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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 56, No. 5 May 2000
WHO OWNS THE LAW?
Governments "deriv[e] their just Powers from the Consent of
the Governed," wrote Thomas Jefferson in the Declaration of
Independence-not from the Divine Right of Kings.
"The citizens are the authors of the law, and therefore its
owners, regardless of who actually drafts the provisions, because
the law derives its authority from the consent of the public,
expressed through the democratic process," wrote the U.S.
District Court in State of Georgia v. Harrison Co. (548
F. Supp. 110 (N.D. Ga 1982)).
Today, laws called "regulations" are often drafted by a
"public-private partnership," which is aloof from the democratic
process. The private partners are experts-their status is more
like that of philosopher-kings than of mere citizens. Their
ownership rights in the law are now being tested in the U.S.
Circuit Court of Appeals for the Fifth Circuit in Peter Veeck
v. Southern Building Code Congress Int'l (99-40632).
The lead party on an amicus brief supporting the SBCCI is
the American Medical Association, although no reference to the
brief is to be found on the AMA web site. The case is essential
to the AMA's lucrative CPT code monopoly.
Mr. Veeck, doing business as Regional Web, purchased SBCCI's
model building codes and posted them on the Internet, where they
could then be accessed without charge. Mr. Veeck asserted that
the model codes became law and thus entered the public domain
when municipalities adopted them and required their enforcement.
The U.S. District Court for the Eastern District of Texas,
Sherman Division (4:98CV63), granted defendant's motion for
summary judgment and awarded $2,500 in damages plus attorney's
fees to SBCCI. The Court found that copyright protection provided
the necessary economic incentive to produce and maintain the
codes, and that there is an increasing trend for government
adoption of such codes.
The AMA and other amici write that "loss of copyright
protection ... would drastically undermine the ability of
standards developers to fund the ongoing creation and updating of
these important works, and would therefore harm the governments
and the public who benefit from [this work]."
Codes are readily available, amici assert: "Veeck can point
to no reported case where a lack of notice has been raised as a
defense to a failure to comply with a provision contained in a
model code or standard." Moreover, in Practice Management
Information Corp. v. AMA, the Ninth Circuit found that the
AMA "ha[d] no incentive to limit or forego publication," so that
the due process requirement of free access to the law did not
require copyright invalidation.
"Competitors could develop better coding systems and lobby
the federal government...to adopt them"; the AMA's copyright
"does not stifle independent creative expression in the medical
coding industry," write amici.
An historical analysis is presented in an amicus brief by
Malla Pollack of the Florida Coastal School of Law (not admitted
by the Court for unspecified reasons): "Payment through a
monopoly in a government function ... was [a] version of taxation
without representation." The British Crown lacked both the income
and the number of civil servants required to run an adminis-
trative state that minutely regulated social, moral, and economic
activities. Therefore, the Crown paid its servants indirectly
through monopoly entitlements that allowed them to collect fees
from each subject who used their services. This financial bypass
"undermined Parliament's ability to control the Crown's actions"
Although touted as "free," the codes produced by private
agencies are actually more expensive than if the government
entity had paid for them; the price is merely transferred to
others. The cost is subject neither to market pressure nor to the
public discussion that attends tax increases.
Cost, while important, is less so than the effect of private
lawmaking on expanding the power and fundamentally altering the
nature of government. Moreover, the very nature of medical
practice itself is being deformed by CPT codes and the AMA/HCFA
partnership (see, for example, physician comments on the AMA/HCFA
1997 E&M Documentation Guidelines, posted at www.aapsonline.org).
Although the CPT codes-initially a system of nomenclature
for clinical services-were not designed for billing purposes,
they provided the structure for implementing Medicare price
controls. As a subcontractor of the Harvard School of Public
Health, the AMA helped develop the Resource-Based Relative Value
Scale (RB-RVS)-instead of fighting the price controls in
Congress. Outsiders, such as the American Society of Dermatology,
are excluded from the process. "Access" requires buying
expensive, frequently revised books, and subscriptions to
publications such as the Correct Coder for Edits, changed
quarterly. The $499 annual subscription is the charge permitted
for about 37 periorbital Dopplers before that was reduced to $0
(and practitioners notified before the fact only by such a
A physician or office manager may be convicted of a felony
and imprisoned because of a government witness's interpretation
of a CPT code. Yet the AMA has no fiduciary duty to provide
straightforward answers about interpretations. Coding director
Celeste Kirschner advised a physician who is appealing such a
conviction to engage a consulting service.
Billing and documentation standards are but the beginning of
the legally enforceable "guidelines" for medicine that HCFA's
private partner aspires to write.
AAPS plans to move to intervene in the Texas case. Privately
owned law is not just a matter of selling rope, but of forcing
citizens to pay for their own shackles.
CDC Refuses to Deny Conflict of Interest on Vaccine Policy
On April 6, the U.S. House of Representatives Government
Reform Committee, chaired by Dan Burton, held a full day of
hearings titled "Autism: Present Challenges, Future Needs - Why
the Increased Rates" to examine possible links between vaccines
and autism. AAPS Public Relations Counsel, Kathryn Serkes,
attended the hearings and filed this report.
Rep. Burton readily admitted his potential bias on the issue
because of his personal experience: his grandson Christian, born
healthy, suffered severe adverse effects within ten days of
receiving his DTaP, OPV, Haemophilus, HepB and MMR inoculations.
He began staring into space and shaking his head from side to
side, and lost all language skills.
Government witnesses were not so forthcoming in admitting
bias or conflict of interest. Dr. Paul A. Offit, a pediatrician
who receives money from vaccine manufacturers to give pro-
mandatory vaccine presentations across the country, is a member
of the Advisory Committee on Immunization Practices (ACIP) of the
CDC-the supposedly "independent" government group which makes
recommendations on national vaccine policy. His official
statement only acknowledged his "collaboration on the development
of a rotavirus vaccine." When pushed by a question submitted to
Rep. Burton by Ms. Serkes about his financial ties to Merck &
Co., Dr. Offit would only admit an "apparent conflict-
of-interest." [Dr. Offit pushed mandatory vaccines at a symposium
underwritten by Merck at the August meeting of the American
Legislative Exchange Council in Nashville, attended by Dr. Orient
and Ms. Serkes; Dr. Orient was refused a place on the panel.]
Also speaking before the committee was Coleen Boyle, Ph.D.,
Chief of the Development Disabilities Branch of the CDC. When
Rep. Burton questioned Ms. Boyle about ethical problems and
subjectivity in allowing vaccine manufacturers and their agents,
such as Dr. Offit, to sit on the ACIP and make recommendations
for national vaccine policy, Ms. Boyle meekly responded, "That s
a difficult question to answer."
When posed a direct question by Rep. Burton, "Is this a
conflict of interest?" Ms. Boyle refused to answer. Her silent
testimony reveals the truth.
Also speaking were parents with afflicted children and their
representatives, researchers who believed their work suggests a
possible connection between MMR vaccine and autism (and who have
been denied NIH funding for continued research on this question),
and Dr. Brent Taylor. Dr. Taylor is the lead author of a 1999
article entitled "Autism and measles, mumps, and rubella vaccine:
no epidemiological evidence for a causal connection"
Of the researchers, Dr. Taylor was the only one who demurred
on releasing raw data for independent analysis. He said he "did
not know" whether that would be possible.
The British Medical Journal touts the article in a
headline "New research demolishes link between MMR vaccine and
autism" (BMJ 1999;318:1643). Three days before the
hearing, the AMA published a statement that "Vaccines do not
cause autism," relying heavily on the Taylor article. The AMA
asserts that "the incidence of autism was the same in children
who received the MMR vaccine when compared to children who did
not receive the vaccine." This would indeed be the pertinent
comparison, but it is impossible to make with the data presented
in the article: the authors focus on age at diagnosis in "cases
vaccinated before or after 18 months of age and those never
vaccinated." As the authors note, "MMR vaccine is given at around
12-15 months of age and the mean age at which parents of children
with autism first report concern about their child's development
is 18-19 months." Thus, "a close temporal association in some
autistic children is expected by chance alone."
Of the 498 autistic children identified in the study, 389
(78%) were born after 1987. MMR vaccine was introduced in 1988.
Thus, only 20% of the autistic children were born in pre-vaccine
years even though the study's pre- and post-vaccine time periods
were of approximately equal length. More than 86% of the children
born after 1987 had received the vaccine before their second
birthday; thus, only a very small contemporaneous control group
of unvaccinated children is available.
Taylor et al conclude: "We hope our results will reassure
parents...and help restore confidence in MMR vaccine."
"Data should be released data so that independent analysis
can show whether the actual numbers vindicate the authors'
hopes," states AAPS Executive Director Jane Orient, M.D.
National Medical Records...One Way or Another
At the end of three long days of meetings of the National
Committee on Vital and Health Statistics, long after most
reporters and spectators had bailed out, the bombshell was
dropped. As summarized by Kathryn Serkes, "The federal government
has decided to find a way to create a national database of
patient medical records, and identify all the records, even
though the public is against it and the funds for Patient
Identifiers have been cut off by Congress. A rogue agency is
trying to usurp the will of Congress and compromise our privacy,
all in the name of `administrative simplification'."
Although the group has had extensive discussions about the
need for unique patient identifier (UPI), several members now
acknowledge that there are other ways to link the data.
From Vaccine Tracking to Complete Dossiers?
A bill introduced in the Colorado legislature, HB 1023,
would have the state study the costs of purchasing free vaccines
for practitioners who agree to provide immunizations at a price
controlled by the state. It would also expand the board of
health's information-gathering activities from infants to all
children under 18. It would require that the state develop a
comprehensive immunization and health-related information
tracking system on individuals by July 1, 2001-and authorize the
state to accept private funding to make this happen.
Colorado law already empowers the board of health to collect
"epidemiologic" information, already very broadly defined to
include almost any kind of personal information. School-based
health clinics already collect and store information on
"everything from a student's sexual habits, to his family's gun
ownership, to whether his parents get along well and his friends
obey the law," according to the Linda Gorman Independence
Institute, Backgrounder 2000-E, 2/2/2000.
In the past, the All Kids Count program of the Robert Wood
Johnson Foundation has paid the state $240,000 to develop the
immunization program. Typically, the Foundation builds support by
partial funding of staff positions. The more than $4.5 million in
RWJF grants received by the state health bureaucracy has been
"more than sufficient to populate it with people sympathetic to
[RWJF's] radical view of health care reform."
Hearing Denied Dr. Huntoon
After 9 months of fierce battle with Upstate Medicare, AAPS
President Lawrence Huntoon, M.D., Ph.D., who practices neurology
in Jamestown, NY, finally received a Notice of Hearing for more
than 100 periorbital Doppler claims that had been denied by
Medicare. Before this time, all of the Medicare Hearing Officers
reviewing his appeal have worked directly for Upstate Medicare.
This time, an outside attorney was appointed.
Dr. Huntoon's hopes for a fair chance to present his case
were dashed in the first few minutes of the "hearing." Officer
James P. Kehoe, Jr., announced that as a nonparticipating
physician, Dr. Huntoon had no right to appeal.
"Medicare has denied me the ability to charge for these
services and I am entitled to an appeal; they've said so," stated
Dr. Huntoon in a tape-recorded telephone conversation.
"Well, I don't know what Medicare has said; I'm just
concerned with what I have to do," said Officer Kehoe.
"I'd have to ask why do they keep writing me and telling me
that I'm entitled to a Fair Hearing."
Kehoe acknowledged having seen the letters but did not know
the answer to the question.
"Are you saying that they are in error, that they are
grossly negligent in sending me those letters?"
"I'm not commenting on what they say," replied Kehoe.
Kehoe referred to §§12005 and 12019 of the Medicare
Carrier's Manual as denying the right to appeal to
nonparticipating physicians unless they have specific
authorization from each patient. These sections, however, provide
for appeal for any assigned claim or for a "physician not taking
assignment but held liable for indemnification under
1842(l)(1)(A)," or for services deemed "not reasonable and
necessary." (The last applies only if the physician waives in
writing any right to payment from the beneficiary!)
Dr. Huntoon contends that the broad authorization signed by
his patients implicitly gives him the right to appeal denials.
Additionally, because Medicare has recently reduced the allowed
charge for a periorbital Doppler from $13.59 to $0 (the charge
was $101 in 1991), denials have been converted to Limiting Charge
Exception Violations, which are crimes.
Officer Kehoe informed Dr. Huntoon in writing that he was
dismissing all except 9 claims, which were assigned. The amount
at issue is $115.56, which meets the threshold of $100.
Dr. Huntoon has filed a formal complaint against Officer
Kehoe for misstating the law and denying him due process.
Dr. Huntoon has also complained to Judith Berek, Regional
HCFA Administrator, that Upstate Medicare routinely commits
criminal fraud in claims denials and appeals. All three
elements of fraud under the False Claims Act are alleged: (1)
Existence of a claim: Upstate Medicare has a contract with
HCFA to review claims, and it accepts government money for this
service. (2) Falsity: While personnel are required to read
materials sent by physicians in appealing denials, they routinely
fail to do so, and may even falsely assert that requested medical
documentation was not sent. Moreover, unqualified persons are
routinely assigned to do medical necessity reviews. For example,
the rationale given by Hearing Officer Sandra Shaw for allowing
one case and not others was "totally ludicrous and lacked any
scientific merit." (3) Actual knowledge, deliberate ignorance,
or reckless disregard of the truth: Upstate Medicare, HCFA's
private partner, is stated to be fully aware of the process. The
claim review process is a total sham "because that is the way
they have designed their system to work."
In response to the latest assertion by Linda Wytiaz, Team
Leader, Program Inquiries, that no medical documentation to
support the use of modifier 59 had been received, Dr. Huntoon
sent Exhibit Q, 400 pages in length.
"I have been lied to repeatedly," states Dr. Huntoon. "I am
absolutely outraged by this constant abuse from a tyrannical
DOJ/HHS Anti-Fraud Actions Up. The Fraud and Abuse
Control Program established under the Health Insurance
Portability and Accountability Act of 1996, run jointly by the
Dept. of Justice and the Office of the Inspector General of HHS,
won or negotiated more than $524 million in settlements in 1999
and collected more than $490 million. In 1999, federal
prosecutors filed 371 criminal indictments in health fraud cases
(16% more than 1998) and convicted 369 defendants.
While False Claims Act cases will continue to dominate in
the short term, quality-of-care cases are expected to become more
prominent as global payment systems expand (BNA's Health Care
Fraud Report 2/9/2000).
Lab Owners Get Up to 180 Days. Two men charged with
bilking Medicaid out of $1.1 million for "ghost patients" and lab
services never performed got 180 and 40 days in the county jail,
a two-year suspended prison sentence, and a $200 restitution fine
(People of California v. United Diagnostics
Laboratories, Cal. Mun. Ct. No. DJ99CF2300, 12/9/99--
Carrier Fined $144 Million; Managers Acquitted. Health
Care Services Corporation, aka BCBS of Illinois, was charged with
obstruction of federal audits and filing false information
resulting in $1.3 million in unearned incentive payments. Four
managers pleaded guilty, and four were acquitted, jurors
recognizing that "cheating was not the company's policy and was
not approved by management." Even the wrongdoers only did it to
"help the company look better and save jobs" (ibid.).
Bankruptcy. In many settlements, the government is
inserting a clause saying that if the provider files bankruptcy,
the government still gets the full settlement. If the provider
files Chapter 11, the government will reopen charges
(Medicare Compliance Alert 2/28/2000). Total health care
business failures are up 15.5% from 1996 to 1997.
Stealth Weapon. U.S. Attorneys are trying to motivate
their peers to freeze the assets of providers they prosecute,
even before an indictment is brought, to devastate the ability of
the accused to hire an experienced attorney. Michael Runyon and
David Reese Jennings argue that it is "prosecutorial malpractice"
not to consider use of this tool in every case. It is easy to get
an injunction from a judge. It is only necessary to show
reasonable probability that fraud is ongoing: "you don't have to
prove your case." The typical physician would be put out of
business in this way (Medicare Compliance Alert
June 24, 2000. Board of Directors meeting, Chicago.
Oct. 25-28, 2000. 57th annual meeting, St. Louis.
The Effect of Regulations on Medical Practice. The
federal government is rapidly destroying my ability to practice
medicine in a logical manner. (1) They have broken my Gestalt. I
can no longer perform the Strub and Black formal mental status
exam in one sitting, but must do it in four, if I am to be paid
anything at all for it. It's like trying to recognize a person's
portrait by looking at little pieces of it provided at weekly
intervals. (2) I am severely distracted while performing carotid
and periorbital Dopplers because I must stop so frequently to
take Polaroids to satisfy HCFA's demand for "documentation." The
"hard copy" for this physiologic test is of absolutely no
clinical value. (3) I was nearly paralyzed by confusion while
trying to hook up all the new government-mandated "safe"
connectors and retrofits so that I could do an EMG/NCV in my
office. It turns out that the leads coming out of the amplifier
are now so much longer that you can't see the signal through all
the electrical noise. This regulation is meant to protect me from
plugging a pin electrode into the wall and electrocuting myself.
When the "grace period" expires, I will probably either have to
buy a new machine or stop doing the test. Because my "allowed"
fees have been slashed so much, I can no longer afford to buy a
new EMG machine.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Fraud Rates in Government Programs. According to the
Arizona Republic (11/22/99), in the program that covers
the cost of babies born to undocumented workers, fraud was found
in 62% of the cases investigated. In other programs, fraud was in
the 35% range. If the state determines that the patient lied
about eligibility, benefits are still paid for another month. It
is suspected that state employees are telling people to lie about
where they live or how much they make.
Craig Cantoni, Scottsdale, AZ
Fixing Costs. Anyone who's had Economics 101 can tell
you that you can fix only one variable in economics. No one can
control price and quantity simultaneously. Yet actuaries take a
lowball estimate for providing medical care to a healthy 65-year-
old, ... and then assume that everybody over the age of
65 can buy as much care as they want at those rates ... hence
Medicare. But we actuaries don't care. Patients and physicians
suffer for our amateurish stupidity and criminal negligence; we
don't. We still get paid for the hours we bill, and more, because
now we have to fix the mess we've made. And we get to blame the
medical community to boot. The real problem, remember, is
"greedy" physicians, not greedy or incompetent actuaries.
Gerry Smedinghoff, Wheaton, IL
Conscience in Pricing. Many facilities and physicians,
when asked by a patient, will reduce a price. After I set up a
Medical Savings Account plan with a $2,000 deductible insurance
policy, I was often able to negotiate lower payments. For
example, my covered son had a grand mal seizure, was taken to the
hospital by ambulance, and subsequently had other evaluations.
Knowing that the posted charges did not bear much relationship to
reality, I typically sent a check for 70 to 80% of the balance
due with a 2-sentence letter: "The balance due is not covered by
insurance. Please accept the enclosed check as full payment." I
was never re-billed for any of these balances. In fact, someone
at the MRI facility sent me a nice handwritten thank-you note.
Robert J. Cihak, M.D., Aberdeen, WA
Tax Credits Nixed. The Medical Society of New Jersey
adopted a resolution I authored asking AMA support for tax
credits to physicians who provide pro bono services to the
uninsured. The House of Delegates rejected the resolution,
arguing that deserving patients could not be distinguished from
those who just didn't pay their bills. Others felt that a request
for tax credits would make doctors look like "money grubbers." I
did not have personal aggrandizement in mind as I am more than 60
years old and will be long gone before this could come into
effect. Physicians are often forced to treat the uninsured at no
charge and no longer have the luxury of private indemnity
patients to offset the loss. The gift of tangible assets for a
tax credit is an acceptable standard-we physicians have only our
time and skills to offer. I would be glad to elaborate on a
mechanism for those who contact me.
AM News did not publish my letter about this, nor
has AMA President Thomas Reardon replied to my letter to him.
Ian D. Samson, M.D., Lakewood, NJ
Servitude. Our forefathers detested the British
government for billeting troops and using private property
without permission or compensation. Today, the butcher, the
baker, and the candlestick maker (lawyer, architect, and
electrician) are allowed to charge a fair market value for their
products. But physicians are forced to participate in federal-
public care by EMTALA rules without being compensated for their
services, and not necessarily for the indigent but for a cross-
section of society. Every physician will reach a point where this
price-setting will trigger fight or flight. I have reached that
George Siegfried, M.D., Anchorage, AK
Only Way Out. Only by ending all contractual
relationships with third-party payers can physicians hope to
regain the freedom enjoyed by other professionals.
Stephen W. London, M.D., Vineyard Haven, MA
Legislative AlertThe Patients' Rights Mess
Congressional leaders say they wanted to get the Patients'
Bill of Rights legislation on a fast track. House and Senate
conferees are engaged, but the staffers and members have been
slogging through the mind-numbing details. The big stuff is
supposed to be the scope of the legislation and the issue of
litigation. But the supposedly easy part-regulatory stuff
governing access to specialists, etc.-has not been so easy.
According to a new Heritage Foundation Backgrounder
1350, by Washington attorney John Hoff, both the
House and Senate bills would put the federal government in the
business of regulating virtually all of the operations of private
health plans and "health care delivery." Under the House bill,
the federal government would impose new rules on utilization
reviews, internal and external appeals, and peer review
standards; the conditions for judicial review (restricted to only
one party in the dispute); the grievance processes for plans;
point-of-service options; formularies for prescription drugs;
participation of plan enrollees in clinical trials; patient
information; and contracts with doctors. The House bill even
establishes federal rules on fee-for-service medical contracts
and imposes Medicare regulations on certain aspects of private
physician compensation. The mind-numbing level of legal
compliance on private plans is fraught with ambiguities governing
private plans with words such as "appropriate," "sufficient,"
"fair," "qualified," and "valid." A lawyer s dream.
Medicare and Drugs
Bet the farm that Medicare prescription drugs is going
to be a huge political issue this year. The President has
delivered his detailed 123-page Medicare proposal to Capitol
On Capitol Hill, everything is in flux, but certain patterns
are starting to emerge. First, it does not appear that Congress
is willing to enact a comprehensive, Clinton-style Medicare drug
benefit this year, if ever. The reason is not simply the
opposition of conservative Republicans but also the growing
opposition of moderate Democrats. Second, there appears to be a
growing consensus for a limited drug benefit, targeted to seniors
with low income or high annual drug costs.
Sen. John Breaux (D-LA) is developing a subsidized benefit
to seniors with incomes up to 200% of poverty. From what is known
of the Breaux plan, it would be substantial and reach about half
of the Medicare population. Breaux s plan would also target
government assistance to seniors with drug costs that exceed
$4,000 per year. These two subsidies would be supplemented with a
high-option drug plan, with no subsidies, for those who wanted to
buy into it. Instead of HCFA running the program, Breaux would
transfer authority over to a new Medicare board, which would
replace HCFA as the central institution dealing with all private
health plans. It would not only negotiate rates and benefits, but
would also enforce fiscal solvency requirements and develop risk-
adjustment mechanisms to deal with adverse selection in the
proposed new markets for Medicare beneficiaries.
The growing hostility to HCFA is crossing partisan lines.
The odd thing is that HCFA s managerial problems, and its
inability to meet Congressional expectations in running the
Medicare program is, at bottom, the fault of the Congress itself.
Members of Congress insist, curiously, on adding provisions to
strengthen central planning and price controls, and then they get
angry when central planning and price controls result in stupid
policies or wasteful consequences. It cannot be repeated enough:
Medicare is governed by more than 110,000 pages of rules
regulations and guidelines and related paperwork, and the
mountain of paperwork keeps getting taller, not smaller. Congress
in the Balanced Budget Act alone added 335 regulatory and
administrative requirements on HCFA. Adding a Medicare Part D-
a Clinton-style drug benefit-would, according to GAO Director
William Scanlon, mean an additional 900 million claims per year.
While HCFA is rapidly losing the confidence of Congress, the
problem remains that Congress itself has not yet lost confidence
in its own ability to make a system of central planning and price
regulation work well. It won t.
The House Budget Committee has recently agreed to set aside
$40 billion over 5 years for a prescription-drug benefit and
other Medicare reforms. So the stage is set for something-but
what that something is now exists only in the embryonic stages.
The House Commerce Committee has a working group chaired by
Congressman Jim Greenwood of Pennsylvania. Their plan, reportedly
still in development, calls for a voluntary drug benefit offered
through the Medigap market.
The problem with a voluntary benefit, of course, is adverse
selection. The companies with the drug benefit will draw the
sickest seniors, incur huge costs, and be driven from the market.
One idea is to establish high-risk pools, so that the insurance
companies would be protected against adverse selection. Another
idea is to compensate for the excessive costs of prescription
drugs by making the taxpayer pick up the costs of the benefit at
a certain point, thus limiting the liability of insurance
By providing a stop loss for companies, as well as for
seniors, and having the government pick up the overage, Congress
hopes to make a new Medicare prescription drug market attractive
to private insurers. Congress is still smarting from the
experiences of private companies saying thanks, but no thanks, to
the Medicare Plus Choice program enacted in the Balanced Budget
Act. They also fear that any failure to provide an effective
private market will set the stage for the Clinton Administration
or its allies to substitute HCFA as the chief dispenser of
prescription drugs. Not a pleasant thought.
The adverse selection problem is stimulating some creative
thought. A new kind of reinsurance is one of them reportedly
being explored by Congressman Bill Thomas (R-CA), Chairman of the
House Ways and Means Committee. In a reinsurance scheme, the
plans would all pay a surplus risk premium into a common
reinsurance fund, and whichever plan got stuck with the highest
cost would be reimbursed from the common fund. Private insurers
are also looking at reinsurance mechanisms, not only for
prescription drugs, but also as a way to mitigate adverse
selection problems in a system more strongly driven by consumer
While the details of the House Commerce Committee task force
plans are being worked out, it appears that the drug plan would
be available to moderately low-income seniors, and the government
would subsidize the deductibles and copayments of very low-income
seniors. According to media reports, the House proposal would
also include a stop-loss or catastrophic protection.
Like the Breaux proposal in the Senate, the administration
of the private insurance market would be done through a Medicare
drug board. The idea of a Medicare Board is central to the
Breaux-Thomas recommendations, which won the support of 10 out 17
members of the national Bipartisan Commission on the Future of
Medicare, the now defunct commission appointed by Congress and
the White House to examine options for Medicare reform. The Board
would not be a regulatory body; it would be an intermediary to
negotiate rates and benefits with private health plans marketing
to senior citizens in the Medicare program. The board would
negotiate with private plans on behalf of senior citizens, or
certify plans for senior citizens, just as the Office of
Personnel Management (OPM), the central personnel agency, now
negotiates with private plans in the Federal Employees Health
benefits Program (FEHBP).
The Right Thing To Do
Congress should follow the advice of Senator Bill Frist (R-
TN) and many others: refrain from adding an expensive drug
benefit onto a Medicare program that is financially troubled and
structurally unsound. To add a drug benefit, outside of Medicare
reform, will accelerate the program's insolvency, while leaving
other big holes in coverage and undercutting the pressure for
The current Medicare system is irrational, and it is
terrible value for money. As John Goodman of the National Center
for Policy Analysis has said, it "violates all the principles of
sound insurance, and it would probably be illegal for insurers to
try to sell such a program in most states of the union."
According to Milliman and Robertson's actuarial calculations,
the money going for senior medical care today is more than
sufficient for seniors to buy a health insurance coverage similar
to what federal employees get today. That would be big-time
Medicare reform. As Len Nichols, a policy analyst at the Urban
Institute, hardly a bastion of conservatism, has written
recently, we ought to start "this afternoon."
An Interim Solution
Conservatives have little or no confidence that Members of
Congress will think big or bold and enact a comprehensive
Medicare reform this year, especially in the face of a likely
Clinton veto. So, the slim Congressional margins in the House and
related politics militate against action this year.
If Congress felt compelled to broaden coverage beyond low-
income categories, a reasonable way to do it would be through a
tax credit. The design of tax credits is always a tricky
business. But the tax credit should be structured in such a way
as to encourage low-income seniors to participate effectively in
a private market for prescription drug coverage, and encourage
individual choice in a competitive market of private plans. It
should also avoid displacing current employment-based coverage,
and should not place seniors under government purchasing (supply
control) or some sort of price control system. Not an easy task.
Another option is to reform the Medigap market. Today, there
are several plans. Only a few of them provide prescription drug
coverage. Congress should allow for higher and more flexible
deductibles. The higher costs, reflecting higher risks, could be
offset by higher government contributions. This would permit
greater risk adjustments in premiums, while adjusting the
subsidies for seniors to help them afford the higher premiums.
None of these proposals is ideal. Most of the problems of
the current Medicare system would be maintained. If Congress
feels compelled to act, it should make sure that any plan is
broadly understood as an interim step. That means that whatever
provisions are enacted should sunset with the enactment of
comprehensive-and real-Medicare reform. With that crucial
proviso, Members of Congress could provide a limited drug
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage
Medicare Trustees Annual Report
According to HHS News, March 30, 2000, the Hospital
Insurance (HI) trust fund will remain solvent until 2023 under
intermediate assumptions: the bankruptcy date has been extended
eight years from the 2015 date projected in the last trustees'
report. Income exceeded expenditures by $21 billion.
"Income increased significantly as a result of robust
economic growth, and expenditures actually declined, due to the
continuing implementation of the Balanced Budget Act [BBA] of
1997, low increases in health costs generally, continuing efforts
to combat fraud and abuse in the Medicare program, and a
substantial decline in the utilization of home health services,"
states the report's overview.
Vice President Al Gore credits the Clinton-Gore
Administration. The AMA and 16 other medical societies give
partial credit to $3.2 billion in underpayments to physicians
resulting from errors in calculating sustainable growth rates in
1998 and 1999. The errors will be carried forward, compounding
underpayments in future years. The AMA claims that HHS Secretary
Donna Shalala reneged on a 1997 commitment to make corrections,
in a lawsuit filed in U.S. District Court for the Northern
District of Illinois in December, 1999. HHS has asked that
the lawsuit be dismissed, arguing that the BBA forces HCFA to
rely on estimates and gives it no authority to correct errors
(AM News, 3/20/00).
The trustees acknowledge that future operations are highly
sensitive to future economic, demographic, and health-cost
trends. Moreover, under intermediate assumptions, expenditures
will exceed income by 2016. After that, payments can be made only
by "drawing down on trust fund assets," which consist solely of
government debt, which can be redeemed only by taking from other
parts of the budget, increasing taxes, or borrowing. After
2010, the ratio of workers to retirees will decrease swiftly from
3.6:1 to 2.3:1 in 2030, when the last of the baby boomers retire,
and decline slowly after that as life expectancy increases.
(The ratio was 50:1 in 1945.)
Social Security trustees also report a 3-year reprieve from
insolvency. The National Center for Policy Analysis (NCPA) warns
against complacency: "Unfortunately, optimistic reports like this
help those who would hold the needed reforms hostage to
politics," writes Senior Scholar Dorman Cordell. To help
illustrate how much grief true reform (privatization) would spare
future generations, NCPA has an online Social Security benefits
calculator at www.ncpa.org. This shows, for example, that
a 25-year-old waitress can expect to pay in $300,000 in Social
Security taxes, but to realize a little more than half that
amount in lifetime benefits.
For young people, the payroll tax is a ripoff.