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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 48, No. 75 July 1992


At 8:45 a.m. on May 6, 1992, agents of the Food and Drug Administration (FDA), assisted by local law enforcement officials, broke down the doors of the Tahoma Clinic in Tahoma, Washington, 15 minutes before it was scheduled to open.

To enforce their search warrant, the FDA was willing to kill. Not hypothetically, as by blocking access to a detachable silicone balloon or a life-saving drug. ``Kill,'' literally, as in a law of firearm safety: ``Never point a gun at someone you are not willing to kill.''

Employees of the clinic testified that officers pointed guns at them, ordering them to ``put your hands up where we can see them.'' Officers stated that one of them had simply ``unholstered'' his weapon and pointed it at the ceiling.

Fortunately, no one actually died of fright or suffered an accidental gunshot wound, although one woman was treated for an arrhythmia.

The search warrant, issued by the US District Court for the Western District of Washington, did not list cocaine, designer hallucinogens, heroin, marijuana, nerve gas, or illegal firearms. Rather, it called for the seizure of ``subject compounds'' and ``foreign subject compounds,'' including folic acid, vitamin-B complex, and adrenal extract; literature and other materials describing the ``subject compounds''; correspondence; floppy disks; computer hardware; and the Interro device (which is used for allergy testing).

A truckload of such items was seized, including a hard drive removed from the computer and a number of patient records.

No charges have been filed against the owner of the clinic, Jonathan V. Wright, MD, a member of AAPS.

Dr. Wright describes himself as a longtime advocate of natural, conservative principles and treatments, is the author of two books on nutritional therapeutics, and writes regular columns for Prevention and Let's Live magazines.

Dr. Wright stated that he used vitamins of German manufacture because these are the only available preparations that do not contain preservatives (to which many of his patients are reportedly sensitive).

``Every item used in my clinic is cleared by legal counsel before it is employed,'' he stated. ``And all items seized in this raid are safer than the generally available alternatives.''

Using electro-galvanic skin response to test for allergies is controversial, but Wright states that in comparisons he has made with RAST tests and skin tests, his results are just as accurate and considerably cheaper. The Interro device has not been alleged to do harm. However, it has not been approved by the FDA.

``We must wonder about the timing of the FDA action,'' Dr. Wright said. The raid occurred just before hearings were scheduled on a lawsuit brought by Dr. Wright, challenging the confiscation of his uncontaminated stocks of L-tryptophan.

FDA representatives stated that they are concerned about ``illegal drug manufacture.'' Dr. Wright stated that the FDA is targeting pharmacies that compound medications to a physician's order, the traditional job of the apothecary. These are often vitamins, minerals, and herbs.

The FDA stated it is concerned about the intravenous administration of dangerous materials. The evidence was a moldy vial of a magnesium compound retrieved from a dumpster shared by several facilities.

According to Dr. Wright, the FDA violates the Helsinki Declaration of the World Medical Association, enunciated in 1964: ``In the treatment of a sick person, the physician must be free to use a new diagnostic and therapeutic measure, if in his or her judgment it offers hope of saving life, reestablishing health, or alleviating suffering.''

The Tahoma Clinic has been deluged with calls from supporters, and a legal defense fund has been established by a group called Citizens for Health.

Dr. Wright will present his views on patient confidentiality and medical ethics at the AAPS annual meeting in Seattle.

Fraud Squads Hampered

According to testimony of the US Department of Justice on May 7, 1992, fraud by ``every type of provider'' is not only costing the Treasury billions of dollars but is adversely affect- ing ``one of the most basic rights of American citizens-the right to quality health care.'' The FBI's enforcement powers, however, are ``pitifully weak.'' They are hampered by issues of confidentiality and by the fact that ``witnesses are often infirm and ill-equipped to testify in court'' (for example, as to the ``victimization of government programs'' by mobile diagnostic laboratories). Moreover, ``prison costs limit incarceration as a remedy for crime.''

Thus, the need for seizing assets through civil procedures (H.R. 4930, see AAPS News July 1992). ``The potential of asset seizure is virtually unlimited. Additionally, forfeiture hurts criminals in the same place it helps taxpayers: in the pocketbook. Over the past seven yearw, more than $2 billion in criminal assets have been forfeited by DOJ and reinvested in law enforcement (Asset Forfeiture News Mar/Apr 1992).

Organized medicine says it ``strongly endorses measures to crack down on health care fraud,'' although some unintentional billing mistakes may be called ``fraud'' (AM News 5/25/92).

Anatomy of a TKO

The stage was set. The Governor, a Democrat and President of the National Governor's Conference, had announced his plan for statewide universal health coverage in the State of the State address and had also announced that health care reform was his number one priority. The Democratically controlled House of Representatives had among its ranks the chief health care reform advocate, well-armed with a Canadian style health reform bill (see AAPS News, July, 1991). The Senate, with a Republican majority of only one vote, was in disarray with no strong voice for private medicine. Citizen Action, an organization said to be 40,000 strong, had announced its support for universal health care coverage by means of a single payor system. The task for the proponents of socialized medicine appeared easy.

But it failed. Our opponents were not retired-yet-but private physicians won a convincing TKO (technical knockout). On a shoestring budget. With a statewide organization of less than 100 doctors. And without compromising our principles. The basis for the victory was the judicious application of facts to debunk fiction.

No doubt, private physicians were aided by the brevity of the 1992 legislative session (60 days). The Alliance for Health Care Reform, composed of business, insurance and medical concerns certainly was active, stubborn, and vocal. The Democrats in the House for whatever reason failed to solidify behind either the Governor or the health care reform leader (Representative Dennis Braddock) and those two individuals sparred publicly.

But the victory belongs to AAPS-and more importantly to private medicine.

Our session started on January 13 with nearly continuous discussion of two subjects-as on the national level, medical care and balancing the budget. After a delay of approximately one week, both the Governor's bill and Representative Braddock's bill were discussed openly and after another week a testy compromise between these two had been reached.

However, even by this early stage ``pay or play''-the Gover- nor's proposal-appeared to be dying or dead. Why? Because the AAPS members, using data developed by the Evergreen Freedom Foundation, a local think tank, had shown that Hawaii's ``pay or play'' plan had not really improved health care coverage despite raising health care costs substantially. We had also shown that Massachusetts' proposed plan had been rescinded by the Governor due to concerns over loss of entry level jobs and total costs. Finally, an editorial in a well circulated local newspaper had pointed out that ``pay or play'' was merely a step-wise approach to completely socialized health care. Nonetheless, it was felt that the revised bill-which included an all powerful health care commission-had a substantial chance of passage.

Then a surprise! The compromise bill failed to pass the House on two successive votes. Substantially amended such that the only immediate provision left was the formation of the commission, the plan called for a vote on possible funding mechanisms by statewide referendum 18 months in the future. After considerable political arm twisting-AAPS's lobbyist reported that dissenting Democrats were threatened with failure of all their proposals-House Bill 2590 passed and was sent to the Senate.

In the Senate, similar lack of consensus had prevailed.

AAPS members testified on several occasions to Senate subcommittees considering various aspects of health care reform. We emphasized the tendency for government to bloat health care costs and emphasized that simple insurance changes, such as high deductibles and individual responsibility, would cause the medical industry to function more like a true market economy. These ideas fell on surprisingly receptive ears. On the advice of an attorney interested in AAPS's cause, Mr. Michael Jonson, we focused on simple economic facts that had been glossed over in the rhetoric, emphasizing the effects on patients in the State, rather than just the effects on physicians.

As the end of the session began to close in, the Senate moved to ``do something'' on health care reform. However, just as in the House, the legislators had learned enough to know that broad based quick fixes were not necessarily in the people's best interest. It took the Senate several tries to pass a diluted SB 6089, backed by the Republicans. The essence of SB 6089 was enlargement of the uniform benefits package made available to difficult-to-insure groups by the legislature several years prior. On March 6, this was passed and sent to the House. The House on the 10th of March stripped SB 6089 of all of its Senate language and substituted the previously passed House Bill 2590 under the rubric SB 6089 and sent it back to the Senate. The count down of the last few days of the legislative session began.

Washington State AAPS feared the possibility of a conference committee; we knew the likely makeup of the committee and that it would not be favorable. While the Senate spokesman had declared that no bill with a cost control commission would be acceptable, we doubted the depth of their resolve.

We therefore contacted the Libertarian Party of Washington. When I recently lectured that group on my decision to leave Medicare, they had voiced interest in helping to defeat the proposed legislation. At AAPS's request, this group lent its assistance at a crucial time.

The session ended without a conference committee and thus far no serious attempt to organize a special session has occurred.

What can be done against ``universal'' (government-con- trolled) medical care?

We discovered that: (1) personal testimony by individual physicians carries tremendous weight; (2) debunking the typical national health care myths can be done easily and very publicly in legislative testimony; (3) focus is critical. We did not try to reach every legislator except insofar as members were en- couraged to call their own representatives and senators. Instead, we focused on the Senate as we felt they were a more receptive audience.

Indispensable ingredients included timely information about hearings; personal involvement by knowledgeable physicians; frequent communications by a biweekly newsletter; an ad hoc network with other interested groups, especially the Libertarian Party and the Evergreen Freedom Foundation.

We doubt that the battle is over in Washington. However, we are bolstered by our success and encourage members in other states to take heart. Americans do not want government health care. We can win.

Michael Schlitt, MD, Renton, WA

[Michael Jonson and Drs. Michael Schlitt and Robert Cihak will speak at the annual meeting.]

OSHA Inspectors Are Subject to Fourth Amendment

Federal regulations recently promulgated by the federal Occupational Safety and Health Administration for physicians' offices will undoubtedly result in yet more federal regulators being unleashed upon physicians in private practice. The new rules, presumably designed to minimize physician and employee exposure to bloodborne pathogens enlists still another federal agency (besides HCFA) in what appears to be a methodical federal takeover of physicians' offices.

Physicians' offices will now be subject to unannounced OSHA inspections and potential fines for violations of the rules (including those summarized in AAPS News, May and June, 1992). However, recent case law demonstrates that the US Constitution places both substantive and procedural limits upon the authority of OSHA inspectors.

In the seminal case of Marshall v. Barlow's, Inc. 436 U.S. 307 98 S.Ct. 1816 56 L.Fd.2d 305 (1978), the US Supreme Court held that the federal Occupational Safety and Health Act, which empowered the Secretary of Labor to search the work areas of any employment facility within OSHA's jurisdiction for safety hazards and violations, is unconstitutional insofar as it purports to authorize inspections without a search warrant or its equivalent.

The case arose in the following manner: On September 11, 1975, an OSHA inspector arrived at Barlow's, an electrical and plumbing installation business. After showing his credentials (as required by the relevant statute), the OSHA inspector informed the owner, Mr. Barlow, that he wished to conduct a search of working areas of the business. The owner asked whether OSHA had received any complaints about the company. The inspector answered no, but told Mr. Barlow that his company had simply turned up in the agency's selection process. After the inspector again requested to enter the nonpublic areas of the business, Mr. Barlow asked whether the inspector had a search warrant. Because he did not, Mr. Barlow refused the inspector entry to the employee areas of the premises, relying on his rights as guaranteed by the Fourth Amendment to the US Constitution.

Three months later, the Secretary of Labor petitioned the US District Court for an order compelling Mr. Barlow to admit the inspector. The requested order was granted, but Mr. Barlow again refused admission and filed suit in federal court seeking an injunction against the warrantless search assertedly authorized by the OSHA statute. The lower court ruled in Mr. Barlow's favor, holding that the Fourth Amendment required a warrant for the requested search and that the statutory authorization for warrantless inspections was unconstitutional. The US Supreme Court agreed and affirmed.

The Supreme Court first held that the Warrant Clause of the Fourth Amendment protects commercial buildings as well as private homes. The Court then concluded that the fact that Mr. Barlow's establishment was regulated by OSHA did not render it a ``pervasively regulated business'' so as to fall within an exception to the Fourth Amendment's warrant requirement. Finally, while the Court concluded that ``probable cause'' in the criminal law sense was not required for the issuance of the warrant, a warrant was nonetheless required to assure against arbitrary unannounced inspections by OSHA field agents.

In cases that have followed Barlow's, the federal courts have further required OSHA inspectors to obtain subpoenas or warrants for the inspection of records required to be kept under section 657(c) of the Occupational Safety and Health Act, 29 U.S.C. 657 (c). See, e.g. Brock v. Emerson Elec. Co., Electronic & Space Div., 834 F.2d 994 (11th Cir. 1987); McLaughlin v. Kings Island 849 F.2d 990 (6th Cir. 1988).

Pursuant to the Freedom of Information Act, AAPS is currently in the process of obtaining information from OSHA regarding enforcement and compliance with the new ``bloodborne pathogen'' rules, as well as rules governing the labeling and use of chemicals. All such information will be made available on request, as soon as it is received. The Legal Service will closely follow the implementation and enforcement of the rules and will keep the membership apprised of legal developments that may affect physicians' rights under the new federal scheme.


What to Do If OSHA Knocks

Before OSHA knocks, you need to make a good-faith effort to comply with the rules. First, you need to find out what the rules are. Regulations for bloodborne pathogens are published in the Federal Register, vol. 56, No. 235, Dec. 6, 1991, pp. 64175- 64182. Rules for chemical hazards are in vol. 52, No. 163, August 24, 1987, pp. 31877-31886. Your state office of OSHA might send you additional materials if you call.

The OSHA inspector will probably not have a search warrant. It requires an effort to obtain one, and most physicians will let him in without it. They feel they have nothing to hide, and they fear that the inspector will be angered or suspicious if they appear to be uncooperative. Although the government is not supposed to punish people for exercising their rights, inspectors have considerable discretion. Keep in mind though that if you voluntarily waive your rights, you will not be able to raise a Fourth Amendment claim later.

You do not have to give blanket consent to an inspection. You may ask the inspector to specify exactly what he wishes to look for. You may choose to allow him to look at the office but ask that he come back with a subpoena if he wants to look at confidential patient records. (Remember the possibility of filing a motion to quash a subpoena.)

You have the right to accompany the inspector and to ask that he schedule the visit at a time when you can do so. Better still, have an employee come along also. If it comes to a swearing contest, it is better to have two witnesses, and the employees' testimony will carry more weight than yours. Take detailed notes. Ask questions (e.g. ``Is everything okay in here?'') Whether to ask permission to make a tape recording or photographs is a judgment call. (State laws vary about the permissibility of hidden tape recorders used by a party to a conversation.) Ask permission to copy the inspector's report ``for my files'' if he prepares one during the visit, especially if he says he has found no problem. If he finds a problem, fix it immediately. (An employer was cited and fined $1,000 for a can of soda in a refrigerator also used for blood specimens. Because the can was still in the refrigerator as the inspector was leaving, that was another $1,000.)

Call LLCS if you have a question (606-253-4868).

New Members

AAPS is pleased to welcome Drs. Bry Benjamin of New York, NY; Leon Bush of Augusta, GA; Wendy Cohen of Englewood, NJ; John J. Gapsis of Morton, IL; Jeffrey W. Hull of Decatur, AL; George H. Jarden, Jr. of Las Cruces, NM; Michael L. Jenkins of Clayton, NM; Jonathan Kahn of Chicago, IL; Mohammad Katebian of Hackensack, NJ; Richard L. Klingler of Forsyth, MT; Lee A. Klopfenstein of Van Wert, OH; Mike Lenker of Houston, TX; J. Mervyn Lloyd of Westwood, NJ; Donald R. Mackay of Las Vegas, NV; William A. Newsome of Gainesville, FL; Bruce A. Nitsche of Bain- bridge Is., WA; Francis X. O'Brien of Collingswood, NJ; Dale G. Rosin of Somerville, NJ; Joseph L. Sbarra of Kamuela, HI; Newton D. Scherl of Fort Lee, NJ; Michele Martin Shoun of Grand Rapids, MI; Theresa A. Smith of Kamuela, HI; John Sosbea of St. Petersburg, FL; Jack Tidwell of Columbus, GA; Tonne of Pueblo, CO; David L. Whitaker of Stuart, FL; and James W. Wiggs of Yankton, SD.

Janice L. Toth of Columbus, OH, is a new student member.


9.1 Million Jobs at Risk

According to a study by the Partnership on Health Care and Employment, a group of about 200 employers, a pay-or-pay health plan such as that proposed by Sen. George Mitchell (D-ME) could lead to the loss of 9.1 million jobs. The heaviest impact would fall on the poor; 83% of those at risk are workers earning less than $5,000 per year, 74% are age 18 or younger, 16% are black and 16% Hispanic. These are the very workers that the legislation is supposed to benefit (BNA's Medicare Report 5/1/92).


Are Physicians Professionals?

...If the physician is not trusted with insignificant details such as insurance coding, the format of records, the selection of medications, and the election about when and which investigations to perform, how can he have confidence in his ability to make life-and-death decisions?....

We have anti-kickback laws, anti-cartel laws, anti-corrup- tion laws, anti-unnecessary operation regulations, coding laws, anti-coding creep laws, anti-early discharge rules, reporting laws, anti-reporting laws (AIDS)....Only a fool would stand up and say these claims of abuse are bizarre. Anyone standing up is automatically accused of cover-up. This is a dialectic technique....

The reason doctors must be controlled is because of their professional ethics. In the Hippocratic Oath, there is a tradition of professional responsibility and dedication, of individual responsibility. For socialist control to engulf North America, the spark of independence and responsibility must be extinguished permanently.
Thomas A. Dorman, MD, Practice Newsletter


Are Professionals Interchangeable

The Primary Care Health Practitioner Incentive Act (HR 4963), introduced by Rep. Edolphus Towns (D-NY), would amend Medicare to pay 97% of the amount reimbursed for physicians if the same services are performed by physician assistants, nurse practitioners, clinical nurse specialists, and nurse midwives. Currently, these payment rates apply only if the service is performed in a nursing facility or a rural area (Health Legislation 5/20/92).


More Regulations Proposed

Some 30 million surgical procedures are annually performed in physicians' offices, according to HHS, a 39% increase compared with three years ago. Unlike hospitals and ambulatory surgery facilities, the physician's office does not have to be licensed or inspected. Rep. Ron Wyden (D-OR) has introduced a bill to bridge this regulatory gap, because of anecdotal reports of patients dying due to inadequate inspections. Ambulatory surgery centers support the bill.

I went to the store the other day to buy a bolt for our front door, for, as I told the storekeeper, the Governor was coming here. ``Aye,'' said he, ``and the Legislature too.'' ``Then I will take two bolts,'' said I. He said that there had been a steady demand for bolts and locks of late, for our protectors were coming.
Henry David Thoreau, Journal (Sept. 8, 1859)


AAPS Calendar

June 20, 1992. Medicine and Freedom Seminar, Great Falls, Montana (to register, call 800-635-1196).

August 16-20. 9th International Congress of Private and Independent Medicine, Hotel Grand Marina, Helsinki, Finland. Call IATROS, (319)283-3491.

September 12. Freedom in Medicine seminar, Columbus, OH.

October 15-17, 1992. Annual meeting, Seattle, WA, Airport Radisson Hotel.

Legislative Alert

Legislative Alert: AAPS Report from Washington

Small Group Health Insurance Reform Stalled. Even the minimalist approach is now running into some difficulties, as members of Congress are privately saying that the small group insurance reform option is raising more questions rather than solving problems of access and cost.

The measures commonly discussed include: (1) provisions for guaranteed issue of insurance, (2) an elimination of restrictions on medical conditions, (3) the elimination of optional renewability and experience rating in favor of community rating or some form of ``modified community rating,'' which would allow for premium variations on the basis of age, sex, or geography.

A large number of small group insurance reform initiatives are being diligently pursued in the states already, another factor complicating planning on Capitol Hill. Florida, for example, has adopted a comprehensive insurance reform measure that promotes pooling of small businesses into larger risk pools, enabling insureds to write insurance for small business on much more favorable terms. Governor Lawton Chiles of Florida is issuing the insurance industry a challenge: get people signed up within the framework of the private sector by 1995, or else the next step is play or pay or a single payer system of health care delivery.

On May 14th, the House Subcommittee on Environment, chaired by Rep. Henry Waxman (D-CA) held a major hearing on the subject. Waxman called upon HHS Secretary Louis Sullivan to testify, but neither Sullivan nor any other witness from the Administration appeared. So the hearing focused on the insurance industry's views. Blue Cross and Blue Shield claimed that the approach would not necessarily contain costs.

More significantly, the General Accounting Office, the fiscal investigative arm of the Congress, testified that small group market insurance reforms at the state level did not lead to a ``significant'' increase in the number of Americans insured. In cases where small employers were offered substantial state subsidies (up to 50% of the cost of insurance), a significant number refused to cover their employees.

But the increasingly irritating policy question for Members of Congress, who want to ``do something'' about the health care crisis is this: Does it make sense for Congress to tighten up the regulation of small group insurance, if that tightened regulation will mean higher premium costs? Isn't the high cost of health insurance one of the reasons for the ``health care crisis'' in the first place? Doubts are surfacing now about small group insurance reform, even though, at least publicly, everybody who's anybody in the rarified realm of Capitol Hill health care policymaking (Senate Republicans, Texas' Senate Finance Chairman Lloyd Bentsen, Chairman Dan Rostenkowski of House Ways and Means, President George Bush) is all for it. But how to control the costs engendered by the regulation? More regulation? It may not be enough to derail small group insurance reform, but the longer the Capitol Hill folks think about it, the more problems they see.

Broader Reform Also Stalled. No signs yet they are in a panic, but evidence is mounting that senior House and Senate Democrats-at this late date in the political season-are not really sure what they want to do with the big picture of ``health care.'' This was supposed to be the Democratic issue. But

House and Senate Democrats, who have been talking very loud and very tough about national health care reform, and criticizing the Bush Administration for not putting up a realistic and ``comprehensive plan,'' apparently do not know how to make a coherent case to the public.

Pennsylvania Senator Harris Wofford, who stunned America by upsetting Republican favorite Richard Thornburgh, Bush's former Attorney General, in a special Senate election last year, is backing away from the Mitchell play-or-pay bill and working on independent legislation.

This past month, Senate Majority Leader George Mitchell has been intensely lobbying Senate colleagues to find support for either play or pay or some other broad health care reform bill. A lingering question: How are they going to pay for it?

Mitchell's idea is being regularly battered by a growing number of opponents, like Congressman Dick Armey (R-TX), using ammunition from unlikely quarters, such as the liberal-leaning Urban Institute. The prospect that 52 million private sector workers would be dumped out of their private insurance into a public health insurance plan continues to haunt pay-or-play proponents.

Is the Canadian System Dead? The Canadian system seemed moribund, especially after its chief sponsor Congressman Marty Russo (D-IL) bit the dust in the Illinois primary. With Russo gone, Sen. Paul Wellstone of Minnesota is the leading Con- gressional champion of national health insurance along the lines of the Canadian model. A bright and aggressive champion of the liberal causes in the Senate, Wellstone faces an uphill battle.

By now, the Canadian option may be dead. On May 26th, the New York Times, America's most Politically Correct journal of liberal opinion, issued its latest condemnation of the Canadian style health care system: ``The Canadian health care system is good, but not good enough to meet America's needs.''

The Times editorial pointed out that, after adjusting for inflation, Canada's health care costs rose even faster than those of the United States; that Canadians do not have the same kind and degree of health care problems that are routinely handled by the American system, making most comparisons between the US and Canada faulty, or biased in favor of Canadian performance; too many Canadians wait too long for surgery; and adopting the Canadian system might undermine medical innovations. The Times also showed that perfect equity has not been achieved:

[In Canada,] Infant mortality runs twice as high among the poor as the rich...[and] rates of tuberculosis among tribe members run 40 times the national average...

If liberalism's oracular journal is not enthusiastic about national health insurance, House and Senate liberals are going to have a tough time getting back the momentum they seem to have lost.

The View from the Inside. No more than 7% of all Congressional staff in a recent survey expect any health insurance legislation will pass Congress before the November elections.

The Employers Council on Flexible Compensation posed the following question to America's Unelected Representatives: If some version of health care legislation is passed in 1992, which type do you think it will be? The largest number of staffers (56.7%), not surprisingly, said that small group insurance reform to help small business get access to health insurance would be most likely. Only 18.4% thought that ``play or pay'' would have a shot before the election. A Canadian style plan racked up 3.2%; another version of national health insurance 3.0%; ``other/don't know'' came in third with 14.6%; and Medicaid/Medicare reform or other incremental reforms garnered 4.1%.

The Congressional staff survey also brought out what most Capitol Hill observers have been thinking all along. Policy is really being held hostage to the Presidential election. The course will be determined not by the arguments circulating in Congress now, on either side of the issue, but by who wins in November. If a Democrat wins the White House, 60.8% of the surveyed staff expect Congress to pass either a ``play or pay'' plan or some form of national health insurance.

Will RVS Advocates Seize More Territory? Quietly, ever so quietly, RVS advocates are looking to extend their imperial domain of price controls over physicians services. In the last issue of Legislative Alert, we told you of the latest round of hearings before the House Ways and Means Subcommittee on Health, chaired by Congressman Pete Stark (D-CA), on Rostenkowski's legislation to extend the Medicare payment system to the private sector.

The latest foray of the RVS forces is into the relatively free and unbridled market of the Federal Employees Health Benefits Program (FEHBP), the medical insurance program that serves over 9 million federal workers and retirees, including members of Congress.

The FEHBP is, in fact, a kind of voucher system for federal employees, in which every employee and retiree can pick and choose from among a group of private carriers. The federal system is radically unlike Medicare; there are no DRGs and nothing like the RVS. Physicians are generally paid under the traditional customary and prevailing rates. Federal employees can change carriers and have the opportunity to switch their insurance plans, usually in the late fall of every year. Among private insurance carriers, the federal system is highly competitive.

In a special study prepared by a group of consultants for the House Committee on Post Office and Civil Service, chaired by William Clay (D-MO), Medicare-style fee setting has been proposed as an ingredient in a comprehensive reform of the federal health insurance system. Naturally, the comprehensive reform proposal presented to the Committee would raise the government's contribution to the cost of the federal employees insurance premiums and would simultaneously eliminate much of the competition in the system and transform the pluralistic FEHBP into something that looks more like Medicare, a single major plan with some geographically-based HMOs.

In the meantime, Drs. David Blumenthal and Arnold Epstein note that:

On the whole, we think the introduction of the fee schedule is likely to hamper access for Medicare patients in certain areas and those seeking certain services, just as controls on Medicaid fees in obstetrics, for example, have created problems of access for certain Medicaid patients. In addition, other groups of payers, specifically those insured by Medicaid and the uninsured, may suffer indirectly as physicians, striving to maintain their incomes, become less willing to provide care at reduced rates or for free. (``Physician Payment Reform-Unfinished Business'' (New Engl J Med, 5/14/92).

Thus, the RVS marches on and on and on. Those in the medical profession who assiduously assisted in the creation of this monster, and are now so upset by the turn of events, have only themselves to thank for this mess.

Cost Shifting and Rising Costs. While the government continues to create distortions in the medical market, it is not surprising that it is becoming increasingly preoccupied with the inevitable effects of much of its own handiwork. On May 18, the Senate Finance Subcommittee on Families and the Uninsured, Chaired by Sen. Don Riegle (D-MI) held a hearing on health costs, cost shifting, and its effect on the economy.

The most significant testimony was presented by Mr. Don Moran, a former Reagan Administration official, who worked for OMB Director David Stockman. His company, Lewin/ICF, is famous for its sophisticated health care modelling, detailing the impact of health care costs on businesses, government and consumers.

Moran reported Lewin's findings from a study done for the National Association of Manufacturers. The Lewin study found that uncompensated care, combined with current Medicare and Medicaid rates, resulted in cost-shifting by hospitals of $21.7 billion in 1991. This amounted, in 1991 dollars, to 12.6% of all employer health care costs, which totalled $171.1 billion.

Another critical area of cost-shifting identified by Moran was the shifting of costs from small employers to large employ- ers. The Lewin analysis concluded that in 1991, 17.3 million workers, or 15% of the total workforce, were covered as dependents in a health care plan sponsored by some employer other than their own. The dollar value of this cost-shifting amounted to $26.4 billion, or roughly 20% of all employer medical costs. In terms of the hardest hit industries, manufacturers and transportation companies together absorbed about 88% of all cost shifting.

Not surprisingly, union and business representatives both came out in favor of strong federal action to contain costs, such as a Health Care Cost Containment Board, in effect a price control mechanism. The lesson is clear: distortions in the market beget more distortions, and price controls beget more price controls.

An interesting observation was made by Mr. David Brailer of the Wharton School of Business. Brailer pointed out to the Senate Finance Committee panel that health care cost increases and cost shifting is not undercutting the competitiveness of American firms. But it is affecting the standard of living of the American people, as more and more resources are progressively shifted from consumption of goods to the consumption of medical services.

Bush Plan: More Cost Shifting. On May 5, the Bush Ad- ministration sent its first bill to implement ``health reform.'' The measure will increase the medical insurance tax deduction for the self-employed from 25% to 100%. The expected $5 billion loss in tax revenues would be ``funded'' by changing the Medicare update to hospitals from a fiscal year to a calendar year basis, thus delaying the increase by three months. In addition, the Bush proposal would lower the Medicare payment cap for clinical laboratory services from 88 to 76% of the national median.