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Volume 59, No. 7 July 2003


A train wreck was the PowerPoint illustration for the HIPAA transaction code sets (TCS) rule at the recent AAPS practice management seminar in Seattle.

On Oct. 16, HIPAA will throw an electronic switch to convert to the new system in what Tom Gilligan of the Assn for Electronic Health Care Transactions calls the "largest single computer conversion ever" (HIPAA Compliance Alert 5/03).

The April 16 testing deadline has passed, and payers are not even ready to test. Hundreds of millions of lines of COBOL code are still being run, and very few programmers can make the needed alterations. Yet retrofitting is necessary because of the tremendous cost of replacing all the systems.

But even if all the components are tested, how will the system work as a whole? It's like "testing the components of an airplane without testing whether the plane can fly," said Dr. Joe Nichols, chief information officer for Paladin Systems (Puget Sound Business Journal, 3/28/03).

It's not a simple matter of changing two-digit years to four-digits as for Y2K. New and additional fields and codes have been introduced. One of four possible codes will have to be translated into one of 24 and back again.

According to industry experts at the May 20 meeting of the National Committee on Vital and Health Statistics (NCVHS), only 40 to 60% of covered entities will be ready. Massive disruptions are expected if even 5% are noncompliant.

Despite the problems, the Center for Medicare and Medicaid Services (CMS) has stated firmly that there will be no further extensions. Anyone who accepts or uses noncompliant transactions after the deadline will be in violation of the law. Noncompliant electronic claims will be rejected. One piece of missing data on one claim will result in a whole batch being rejected. It's a "sledgehammer approach," stated Jack Joseph of PriceWaterhouseCoopers at the AAPS meeting.

According to the California Medical Association, practices that can't find a clearinghouse to accept their software output and translate it to the proper format have three options: get a new billing service; buy and install new software; or revert to paper for non-Medicare payers. Medicare may be billed using free electronic software from www.medicarenhic.com/edi/EDIhome.htm (see www.calphys.org/html/bb277.asp ).

Massive reversion to paper, because of inability to submit electronically, is the payers' worst nightmare. The system could rapidly be clogged, with disastrous consequences for hospitals and practices that cannot weather a break in cash flow.

"The end of the world is when cash flow interruptions disrupt patient care," a spokesman for the American Hospital Association (AHA) told the NCVHS.

"There is little doubt that the financial viability of the provider side of the ... system is at risk," Dr. Nichols said. "We think there's a very definite potential explosion coming down the pike," said Bob Perna, medical economics director for the Washington State Medical Assn (Puget Sound Bsns J, op. cit.).

Of 223 physicians responding to a recent AAPS survey on HIPAA, 63% report being noncovered entities. While these physicians do not have to comply with any of the HIPAA administrative simplification rules (privacy, TCS, or security), they could still be affected by the train wreck if they file any type of insurance claims.

The only reliable source of revenue after October 15 will probably be patients who pay at the time of service. If these patients file their own claims, or have Medicare claims filed by nonparticipating physicians, they will probably see some delays in reimbursement. However, as Mr. Joseph pointed out, insurers give first priority to patients who file paper claims.

October 16 may be the proverbial crisis and opportunity. If the third-party system becomes completely snarled by impossible government barriers, more people will ask why payment for noncatastrophic medical services should be funneled through an insurer in the first place. And why should the insurer ever stand between the patient and a medical service?

Physicians are already making the transition. As one AAPS survey respondent commented, "We phased in paper claims over a few months no problem! We also went non par with Medicare even better!" [Additional comments are posted at www.aapsonline.org.]

The trends of half a century will need to be reversed to return to direct patient payment. An entitlement mentality is ingrained in patients, and many physicians have forgotten how to accept cash payment. Some even reject cash-paying patients, assuming that they are uninsured deadbeats although 33% of the uninsured have household incomes more than $50,000 per year (NCPA Brief Analysis #379, 11/15/01) and are willing and able to pay a reasonable price for care.

Hospitals are the greatest obstacle to true reform. Their computer systems are designed around coding, authorizations, third-party contracts, and "discount" fee schedules. Unlike economically viable businesses, hospitals are unable to determine charges immediately when a customer asks for them. Many refuse to negotiate with patients (see p. 2).

Lest we forget, the purpose of "administrative simplification," a key feature of the Clintons' Health Plan, was to serve as the information infrastructure of nationalized medicine. In a Discussion Paper found in Box 1469 of the Task Force documents, its purported advantages were to help offset providers' resistance to price controls and global budgeting. But its unintended consequences could thwart the whole scheme.

A critical mass of physicians returning to direct payment could avert a HIPAA-caused shutdown of medical facilities while restoring an honest price system and derailing the government command-and-control train.

Why Won't Hospitals Post Reasonable Prices?

Logically, it would seem that patients who promptly pay cash, unencumbered by third-party hassles and overhead, would be sought and courted by hospitals. Instead, uninsured patients may be charged three to five times (or more) what the hospital would receive from Medicare or private insurers for the same service and have their wages garnished and liens placed on their homes if they can't pay (Denver Post 2/18/03). Why?

One reason could be the loophole that hospitals may use to maintain revenue despite the DRG price controls, highlighted in the fraud investigation of Tenet Healthcare: outlier payments. Congress created this mechanism to protect hospitals from being bankrupted by unusually costly patient stays. The average percentage of outlier patients increased from 2.66% in 1996 to 3.5% in 1999, with Tenet's increasing to 10%. The outlier payments are pegged to retail prices. More than half of a hospital's Medicare income may be from this source which also may help compensate for HMO underpayments.


Overcoming Barriers to Cash Payment

The principal barriers are: (1) the tax code; (2) the complexity and restrictions of mechanisms available to gain a tax advantage (Gerry Smedinghoff points out that an Medical Savings Account brochure may be too much like the manual for programming your VCR); (3) a system structured in a manner analogous to the Gulag Archipelago, in which decent people [doctors, hospitals] thrown into a population of hard-core criminals [certain third parties] were compelled to exploit anyone weaker than they [the uninsured] simply to survive.

We can't wait for Congress. A critical mass of patients and physicians is needed now to form the nucleus of a civil society based on cooperation and mutually advantageous transac- tions instead of zero-sum games. Potential rewards are great because of the enormous diseconomies of scale in today's system: the $20 copayment costs most Americans much more over a year than direct payment and high-deductible insurance.

"Universal care" [socialist] demonstration projects, such as the Integrated Delivery System of the Chautauqua County Health Network in Jamestown, NY, called to our attention by James Dahlie, M.D., proliferate. More free-market demonstrations are needed. Each AAPS meeting features physicians who have opted out of the third-party System to care directly for patients. [A CD from the 2002 spring meeting and audiotapes from other meetings are available call (800) 635-1196.]

Speaking on this subject at the 60th annual meeting are internist/emergency medicine physician Robert Berry, M.D., of Greeneville, TN; internist H. Todd Coulter, M.D., of Ocean Springs, MS; urologist Michael Harris, M.D., of Traverse City, MI; and neurosurgeon Tim Kriss, M.D., of Versailles, KY.

There is no stronger incentive for jumping off the train than an impending crash.


Pay Cash in Britain

Some prices advertised up front by a British hospital:

  • Hip replacement: $9,400 - $12,300
  • Cataract removal: $3,000 - $4,200
  • Hernia repair: $2,200 - $2,900

No managed-care authorizations required! Uninsured patients are welcome. You can usually obtain a fixed-price estimate in advance. See www.nuffieldhospitals.org.uk.


Nominating and Resolutions Committee Reports

The Nominating Committee chaired by Claud A. Boyd, Jr., M.D., of Augusta, GA, presents this slate:

President-Elect: James Pendleton, M.D., Bryn Athyn, PA
Secretary: Charles McDowell, Jr., M.D., Alpharetta, GA
Treasurer: R. Lowell Campbell, M.D., Corsicana, TX
Board of Directors: Drs. Curtis Caine of Brandon, MS; Kenneth Christman of Dayton, OH; James Coy of Punta Gorda, FL; John Dwyer of Chicago, IL; Robert Gervais of Mesa, AZ; Lawrence Huntoon of Jamestown, NY; and Robert McQueeney of Marinette, WI.

Nominations can be made from the floor. Members interested in serving should sit in at a board meeting and make their wishes known. All officers and directors serve at their own expense.

To be considered at the Point Clear meeting, resolutions must be submitted by August 17: call (800) 635-1196.


From the Clinton Task Force Archives

"CBO believes that only if global budgets and expenditure caps are strictly applied and if no other source of financing is available to the providers will they be successful in controlling costs. Other observers suggest that global budgeting would give the government needed control over the diffusion of high technology and over growth in service volume in health care. It has also been suggested that the administrative simplification of dealing with a single-setter (the government) would be a sufficient advantage to providers as to offset their basic resistance to price controls. ... Many individual physicians are taking issue with the inference that the quality of their services is driven by the price...." (Discussion Paper on Managed Competition, 12/3/92, National Archives II, Box #1469).

[Documents retrieved in AAPS v. Clinton are posted at www.aapsonline.org: click on Clinton Taskforce Records.]


Socialism and Public Health: SARS

The third highest SARS death rate in the world, after China and Singapore, is in Canada. In rural China, SARS got its start through the population's close contact with farm animals. "Only in Canada," writes Mark Steyn, "does the virus owe its grip to the active cooperation of the medical profession." Lambasting perfunctory treatment from chronically harassed staff in overcrowded emergency rooms, Steyn concludes: "The system infected us" (National Post 4/24/03).


AAPS Calendar

Sept. 17. Board of Directors mtg, Point Clear, Alabama.
Sept. 17-20. 60th annual mtg, Point Clear, Alabama.
Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.

HIPAA Litigation Update

The AAPS constitutional challenge to the HIPAA Privacy Rule was argued on May 8 before Judges Emilio Garza, John Duh‚, and Harold Moss of the Fifth Circuit Court in New Orleans by AAPS General Counsel Andrew Schlafly.

AAPS cited the Supreme Court case Whelan v. Roe, in which a medical association was found to have standing to challenge a state law requiring submission of information on prescriptions for controlled substances to a state data base. Although the law was upheld, discovery showed extensive safeguards to prevent misuse of the information: it was stored in a vault for five years and then destroyed; data were encrypted, and the computer was run off-line; and only seven employees and 24 investigators had access. AAPS asked that the case be remanded for discovery concerning the adequacy of safeguards for data released under HIPAA.

The U.S. attorney argued that the only new obligatory access by government to patient data was to determine compliance with the HIPAA Privacy Rule.

The Court issued a one-word opinion: "Affirmed," and directed that the decision not be published or used as precedent.

"It is another loss for patients and those subject to HIPAA," stated Mr. Schlafly. "It means individuals cannot sue until they first suffer injuries from privacy invasions, which could have been avoided."

The "country doctor exception" was established by this case in the lower court.

The lower court's decision dismissing the HIPAA case brought by the South Carolina Medical Association et al. was also affirmed by the Fourth Circuit. The Court found that expanding the scope of the Privacy Rule to cover all forms of health information is "reasonably related to the larger purposes of HIPAA," as limiting coverage to electronic data would constitute a perverse incentive for covered entities to avoid computerization and thereby "utterly frustrate the purpose of HIPAA." Additionally, the Court found that the Rule was not impermissibly vague.

On April 10, Citizens for Health v. HHS was filed in Philadelphia by a coalition of consumers and medical practitioners, including the American Psychoanalytic Association (see www.medicalprivacycoalition.com), arguing that HIPAA gives "regulatory permission" for vastly expanded access to sensitive information. If the suit is successful, the Bush Administration rule would be replaced by the Clinton/ Shalala rule, which required patients to sign "consent" for any use or disclosure of their information.

"Because patients basically could not receive treatment unless they signed the so-called consent form, this change would increase barriers to care while providing no meaningful protection to patients," stated AAPS Executive Director Jane Orient, M.D. "What we need is a repeal of the Privacy Rule, as proposed by Dr. Ron Paul (R-TX) in H.R. 1699. Doctors should urge their Congressman to cosponsor this legislation." [Dr. Paul's statement is posted on www.aapsonline.org.]


Aetna Offers Settlement

In one of the largest lawsuits ever in the medical field, Aetna broke rank with nine other insurers to offer a settlement. Almost all the 700,000 practicing physicians in the country are to share $100 million (about $150 each), and all 12 or so lawyers will share $50 million in legal fees. A newly created foundation will get $20 million to "improve health care" by reducing medical errors, childhood obesity, and racial disparities. The AMA gets general acceptance of its treatment guidelines, and physicians will be allowed to have input on how claims-processing software evaluates reimbursements, along with access to a Billing Dispute External Review Board and the elimination of some fee cuts that might otherwise have been made (Wall St J 5/22/03).


AAPS Joins Amicus Brief Supporting Privacy

With the American Psychiatric Society and other groups, AAPS filed an amicus brief in the case of Harold I. Eist, M.D., v. Maryland State Board of Quality Assurance (civil case no. 240300). The issue concerns whether a state licensure board can sanction a psychiatrist for defending the therapist-patient privilege and insisting that patients have an opportunity to protect their privacy prior to disclosure of records to the state.


Dr. Phillips Allowed to Withdraw Plea

In an extraordinary ruling, the Nevada Supreme Court agreed with AAPS in permitting Dr. Mitchel Phillips to withdraw a plea of nolo contendere: "It would be manifestly unjust not to allow Dr. Phillips to withdraw his plea in light of the unforeseen consequences suffered as a result of that plea." AAPS filed an amicus brief in favor of Dr. Phillips, which was hotly opposed by the State of Nevada (see AAPS News, April 2002).


Tip of the Month: In fraud prosecutions under HIPAA, 18 USC 1347, a N.Y. court established this requirement of intent: "Because an essential element ... is intent to defraud, it follows that good faith on the part of the defendant is a complete defense to the charge of healthcare fraud. A defendant, however, has no burden to establish a defense of good faith. The burden is on the government to prove fraudulent intent and the consequent lack of good faith beyond a reasonable doubt. Under the healthcare fraud statute even false representations or statements, or omissions of material facts, do not amount to healthcare fraud unless done with fraudulent intent." U.S. v Kalani, 2002 WL 31453094 (S.D.N.Y. 10/31/02).


Even Experts Disagree on Coding

In a recent study reported in the Annals of Emergency Care, patient records were sent to four different agencies specializing in Medicare coding, and five different experts working in the same coding shop. For the five E&M codes that cover 70% of emergency visits, coders all agreed in only 15% of cases. In 29%, the codes differed by more than two coding levels a range of disagreement much larger than that used to extract a $10 million fraud settlement from the University of Chicago (Wall St J 11/20/02).

"[N]othing is more effective in persuading the masses to stop cooperating with the government than the constant and relentless exposure, desanctification, and ridicule of government and its representatives as moral and economic frauds and imposters: as emperors without clothes subject to contempt and the butt of all jokes."
Hoppe H-H. Democracy: the God That Failed


What HIPAA Really Means. I was just about to throw away the AM News of April 7, when I read the article from the "HIPAA Minute" series. The lead sentence is: "Give it up for the public good protected health information that is." Later it says that "...doctors can share patients' health information with employers. The physician has to be working for or on behalf of the company as part of a worker-safety program mandated by federal agency or state law." I guess that pretty much tells it like it is. The doctor works for whoever pays him. I wonder what employees think about this open chart policy. I wonder whether they even know.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


Doctors Know What to Charge. To those who claim that physicians' fees are very complex because they charge for thousands of different services, such as 40 different types of wound closure, I say baloney. That's what happens when people who don't belong between patients and physicians (such as government, insurers, and MCOs) insinuate themselves between the two. They claim to "systematize and bring objectivity and uniformity," but all they do is muck things up so they can charge fancy and unnecessary middleman fees.

I always had a fee schedule in my Ob/Gyn office. When patients complained that it didn't "conform" to the insurer's codes, I told them that was between them and their insurance company: I knew what service I had rendered, and the skill and intellect involved, whereas the insurance clerk did not.

If doctors started to post their standard fees, and took a few minutes to explain to an occasional patient why they were being charged more (say for a procedure done at 3 a.m. 40 miles from my home), there would be no problem between doctor and patient. But the code-makers and others who thrive on the system would soon feel the heat as patients recognized what an interposed nuisance they are. Then you would rapidly see demands to keep "insurance" and government out of day-to-day medical transactions and retreat to true insurance: occasional coverage of the rare and expensive occurrence.
Stephen Katz, M.D., Fairfield, CT


Get Out Now. Managed care is on its last legs, and the last one out will be left holding a mountain of unpaid claims.

We signed up for one HMO 10 years ago. We paid no attention to them until they asked for 20 patient records, had "expert coders" look at them, decided we charged too much, extrapolated, and demanded money back. They left us no phone number to call. That was the last straw. How silly we were to join in the first place! When we wrote our letter of resignation, we got a call begging us to reconsider: that was the first human being who would speak to us. I told them no way. We have not sent them a dime and await a written answer.

We calculated that if half of their patients chose to stay with us and go out of network, we would be ahead. And the patients, who would be reimbursed 80% of our usual fee after meeting their deductible, would be actually be better off than with their former copayment.
Alieta Eck, M.D., Somerset, NJ


PIFATOS Works. We have been taking payment in full at time of service since SimpleCare began 4 years ago. Collecting has not been a problem. People are happy to pay a fair price for a service. White and blue-collar patients are equally delighted to learn about high-deductible insurance plans. Many were never told of the availability of such plans when they called their broker or insurance company.

Physicians who learn the financial logic of PIFATOS are seeing an increase in their cash-based practice and a much happier group of patients.

What doesn't work is giving a "discount" from a CPT-coded visit for cash payment; this can potentially be a breach of contract with some insurance companies.
Vern Cherewatenko, M.D., Renton, WA


Give Them a Price. At first, I described Patmos Clinic as offering "affordable, quality care through payment at the time of service." People did not know what that meant. After researching the Tennessee Medical Board's policy on advertising prices and finding that it was acceptable, I began listing my fees. My patient volume increased as a result.

I charge the fees that I post. Those who think my fees are too high (although less than the local veterinarian's fees thus demonstrating Americans' entitlement mentality and the value they place on their own health) are invited to consider seeking care elsewhere the next time they need medical services. Typically, other local physicians and urgent care centers charge twice as much, and the wait is longer.

Some patients are hard to please; if they choose not to become part of your practice, will you be very unhappy?
Robert Berry, M.D., Greeneville, TN


Why More Insurance Is Less. People can control their own routine costs by changing their utilization patterns. However, most employees are offered a single medical insurance product with extensive first-dollar coverage, take it or leave it. This being the most expensive type of coverage, more people and businesses are going uninsured. In an attempt to wipe out financial barriers to day-to-day care, we are driving most of the most vulnerable out of the insurance pool altogether.
James Knight, M.D., San Diego, CA

Legislative Alert

Medicare Debate Enters a Dangerous Phase

Here's something different. The latest news on Capitol Hill is that the Senate, not the House, is likely to go first in enacting "comprehensive" Medicare reform legislation. Majority Leader Bill Frist is driving for action by July 4, and the Senate Finance Committee is now working feverishly on the language of a bill.

The latest word is that the Senate bill would incorporate key elements of the so-called "Tripartisan Plan" that was developed last year by Senate Finance Committee Chairman Charles Grassley (R-IA), Sen. John Breaux (D-LA), and Sen. James Jeffords (I-VT). Under that approach, Medicare beneficiaries would be required to pay a $250 deductible for drug coverage and half of all drug costs between $250 and $3,450. As with last year's House Ways and Means bill, there would be a "donut hole" between $3,450 and $3,700, and then the federal government i.e. the taxpayers would pay all of the costs. (This is a profoundly bad idea, of course.) Last year, the Congressional Budget Office (CBO) estimated that the costs of the bill's drug provisions at $340 billion over ten years.

The Tripartisan language would introduce competitive elements into the Medicare program, establish a new fee-for- service option, establish a catastrophic coverage limit of $6,000 a year, and add preventive services.

Senator Grassley has been at loggerheads with Representative Bill Thomas (R-CA), chairman of the House Ways and Means Committee, over tax policy. Moreover, Grassley is committed to increasing Medicare payment for doctors and hospitals in rural areas, and is concerned about the ability of private health plans to deliver the goods in rural areas. HMOs, for example, are notoriously absent in rural areas, because population density is not high enough to sustain a viable HMO market. Grassley is also at odds with the White House over the value of the drug benefits. The White House Plan calls for a less robust prescription drug benefit in traditional Medicare and a more robust prescription drug benefit in the new Enhanced Medicare a new system of private competing health plans, with the intention of enticing seniors to join the new system. Grassley's position is to guarantee equal levels of drug coverage in traditional Medicare and private health plans, and allow seniors to choose which option they want on a level playing field.

In the Senate, there is another political problem needing careful calculation. Grassley runs into serious trouble with conservative Republicans if the Senate Finance Committee bill ends up being the proverbial Nothing Burger: more spending for doctors and hospitals and other medical professionals, additional Medicare drug spending, and little in the way of serious structural reform.

How will the Left react to a serious Medicare proposal if (indeed, a big if), the Senate Finance Committee should actually produce such a bill? A serious Medicare reform proposal would, we repeat, maximize freedom of patient choice of plans and benefits, and also maximize free-market competition among plans and medical professionals. As Ron Pollock, Executive Director of the Families USA, a grassroots group lobbying for even more government control of medicine, recently told The New York Times, any significant step toward "privatization" of Medicare is likely to invite a Democratic filibuster. It would require 60 votes to overcome such an obstacle on the Senate floor. Meanwhile, the Senate Democrats have not promoted any comprehensive Medicare bill of their own. This is puzzling unless the entire Senate Democratic agenda would be to obstruct change.

As the Medicare debate heats up in Congress, the President is likely to start to weigh into the fray. In his State of the Union, after all, the President made comprehensive Medicare reform the second biggest item on his domestic policy agenda after the tax and economic stimulus package. Now that that bill has been enacted, the stage is set for round two. If anything is clear, this is a very disciplined White House, and they can expect to stay on schedule.

House Developments

Congressman Bill Thomas is also readying language, rumored to be largely a rehash of the bill enacted by the House of Representatives last year. That bill would have created a Medicare prescription drug benefit as a new federal entitlement at a projected cost of $311 billion over a 10-year period, enrolling nearly nine out of ten seniors in a new entitlement program and displacing existing private drug coverage, which now covers 78% of seniors.

Chairman Thomas has to cope with a challenge from conservative members of the House Energy and Commerce Committee led by Representatives Charles Norwood (R-GA) and Joe Barton (R- TX), known informally as the "Rump Group." This group has been skeptical of the Ways and Means efforts, and has started drafting provisions of its own, including a serious structural change in Medicare that would create a new system of competing private plans, and a targeted drug benefit that would look like a medical savings account with a debit card for drug purchases. The inspiration for the Rump Group's drug benefit is the drug discount card and account proposal developed by former CBO economist Joseph Antos and Galen Institute President Grace-Marie Turner. Estimated cost, courtesy of PriceWaterhouseCoopers, of the AEI-Galen drug proposal: $302 billion over 10 years.

As of this writing, no language in either body has been presented to the public. Both Senate and House are keeping the text very close to the vest.

The Potential Pitfalls of the Medicare Legislation

Most members of Congress have routinely talked of Medicare almost exclusively in terms of prescription drugs, even though there is no universal prescription drug problem in Medicare. But the adults on Capitol Hill also know that this issue is nothing more than a sideshow to the big business of structural reform: getting the program ready to absorb the shock of 77 million baby boomers who will start to retire in just eight years.

While the drafting of legislative language is now underway, the pressure is building and will explode in the debate. Look for some contentious fights over certain key issues. Forget the money: if the structure is wrong, the function will be wrong. If the function is wrong, then there will be a whole series of consequences, some of them explosive. For example:

#1. Beware of the importation of Medicare price controls into private health plans. In Medicare, historically, the budget process has driven the policy process. This is absurd on the face of it, but that is the way it is now, ever has been, and ever shall be, according to some folks on Capitol Hill, amen, forever and ever and ever. The rumor on Capitol Hill is that the CBO will only score the cost performance of private plans in terms of the cost control performance of the Medicare program. But Medicare "cost control" is government price controls, all dressed up with complex and often stupid or unintelligible fee schedules the RBRVS, the DRG system, etc. Thus, the private plans are routinely expected to cost more, and that means that we "can't afford" Medicare reform. We can only afford the price-controlled system of the current Medicare entitlement under which expenditures increased 9% in 2001, with skilled nursing care increasing by 20% and home health care by 30%, with no end in sight.

Expect the Left to use this argument, which is precisely the reverse of the argument it has used in the past, and do so with a perfectly straight face. In the past, Congress could not rightly reform Medicare because that reform would mean decreasing Medicare spending, and cutting Medicare spending is not a good thing for seniors and congressmen who want to be reelected by seniors. Now, the new argument is that we can't reform Medicare because that would mean increasing Medicare spending. Can't spend too much on seniors! We've got to be fiscally responsible about these things. Let's see: Decreasing spending is bad; increasing spending is bad. Gotcha!

You've got to give the Left credit; they understand the debate. They know it is not about spending; it is not about money. That's for green eye-shaded accountants and too many Republicans and their friends. Those who are clueless about the debate don't get the basic issue: government control versus personal control of the key decisions. The fiscal argument can work both ways, with the same result: No real Medicare reform.

The CBO process is the way it is; and it coincides neatly with the recent intellectual offensive of the Left, recently highlighted by the Urban Institute's Marilyn Moon in a recent edition of Health Affairs, in which she stated that Medicare outperforms the private sector because of its "aggressive pricing," among other things. Of course, the continuance on this path to Socialist Nirvana is increased rationing of medical services, denials of services, bureaucratic delays, longer lines for appointments with doctors and medical specialists, and more doctors refusing to take new Medicare patients.

The problem of access is now starting to show up in different areas of the country. The data is not scientific, nor does it yet appear in peer-reviewed journals of economics. But the evidence is there, and it is growing. For example, 22% of doctors in San Diego, California, say that they will leave Medicare within one to three years (AM News 2/3/03). And Reuters News Service reported on September 5, 2002, that in 2001 more than 40% of Medicare patients had to wait a week or more to get an doctor's appointment, up from 34.6% in 1997.

The next rumor is that in order to keep the cost of reform down, some members of Congress or congressional staffers are pondering the importation of Medicare's price controls into a new system of competing private health plans. They call it "deemed" pricing. So, for the short term at least (the ten-year budget cycle?) private plans will have all of the price regulation that accompanies the traditional Medicare program. To accept that is to accept the basic policy prescription of the Left (it's the structure, stupid!). If that's "Medicare reform," the Congressional conservatives, you can expect, will have none of it. Keep watch and see whether this piece makes it into the final language of either the House or Senate bills.

#2. Beware of "competitive bidding" as a means of limiting plan choice. The phrase "competitive bidding" means different things to different people. That's the problem; it has a nice "free market" tone to it, something that a fiscal conservative might like if he doesn't look at the process too closely.

Competitive bidding can mean bidding by one firm against another to sell a product and to attract customers' dollars and a bigger market share. That's good competitive bidding, and it is what we also call free-market competition. But it can also mean government purchase of services, devices, or insurance products on the basis of a request for a bid. The government then picks the two or three most desirable (to the government) products or services, and disallows the rest of the suppliers in the market to compete for the dollars of consumers. In other words, the government picks winners and losers; the customers can have only what the government picks. This kind of structural change is incompatible with market-based reform. Yet, it is in the "air" as they say; you can smell it on Capitol Hill, like you can smell rain in the wind.

No one has made a more articulate case against the "competitive bidding" approach than Lois E. Quam, CEO of Ovations, a United Health Group Company, in testimony before the Senate Finance Committee on April 3, 2003: "Our experience has shown that competition that focuses on 'competitive bidding' tends to be process oriented, rather than results focused. Often, it serves to reduce competition and limit consumer choice. It tends to reflect the preferences of the contracting organization, which often are not aligned with those of consumers. Competition that places great emphasis on low cost most likely would result in a more restrictive health care options, not unlike a staff- model HMO with limited networks, rigid medical management practices (denial of care) and fewer beneficiary options. In our estimation competitive bidding that relies on low bids or a 'winner take all' approach provides high risk for both beneficiaries and the government." Amen.

This is the month for Medicare reform legislation. Pay attention to the details.

Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.