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Omnia pro aegroto

Volume 60, No. 6 June 2004


What lawyers call "med mal" really refers to anything bad that happens to a patient for which a court might award money. It is a medical maloccurrence that might or might not involve malpractice culpable neglect but certainly imposes liability on doctors, at least for defense costs.

The explosion in liability costs, like that in medical costs, is to a large extent sustained by an enormous pool of third-party "free money." Everyone with the right ticket has access to the pool, which manifests the tragedy of the commons. When the pool is in danger of running dry, the third party just extracts higher premiums. But there is a limit, which is being reached with both medical and professional liability insurance.

More states are nearing or reaching the crisis point, including Illinois and Arizona. According the Chicago Tribune, billboards are going up with messages such "How far away is the nearest obstetrician?" or "Drive safely: no brain surgeon in Will and Grundy Counties." Christ Hospital, a major trauma center, has recently lost three vascular surgeons, one general surgeon, two neurosurgeons, a cardiologist, and an internist. At nearby Palos Community Hospital, five of the 10 pulmonary doctors are leaving because of liability insurance rates.

"In Illinois, we are on our third round of crisis litigation-State Supreme Court overrule since I entered practice in 1973," writes Robert F. Hamilton, M.D., President of the Madison County Medical Society.

Patient access to care is the issue, stated James Balserak, M.D., Chief of Surgery at Tucson Medical Center, at a town hall attracting 650 physicians, the largest physician gathering in Tucson's history. Tom Scully, M.D., a neurosurgeon who serves on the Board of Trustees of Northwest Hospital, said that his hospital was losing the two obstetricians who deliver 25% of the babies there. A survey of the medical staff showed that 20% were thinking of leaving Arizona this year.

Arizona has a constitutional provision forbidding caps on awards. Two past efforts to amend the constitution have failed; another is contemplated for 2006. Whether or not that succeeds, the only way to obtain an immediate reduction in premiums is to reduce limits of coverage, stated James Klein, M.D., a colorectal surgeon. He observed that many Texas physicians now carry $100,000/$300,000 coverage instead of $1 million/$3 million. This would require policy changes by hospitals and managed-care plans.

At a meeting attended primarily by insurance agents, the former president of the Mississippi Trial Lawyers Association was heard to say, "If we can't get a half million, then I'm not going to pursue it." Uninsured doctors are not often sued.

This mode of thinking is the reason that "10% of the doctors cause 90% of the malpractice suits" a slight modification of the personal injury lawyers' frequent canard, explains Stephen Katz, M.D., former President of the Connecticut Medical Society. "The 90% of cases come largely from obstetricians, neurosurgeons, and, to an extent, orthopedists," Dr. Katz writes. "The most incompetent people in medicine do not choose those fields. They are just the areas with the most lucrative payouts for lawyers."

While the value of a human life, or human suffering, may be infinite in the cosmic sense, people place contractual limits on compensation every time they buy life or disability insurance. Many endeavors have legal limits placed on liability otherwise these endeavors would not be pursued. State-run medical facilities excel at limiting their own liability, observes Russell Faria, D.O., of Newport, OR, citing $100,000 limits per claimant, plus potential special damages of $100,000, in malpractice cases against Oregon's medical school (ORS 30.268- 30.270, see www.leg.state.or.us/ ors/030.html).

Limits do have an impact on premiums. The largest insurer in Texas dropped physicians' liability premiums by 12% after the enactment of a $250,000 cap on noneconomic damages.

Contractual waivers of liability work in many commercial endeavors, including nanny services (Business Week 2/9/04). Methods of dispute resolution, or a definition of what restitution means for an injury (say $80,000 for loss of an eye), might also be agreed upon in advance. If the patient violates an agreement, say not to file a frivolous lawsuit, a countersuit could be argued as a breach of contract (Wall St J 3/23/04).

Limits on liability are morally justified, argues Robert Gervais, M.D., to protect innocent doctors who lose in 100% of malpractice actions because of the burdens of defense and innocent patients forced to pay higher medical fees.

Some version of the loser-pays principle must be invoked to make lawyers accountable for harming the innocent. As Rep. John Shadegg (R-AZ) pointed out, the so-called English Rule applies in most of the civilized world.

Only about 20% of med mal lawsuits are definitively related to adverse outcomes caused by negligence, writes Kyle McCammon, D.O. ( Medical Sentinel, Fall 2002). Physicians need to fight back against this abuse of process: "Free access to the courts cannot be achieved while effectively denying access to some (i.e. the physician who has been unjustifiably sued)."

Julie McCammon, M.D., an obstetrician, filed a pro-se lawsuit against the West Virginia Trial Lawyers Association for the intentional tort of civil conspiracy to file baseless actions. Between 1993-2003, there were 941 dismissals and 291 physician verdicts in West Virginia, which cost an average of $40,000 to defend. A summary judgment in favor of the lawyers is being appealed in a brief written by AAPS General Counsel Andrew Schlafly (see p. 3 and www.aapsonline.org).

Physicians are fighting back, by withdrawing premium payments (often by leaving medicine); legislative action; patient agreements; and engaging lawyers on their home turf.

Waiting Lists Good, Say Brits

According to an article from the London School of Hygiene and Tropical Medicine, "benefits can result from a well-managed waiting list," although prolonged waiting (say more than six months) is clearly undesirable. The list "maximizes efficiency by ensuring a steady demand for precious resources such as staff, theatres, and beds. It also enhances staff satisfaction and morale by ensuring theatre lists have an interesting mix of cases" (J Royal Soc Med 2004;97:159-160).

According to secret provisions of contracts between the National Health Service (NHS) and private consortia that build and run hospitals, penalties must be paid if too many patients are treated in a year, even if they are emergencies. The bed occupancy rate is not supposed to exceed 90%. The Worcestershire Royal Hospital, which has a deficit of 15 million, was fined 200,000 this year because of a record number of emergency cases (The Observer 3/28/04, cited by Del Meyer, M.D., 4/13/04, see www.MedicalTuesday.net).


Shortages Looming in U.S.?

According to the AMA, the percentage of young doctors (under the age of 35) dropped from 22% to 16.6% between 1990 and 2001. The ranks of young physicians include more women, who tend to take time off for their families. The effect of lack of replacements will be intensified as older physicians retire earlier. In Washington State, Physicians Insurance reported that the average age of retirees had dropped from 63 in 1996 to 58 in 2001. One sign of stress is that 91% of small hospitals and 100% of large hospitals, in a statewide survey, reported an overcrowding problem in the emergency room (Washington State Medical-Education and Research Foundation, 2002). The percentage of sick or injured patients waiting more than 21 days for an appointment in the U.S. increased from 24.4% in 1997 to 27.4% in 2001 (AM News 4/8/02).

Reversing 15 years of predicting physician surpluses, the Council on Graduate Medical Education anticipates a shortage of 85,000 physicians by 2020 (AM News 11/3/03).

The number of medical school applicants peaked at nearly 47,000 in 1996-1997 (2.7 per medical-school place), but fell to 33,625 in 2002-2003 (1.9 per place), lower than the 1982-1993 level of 35,720 (NCPA, Weekly Health Policy Digest, 5/11/04, citing N Engl J Med 2004;350:1780-1787). Medical school may no longer look like a good investment, stated Thomas Sowell, observing that Britain has to import physicians from the Third World, where medical school standards are lower.


How to Achieve Quality Targets

To help meet Whitehall targets and qualify for financial bonuses and independence, the Brent Teaching Primary Care Trust of north London offered inducements of 100 pounds to general practitioners for each patient who claimed to have quit smoking for at least four weeks. Conservatives called for an inquiry into the Brent scheme, and the use of targets in general also came under fire (Independent.co.uk 3/28/04).


* * *

"A shortage is a sign that somebody is keeping the price artificially lower than it would be if supply and demand were allowed to operate freely. That is precisely why there is a water shortage in the western states."
Thomas Sowell, townhall.com, 3/19/04


First Anniversary of HIPAA Privacy Rule

After a year and the diversion of at least $17 billion from patient care into implementing HIPAA rules, Jim Harper, editor of Privacilla.org, concludes that "consumers today have ...far less confidence in the privacy of their health information and health decisions." The forms that people receive make it clear that they "have no control in this system."

As pointed out in a special report issued in April 2003 (see www.privacilla.org), "the regulators ignored a substantial web of existing privacy protections and constructed a complex regulatory contraption out of whole cloth." The rules ignore the major cause of privacy threats: the persistence and continuing growth of third-party payment. The payers oversee choices that otherwise would be made in confidence.

At last count the Office of Civil Rights had received 5,350 privacy complaints, about 100 per week, most based on misunderstanding of the law (AM News 5/3/04). Meanwhile, medical information is serving as the source of information for identity theft (HIPAA Compliance Alert 4/26/04).


How to Mine Data

A May 25 audio conference (see www.compliancealert.net/conferences/A418 ) promises to teach you, for $249, "new ways that the government uses data mining, and how you can do the same." Whistleblowers do it: why shouldn't physicians, hospitals, and home health agencies? You can uncover your high-risk billing problems before the government does, and even "help recover money you're due!"


Illinois PTA Votes to Repeal Hepatitis b Mandate

Assisted by testimony from AAPS Past President Chester Danehower, M.D., the Illinois state Parent Teachers Association, meeting in Peoria, voted for repeal of mandated hepatitis b vaccination. The Dept. of Public Health refused to provide incidence data, claiming its computer was down for 3 weeks.


California Tort Reforms Shaken by Abuse Laws

In a State long considered a leader in tort reform, trial lawyers have possibly found a way around strict rules on punitive damages. The California Supreme Court has decided that the rules do not apply in cases that allege wrongdoing under the Elder Abuse and Dependent Adult Civil Protection Act (AM News 5/17/04). In 2002, a similar decision was handed down in Arizona; the Arizona chapter of AAPS filed an amicus brief supporting the physician (AAPS News Feb. 2003). The Arizona legislature passed a law mitigating the decision, except for medical directors of nursing homes.


AAPS Calendar

Oct. 13-16. 61st annual meeting, Portland, Oregon.

Doctor Sues Lawyers

Like many obstetricians, Julie McCammon, M.D., has been victimized by unfounded malpractice suits. In one, the patient claimed a femoral neuropathy resulting in inability to walk without a brace. The lawyer pursued the case, even after being confronted with videotapes of the patient walking downstairs, sans brace, carrying heavy boxes.

The epidemic of baseless lawsuits has driven Dr. McCammon's professional liability premiums to $115,000, although no successful claim has ever been filed against her.

Dr. McCammon filed a pro-se lawsuit in February 2003 (Julie K. McCammon, M.D., v. William L. Frame and the West Virginia Trial Lawyers Association, Civil Action No. 03-C- 66-2, Cir. Ct. of Harrison Cty), alleging that plaintiffs "engaged in the institution of frivolous, nonmeritorious, and malicious lawsuits against physicians in the State of West Virginia resulting in the unwarranted and stifling increase in the cost of professional liability insurance." Moreover, plaintiffs acted "maliciously and in civil conspiracy." As a result, Dr. McCammon has suffered economic loss, emotional distress, mental anguish, and other noneconomic damages.

In Dr. McCammon's Petition for Appeal, AAPS General Counsel Andrew Schlafly argues that Judge Booker T. Stephens should have been disqualified because his wife is a member of the West Virginia Trial Lawyers Association. She would be directly affected by any demands for payments by the Association and could conceivably be called as a material witness to the alleged civil conspiracy. The Judge had also received campaign contributions from Association members.

There is nothing unusual about suing trade associations for civil conspiracy, write Mr. Schlafly: "This has been a staple of attorneys' own repertoire for some time." The Court has previously clarified that "where persons combine not for the purpose of protecting or advancing their own legitimate interests but for the purpose of injuring another in his trade or business, they are guilty of unlawful conspiracy."

Dismissing Dr. McCammon's action was precipitous because no discovery had been allowed. Dr. McCammon was even denied access to information on the Association's own web site. The information she acquired from public sources, pertaining to the $50 million cost of unjustified actions, was "only the tip of the iceberg." Then-president William Frame evaded deposition. The tactics he used in pursuing frivolous claims could shed light on such questions as whether certain insurance carriers were targeted as victims in the hope of easy settlements. Other materials requested but denied in discovery could illustrate conspiratorial activities to target certain experts or to engineer voir dire to maximize verdicts.


Tip of the Month: Increasingly physicians are ambushed by malpractice attorneys, sham peer reviews, medical boards, and even prosecutions. The question arises for the victimized physicians: whether and how should they hire private investigators? The answer is that private investigators are often essential to exposing frauds on the other side. They can unearth criminal convictions by witnesses; make video or tape recordings of adversaries disproving their lies; and even catch an expert witness doing the same thing he criticizes others for doing. Some investigators are better than others, of course. But when your attorney is cross-examining a witness who is lying about you, then you want to have as much information for the questioning as possible.


Dr. Sell Asks for Competency Hearing

After a Supreme Court decision in Sell v. U.S. 2003 (see AAPS News, Aug 2003), orders for involuntary drugging of Dr. Charles Thomas Sell were vacated by the Eighth Circuit Court of Appeals on Sept. 2, 2003, states Dr. Sell in a hand-written pro-se motion.

"As no new Court Order[s] have been forthcoming, after nine months of continued hospitalization, incarceration is serving absolutely no purpose," Dr. Sell writes. As the latest commitment order by U.S. District Judge Donald Stohr expired on April 8, 2004, his continued incarceration at the U.S. Medical Center for Federal Prisoners in Springfield, Mo., is without authority under the law.

Dr. Sell argues for release on his own recognizance pending a proper competency hearing and a trial on the charges against him. He requests an independent psychiatric evaluation by the psychiatrist of his choice, and fees to cover it.

Dr. Sell, a dentist, was charged with Medicaid fraud. If convicted, his maximum prison term would have been completed years ago. He has been held without trial for nearly seven years as government doctors asserted his incompetence.


Schumer Fights Medicaid Recoupments

Sen. Chuck Schumer (D-NY) says that the federal government's plan to recover $172 million in improper Medicaid payments is an "outrage."

"If 56% of claims were not submitted properly, common sense tells you the regulations were not explained properly," he said, and HHS should send experts to help.

The errors were uncovered in an audit of speech services paid for by Medicaid and provided by local schools. There have been no threats to incarcerate anyone.

Another issue is the extent of schools' dependence on Medicaid funding, notes AAPS Counsel Andrew Schlafly.


Is Charity Unlawful?

The Office of Inspector General (OIG) thinks that the Civil Monetary Penalty (CMP) statute may forbid religious charities to distribute free medications to the poor or to provide discounted room and board for families who could not otherwise afford to stay near their sick children.

This broad application of the CMP statute may conflict with the Religious Freedom Restoration Act (RFRA), which provides that "[the] [g]overnment shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability." Until the issue is clarified, religious organizations had better beware. Aiding the poor may serve as an inducement for them to seek Medicaid-covered services from those institutions. It is not necessarily unconstitutional to force an organization to abandon or alter its religious mission as a condition of participation in Medicare or Medicaid (BNA's Health Care Fraud Report 4/29/04).


Concierge Practices Threatened

Physicians who charge a "retainer" for services not covered by Medicare could be accused of understating the true cost of services, engaging in the practice of insurance, or abandonment of patients who don't switch (Med Compliance Alert 4/19/04).

Opting out is much safer.


Physician Devaluation. "New Revenue Streams Can Keep Your Practice from Going Under," Practical Neurology, March 2004, is the third or fourth article I've seen in the neurology literature noting that "it's hard to make a living as a neurologist." Although the neurologist is said to be "the specialist to whom all others turn for overwhelming diagnostic confusion resolution," the head of an epilepsy group in Minnesota concludes that current marketplace conditions "make it almost impossible to earn decent revenues just by treating patients."

Over the past decade, insurers have followed the government's lead in adopting the devaluation scheme called the RBRVS (Resource-Based Relative Value Scale). In this distorted market, a number of neurologists turn to treating "wrinkled brows" with Botox, instead of potentially devastating neurologic conditions that might respond to intervention.

Patients should be alarmed. But do any of the "I don't even want to pay my $10 co-pay" patients value a specialist's services enough to pay for them?
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


A "Right" to Care. Under the Constitution, the government can't pass laws that limit access to care. Here's how it's done: Individuals have a natural right to seek and receive medical care, and if they choose to do so, they must pay for it. By law, individuals receive a societal right to access care, and limited provisions for payment. Then, government cuts funding so that payment may be withheld, and thus care is denied, in violation of the unnatural (societal) right. The government also makes it illegal to pay for care, violating natural rights as well.
Joseph Lee Pugh, Diamondhead, MS


One More Reason to Open a Cash-Based Practice. From an ad for a live audioconference produced by HCPro: "The ICD-10-CM and ICD-10-PCS systems are on the horizon....It's not too early to learn about these new systems...[that] will impact every area that uses coded data.... The U.S. is the only country that hasn't switched to the ICD-10 coding system."
Greg Scandlen, Galen Institute


What Next? Family Practice News of 2/15/04 carries a report that the federal government is requiring medical insurers to check their provider and member lists against a federal list of potential terrorists. Will budget deficits constrain Big Brother? The tyrant's response is simply to command private parties to do his detective work for him, at no pay, under threat, and with uncertain accuracy. How long will it be before physicians are told to perform a background check on a patient before performing a medical service? If the check flags the name as a government suspect and the patient is bleeding, would it be a federal crime to render service? What is the physician's duty? The answer comes from Philadelphia, July 4, 1776....
Hilton Terrell, M.D., Ph.D., Florence, SC


Drug Prices. Price controls do not reduce the cost of production. Consumers bid up the price of manufacturing inputs because these have alternate uses. Moreover, the cost is obscene because of government mandates. Of course, legislators say that drug companies make excessive profits. Really? Goods are profitable because consumers bid up the price. If a law prevents response to consumer preference, investors (including Grandma) channel their savings into profitable companies such as entertainment. Price controls negate consumer choices.
Robert P. Gervais, M.D., Mesa, AZ


Why Some Thrive with Medicaid. Large operations that accept Medicaid without limit imply that they are more altruistic, or more efficient, than a doctor like me. If you can somehow pry out the financial particulars, you will probably find that they use their size and clout to extract more Medicaid money. At a presentation to our medical society by a big outreach clinic, I divided their gross income by the number of visits, and came up with $160 for a primary-care visit. The speaker was very uncomfortable when I pointed that out, and mentioned all the "extras," like masters-level psychologists and nutrition counselors that the clinic offered. If I were paid that much, I could provide these services also.

One would almost think there is a plan to see private practice fail, to create a crisis so the government and large businesses can ride in to rescue us from problems they created.
Russell W. Faria, D.O., Newport, OR


Subsidizing Lattes. Why don't media lapdogs write a story like this: "Mary Jones, 20-something years old, is one of the 40 million uninsured Americans. Each year she spends $750 on double lattes and muffins from Starbucks; $1,250 on deli lunches instead of bringing a sandwich to work; $2,000 on $4.50 drinks after work; $1,820 on cigarettes; $5,700 on loan payments and expenses for her new car; $1,250 on concert tickets; $400 on CDs; and $960 on cell phone charges. That comes to $14,005. If she spent $4,000 of that on a high-deductible medical insurance policy, she could still invest $10,005 and have a nestegg of $2.8 million when she retires, assuming the government doesn't confiscate it in taxes."

You won't read it in the press because (1) economics is not taught in government schools; (2) it would challenge the pack media's belief in redistribution and collectivism (plunder); and (3) lapdogs live to please their master.
Craig Cantoni, Scottsdale, AZ

Legislative Alert

Single Payer Update

The latest edition of Health Affairs, one of the nation's most prominent health policy journals, has a series of interesting articles dealing with health spending, and also quality and performance of the medical systems in a variety of different countries. The picture that the authors of these pieces paint is a mixed mosaic of good and bad performance, and reflects differing viewpoints, of course, but you will find revealing nuggets of information in all of them.

The U.S. spends about $1.5 trillion on health care, far more than any other of the developed countries. Based on 2001 data, this represents about 14% of America's GDP, almost twice as much as many other developed countries. The Center for Medicare and Medicaid Services (CMS) projects that this spending will reach 18.4% by 2013, when the first waves of the Baby Boomers are enrolled in the Medicare program. Princeton University Professor Uwe Reinhardt and his colleagues state that the level of U.S. spending is $4,887 per capita, far more than that of other developed countries. The practice of medicine is labor- intensive and generally well-compensated in the U.S. But a key structural reason for higher spending, they note, is that the U.S. government is not yet a "monopsony" purchaser a single buyer, thus exclusively dictating the payment, or the payment limits, for medical goods and services.

Some powerful Members of Congress would like to change that, of course, and move the U.S., in a series of crab-like maneuvers, toward the European model. This consumes a lot of energy and takes political skills; but movement toward some European-style or Canadian-style health care system is likely to be accomplished only through a carefully calibrated, step-by-step process. That is why, as the readers of this column are regularly warned: It's the Structure, Stupid! That is why the issue of the future of the government "negotiation" over drug prices in Medicare is now so crucial to the Left's general agenda. It also explains the Left's responses to the new Medicare consumer-driven prescription drug discount card. The responses range from the merely boring repetition of anti-market rhetoric (seniors can't make choices, so many prices will confuse them, etc.) to the flat-out hysterical. All the confusion and the messiness of choice and individual decisionmaking goes away if the government does it all for you. If government becomes a monopsony purchaser of drugs for seniors, it would mean direct government control over the pricing of half of all drugs sold in the United States.

That's the real issue, of course; not "cheap drugs" for seniors. Cost control in government systems is a simple process: In the face of rising demand for medical services, government controls costs simply by reducing reimbursement and thus limiting supply. This has profound effects on the functioning of the system.

How? Well, another crucial article in the recent edition of Health Affairs, authored by Harvard University's Robert Blendon and his colleagues, sheds some light on this question. Blendon and his colleagues have conducted a major survey of hospital administrators in five countries Australia, Canada, New Zealand, the U.K., and the U.S. Every one of these countries, except the U.S., has a "universal health care" system. The survey covered financial resources, quality of care, waiting times, staffing shortages, the disclosure of performance data, and efforts to improve quality. This is just the flavor of some of the more interesting findings:

Americans are the most critical of their own system. No more than 12% of hospital officials in the four other countries said they were "not very satisfied" or "not satisfied at all" with the health care system, compared with 49% in the U.S. Only 4% of American hospital administrators, versus 16% of Canadian, said that they were "very satisfied." As Blendon et al. point out, the foreign administrators are more satisfied with their universal health care systems than their patients are, based on responses to an earlier survey.

Hospitals under "universal care" are a financial basket case. While 71% of U.S. hospitals reported having a surplus or making a profit, and 6% broke even, between 32% and 82% of hospitals in other countries had a deficit or were unable to stay within their budget. A surplus or profit was reported by only 35% of hospitals in Australia, 9% in Canada, 11% in New Zealand, and 7% in the U.K. While 30% of U.S. hospitals reported that their financial situation made it impossible to maintain current levels of service, 57% of hospitals in Australia, 81% in Canada, 75% in New Zealand, and 63% in the U.K. said they could not maintain current services.

Americans dramatically outscore all others on the quality of hospital resources. On the question of the intensive care units, 51% of Americans said their facilities were excellent, compared to 23% of the British, 30% of the Canadians, 35% of the New Zealanders, and 42% of the Australians. On the quality of operating rooms, 47% of Americans said that they were excellent, compared to 9% of the British, 25% of the New Zealanders, 21% of the Canadians, and 29% of the Australians. On diagnostic imaging equipment and medical technology, 51% ranked the facilities as excellent, as did 13% of the British, 11% of the New Zealanders, 17% of the Canadians, and 20% of the Australians. The lesson: If you are really sick, you want to be in an American hospital.

On waiting times for services, there is no comparison with America's responsiveness to care for the sick in American hospitals. A total of 0% of American officials said that patients had to wait six months or more for elective surgery "very often." But 22% of the British admitted this was the case, as did 21% of New Zealanders, 9% of Canadians, and 12% of Australians. For a 50-year-old woman with an undefined mass in the breast, 74% of Americans said that a biopsy would be performed in "less than one week," but only 6% of the British, 20% of the New Zealanders, 30% of the Canadians, and 49% of the Australians said the procedure would be this prompt. A routine hip replacement could be done "less than three weeks," said 86% of the Americans, 2% of the British, 8% of the New Zealanders, 3% of the Canadians, and 34% of the Australians. Average waiting times for treatment in emergency rooms were said to be less than one hour by 38% of Americans, 17% of the British, 26% of the Canadians, 44% of the New Zealanders, and 37% of the Australians.

On setting forth written policies to inform patients of preventable medical errors, Americans are more conscientious than anybody else. Such policies are said to be in place in 88% of American hospitals, 74% of British, 50% of New Zealanders, 47% of Canadians, and 59% of Australian. Interestingly, no more than 5% of administrators in any country thought that government policies or targets are effective in improving quality of care. All did agree that electronic medical records and computerized drug prescriptions would improve quality.

HSAs for Federal Workers

Next year, federal workers will be able to enroll in plans with health savings accounts. Kay Cole James, Director of the Office of Personnel Management (OPM), the agency that runs the Federal Employees Health Benefits Program (FEHBP), just outlined the solicitation for HSAs in her annual call letter to insurers. Since the FEHBP is the largest group health insurance program in the world, what happens in the program can have a major impact. This is a huge victory for freedom.

As expected, the Left has trotted out the same old, tired complaints that the choice of HSAs will benefit the healthy and wealthy at the expense of the older, sicker, and poorer. The facts, however, are quite different. The first hard data collected by ehealthinsurance, one of the nation's largest health insurance brokers, is instructive. Among the enrollees in HSAs, the largest group are in 40 to 49 years old, and 55.7% are over the age of 40. The cost varies from $50 to $300 per month.

These preliminary data match experience with similar consumer-driven plans, such as Health Reimbursement Accounts (HRAs). According to the Galen Institute, enrollees in these plans tend to be older and have health problems; to be high users of preventive health services; to choose generic drugs; and to be highly satisfied with their plans. Scott Krienke, Vice President of Assurant Health, a company offering the new HSAs, says that 30% of those who signed up for these accounts since January 1, 2004, were previously uninsured.

Fixing the Medicare Law

The Medicare Modernization Act of 2003 is law, but the mammoth drug entitlement doesn't go into effect until 2006. Across the political spectrum, critics say that the added burden on current and future taxpayers will be enormous. But nothing is inevitable. Congress could conceivably still regain some vestige of fiscal sanity, and reverse course on this disastrous path. What can be done?

The first solution can be found in one solid provision of the law that does go into effect this year: the prescription-drug discount cards. As noted, they are at the source of heated controversy. They are projected to result in savings of 10% to 25%, with a $600 subsidy for drug purchases, for low- income seniors lacking drug benefits. The problem is that, after all this work in setting it up, Congress kills the program in 2006.

Congress should make this program permanent, and abandon the universal benefit entirely. The drug discount card, with a means- tested assistance for poor old people without drug coverage, is precisely the best practical alternative to a universal entitlement expansion of unknown cost. That a targeted discount card approach would be less expensive than a universal entitlement is beyond dispute; for champions of personal freedom, a reliance on private-sector competition and consumer choice is also superior to a centralized financing and government delivery of prescription drugs. Thus, the adoption of the drug discount card is simultaneously a political victory for limited government. Expanding markets, personal choice, and competition is reducing, not expanding, government. The key issue in governance is personal choice; who makes the choices. It's the structure, Stupid!

Government subsidies, such as the $600 low-income subsidy on the drug card, do not make either fiscal conservatives or libertarian economists comfortable; that's indisputable. But the other indisputable fact is that for the minority of older Americans the absence of drug coverage is a real problem. These are persons in their late 60s, 70s and 80s, long out of the work force, and living on fixed incomes, retired without a generous employer-based health plan or unable to afford increasingly effective but expensive prescription drug coverage through private-sector health plans. No one in Congress, in either party, is prepared to say that these poor old people should simply fend for themselves. In fact, they won't. After they spend down their limited assets, they will become Medicaid recipients. For many on the left, Medicaid expansion is, of course, just fine. The obvious is worth repeating: in health policy the status quo always advances the expansion of government control. For those in Congress and elsewhere intent on preventing that, and preserving or advancing personal freedom in the process, Medicaid expansion is another policy disaster.

A universal Medicare drug entitlement will accelerate the movement toward price controls, while the discount cards, like HSAs, generate dynamics in the opposite direction. A competitive environment in which price is transparent will prove to be the best way to control costs. Dr. Adam Smith would break out the champagne, and so should we all.

Then there is the unfinished business of Medicare cost control. The Medicare Modernization Act creates an "early- warning" system that reflects the financial activities of all parts of Medicare. General revenue covers about 35% of Medicare's costs today. If the Medicare trustees find that general revenue will cover 45% of spending at any time in two straight seven-year periods, the Medicare law requires that the President must submit legislation to deal with Medicare financing. But that's it. The rest is up to Congress, which has already shown a cavalier attitude toward federal spending, and of course, Congress is required to do precisely Nothing. Which is often better than doing something, which often makes matters worse.

Joseph Antos, former Assistant Director of the Congressional Budget Office, warns that Congress could use the meat-axe approach, brainless across-the-board spending cuts, without addressing the perverse incentives that govern entitlement spending. Antos suggests a payment mechanism like the one used in the FEHBP, which sets the amount it will contribute to premiums. Details are available in a series of papers available at heritage.org/research/healthcare/issues2004.cfm.

Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.