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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 problematic.

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. S1-S2.

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 value.

Canadian Blues

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 5/3/00).

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 5/11/00).

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 permitted extra-billing.

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 Post 5/9/00).

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


AAPS Calendar

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 regionalweb.texoma.net/cr/AAPS_brief--Amicus.htm .


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 slanderous notices.


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.

Members' Page

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 my profession.
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 Alert

It'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 changed.

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 Hagel (R-NE).

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 William Scanlon.

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 others.

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 itself.

Bureaucratic Sluggishness

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 capitalist software.

Medical Technology

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 by HHS.

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 Foundation.