1601 N. Tucson Blvd. Suite 9
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Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 48, No. 6 June 1992


The ``health care industry'' differs from the illegal drug industry in several respects. ``I can't stress this enough,'' stated Barry Moehring, aide to Rep. Jim Kolbe (R-AZ). There are ``different statutes, different standards, and a far different class of people involved.''

Nevertheless, Kolbe's proposed legislation (HR 4930) to provide for forfeiture of property involved in the commission of Federal health care offenses is modeled on laws designed to fight the Drug War.

The bill provides for both civil and criminal forfeiture of real and personal property that is used in the commission of a Federal health care offense or is derived from proceeds traceable to the commission of the offense.

A Federal offense may be related to Medicare or Medicaid claims. But other offenses become Federal if they involve mail fraud, wire fraud, or a claim to an insurance company involved in interstate commerce. Offenses include:

(A) fraudulent or false billing for a medical product, service, or test; (2) inflated cost of a service or procedure performed by a health care provider; (3) unnecessary admission of a patient to a health care facility; or (4) a kickback to a health care provider on a sale of any medical product, including durable medical equipment, or any medical service.

The terms in this list would be defined by regulations. They illustrate another difference between drug trafficking and medical care: We know what a narcotic is, but what is an ``unnecessary admission''?

In a lengthy interview, Mr. Moehring discussed the bill with AAPS News:

Q: How is civil forfeiture different from criminal?

A: In criminal forfeiture, the defendant has to be proved guilty before assets are seized. This means that if a criminal knows he is under investigation, he can liquidate or disperse the assets so that they can't be confiscated. Civil forfeitures can take place much more quickly. The former owner has to file suit and prove that the property was innocent (not used in a crime) in order to get it back.

Q: Why is forfeiture being considered for health care fraud?

A: Health care fraud is a huge problem, costing more than $30 billion per year. The Department of Justice feels that they need this tool, which has worked very well in drug enforcement. For one thing, it gives local law enforcement an incentive to work with the FBI, because they receive a share of the seized assets. Also the bill serves as a preventive measure. If a doctor thinks the clinic might be seized, he might not commit the fraud.

Q: Is there any provision in the statute for making the penalty proportional to the offense?

A: Not in the statute. If a doctor got a kickback on a $15 box of syringes, I guess the whole hospital could conceivably be seized. But that's up to the judge to decide.

Q: Do you see any constitutional problems with this law?

A: No. The Supreme Court has ruled on RICO. Both civil and criminal forfeiture have been upheld.

Q: Do you think it is it constitutional to punish a person before he has been proved guilty?

A: I'm not a constitutional lawyer. It's the Supreme Court's opinion, not mine (U.S. v Sandini, see p. 2). Forfeiture is constitutional. It's the property that's the defendant.

Q: How about eliminating the incentive for health care fraud, by outlawing the assignment of benefits?

A: I don't think that's politically tenable.

Q: Is forfeiture for physicians more politically tenable?

A: Unfortunately, I don't think this bill will go anywhere in this session. It will be back, if Mr. Kolbe is reelected. Senator Biden (D-DE) is also drafting a bill, which is more severe. His bill calls for 10-year prison terms for health care fraud, extended to 20 if a patient is harmed as a result, or life if a patient dies. It also extends the definition of mail fraud to include Federal Express and provides for a $10,000 reward for supplying information that leads to a conviction for health-care fraud.

Q: Wouldn't rewards for informers lead to an East German type of state?

A: I have to say you're being a bit extreme.

Mr. Kolbe's aide did not have the answer to a number of questions: (1) What has to be done to show ``probable cause'' before forfeiture occurs? (2) How long does it take for an innocent physician to get his property back, and how does he pay his lawyer if all his assets are frozen? (3) Does an innocent party have any recourse for damages caused by a forfeiture, say if it occurred without showing ``probable cause''? (4) How does a clinic pay its creditors if its assets are frozen? Are they being punished too?

This proposed legislation shows that physicians and other ``providers'' (such as nursing homes and suppliers of equipment) really are like drug dealers in a number of important respects. They provide a product that is desired by individuals but costly. They accumulate assets that could be used to reward law enfor- cers. And it is politically feasible to target those assets.

Most importantly, suspected drug dealers and physicians are all American citizens, entitled to equal protection of the laws. If one citizen can be deprived of property rights without due process of law, then no citizen's property rights are secure.

Incentives to Law Enforcers

As one Tucson attorney noted, some law enforcers are able to ride around in expensive cars that had been used to transport contraband, even though their former owner had been acquitted of any crime:

Civil forfeiture is an in rem proceeding. The property is the defendant in the case, and the burden of proof rests on the party alleging ownership. The innocence of the owner is irrelevant-it is enough that the property was involved in a violation to which forfeiture attaches U.S. v Sandini (816 F.2d869, 3rd Cir. 1987).


It's Called ``Protection''

Regulations. Employers are responsible to warn employees of potential cancer hazards in the workplace. They are to develop a manual for this purpose....Not doing so implies that the employer wants to harm his workers. [See Title 8, Article 110 of the California code of regulations 5194.] The penalties for disobeying have just been raised by a factor of about ten.

Anomalies. The amended California regulations (which are available if you ask to be on the mailing list of the relevant bureaucracy) also threaten: ``For carcinogens, failure to report ...'' Here come innuendo and confusion. The documents refer to a section of the code [338(f)], which does not exist! The government official whom your newsletter writer managed to pin down...faxed another list of regulations and chemicals (Section 330) ...Acetaldehyde came to my attention first. This is a substance we use for preserving specimens; it should be possible to remind the staff not to drink [it]...by preparing a manual so advising them. Next on the list is acetic acid. This is ordinary vinegar. How might I handle the situation if my office staff brings in salad dressing for lunch? I decided to gloss over this....Further down the list-acetone, [which] is excreted by the human kidney as a byproduct of the metabolism of fat. It is normal in the urine in the fasting state, and, of course, occurs in the urine of uncontrolled diabetics. Acetone, we are told, is a carcinogen and it is my responsibility to ensure that my employees do not come in contact with it. No problem. One can ensure the absence of the fasting state (you must eat all the time on the job), but [what to do about] the diabetic?...[The list continues] in 40 pages of small print....

Half of the natural substances [tested in maximally tolera- ted concentrations in breeds of rodents naturally prone to cancer] produce cancers....

Administrative Encirclement [is] a term coined by Dr. John Gall in Systemantics. Here the innocent employer prepares a manual for control of the supposed toxicity of these benign substances as official policy in the workplace. You will note it shall be registered with the authorities. Come a few years of...the natural neglect that comes with familiarity, and after all the regulations are nothing short of ridiculous, when enforcement will arrive....The beauty of the self-prepared manuals will be heard in the complaining tone of the enforcing officers of a generation to come: You wrote it....

The dentists were hit first. It is they who use a number of solvents, mixtures, amalgams and the like....The fact that most of these substances are eventually placed in the mouths of their

customers seemingly does not detract from their risk as carcinogens to the employees who are merely on the premises. Logic, you will see, plays no role in enforcement.

``They could padlock me right now,'' said a dentist. ``But I hope that if I make a genuine effort in true citizenship, they won't be too hard on me.''

The Sergeant Major Syndrome. When I was in the military, discipline was enforced by random punishment. The victim had to be unprepared. In this state of fear and anxiety, he is unstable and easily influenced and controlled....Impossibly complex rules are the grist of tyranny.

KGB in America. ``Show me the man, and I will find his crime'' was the motto of the now not-so-defunct Committee for State Security (KGB to you and me). You might think the first step in the American KGB plan is in place. Find me an employer, and I will name his crime.

Regarding the new regulations, we are told: ``The purpose of this [California] bill was to increase penalties for occupa- tional safety and health violations in a manner consistent with the Federal Omnibus Budget Reconciliation Act of 1990 which increased maximum civil penalties by Fed/OSHA.'' This is what I have called leveraged control.

Fear of Paranoia. Paranoia means an irrational fear. Is this what your writer has been indulging in [here]? Take a look around you; use your common sense. Of course, we've had some pollution and...some accidents. The human species is mortal and though our life expectancy has increased, some people die of cancer. Are these matters so [fearsome] we should put our collective heads in a collective noose?

Taking the long view of the history of humankind, tyranny was the norm, republican freedom the exception....[America was unique.] Fear of tyranny is therefore a rational fear.

Thomas A. Dorman, MD, San Luis Obispo, CA
excerpted from April, 1992, Practice Newsletter


Regulatory Overkill

In 1970, federal regulatory agencies employed 71,233 persons. The number increased to 121,670 in 1980, decreased to 101,963 in 1985, and has increased to 122,406 in 1992.

The administrative costs of federal regulatory activities have increased steadily from $1.4 billion in 1970 to $13.0 billion in 1992. The annual cost to the economy was over $400 billion in 1991-more than $4,200 per household (Nation's Business, May, 1992).

Businesses have been asked to submit documentation of compliance costs, paperwork burdens, impact on operations and customer relations, and other problems, to Nation's Business, US Chamber of Commerce, 1615 H Street NW, Washington, DC 20062-2002.


Dr. Hansen Appointed to Advisory Council

AAPS member Kenneth D. Hansen, MD, who practices ophthalmology in Arlington, VA, has been appointed to serve as a charter member of the new Practicing Physicians Advisory Council. The Council was established to decrease red tape and make Medicare more efficient.

Government Files Response in AAPS/New Jersey Litigation; Claims that Medicare is ``All-or-Nothing'' System

On April 24, 1992, a reply to the New Jersey lawsuit challenging the prohibition against private contractual relationships between Medicare beneficiaries and their physicians was filed by Louis Sullivan, MD, Secretary of HHS and Medical Service Association of Pennsylvania d/b/a Pennsylvania Blue Shield. The lawsuit was filed by five patients and their physician, Lois J. Copeland, MD, a member of the Board of Directors of AAPS and a nonparticipating physician.

The defendants submitted a 44-page Memorandum in support of a Motion to Dismiss.

First, the government contends that neither Dr. Copeland nor any of her patients have standing to challenge the government policy because they allegedly have suffered no injury attributable to this policy. Therefore, the defendants state that there is no case or controversy within the meaning of Article III of the federal constitution. (Article III limits the jurisdiction of the federal courts to cases or controversies and forbids the federal courts from rendering advisory opinions.) Yet in the same brief that contends Dr. Copeland has not been threatened with a sanction, the government maintains that if she does enter into private contractual relationships with the patient plaintiff beneficiaries, she will be sanctioned by Medicare.

As to the patient plaintiffs, the government argues that they have no standing because any reluctance on the part of Dr. Copeland to treat her patients cannot be attributed to the Medicare policy that is being challenged. Also the government maintains that the patient plaintiffs are not harmed by the government forbidding them to have their personal physician treat them on their own terms rather than the government's.

The second argument made by the defendants in order to avoid the merits of the plaintiff's allegations is that neither Dr. Copeland nor her patients have exhausted their administrative remedies and that therefore the federal court lacks subject matter jurisdiction. This contention, which is a standard government reply in cases challenging Medicare policy, ignores the fact that if no claim is submitted to Medicare, there simply can be no administrative appeal to the Secretary of HHS.

Despite their claims that the court does not have jurisdiction and should not consider the merits of the plaintiffs' challenge, the government devotes the bulk of its memorandum to arguing the merits of the case.

First, the government argues that Dr. Copeland's patients cannot excuse her from compliance with the limiting charge and claim-submission requirements of the Medicare Act under any circumstances. The government argues that either the patient may be enrolled in the Medicare Part B program in its entirety or disenroll completely (thereby becoming uninsured for services covered under Part B) and that there is no middle ground. Further, the government maintains that 42 U.S.C. §1395w-4a requires physicians to complete and submit claim forms to the Medicare carrier even if the beneficiary does not want to have a claim submitted.

As a practical matter, the government's argument maintains that Medicare policy is designed to paternalistically police the physician-patient relationship when patients are age 65 or older because these patients allegedly cannot defend their own interests against the assumed chicanery of their personal physicians. The government states:

[I]t is hardly open to argument that the relationship of the elderly and disabled to their physician is one of trust and vulnerability....Given this relationship of trust, it almost adds insult to injury to attach legal significance to an ``agreement'' by which the patient surrenders a valuable benefit-for which his premiums have already been paid-solely to assist the physician in escaping detection for unlawfully overcharging the patient in the first place.

If the plaintiffs contend there truly exist some subset of Part B enrollees who do not want to ``tax the federal treasury each time they seek health care services from the physician of their choice,''...those enrollees can protect their interests simply by donating the Medicare payment back to the Federal Treasury. For Congress to take affirmative steps to protect the physician's ability to pressure or beguile the patient into such a self-damaging course of action, however, would be a strange policy choice indeed.

In addition to assuming that Dr. Copeland and her patients will reach contractual agreements that exceed Medicare limiting charges, the government assumes that persons age 65 or older require government supervision over every aspect of their medical care. While the government attempts to belittle the plaintiffs' argument that private contractual relationships are countenanced by the letter and spirit of the Medicare Act as a whole, the government argues that its own position is supported by the letter and spirit of the Medicare Act, as interpreted by the Secretary of HHS.

Finally, as to the plaintiffs' arguments that the Medicare policy violates equal protection and the patient's right to privacy, the government simply argues that there is a rational basis for treating patients age 65 or older with alleged paternalism and that the patients simply have no constitutional right to privacy in their medical treatment by their personal physician.

A response to the government's motion to dismiss will be filed in late June.


Writ of Certiorari Denied in Caine v. Hardy

The U.S. Supreme Court has denied the petition for writ of certiorari in the case of Caine v. Hardy, allowing the decision of the Fifth Circuit to stand. Persons injured by an agent of the government have no cause for bringing a civil rights action (see AAPS News, Nov, 1991).

So far this term, the Court has agreed to hear only 71 of the 3,928 appeals that have been filed. The April calendar bears only eight cases in a schedule designed to accommodate 24-the lightest docket in 21 years.

One suggested reason is that ``the lower federal courts...are more pro-government than they were a decade ago, producing fewer rules of the kind that this Supreme Court feels obliged to review,'' according to a New York Times article.

A Letter To Senator Helms

Because of [the paperwork and unreasonable fee limitations imposed by Medicare], I have not accepted any new Medicare patients for the last year and a half. Virtually all the other primary-care physicians in the area have closed their practices to Medicare, as well. Our office is receiving five to ten calls daily from Medicare patients who are desperate to find a physician....

The reason for this pitiful situation is no mystery. The Medicare Administration tells me that I can charge only $24.00 for what amounts to a 30-minute office visit by an ill elderly patient with multiple complex problems. In addition to this, I must do $5.00 in paperwork to file the claim. If I fail to abide by either of these requirements, I am potentially liable for a $2000 fine per violation. My office overhead...is $40 per hour and climbing all the time....This means that when I see Medicare patients in the office, I am actually working [without pay]. In the interest of survival, I cannot continue to do this. Two physicians in the community have already been forced to close their practices because they were unable to make a living seeing Medicare patients....

A number of patients have approached me with a proposal to pay for their office visits at the same rate as non-Medicare patients and simply not use their Medicare benefits in the office. In turn, they expect me to accept Medicare as insurance for hospital services, where charges can mount with protracted hospitalization...The increased cost to each patient would average only $150 per year, which most are willing to pay. The advantages of this plan are:...(1) The problem of access to care is reduced. (2) MEDICARE ACTUALLY SAVES MONEY. (3) Paperwork is reduced for the physician and for the Medicare Administration. (4) The physician-patient relationship is improved because neither feels exploited by the other.

When proposed to me, this plan seemed fair and reasonable. I reviewed the Medicare law with my attorney, and no prohibition to such a plan was found. I went ahead with a trial of the plan, and everyone was satisfied. In the meantime, however, I have heard from the Medicare Administration; HCFA states this is not permissible. They threaten legal sanctions if I allow Medicare patients to purchase the care they want outside the Medicare program. Neither the Medicare Administration nor HCFA will cite the provisions of the Medicare law which prohibit this plan. I believe there is no such prohibition. It would clearly be an infringement of the Bill of Rights to prevent patients from using their own money to buy whatever medical care they want....

In this time of budgeting crisis, it is hard to understand why any federal agency would be so extremely resistant to a money-saving plan, especially when this resistance is in viola- tion of our constitutional rights....[This plan] would in no way detract from the rights of those who choose standard care under the Medicare program.

I would request that your office lend vigorous support to this ``freedom of choice'' option for Medicare patients and compel HCFA either to cite specific sections of the Medicare law which might prohibit this or to acknowledge in writing that this type of plan is permissible under law.

Charles C. Goodno, MD
Morehead City, NC


Bill Goodman to Speak in Great Falls, MT

``Canadian Health Insurance: Cure or Catastrophe?'' will be the subject of Dr. William Goodman's presentation in Great Falls, MT, on Saturday, June 20.

Dr. Goodman, an ENT surgeon and student of political science and economics, has frequently testified about the results of the Canadian experiment in ``universal access.'' He speaks from many years of first-hand experience in Toronto, Ontario. He is the author of two AAPS booklets, The Canadian Model: Would It Work Here? and Canadian Medicine: a Road to Serfdom.

Dr. Goodman's presentation will highlight an AAPS seminar on ``Medicine and Freedom: the Doctor, the Government, and the Law.'' Also speaking will be Kent Masterson Brown (AAPS Legal Counsel), John H. Boyles, Jr., MD, (AAPS President), Lois Copeland, MD, Paul Gorsuch, MD, and Jane Orient, MD.

The seminar will be held in the Lewis and Clark Room at Columbus Hospital in Great Falls, MT. For information on accommodations and a detailed program, call AAPS (800-635-1196).


AAPS Calendar

June 13, 1992. Board of Directors meeting, Courtyard Marriott, Lexington, KY.

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.

October 15-17, 1992. Annual meeting, Seattle, WA, Airport Radisson Hotel. Delta Air Lines is offering a special discount on airfares (ask for Special Meeting Network File No. U48071 when making reservations).

Legislative Alert

AAPS Report from Washington

RVS Marches On and On and On...On April 8th, the House Ways and Means Subcommittee on Health, chaired by Pete Stark (D- CA), opened hearings on extending the Medicare payment schedules to hospitals and doctors. Congressman Dan Rostenkowski (D-IL), Chairman of the full Committee, has introduced H.R. 3626, the ``Health Insurance Reform and Cost Control Act of 1991,'' which would extend the RVS into the private sector.

The Rostenkowski bill would establish ``optional payment rates'' based on the new Medicare Fee Schedule, and establish the same balance billing limits for physicians services that exist in the Medicare program. Under the Rostenkowski bill, private insurance purchasers could either opt to use the Medicare payment system for practitioners, or use them not at all. But if the private insurer decided not to use the Medicare payment system for doctors for managed care programs, it could still use it for traditional fee for service health insurance plans.

Applying the RVS Medicare payment scheme to the private sector could result in substantial ``savings.'' According to the Physician Payment Review Commission (PPRC), the Medicare payment rates would be 35 percent less than private insurers' payment rates (for both traditional fee-for-service plans and preferred provider organizations) by 1994, when the Rostenkowski proposal would take effect.

The Stark panel heard from the AMA, the American Society for Internal Medicine, the American College of Emergency Physicians, the Congressional Budget Office and a former Member of the Reagan Administration's Council of Economic Advisors, Dr. William Niskanen, now Chairman of the CATO Institute.

Predictably, the AMA reaffirmed its support for the concept of the RBRVS and its implementation, but stated opposition to the extension of the Medicare payment system into the private sector. Speaking for the AMA, P. John Seward, MD, said the full impact of the RVS in Medicare would not be known until ``late in this decade.''

``Refinement'' is the key code word for the RVS right now. Unless the relative value units for medical procedures are ``refined,'' they will be wrong.

``From what physicians tell us on virtually a daily basis,'' said Seward, ``there are significant errors and inequities in specific elements of the RBRVS. Although these may appear to be relatively minor miscalculations of physician work and practice cost values, such errors can make it impossible for physicians in many locations to provide certain services.''

Nevertheless, Seward repeated the standard line that if it is ``implemented correctly,'' the RVS can be a ``sound basis'' for paying doctors in the Medicare program, noting that budgetary consideration have thus far interfered with its correct and precise implementation.

On the specific question of the application of the Medicare payment system, including the balance billing restrictions, to the private sector, Dr. Seward stated: ``This represents a dramatic shift in the role of the federal government in health care that is entirely inconsistent with how our economy deals with other goods and services. Where such policies have been attempted in other sectors of the economy, the results have been disastrous. The effects of rent controls and gasoline price and allocations are key examples. Controls such as these are inconsistent with our market-based economy.''

Seward noted that full implementation of the RBRVS and its application to the private sector would mean a decline of 38 in payment rates.

``Practice costs of physicians are generally 50% of their practice revenues, even higher for some practices. Moreover, these expenses are generally fixed. Reductions of 25 to 38%, as projected by the PPRC, could cut many physicians' incomes by 50 to 75%, leaving many physicians with too little income to make it possible to provide care. Frankly, we are disturbed that the PPRC report offers no estimation of the impact of such significant declines.''

The American Society for Internal Medicine (ASIM) likewise opposes the direct application of Medicare rates to the private sector, because it would lead to a reduction in primary care services, even though ASIM still thinks that the RVS is better than the previous system of customary reasonable and prevailing charges. ASIM has proposed an alternative system, which would include a new RVS system for the private sector, a national ``health care objectives'' board, national negotiations on expenditure ``goals'' and on the conversion factor.

The outlook? ``Cost containment'' (price control) measures like the Medicare RVS payment system will probably gain more support, especially from Democrats frustrated with rising costs and cost shifting. For doctors and professional organizations who all along supported the RVS, their opposition to the extended employment of this payment methodology will easily be characterized as both contradictory and baldly self-interested.

Spokesmen for organized medicine are oblivious to the fact that their enthusiastic support for a payment system that is ``fair and rational'' was pregnant with expansionary consequen- ces. The public sector system is, after all, designed to be ``fair.'' Thus, the private sector insurance system, with its inflationary discrepancies and cost shifting (price gouging?), must of necessity be ``unfair.'' Moreover, if doctors, now ``astounded'' by the outcome of the Medicare fee schedule, should decide to desert the public sector in order to charge higher prices for their services in the private sector, then they should also expect the advocates of the RVS to pursue them into the private sector. After all, that is what advocates of the RVS on and off Capitol Hill have been saying all along, including Congressman Rostenkowski, Congressman Stark, and the Pepper Commission.

The Medicare RVS is not yet in its first year of implementa- tion, and the Capitol Hill advocates of central planning cannot wait to extend it into the private sector. Surprise, surprise, surprise!

So Does ``Prospective Payment'' (DRGs)...The Prospective Payment System, establishing the DRGs for Medicare hospitals, was established in 1983. In his report to the Ways and Means Health Subcommittee, Stuart Altman, PhD, Chairman of the Prospective Payment Commission (ProPAC), noted that the Medicare hospital payment system could indeed be applied to all payers (surprise, surprise!) The savings that would result from the application would depend upon a number of factors, but could range anywhere from 0 to $21 billion.

The ProPAC statement touched off a discussion about the degree to which hospitals could absorb the new costs of this kind of regulatory regime and still stay afloat financially. Congresswoman Nancy Johnson (R-CT) argued that the hospitals in Connecticut are already under a severe financial strain, and that hospital spokesmen have told here that they could not stay open for business if they had to operate on the level of reimbursement provided by the Medicare program. Taking the opposite side of this debate, Congressman Benjamin Cardin (D-MD) argued that Maryland's hospitals are already reimbursed at rates less than the Medicare payment rates and seem to be doing just fine. Maryland already regulates hospital rates, and the ProPAC spokesmen noted that Maryland ranks number one in the nation when it comes to ``holding down'' medical cost increases.

``Malpractice'' Reform. The Bush Administration has produced its medical malpractice reform package, which would provide the states with incentives to initiate key tort reform proposals. The Bush program includes the following key proposals:

  • elimination of ``joint and several liability'' for noneconomic damages;
  • limitation of noneconomic damages to ``a reasonable level,'' such as $250,000, adjusted for inflation;
  • elimination of the ``collateral source rule'' that allows for double recovery;
  • provision for regular, structured payments of malpractice awards, rather than ``lump sum'' payments;
  • promotion of ``alternative dispute resolution,'' i.e. mediation and pre-trial screening panels to encourage a ``reasonable'' resolution of malpractice claims.

States that go along with the Administration's reform proposals would have access to a pool of funds to help them in liability and quality-of-care reforms, financed by funding from the Medicare and Medicaid programs. During a three-year transition, the new funding pool would be created by using a portion (2%) of the state Medicaid administrative expenses mate rate and a portion (1%) of the Medicare prospective payments for hospitals.

Already 32 states have enacted tort reform measures, but the Administration obviously believes more direct action is necessary. This conviction is shared by many on Capitol Hill, including Arizona's Rep. Jon Kyl and Texas' Rep. Charles Stenholm. The key argument is that the unfriendly legal climate is encouraging the practice of ``defensive medicine,'' which is driving up medical costs. In the OB field, for example, Ad- ministration spokesmen cite figures of $20 billion annually. Moreover, doctors are dropping out of the field of obstetrics and gynecology. As Stuart Gerson, Assistant Attorney General for the Civil Rights Division of the Department of Justice, recently stated: ``It has become tougher to find an OB/GYN in the inner cities or in rural areas. Not a single OB/GYN can be found in 67 counties of Georgia. Nor, can one find an OB/GYN in 28 counties of Alabama or 19 counties of Colorado.''

Medical liability reform has a large and friendly constituency on Capitol Hill, though the ways to resolve the problem are diverse. Nevertheless, it is likely that liability reform will move faster than any comprehensive reform of the nation's medical system.

Canadian System Less Attractive. While proponents of national health insurance along the Canadian model have been trying to sell the idea that the folks can have ``free health care'' with little administrative hassle, opponents of the Canadian approach are making the case that adoption of the Canadian system will mean levels of federal spending and federal taxation unlike anything the voters have ever seen. With the growing disgust with Washington's business-as-usual approach to joblessness, crime, educational failure, and other problems, it is becoming harder and harder to sell the idea that Washington will do very much better in running America's medical system.

The Outlook on Reform. Although stronger than the Canadian model, ``play-or-pay'' proposals are meeting significant opposition also. Given the uncertainty and fear of repeating the same mistake twice, such as the passage and repeal of the 1988 Medicare Catastrophic Act on an even grander scale, the Congress appears to be settling into a gridlock on comprehensive reform. Right now, the easiest thing to do is to take action on small group insurance reform and claim to be ``doing something'' constructive on medical care.

Home Health Agencies Seek Ban on Claims Sampling. The National Association of Home Care strongly supports legislation introduced by Rep. Matthew Rinaldo (D-NJ) and Rep.Edward Roybal (D-CA) (H.R. 2618) to prohibit fiscal intermediaries from calculating Medicare overpayments on the basis of claims sampling.

``A single claim denial can result in tens of thousands of dollars of payment disallowances,'' stated NAHC.

Because the intermediaries can insist on recoupment of funds before permitting an appeal, some home health agencies have been forced into bankruptcy.

Sampling has a ``chilling effect'' on agencies' willingness to provide services that might be denied. Claims for such services might turn up on an audit and result in recoupment of payments for other services.

The US Court of Appeals for the DC Circuit upheld the use of claims sampling in the case of Chavez County Home Health Services Inc. v. HHS, and the US Supreme Court denied review.

Passage of legislation is unlikely this year. In the mean- time, HCFA plans to implement an expanded sampling policy.

Better Enforcement Demanded for Charge Limits. Claiming that elderly patients are being ``terrorized'' by overcharges, senior advocacy groups demand more vigorous enforcement of limits on balance billing. The Senate Special Committee on Aging criticized HCFA for lax enforcement of Medicare's new limits. Senators Cohen (R-ME) and Pryor (D-AR) plan to introduce legislation clarifying the requirement to refund excess payments. The senators also have requested that HCFA review each claim submitted, rather than analyzing a random sample of claims as was previously done to enforce the MAACs (BNA's Medicare Report 4/10/92).

HCFA stated that 7,200 physicians (or 1.8% of nonpar- ticipating physicians) had received warnings about exceeding the balance billing limits during the last half of 1991. Seven have been referred to the Inspector General and could be fined $2,000 per case.

One institution complained that its efforts to comply with the law were stymied because it received the rates for 3,000 codes only two weeks ago. In at least one case, the carrier sent out an incorrect list of fees. If a refund is required on a large number of claims, an institution's billing department could be forced to shut down all other operations.