Volume 61, No. 3 March 2005
|1940 39,329||1980 287,469|
|1950 25,040||1990 718,107|
|1960 97,750||2001 1,492,129|
U.S. net savings rate
Workforce participation by men 65
Social Security tax rates
Federal Government's take of GDP
Figures issued by Americans for Tax Reform show how much of the cost of typical purchases goes for taxes: airplane ticket (40%); telephone bill (50%); electricity bill (25.7%); car (45%); loaf of bread (31%); restaurant meal (27%); gallon of gasoline (54%); hotel bill (43%); cigarettes (75%). During the past 17 years, the typical family's annual tax burden has about doubled. The average family with two wage-earners paid more in taxes in 1996 than their nominal earnings in 1977.
Information technology is the only hope for "monitoring and controlling costs and quality," states Jeffrey Romoff, CEO of the University of Pittsburgh Medical Center.
UPMC has gobbled up 19 hospitals, 400 clinics and doctors' offices, and numerous other facilities. After spending $250 million on IT over 5 years, it is 15% of the way to a "constantly moving target" in some areas, and 40% in others. So far, only two hospitals have a computerized order-entry system, and only one- quarter of 2,000 employed physicians have electronic medical records on their own patients. Doctors and staff "have had little choice but to relearn virtually everything they do," including the use of a software program that forces them to use "structured notes" for documenting procedures. More than 62,000 orders had to be reviewed and translated into the standard format. The system has "forced doctors to face up to the issue of variations in the way they practice medicine" (Wall St J 1/17/05). (Nonuniformity is bad.)
The IT system that the Veterans Administration system has been pushing for decades is "spectacular," says Donald Berwick. The software has been adopted in Nigeria and Egypt, but not by any private U.S. systems. One result: on 11 measures of quality, the VA is rated better than fee-for-service Medicare by the National Committee for Quality Assurance (NCQA). Only a system as massive as the VA, and with VA-style incentives, could achieve such performance, concludes Phillip Longman (Washington Monthly, Jan/Feb 2005).
The risk of failure for an IT system is 30 to 50%. Not having to account to investors, the VA simply pulled the plug on a $265 million logistics system (Managed Care, Nov 2004).
Starting in July, doctors who file paper Medicare claims will start getting notices giving them 30 to 60 days to explain, said William Mangold, M.D., J.D., Contract Medical Director for Noridian. Nonelectronic claims from physicians with 10 or more FTEs will be denied, and Medicare may audit the practice to determine whether this or other exceptions apply. It is not clear whether doctors count as FTEs.
Physicians covered under HIPAA may start applying for their national provider identification number (NPI) on May 23, but Dr. Mangold asks those who don't need it yet to wait so as not to jam the system. Most health plans will have to start using the NPI in 2007. The cost of implementing the system is estimated to be about 445,000 hours and $6 million in both 2007 and 2008 (AM News 12/13/04). Some think the NPI will be a bigger nightmare than Privacy and Transaction Code Sets.
The HIPAA Security Rule goes into effect for covered entities on April 21, 2005. There are some 42 specifications to be met. Fines are up to $100 per person per violation, up to $25,000 per year more if the security violation leads to a Privacy Rule violation.
"There is no playbook for compliance," says HIPAA Compliance Coordinator Jeff Boyer. "It takes a lot of money," he added. You could encrypt your entire system, at a cost of hundreds of thousands of dollars. Or you could compromise as with a strong password system (Eli Research, Dec. 2004). HHS may complete work on its HIPAA enforcement rule by the end of 2005 (HIPAA Compliance Alert 1/10/05). You can download "Security 101" from www.cms.hhs.gov/ hipaa/hipaa2.
The Security Rule does not apply to noncovered entities. AAPS members can consult our Limited Legal Consultation Service for questions pertaining to noncovered status (the "country doctor exception" established in AAPS litigation). Electronic systems are being dismantled, as at Cedars-Sinai in L.A., for various reasons: HIPAA could be one of them.
The Revolution of 1935: The Secret History of Social Security by Gregory Bresinger, Ludwig von Mises Institute, 2002. Available at: www.mises.org/journals/essays/bresiger.pdf.
War between the Generations: Federal Spending on the Elderly Set to Explode by Chris Edwards and Tad DeHaven, Cato Policy Analysis #488, Sept 16, 2003, www.cato.org.
Liberating Workers: The World Pension Revolution by Jos Pi¤era, Cato's Letter #15, 2001, www.cato.org..
May 21, 2005. Board of Directors meeting, Atlanta, GA.
Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.
"There is no doubt that the real destroyer of the liberties of any people is he who spreads among them bounties, donations, and largesse." Plutarch
Federal criminal sentencing has been transformed by a January U.S. Supreme Court decision that restores much of the judges' discretion in sentencing that Congress took away in the mandatory sentencing guidelines passed 21 years ago. U.S. v. Booker (U.S., No. 04-104, 1/12/05; 9 HFRA 78, 1/19/05).
Five justices also ruled that the current guidelines violate defendants' 6th Amendment rights by giving judges the power to make factual findings that increased sentences beyond the maximum that the jury's findings would have supported (NY Times 1/13/05). Such findings include whether the defendant played a leadership role in the crime, or acted with deliberate cruelty, based on a "preponderance of evidence" rather than the "beyond a reasonable doubt" standard.
In 2002 alone, 65% of federal sentences involved an upward adjustment based on a judge-found fact, stated Acting Solicitor General Paul Clement (BNA's HCFR 10/13/04).
The guidelines, from the judges' perspective, amount to 1,800 pages of congressional micromanagement. No one knows what Congress will do next: one possibility is aggressive mandatory minimums (Wall St J 1/13/05, 1/14/05).
One result of the decision is that prosecutors may not be able to frighten accused physicians into multi-million dollar settlements as easily by threatening them with the severe penalties that a judge would automatically inflict on them if they lost in court. However, recent amendments to the guidelines place more pressure on senior executives to ensure that there is an "organized culture of compliance," lest they be accused of participating in the fraud (MCA 1/24/05).
Thousands of convicted persons are appealing their sentences. The effect on the court system has been likened to a tsunami (Newsmax.com 1/27/05).
The U.S. Supreme Court ruled that the Seventh Circuit Court of Appeals had to consider the effect of the Booker decision on the Medicare/Medicaid fraud convictions of Robert T. Mitrione and Marla DeVore (Mitrione v. U.S., U.S. N. 01- 1668), which were tainted by a government witness's perjury (AAPS News, July, Aug 2004). In their petition, Mitrione and Devore charged that the federal appeals court had adopted a new standard that condoned prosecutorial perjury, and had violated their right to a trial by jury by affirming convictions that were intertwined with other counts that had been dismissed on grounds of perjury. The petition, filed by AAPS General Counsel Andrew Schlafly, is posted at www.aapsonline.org/judici- al/mitrione.htm).
[The American Health Legal Foundation funded the petition.]
It is well known that witnesses are enticed to testify for the prosecution in exchange for leniency: the equivalent of a bribe, in days of freedom rather than dollars. Without this system, prosecutors say that many fewer convictions could be obtained. It is assumed that testimony is truthful.
At the trial of William Hurwitz, M.D., who was convicted of drug trafficking, one of 50 or so witnesses spoke favorably of him, saying that he cared about his patients, and implying that he obtained his prescriptions through deception, not collusion. This witness testified on the first day of the trial, and no subsequent witnesses had anything good to say about the defendant. Shortly after the Hurwitz trial concluded, all but two witnesses were released. The witness who portrayed Dr. Hurwitz as a decent man will reportedly be in prison for five more years.
What did prosecutors tell the later witnesses?
During the Stalin show trials of 1937, one old Bolshevik named Krestinsky denied that he was guilty of treason. The prosecutor Vishinsky called a recess. The next day Krestinsky, his face blue and swollen, testified that a mental breakdown had caused him to wrongly deny his guilt. All the rest of his codefendants pleaded guilty also.
As Stark II Phase II is finalized, experts are making predictions about enforcement actions. Physicians who prescribe a more expensive brand-name drug may have to prove that they did so because of some therapeutic benefit, and not because of receiving a kickback (MCA 1/3/05).
The Massachusetts Dept. of Social Services, it is claimed, makes $90 million extra per year by seizing children from their parents based on prospective revenue. The state gets extra money for children who are eligible for Medicaid, or for special needs children eligible for Social Security. About 10,000 children per year are taken from their parents in Massachusetts and placed into foster care.
In Texas, child welfare agencies use a formula called the "penetration rate." A program is not considered to be fiscally well-managed unless 50% of its children are eligible for SSI.
Allegedly, children classified as disabled languished for years in foster care while Contra Costa County (Calif.) misappropriated their personal SSI and other federal benefits.
As one foster child put it, "Everywhere I go, somebody gets money to keep me from having a mom and a dad."
A parental rights group called Justice for Families alleged that children are often seized by filing a federal form 29-c, the ticket for funds, in a secret, rubber-stamp session with no opportunity to rebut charges (Massachusetts News, Jan 2002).
In 1973, former federal judge William Campbell said: "[T]oday, the grand jury is the total captive of the prosecutor who, if he is candid, will concede that he can indict anybody, at any time, for almost anything, before any grand jury."
In 1997, Rep. Henry Hyde (R-IL) said that some federal prosecutors are "not just wrong, but willfully wrong.... They keep information from you that the law says they must disclose. They suborn perjury."
The National Association of Criminal Defense Lawyers ( www.criminaljustice.org) has proposed a series of grand jury reforms. These include: (1) Allowing a witness who has not received immunity to be accompanied by counsel; (2) obligatory disclosure of known exculpatory evidence; (3) exclusion of illegally seized evidence; (4) granting the target the right to testify; and (5) allowing witnesses to have a transcript of their testimony.
Since 1974, the number of federal prosecutors has quadrupled, and the number of federal offense has multiplied.
Computerized Records. In the 1980s, Medicare prematurely "killed off" one of my patients in their main computer database in Baltimore. For more than a year, Medicare bureaucrats told the patient and me that if the computer said she was dead, then she was dead. Eventually, we prevailed.
My experience with managed-care computers isn't much better.
Since November 1999, a fully computerized managed-care company
has been sending me monthly notices, telling me that a patient's
claim for $186.36 is "in process." The company has by now spent
almost $24 in postage. Because I have never participated in any
managed-care program, the company will refuse to pay. Eventually,
the bill was paid, reluctantly, by the patient, after a year of
protesting that he was "entitled" to coverage: his managed-care
company had promised he would never have to pay anything for all
the care he needed.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY
The Real Reason for IT? Some companies may be in business less for the insurance earnings than for the fees for doing all the demand-management things required to keep a third- party payment system in operation when users have no skin in the game. Information technology (IT) theoretically reduces the cost of such things. But theories are subject to murder, rape, and general pillage by gangs of brutal facts.
If consumer-directed health care (CDHC) means that parsimonious spending by users reduces the need for centralized management, this would hit the anti-consumer-direction companies in the bottom line.
What made me think about this was the absolutely extreme
reaction that Anthem (local Blue Cross/Blue Shield progeny) had
to the one-hour legislative education session on the dangers of
evidence-based medicine (EBM) that we put on in January 2004. We
do them every year, and normally they aren't noticed. The bill to
make EBM mandatory for Colorado Medicaid and optional for health
insurers tanked. I'm not sure how much we had to do with it, but
every little bit helps.
Linda Gorman, Independence Institute
Misdirected IT Investment. The insurance industry has
invested billions in software specifically designed to
accommodate managed-care administration. With CDHC, there will be
much less need for "transaction management." Some insurers don't
get it yet: there will be less claims volume, less claims
management, and less need for sophisticated software to support
it. There will be much consumer use of the internet to gather
information, but this technology is already here, and it is not
that sophisticated or expensive.
Frank Timmins, HealthBenefitsReform Group
Where the Money Is. Individuals seem to believe that
legal constructs such as government, corporations, and
malpractice insurance carriers have limitless money to meet
limitless demands. Faulty economic logic would cease if people
could be taught that these entities have no money except what
they obtain from the very people who are trying to circumvent
scarcity. Apparently intelligent people are flabbergasted when I
remind them that the government has no money.
Robert P. Gervais, M.D., Mesa, AZ
What HSA Money Is For. "People with chronic
conditions will not be able to save anything," complained Academy
Health vice president Anne Gauthier to The New York
Times. Will somebody please explain to this "expert" that
the main purpose of Health Savings Accounts is to pay your
Stephen Katz, M.D., Fairfield, CT
The Problem in 1965. About half the elderly had private
coverage in 1965. But the tax exclusion for employer-based
coverage distorted the market. Workers got big subsidies, but the
poor and the elderly did not. The subsidies caused prices to
rise, making it harder for the nonsubsidized to afford care. What
we should have done in 1965 was to drop the employer exclusion
and treat medical care the same for all-Americans make all of
it tax-free, or none of it.
Greg Scandlen, Hagerstown, MD
The Only Answer. If the tax exemption for health
insurance were eliminated, HMOs would evaporate into thin
air just as Sauron did when the ring landed in the fires of
Mount Doom. We must throw away that ring of power. All it does is
shift money around (the taxes lost from the exemption must be
made up somehow) at the expense of the uninsured and the small
businessman. Alternately, physicians could refuse to sign
contracts with the devil (HMOs). But as long as the desire to get
something for nothing exists in the human heart and as long as
physicians fear destitution for standing up for what is right no
number of laws will make the situation just.
Robert Berry, M.D., Greeneville, TN
Propaganda Ministry in Action. A recent AOL news flash
on Social Security privatization had the headline: "Gambling on
Retirement." Tens of millions of Americans believe that it is
gambling to put retirement money into stocks and bonds and get an
8% return, but it is not gambling to trust politicians with their
money and get a less than 1% return. There are even tens of
millions who believe that there is such a thing as the Social
Security Trust Fund. It's not as though they had seen headlines
reading "Social Security is a pyramid scheme!"
Craig Cantoni, Scottsdale, AZ
President Bush's State of the Union address focused, as expected, on Iraq. But the main domestic policy agenda was his program to overhaul the Social Security system and reform the tax code. He devoted only one paragraph to the health policy issue strange, since voters, in public opinion surveys, said it should be a top issue for Congress to address in 2005.
The President reaffirmed his support for a national medical liability law, tax credits for health insurance, the enactment of association health plans, and an expansion of health savings accounts (HSAs). This is largely a replay of the Bush 2004 agenda. He achieved success on some of these matters in the House of Representatives, such as the medical liability reform and the enactment of association health plans, but these initiatives were blocked in the Senate.
There is emerging concern among Congressional conservatives that national medical liability law would override the tort laws of the states, and thus infringe on a jurisdiction reserved to the states under the Constitution. For example, Maryland Governor Robert Ehrlich, though he just lost a major and particularly bitter medical liability reform battle with the Democrat- controlled state legislature, recently emphasized that medical liability reform is a state, not a federal, matter.
The big-ticket issue for 2005 is, of course, the future of the tax-credit package for those who do not or cannot get medical insurance through their workplace. Bush proposes an income-based system of refundable tax credits, of up to $3,000 per family or $1,000 per individual. Bush would also apply an income-based credit to HSAs for workers in small businesses who don't have insurance. Administration officials estimate the value of this tax break at $90 billion over ten years.
There may yet be a consensus on tax credits, since Kerry and Bush both identified the tax strategy as a way to expand coverage. The debate will largely focus on the structure and size of the credits, and their implementation. The master of detail on this, and many other matters, is Rep. Bill Thomas (R-CA), chairman of the House Ways and Means Committee.
The tax credit debate will be inseparable from the bigger tax reform debate. The President is appointing another bipartisan commission on comprehensive tax reform. It will be chaired by former Senators John Breaux (D-LA) and Connie Mack (R-FL). Both Breaux and Mack are familiar with how the tax treatment of medical insurance undermines portability; inhibits personal ownership and choice of policies; and distorts the markets, hiding and fueling unnecessarily high medical costs. The Commission will have to examine the current tax exclusion for employer-based medical insurance. Two top options are to abolish the exclusion in favor of a national tax credit system, or possibly cap the exclusion at some amount, as was originally suggested by the Reagan Administration in the mid 1980s.
Normally, the purpose of bipartisan commissions in Washington is to study problems to death, then quietly bury them. This is clearly not the intention here. Breaux has a good record as head of the National Bipartisan Commission on the Future of Medicare in 1999, which highlighted the regulatory excesses of the Medicare program and the maddening paperwork and red tape that is strangling doctors and hospitals. His reform proposals were torpedoed by Clinton's appointees and then largely ignored in the mad rush to establish a universal drug entitlement in Medicare. Mack has a record of promoting consumer choice and competition in medicine, and he understands the relationship between the problems of the medical insurance markets and the tax code. So far, so good.
The Democrats' Counterattack
They may not have control of the Congress, but leading Senate Democrats are already mapping out alternatives to the Bush health policy agenda.
In a major address to Families USA, a "grassroots" organization dedicated to the expansion of government control over medicine, Sen. John Kerry (D-MA) denounced the Bush health agenda as inadequate and called for a program designed to cover every child in America. Sen. Edward Kennedy (D-MA) also recently gave a major domestic policy speech, since overshadowed by his remarks on the Iraq war, outlining the case for national health insurance based on Medicare.
Then, of course, Sen. Hillary Rodham Clinton (D-NY) gave a speech, highlighted only because of her collapse from the flu, calling for the government to establish a universal health care system that is compatible with "American values." Sen. Clinton said that while the Census Bureau estimates that there are 45 million uninsured, 75 million Americans lacked coverage at some point in the past 2 years, and that medical problems are the major cause of bankruptcy in the U.S. She said that the global competition has increased the problem for corporations in a difficult international economic environment, while the United States still spends more money on health care (15% of GDP) than any other country in the world, followed by Switzerland (10.9%), and the results in health outcomes are not what they should be. Hillary is back.
The Latest Medicare Mess
Recently, the media has seized upon the provision of Viagra in the new Medicare drug benefit to stir interest and engender quick response, sound bites, and pithy wisdom, occasionally, from the Washington commentariat, including me. The point, of course, is not the provision of Viagra; it is the expansion of a universal entitlement within an outdated system of government central planning, which is not only unnecessary but hostile to personal freedom and independence.
In dictatorships, central planning is politically efficient, even if economically disastrous. If, in an undemocratic regime, the government's decisions engender complaints, the solution is easy: ignore them or shoot the dissidents.
If a democratic society, embarking on an experiment in central planning, makes decisions that people don't like, officials better listen, especially if they have to run for re- election every two years. Congress will pay attention; after all, the drug entitlement is their creation. They are responsible for its decisions about what drugs it does or does not cover. Members of Congress are already talking about new legislation to prohibit Medicare coverage for Viagra. Congress will be writing prescriptions for seniors, or blocking coverage for them. Micromanagement is inevitable, even though Congress will deny it, with a lot of rhetoric about "private plans," etc.
When there is a defined benefit, then the government is going to have to make the key decisions about what people get or don't get, and people are going to be unhappy. In enacting the program, Congress did exclude several classes of drugs, and said that coverage was to be for "medically necessary" drugs. This means, despite official denials, that drug coverage under Part D is not going to be radically different from medical services under Part B. Every doctor knows all about it.
The final drug regulations, now exceeding 1,000 pages, have just been unveiled. Lawyers, lobbyists, and analysts are poring through them, trying to find out how their special interest is doing. In a direct repudiation of a key goal of Medicare reform, Congress is thus expanding Medicare's vast and cumbersome system of central government planning. It is only the beginning. The expanded entitlement program, notwithstanding the use of private sector entities for delivering drug coverage, will rely even more heavily on thousands of pages of detailed government regulation. This also means that the counterproductive and costly process of Congressional micromanagement of Medicare will increase. Already, Sen. Olympia Snow (R-ME) is joining Democrats in supporting legislation to allow the government to "negotiate" the price of drugs. Of course, "government negotiation" is a euphemism. It means: Set the price the government wants or be denied access to the "government market." In other words, price controls.
In the House version of the 2003 law, there was a provision to transition Medicare into a program based on the Federal Employees Health Benefits Program (FEHBP) in 2010. FEHBP is basically a defined contribution arrangement, where the dollar amount is capped each year on a market-based formula. Even that delayed reform provision was dropped in favor of a weak and limited "demonstration" project. That's the bad news.
The good news is this: Facts are facts. Even though Congress is in a state of denial over Medicare, thinking, incorrectly, that they "dealt" with it in 2003, and there's no need to "revisit" the unpleasant issue this year. They are wrong. The Medicare unfunded liability, over 75 years, is $28 trillion; $8 trillion of that is attributable to the drug benefit alone. On the present course, entitlement spending generally is more than 54% of total federal spending, and the Boomers have not even begun to retire. So Congress will have to face reality, sooner or later. They can start by repealing, or at least delaying the drug entitlement. Otherwise, they will have to cut other programs, increase taxes, or accept huge and damaging deficits. The can run from the Medicare problem, but they can't hide.
No weakness in the private sector will be left unexploited by the champions of a "single payer" program. David Himmel-stein, Steffie Woolhandler, and their Harvard colleagues have just released a major study of medical bankruptcy in Health Affairs, the nation's premiere health policy journal.
The study is based on 2001 data, including surveys and court records of the roughly 1.5 million Americans who filed for bankruptcy that year. The team concludes that "medical problems" contributed to roughly half of these bankruptcies. They also found that "a lapse" in health insurance coverage was a major contributor to "a medical cause" of bankruptcy, accounting for roughly four out of ten cases. They noted that in more than three-quarters of the cases, the debtors had insurance at the onset of the illness, but one-third of them lost it during their illness. They also noted that few of those who found themselves in debt were uninsured by choice. In the survey of the case mix, almost 56% responded that they simply could not afford the premiums; 7.1% were unable to get coverage because of a pre- existing medical condition; and the rest cited the loss of employment and thus employment-based coverage, or their ineligibility for employment-based coverage.
As the authors note, "The co-occurrence of medical and job problems was a common theme." Not surprisingly, they note that the low rate of bankruptcies in Canada shows that with the right systemic changes, the problem can largely be solved. Based on previous studies, between 7.1% and 14.3% of Canadian bankruptcies are attributable to health problems.
The Health Affairs piece will surely generate further analysis among specialists in bankruptcy and bankruptcy law. Without disputing the either data or the analysis, the Harvard study is more of an indictment of the existing system of a restricted, tax-supported employment-based insurance model than an argument for adoption of the Canadian-style medical system.
Economists have noted for years that the customer for medical insurance is not the consumer of medical care. The entire tax and regulatory system favors employment-based insurance, which undermines personal ownership of insurance policies and portability from job to job, and inhibits the growth of long-term insurance contracts. Today, the employer and the insurance contractor jointly decide the level of coverage, the quality of benefit, the catastrophic threshold. As the Harvard authors observe, there is limited or no choice of insurance packages available to most Americans.
Real reform of the insurance market would largely eliminate these problems. While conservative and libertarian economists generally oppose guaranteed issue and community rating, they are often supportive of rules requiring guaranteed renewability, meaning that insurers can't drop people when they get sick. Moreover, while opposing detailed benefit mandates, most are ready to say that an insurance policy is not merely prepaid medical care for upfront coverage; all insurance should have a strong catastrophic coverage requirement. And while insurance is the management of risks, there is no reason why state laws should not require reinsurance pools for carriers to enable them to cede risks to a reinsurance pool and pay premiums to cover those risks, making sure that no carrier is left with disproportionate costs at the end of the business year.
One more question: how can Canada, with "universal" coverage, have any medical bankruptcy at all? Could it too be imperfect, and have cracks that become chasms?
Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington,
Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.