1.44 [C.I. 0.71 to 2.91] in major government
teaching hospitals-all compared with private non-profit
hospitals. Observer agreement for definition of an adverse event
was only fair ( = 0.4). The only cited P values (<0.0001 and
<0.001) referred to differences between nonteaching government
hospitals and the other types.
A ten-year study of actual outcomes-mortality rate after a
myocardial infarction-in 3,718 hospitals showed that for-profit
hospitals had higher mortality in elderly cardiac patients as
well as higher costs. However, after correcting for the fact that
for-profits tended to be located in areas with higher costs and
worse outcomes, for-profits actually did slightly better than
average on both cost and quality (National Bureau of Economic
Research Working Paper No. 7324).
The term "for-profit" implies that other types of hospitals
do not need to concern themselves with money. Not so. With for-
profits, the excess of revenue over expenditures is shared by tax
collectors and stockholders; in public hospitals, it provides
such incentives as "salary increases divorced from performance."
For-profits are accountable to both stockholders and customers,
who provide (or withhold) the revenue; "a government-run monopoly
is never accountable, not least because it isn't subject to
bankruptcy.... [it] simply calls for more tax revenue" (Ilana
Mercer, Calgary Herald 5/5/00).
"Institutions delivering a service other than liberty or
justice need an external monitor-common stock," writes Charles
Courtney of Riverside, IL.
Today's socialists are using flawed and biased studies to
denigrate for-profit institutions. Meanwhile, they portray the
rapacious beneficiaries of government preferences, regulations,
and tax law-the corporate socialist entities called "managed
care"-as free-market entrepreneurs.
In a true free market, one cannot profit from denying care,
but only from offering something valued by a customer who is
spending his own money.
Let us take back the semantics: We are for patients, in a
patient-driven system, in which profit is derived from
Heart Surgery Wait List Quadruples in Quebec. Dr. Yves
Langlois, head of cardiac surgery at Jewish General Hospital in
Montreal, stated: "[M]y patients not only face a six to nine
month wait, but ... in practical terms they have virtually no
chance of getting their operations because the demand for
emergency surgery is so great that I only do urgent operations
(Medical Post 5/2/00).
Doctors Complain of Intolerable Conditions.
"Bureaucrats have taken over," stated Dr. GisŠle Hellou, head of
intensive care at the Centre Hospitalier de l'Universit‚ de
Montr‚al. "The practicalities of our working lives are a disaster
while millions have been spent on carpets, furnishings, and
exorbitant salaries for administrators" (Medical Post
Ten British Columbia GPs are planning to join eight
specialists in the Middle East. One draw is to be able to
practice without interference. "I didn't go to school for all
these years to be conscripted into an army I don't believe in any
more," stated Dr. Carole Williams. "Just trying to get anything
done has become so onerous" (Medical Post 5/9/00).
More cases of impaired physicians are coming to light as
morale declines. Experts in physician health say that Canada's
system impairs physicians' ability to practice medicine and saps
their strength to work for reform. "MDs in the trenches are too
exhausted to fight," said Vancouver psychiatrist Dr. Michael
Myers (Medical Post 4/18/00).
"Reform" in Ontario. The Health Care Restructuring
Commission recommended "rostering" (forcing doctors out of their
private practices into round-the-clock group practices), a
practice that "promotes a gradual deterioration of care to the
point where medical practice becomes an exercise in how to do the
least for the most," writes Dr. Gerald Gorgell of Leamington,
Ontario. "It is well known that senior members of the British
Medical Association ... sold the profession down the drain to get
knighthoods and/or various other personal accolades. How can the
OMA acquiesce to such a bizarre idea as primary care reform if it
has not been bought off at the high level by similar government
actions?" (Medical Post 4/18/00).
The rostering plan was not adopted by the government.
Two dissident groups have split off from the OMA: the
Coalition of Family Physicians and the Ontario Physicians'
Alliance, headed by Dr. Patrick Hewlett of Toronto (who is
scheduled to speak at the AAPS annual meeting in October). Dr.
Hewlett notes that the contract being negotiated by the OMA will
probably result in a physician pay cut. There has been no
government commitment to offset a 45% increase in liability
insurance premiums. Doctors earn, on average, $47 per hour, with
no fringe benefits.
"[T]he government ... has the OMA over a barrel," writes
Fred McMahon of the Toronto-based Consumer Policy Institute.
"Under the Canada Health Act, government has monopoly buying
power over doctors. You work for the government, or you don't
work" (Financial Post 5/11/00).
More Medicare Cops. Federal health minister Allan Rock,
"on full alert against Alberta's plan to allow private surgical
clinics," is sending more health cops to the provinces to assure
compliance with the Canada Health Act. The action, he said, is
not related to Alberta's Bill 11. "We are seeing an increase in
possible violations across the country" Calgary Herald
Is It Greed? Ilana Mercer describes the medicare debate
in Canada: "From Halifax to Vancouver, mobs convene to shake
fists at government or at rival interests: indefatigable First
Nations in fatigues, or plain felons such as those who use force
to stop the distribution of newspapers-all line up to clamor for
more booty for their clans" (Calgary Herald 5/5/00).
More Private Funding? The Canadian Institute for Health
Information, created by health ministers, states that private
spending, as for over-the-counter products, makes up 30% of total
health spending. In 1997, $130 million was spent privately for
doctors' care-1.2% of the $11.1 billion paid by the government to
non-salaried physicians. Such spending is only now returning to
the levels of the mid-1970s to mid-1980s when many provinces
Although there is a dearth of information (the most
comprehensive research was done by the Alberta branch of the
Consumers Association of Canada), private surgical centers appear
to be growing rapidly. There are now 53 in Alberta, up from 36 in
1993 and four in 1980. Many provide eye surgery.
Many Canadians are just now learning that the law denies
them the right to spend money on their own health: "they are
astonished and outraged" (Medical Post 5/9/00). Cuba and
North Korea are the only other nations with such a policy.
Canadians may clamor for more government money, but
Canadians already have the highest total debt ($19,800 per
capita) and highest personal, corporate, and capital gains taxes
within the G7 nations. Medicare consumes about 35% of the budget
in all provinces. Any significant additional funding will have to
come from private sources. One suggestion from Winnipeg vascular
surgeon James McGoey: Medical Savings Accounts (Medical
Government Shut-Down. Between 10 and 20% of Ontario
family physicians shut their offices down at times because they
have reached the fee ceiling, estimates Dr. Romas Stas of
Ontario. Most take a "vacation." The 3,500 patients who called
Dr. Stas's office during the last week in March got a recorded
message saying that the office was closed due to government
underfunding. When fees drop by 33%, Dr. Stas calculates that he
cannot cover overhead and is "paying the government for the
privilege of working" (Medical Post 4/18/90).
* * *
As the conditions of men become equal amongst a people,
individuals seem of less, and society of greater importance; or
rather, every citizen, being assimilated to all the rest, is lost
in the crowd, and nothing stands conspicuous but the great and
imposing image of the people at large. This naturally gives the
men of democratic periods a lofty opinion of the privileges of
society, and a very humble notion of the rights of individuals;
they are ready to admit that the interests of the former are
everything, and those of the latter nothing. They are willing to
acknowledge that the power which represents the community has far
more information and wisdom than any of the members of that
community; and that it is the duty, as well as the right, of that
power, to guide as well as govern each private citizen.
Alexis de Tocqueville, Democracy in America
June 24, 2000. Board of Directors meeting, Chicago.
Oct. 25-28, 2000. 57th annual meeting, St. Louis.
Oct. 24-27, 2001. 58th annual meeting, Cincinnati.
AAPS Amicus Accepted in Veeck v. SBCCI
The Fifth Circuit Court has granted the AAPS motion to file
an amicus brief in Veeck v. Southern Building Code Congress
International, which concerns the copyright protection of
legally required codes (see AAPS News May 2000).
The purpose of the brief is "to alert this Court to economic
fallacies in the AMA [amicus] brief, and contrast it with the
AMA's own testimony" before the Dept of HHS.
AAPS argues that in posting building codes on the Internet,
Appellant Peter Veeck performed a "public service that enhances
compliance with and improvement of the law."
In opposing Veeck and thereby defending its own financial
interests in the CPT codes, the AMA argues that benefits
contractually negotiated with the government are an insufficient
incentive for developing coding systems.
On the contrary, SBCCI and the AMA are both "sophisticated
parties" fully capable of negotiating adequate benefits for
themselves in agreements with the government, argues AAPS.
"[A]dditional windfall copyright enforceability is both
inefficient and unjustified." It is economically inefficient
because the burden on end-users has no economic force in
disciplining the terms of the agreement. "Only the extremely
inefficient discipline of political influence ... is available to
limit obstruction of access" to the law. It is unnecessary:
"Leading privately developed standards, like the hospital medical
coding system ICD-9 and the Uniform Commercial Code, do not
suffer in quality from being in the public domain."
Sometimes private organizations promise free public access
while lobbying the government to impose certain codes, and then
fail to deliver on the promise-as the AMA did. In April 1997, the
AMA testified that "the AMA ... is expected to complete an
agreement with HCFA in the very near future [under which]
complete public access to HCFA data files containing CPT will be
available, free of charge, both domestically and
internationally." Yet the AMA still prohibits anyone from posting
CPT requirements on the Internet.
AAPS argues that unrestricted access to the law cannot
rightfully be a bargaining chip in a contract negotiation with
the government: "The laws must be available to everyone who must
comply with them, and public access cannot be sold by the
government to the highest bidder."
Additionally, AAPS points out that under the "first sale"
doctrine of copyright law, a copyright is enforceable only
against the initial purchaser (here, the government) and cannot
restrain the resale of the product in downstream commerce. By
enshrining codes into law, the government is effectively lending
or reselling the codes to the public. A private organization has
no more right to impede that process than an author has to bar a
library from lending a book free of charge.
Oral argument is set for June 8. The full brief is posted at
Decision Vacated in Dr. Huntoon's Case
On May 3, Hearing Officer James P. Kehoe, Jr., vacated his
earlier decision, which had dismissed Dr. Huntoon's appeal of
denials for periorbital Dopplers, "at Medicare's request." (See
AAPS News May 2000.) "Medicare states that the Provider
has now submitted medical documentation to substantiate the use
of modifier `59' for each claim."
In a letter to Mrs. Yvonne Archer of the League of
Physicians and Surgeons, Dr. Huntoon writes: "Mr. Kehoe's
assertion that I had not previously submitted the additional
requested documentation is totally FALSE! I sent medical
documentation to substantiate the medical necessity of all of the
ultrasound tests...with each and every Appeals Packet that I sent
to Upstate Medicare..., [including] the patient's clinical
symptoms, findings, and conditions that warranted doing the test.
Upstate Medicare never requested the actual ultrasound
reports until Feb. 21, 2000. [These] contain no additional
information pertaining to the medical necessity for the
test. They contain only the very same information I had
sent to Upstate Medicare months before."
On May 12, Dr. Huntoon writes that he won on all his claims
for periorbital Dopplers, which have been on appeal for the past
year. "Upstate Medicare has apparently now decided that it isn't
worth it...to fight any more and risk ... legal action from the
League of Physicians and Surgeons. [It] now concedes that the
periorbital Doppler is a separate test, performed on separate
arteries using separate equipment.... [Its] `final decision' also
proves that HCFA's so-called correct coding initiative, which ...
bundles carotid duplex (98330) with periorbital Dopplers (93875)
is invalid and should be rescinded."
A patient of Dr. Huntoon's brought in a copy of the EOMB
that he received, which states: "The Explanation of Your Medicare
Part B Benefits that we sent you before stated that your doctor
could not charge you more than $0.00. With this additional
payment, your doctor can charge you the full amount billed." The
patient received a check for $12.23, 80% of the Medicare approved
amount of $15.29.
Dr. Huntoon does not expect to receive much money. Many
months ago, patients were told that their physician was guilty of
a crime-a limiting charge violation-for charging "more than
$0.00," and that they could contact the fraud division if they
did not promptly receive a refund of their $16.05. The revised
EOMB does not admit that Medicare was in error and should have
paid the claim months ago. It does not begin to undo the damage
to the patient-physician relationship caused by the carrier's
No Payment, No License
The State of Wisconsin recently threatened to revoke the
license of family physician Albert L. Fisher, M.D., because of
delinquent payments to the Patient Compensation Fund. On April
12, he wrote to Theresa Wedekind of the Fund:
"A copy of a letter dated Feb 15, 2000, arrived at my home
on April 8 (the original never came), claiming that I have no
Fund coverage for dates going back to 1995. My checks were sent
after the due date, but they were accepted by the Fund. I was
also assessed interest. If being late in a payment means that one
is not qualified for coverage, why did your office cash the
checks? ... Since I have been denied coverage, please issue a
refund for the dates of noncoverage.... We need the money to buy
new equipment in our small, solo office...."
Physicians employed by the government are exempt from
payments, as are 250 "private" physicians who became affiliated
with the medical school. The "Level Playing Field" issue has
created a ruckus at the State Medical Society, which is
responsible for the creation of the fund and the licensure
requirement. SMS attorney Mark Adams sits on the Fund's Board of
Governors and voted for action against Dr. Fisher's license. Dr.
Fisher has applied for an exemption on the basis that he has
scaled back his practice so that 50% of his revenue will come
from another State.
Medicare Administrative Costs. I was appalled to read
the "Notes from the Medical Director" by Edward Cox, M.D., of
Upstate Medicare in the Medicare B Hotline, October,
1999. He states that Medicare administrative costs are just 2%.
This figure does not include the huge, costly administrative
burden that Medicare has shifted to doctors over the past decade.
For example, Medicare carriers formerly assumed the cost of data
entry, which is now done by physicians' offices. Moreover, the
cost of compliance with the idiotic, incomprehensible, and often
nonsensical Medicare regulations is enormous. Then there is the
huge government cost of collecting and processing the taxes
needed to pay for the Medicare program, plus the cost of
compliance by the oppressed taxpayer.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Electronic Claims. While the Medicare carrier has been
paid tax money to process claims, it does not want to pay
personnel to do the job. What a HCFA official calls a "pain in
the neck"-keying in five-digit (soon to be ten-digit) codes for
each kind of cough-the government and its accomplices want to
force onto all physicians (who can be charged a $10,000 penalty
for each error, unlike the carrier, which botches 1 in 15.8
claims with impunity). Insurance companies want to charge the
same processing fees and fire most of their employees.
Compare insurance claims processing with your bank's check
processing, which it does for essentially no charge, and without
losing 1 in 20.3 checks. Note that the bank is not using tax
money, a play thing seized from your earnings.
Richard Swint, M.D., Paris, TX
The Legacy of Free-Market Medicine. Max Gammon wrote in
The Wall Street Journal, 9/8/93, that the British
National Health Service inherited 3,000 hospitals-almost half of
them now lost-and a tradition of self-help, voluntary service,
and charitable giving. "The monuments to these traditions are to
be found in closed and decaying hospital buildings."
Ernest J. White, Alexandria, VA
Zero Value. It is axiomatic that zero-priced goods and
services disappear. The price tells the producer that his efforts
are worthless. The other side of a consumption decision is a
production decision, just as the other side of a right is a duty.
Medicare Part A is so designed that with a supplemental policy,
there is a zero price from the insured's perspective. Please note
the disappearing hospital beds (there were about 8.5/1000 in 1965
and 5/1000 in 1989) and the explosion in costs per patient day
starting in 1965 (see M Friedman, Wall St J 11/12/91).
Charles R. Courtney, Riverside, IL
All Cost, Zero Benefit. In March, 2000, I received a
request for records on patients I saw one year ago; another
prepayment "audit." There has still been no action on records I
sent in November, 1998. Medicare says it is fighting fraud; it is
actually stealing from doctors. It is not cost-effective to send
pages and pages of records when no audit is really being done and
I will not be paid anyway. Recently, I diligently fought a
prepayment audit for 18 months and finally received $24.
Linda W. Wilson, Culver City, CA
Lessons from an Audit. I withdrew from the Medicare
system 16 months ago: the best decision I ever made with respect
to Medicare. I have also undergone a Medicare audit of 20 charts
chosen "at random." After 8 months, I have heard nothing, but I
did learn from the audit that Medicare barely paid me at all for
labor-intensive procedures such as spinal cord stimulators. The
cost of the audit was significant as I hired experts to be sure
everything was in perfect order.
Mary Jo Curran, M.D., Chicago, IL
Mickey Mouse Game Theory: IRC and ERISA. Few people are
aware that the Internal Revenue Code (IRC) and Employee
Retirement Income Security Act (ERISA) are the basis of Woody
Allen's classic quip that "the only thing worse than death is
spending an evening with an insurance salesman." The IRC and
ERISA absurdly segregate dollar bills into arbitrary categories
such as health care, retirement, and child care-just as the city
of Berlin used to segregate Germans into "east" and "west," and
Alabama segregated Americans as "white" or "colored." Insurance
salesmen get the dirty work of simultaneously boring and
torturing their prospects with reasons why the "white" dollars
they spend on insurance are better than the "colored" dollars
they spend on food and other necessities. Actuaries have the role
of keeping insurance and pensions funds from moving past
Checkpoint Charlie without our permission and a toll paid to our
brotherhood. I once estimated that 85% of actuaries owed their
occupations solely to IRC and ERISA; I was accused of treason to
Gerry Smedinghoff, Consulting Actuary, Wheaton, IL
Pre-Medicare. Over 35 years ago, ... no hospitals were
short of staff and cutting back services. No hospital emergency
room had a wait of 4 hours or more.... No one complained about
having to wait 2 or 3 weeks to see a physician. No one complained
about never seeing an R.N. in the hospital. No doctor complained
about hours and hours of paperwork. No hospitals or physicians
complained about 3- to 8-month delays in reimbursement.... No one
complained about being "stuck" with a doctor... or not being able
to see the doctor of choice.
Bernard W. Simons, Jr., M.D., Tucson, AZ
Legislative AlertIt's About Time!
There's hope. Following the 1998 testimony of Dr. Robert
Waller, President Emeritus of the Mayo Foundation, before the
National Bipartisan Commission on the Future of Medicare on the
size and scope of Medicare's regulatory system, Washington's
Medicare debate has been slowly transformed from the tiresome
haggling over dollars and cents to a more constructive discussion
of governance: the way Medicare really works and why it should be
A couple of years ago, the Mayo Foundation staff got
together to count the rules, regulations, guidelines, coding
books, issuances, irritations, nuisances, and annoyances, roughly
the whole panoply of paperwork that governs the federal health
programs. They came up with a stunning 132,720 pages of
paperwork, an amount that dwarfs the mind-numbing gobbledygook of
the Internal Revenue Code. Of that number, Mayo estimated that
almost 111,000 pages were attributable to Medicare alone. The
numbers had a huge impact, and were cited by the Bipartisan
Commission in their case for changing the Medicare program to a
less regulatory, premium support system based on consumer choice
and competition. As Congress Daily and other sources
report, the entire process has gotten HCFA's defenders nervous,
and HCFA officials have thus far responded in Clintonesque
fashion, to the effect that it all is dependent upon how one
defines "regulation," or how neatly you categorize the paperwork
requirements, etc. Industrial strength lame.
Congress and the Washington policy folks are showing signs
of mental activity on this one.
Item: On April 22, 1999, the House Ways and Means
Subcommittee on Health, chaired by Congressman Bill Thomas (R-
CA), held a major hearing on HCFA coverage decisions and the
cumbersome appeals process, where it was revealed that the
administrative legal review process for denied Medicare Part A
claims takes on average 310 days, and the adjudication of
Medicare Part B claims takes an average of 524 days.
Item: In March, the Heritage Foundation sponsored two
Washington conferences on the regulatory system and its impact on
doctors, hospitals, clinics, insurance companies, and medical
technology, with a wide range of top-level experts, including Dr.
Lawrence Huntoon, President of AAPS. On June 12, Heritage
sponsored a day-long conclave on the subject for Congressional
staff and members of the policy community on the topic of
"Medicare Governance," with a wide range of expert panelists from
both government and the private sector, including Senator Chuck
Item: On May 4, the Senate Finance Committee held a
major hearing on the topic of Medicare governance, with testimony
from former HCFA Administrator Gail Wilensky, current HCFA
Administrator Nancy Ann Min DeParle, and Medicare specialist
Item: On May 18, the House Budget Committee Task
Force on Health held a hearing on "Medicare's Regulatory Burden
on Providers," with witnesses from the American Hospital
Association and the Neurological Institute of Georgia, among
The Metastasizing Bureaucracy
Medicare covers almost 40 million persons at an
estimated cost of $218 billion. HCFA, the agency that runs the
Medicare program, employs 4,500 people, directly administers the
Medicare Plus Choice program with 346 private plans, and
contracts out for the services of thousands of others,
particularly intermediaries or insurance carriers-55 of them.
HCFA pays approximately 6,000 hospitals and 700,000 physicians
and other providers. Beyond Medicare, HCFA also has
responsibilities for running Medicaid and overseeing the State
Children's Health Insurance Program, covering altogether 74
million Americans, a total estimated payment of $368 billion for
health care services in 2000. It is easy to see why so many
prominent academic advocates of a single-payer, government-run
health care system are so protective of HCFA as an institution
and are working doggedly to expand Medicare and Medicaid.
They are building on an already huge base of government coverage,
and full control is within reach, especially if they pursue a
gradualist agenda of selective expansion-to kids, early
retirees, whomever, whatever. Control is the goal.
The structure and the range of responsibilities imposed on
HCFA by Congress has created a variety of management problems.
Medicare is getting all of the attention in the press and on the
Hill, but Medicare must compete with other big programs for
managerial and legislative attention. As William Scanlon, top
Medicare oversight guy for the General Accounting Office (GAO),
has observed, there is no one single senior official who is
responsible for managing Medicare alone; the HCFA administrator
also oversees Medicaid and other "state-centered" programs. The
agency has also suffered from a high rotation in agency
leadership, and recently Washington experts have noted a rather
high volume of exodus of top people from HCFA, who report that
the workload is increasing while the morale is decreasing.
According to the GAO, in the 23 years since HCFA was established
there have been 17 Administrators or Acting Administrators. These
folks stay for little more than a year-apparently not a fun job.
Scanlon further reminded the Senate Finance Committee that
HCFA expends less on administration and management than large
private-sector firms, and that there is a "mismatch" between the
agency's "administrative capacity" and its mandate that could
"leave HCFA unprepared to handle Medicare's future population
growth and medical technology advances." And yet, as Scanlon
noted, the Congress has insisted on passionately pursuing a
regulatory policy in health care, adding 335 provisions for HCFA
to issue regulations in the notorious Balanced Budget Act of
1997 and another 133 provisions requiring HCFA regulation in
the recently enacted Balanced Budget Refinement Act of 1999,
which was passed to restore cuts enacted two years earlier. Said
Scanlon, "In 1998 and 1999, we reported that HCFA was essentially
overwhelmed in its efforts to handle the number and complexity of
BBA requirements." So the point to remember is that when Congress
complains about HCFA, Congress is really complaining about
HCFA's range of responsibilities is huge. As former
HCFA Administrator Gail Wilensky told the Senate Finance
Committee on May 4, "This makes HCFA itself bigger than most
cabinet level departments in terms of both money and personnel."
As Wilensky further told the Senate, the growing problems of HCFA
are structural: "While I wouldn't want to say that the agency has
never acted in political or partisan ways, I do not believe that
this has happened very often. The more legitimate charge, to my
mind, is that the agency is often too bureaucratic and sluggish
in its operations and unresponsive to legitimate concerns of the
various stakeholders involved in Medicare."
How sluggish? Well, consider the adoption and upgrading of
rapidly evolving information systems, a routine process in all
private sector organizations that are seriously competitive.
William Scanlon told the Senate Finance Committee on May 4 that,
based on GAO's review of the situation, HCFA's efforts to
"modernize its information systems have not succeeded. As for
outside resources, HCFA's pool of claims administration
contractors is shrinking, owing to outdated contracting
arrangements that essentially restrict the agency from attracting
new companies to process claims or conduct the related
administrative functions." Part of the reason is that HCFA does
not have the caliber of staff, such as information technology
specialists, necessary to do the job. But not too many serious
people think that if HCFA just acquired the right software and
the right hardware and hooked up the jacks correctly that
everything would turn out just right. Soviet central planning
collapsed, but not because it could not take advantage of stolen
Information technology is an "internal" matter. Things
get downright dangerous when the missing technology is medical
technology. According to data compiled by the Health Industry
Manufacturers Association (HIMA), the pace of change is
agonizingly slow for the agency, and thus the Medicare system in
general. The current HCFA approval process for securing
patient access to medical technology can take four and a half
years: the coverage determination and the "market experience
requirement" can take 6 months; assigning a payment code can take
up to 2 years; and determining appropriate payment can take
another 2 years.
To consider a few examples, positron emission tomography,
reimbursed by private insurance for a series of conditions,
including brain tumors, head and neck cancer, and epilepsy, has
been delayed in Medicare for 10 years. According to industry
specialists, in colon cancer PET scans can save between $5,423
and $32,123 per patient by avoiding unnecessary surgery. The
Sonic Accelerated Fracture Healing System is reimbursed by 800
insurers, but not Medicare. (Of course, the good news is that if
Medicare doesn't cover it, persons can freely contract for it.)
The bladder cancer test developed by Bion Diagnostics Sciences is
covered, but HCFA cut the payment by 70%. Economics lesson: You
can get it, if you can find somebody to offer it. Wait'll HCFA
gets hold of prescription drugs.
The Rising Price of Medicare Regulation
In her testimony before the Senate Finance Committee on
May 4, HCFA Administrator Nancy Ann Min DeParle repeated once
again the conventional HCFA position: "We spend less than 2%
of Medicare benefit outlays on program management." In
contrast, she said that administrative costs run 11-25% for
Medicare Plus Choice plans and 20-40% for Medigap plans. Based
on the budget categories, DeParle's statement is technically
true, but quite misleading. What is not counted, of course,
are the other components of government administration, which are
quite different from those that are enumerated in private
insurance plans. Moreover, the real administrative costs are
the costs of complying with Medicare's rules, regulations and
guidelines and paperwork, which are never counted in any estimate
of Medicare's administrative costs.
This topic, long the arcane preoccupation of frustrated
doctors and their administrative assistants who wrestle with the
paperwork, is also attracting the attention of the House Budget
Committee, which has taken the unusual step of looking into this
regulatory burden on doctors, hospitals and other providers
before the House Ways and Means Committee ever got around to it.
In its testimony on May 18, the American College of
Physicians/American Society of Internal Medicine, not a candidate
for membership in the vast right-wing conspiracy, told the House
Budget Committee that Medicare's ever-changing regulations make
it difficult for doctors to keep up and treat patients at the
same time. "The problem is compounded for physicians in small
group practices or solo practices, which make up the majority of
rural practices. They do not have the staff to keep up with the
constantly changing rules The magnitude and complexity of
regulation is compounded for physicians that are covered by more
than one carrier jurisdiction." As an example, the ACP/ASIM
testimony cited the notorious Evaluation and Management (E & M)
Documentation Guidelines, noting that doctors have 11 decision
points in categories to consider before "selecting" an E & M
code: "Each decision point requires several choices. There are 42
choices a physician must consider before selecting the proper
level of E & M service. There are 6,144 possible combinations
representing the number of ways an office visit for a new patient
can evolve and be classified ."
It is worth noting on the subject of correct coding that a
1995 report from the HHS Office of Inspector General found that
the problem of selecting the right codes was not confined to
doctors, but the Medicare carrier personnel who are supposed to
oversee the process to prevent waste, fraud, and abuse also
demonstrated difficulty in complying with these complicated
coding requirements. In the meantime, doctors have had to hire
lawyers, consultants, and a new class of "coding experts" to help
them comply with this stuff. Of course, none of this is accounted
as part of Medicare's administrative costs.
What about the 6,000 hospitals? According to Kathleen
Murray of the American Hospital Association, some rural
hospitals have almost as many billing clerks as they do beds.
"At Northwestern Memorial, the patient financial services
department alone spends more than 3,200 man hours per month, or
38,400 man hours per year, sorting through Medicare billing
requirements alone." Murray also noted that the
"administrative simplification" provisions of the Health
Insurance Portability and Accountability Act of 1996, have cost
$43 billion over 5 years, instead of the $3.8 billion estimated
The public record is building and the regulatory morass-call
it the Medicare Blob-is emerging as a major issue in Medicare
reform. That's great news.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage