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Association of American Physicians and Surgeons, Inc.
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Volume 57, No. 5 May 2001

IMAGINE...

"Imagine a world where we didn't have to call bureaucrats to have a single reasonable treatment approved.... Imagine a world where none of us would ever again have to use a single CPT code or face the threat of prison for putting down the wrong number.... Imagine a world where you were rewarded for your efforts instead of penalized for working hard.... Imagine a world where physicians could hold their heads up in the community and encourage their offspring to enter the medical profession," writes Thomas Mueller, M.D., an otolaryngologist in Everett, WA, former President of the Washington Chapter of AAPS.

Dr. Mueller is tired of gloom-and-doom messages and thinks it is time for physicians to take the lead. While problems in medicine are legion, the solution is simple, Dr. Mueller states, if not exactly easy.

"As rapidly as possible, as many physicians as possible need to end all third-party relationships," Dr. Mueller writes. This means that patients pay physicians at each visit for services rendered. Patients receive a receipt for payment, which they may submit to their insurance company for reimbursement, under the terms of their contract with the insurer.

"Every other proposal falls short of accomplishing the goal [of restoring a free market in medicine] and does little to control the reign of bureaucrats," Dr. Mueller concludes. "Said another way, all other proposals are simply like rearranging the deck chairs on the Titanic."

This proposal is basically the AAPS Non-Participation Policy, adopted in July, 1965, which is based on the fourth Principle of Medical Ethics: "The physician should not dispose of his services under terms or conditions which tend to interfere with or impair the free and complete exercise of his medical judgment and skill or tend to cause a deterioration of the quality of medical care."

One beautiful thing about Dr. Mueller's proposal: It requires NO new legislation. It only requires a critical mass of physicians to take the lead. That might not be very many.

Congressional attempts at insurance reform have uniformly increased the number of uninsured, largely because they have increased costs-which are already too high.

Third-party payment is a major cause of excessive cost. It adds administrative overhead: Texas physicians will generally lower their price by 15 to 20% for "prompt payment," according to Donna Kinney, CPA, of the Texas Medical Association. Moreover, the low perceived cost to the consumer spurs excessive demand for services worth no more than the copayment to a customer spending his own money. Attempts to constrain demand lead to new methods of gaming the system, which lead to ever more intrusive regulation.

When premiums are too high, low-risk subscribers drop out first, and premiums skyrocket, leading to a vicious cycle or "death spiral." This is a key symptom of a serious malady: A "health plan" is not insurance, but rather a nominally private form of socialized medicine.

"Every big company is essentially a socialized health republic, in which the young subsidize the old and the healthy subsidize the sick," writes Matthew Miller of the Annenberg Public Policy Center of the University of Pennsylvania (Atlantic Monthly, Oct. 2000).

A bipartisan plan to "insure" all Americans agreed upon by Jim McDermott (D-WA) and Jim McCrery (R-LA) (ibid.) accepts the basic premises of socialized medicine. Stated McCrery: "I'm willing to accept a lot more government intervention in the market than I normally would to create a system that will have some vestige of the market left in it." [And we had to destroy the village in order to save it.]

In a free market, of course, customers refuse to buy if they feel the vendor is taking advantage of them. But as Miller understands, "what cannot be done is to let young, healthy workers opt out." Socialism requires coercion. Everybody has to pay for "what we're gonna give everybody"-which has to be decided, McDermott says, "at a come-to-Jesus meeting someplace where that package is defined."

Dimly recognizing that current tax subsidies contribute to the problem, McDermott and McCrery would "reallocate" them. But instead of putting more dollars in the hands of patients through tax-advantaged medical savings accounts, their plan would increase socialized "coverage." The result, in the name of "equity," would be less competition, less freedom, higher costs, and more government.

The Health Subcommittee of the House Committee on Ways and Means, with members like McDermott and McCrery, is not likely to produce top-down reform that does less harm than good. The only hope for private medicine is grassroots reform, from the bottom up.

We need physicians who see uninsured patients-"self-paying" or "responsible" patients-as an opportunity (see p. 2). Even without tax subsidies, such patients are also an opportunity for companies willing to offer fairly priced catastrophic insurance (that is, with premiums proportional to the subscriber's risks) in those states that haven't outlawed it.

Although hospitals are a much more difficult problem, with a long history of convoluted, often secret pricing strategies, physicians can establish an honest marketplace in their own offices. They can show that "insurance" is not the same thing as medical care, and is not the only, or even the best way of paying for medical care. They can insist on the sanctity of the patient-physician relationship. They can offer excellent value for money and cut useless administration.

Beginnings may be small, like a mustard seed. Some soil may be too rocky. But imagine what freedom can do....


The Way

I wrote this piece for the National Center for Policy Analysis (NCPA) forum ( groups.yahoo.com/group/HealthBenefitsReform) because someone (perhaps in despair) asked whether there was any way to change medical care without Congressional Intervention. I see only one workable strategy. It is sensible, but it would have to be physician driven. And too many medical professionals profit from and promote the stupidity of what we do.

The key is to conceive of the 43,000,000 uninsured people as an opportunity, not a problem. They require the least overhead. They pay cash at the time of service. There is no reason that they should not receive the lowest price.

Each hospital and each office should create two systems of charging. One system is for insured patients and builds in the costs of coding and printing claims, payment delays, time spent in dealing with managed care bureaucracy, and liability. (Liability alone adds at least $17 to the cost of submitting a claim in view of the fraud charges being levied today.) The other system strips the charge of all this overhead that we so dislike and that cash-paying patients do not generate. In essence, this offers the most care possible for the dollar. It is actually the only decent thing to do.

Sound familiar? See www.simplecare.com.

We could go one step further and offer an organization like AARP that, for a very small sum, defines its members' ability to access cash-based charges. I'd like nothing better than to be able to walk into Congress and say that I represent an organization comprising millions of happy uninsured people. Such an organization could also broker high, perhaps very high- deductible insurance for its members.

If we made certain that those who pay cash at the time of service only pay for what they receive, employers would soon see that the way to lower their own costs is to set up a cash-paying system for their employees: medical savings accounts.

Freedom of choice would be reestablished. Prudent shopping would become common. Bureaucracies in our offices and insurance carriers would shrivel. Claims would drop by 90%. Managed care concepts would be history because there would be no claims to analyze. No loss, in my opinion. We would once again be professionals using internal processes and research to improve our care....

The reason managed care succeeds in selling itself to employers is the perception-often not a reality-that networks deliver discounted prices. If employers knew with clarity that all of the paperwork and hassle created by complex systems costs more money, they would move toward a system that eliminated paperwork and hassle: medical savings accounts.

So...after all the whining and tearing of hair is over, I believe that the root problem is to be found in our profession. We charge less for a system that costs more, and more for cash payment. We've simply reaped the result of an irrational system of charging. The problem is us.

Robert A. Reid, M.D., Seattle, WA

 

Insurance Pearls

  • In a broad range of proposals for insurance reform from Commonwealth Fund, not a single author even tried to imagine how a free market would work. In every case, the authors put themselves in the shoes of the Dictator and tell how the world would change if they were in charge. Why not consider what would happen if customers were purchasing the coverage they preferred on an open market? (Greg Scandlen, Health Policy Week #154, 2/9/01).

  • Requiring everyone to purchase insurance against virtually every medical expense traps us all in a prisoner's dilemma: game the system or [be the sucker] (George Fisher, M.D.).

  • Average medical spending on the uninsured is about 60% of that on the insured. Getting them insured would cause them to access more care but probably would not improve their health (Robert Samuelson, Newsweek 11/8/99).

  • Who defines "reasonable and necessary"? The payer. That should be the patient, not an insurer. A patient should be a purchaser (one who obtains something in exchange for money), not a consumer (one who uses up all) (Dr. Thomas Schmidt, President, Prime Health Care MSA Administration, www.medicalsavingsaccount.net).

  • Bad debts from insurance are five times as high as bad debts from direct patient billing (George Fisher, M.D.).

     

    Insurance for Beginners

    Catherine England explains in a Competitive Enterprise Institute Update: With insurance, we exchange the chance of a large, unexpected payment for a series of smaller known payments. Insurance allows us to protect our wealth. True insurance does not "spread" risk; it transfers part of the risk from the policyholder to the insurer. Premiums paid by the individual policyholder reflect the risk that he will make a claim, not the risk that somebody, somewhere will make a claim.

    In the insurance industry, consumers' interests are best protected by competition. Governments generally best foster a competitive environment by staying out of the way; regulations are far more likely to inhibit competition than to promote it. Rules that restrict profits remove the incentive to develop new products, and keep consumers from rewarding companies that serve them better.

    Private insurance cannot survive as an after-the-fact compensation scheme. It is generally not available for events that are extremely unlikely to occur (there being no demand) or for events that are extremely likely (as the premiums would be so high that self-insurance is preferable).

    Read the article at www.cei.org . Your congressman needs to read it also.

     

    AAPS Calendar

    June 1. Board of Directors meeting, Chicago
    June 2. Spring Private Doctors' program, Chicago.
    Oct. 24-27. 58th annual meeting, Cincinnati, OH.
    Sept. 18-21, 2002. 59th annual meeting, Tucson, AZ.


    Prescribe Pain Relief, Go to Prison

    Early in 1996, investigators arrived at the Salt Lake Headache Clinic during office hours, guns on hips, demanding patient charts and a witnessed urine specimen for drug testing. When Robert Weitzel, M.D., asked the reason, he was told it was because he was a "psychiatrist prescribing opiates."

    The urine sample, along with more than 80 others, was clean. Investigators were not satisfied, and proceeded to search the doctor's trash and interrogate staff, acquaintances, and patients. Dr. Weitzel lost many patients as a result.

    Next, Dr. Weitzel's Medicare billing practices were probed. These evidently passed muster, but while DEA investigators were at the hospital, a nurse told them that five "questionable" deaths had occurred at the hospital in the winter of 1995-96. A physician was found to render the opinion that the care rendered to those patients was not standard comfort, end-of-life care but constituted "active euthanasia."

    In June 1999, Davis County Attorney Melvin Wilson announced his intention to pursue first-degree murder charges. Two of the bodies exhumed had no detectable levels of morphine, and the third had levels commensurate with the amount prescribed. Nonetheless, in September 1999, Dr. Weitzel was arrested on five counts of murder and had to post a $100,000 surety bond and a $25,000 cash bond to be released.

    Simultaneously, the DEA sent a letter to Dr. Weitzel's primary hospital, stating that he was no longer "registered," although no hearing had been held. The hospital placed him on leave, and he has been unemployed ever since.

    Dr. Weitzel sold his home, liquidated all his assets, and went into debt to pay his legal bills.

    Up to two days before the trial, prosecutors "leaked" defamatory stories to the press, admitting later-after the damage was done-that the stories had no foundation. Because of the publicity, it was difficult to recruit defense witnesses in Utah. Out-of-state witnesses were threatened and harassed.

    Prosecutors procured highly biased witnesses, who were paid as much as $40,000 for their testimony. One asserted that a q3h rather than q4h dosing interval for morphine would cause blood levels to rise inexorably.

    Courtroom observers felt that all the prosecution's assertions were effectively demolished on cross-examination. Defense witnesses testified that the terminally ill patients received appropriate care in accordance with advance directives, that patients were indeed suffering pain, and that the time of administration of opiates bore no rational relationship to the time of death. Everyone was stunned-including the prosecution- when the jury returned a verdict of guilty to two counts of manslaughter and three counts of (misdemeanor) negligent homicide, lesser counts thrown in at the last minute.

    Sentence was one to 15 years in prison; the judge assessed him to be eligible for parole in six years. One juror told the press later, "I didn't know he'd go to prison."

    Dr. Weitzel served six months and one day before a motion for a new trial was granted. In granting the motion, the trial judge called the state's action in failing to disclose exculpatory evidence "manifestly unethical."

    The prosecution wants to retry Dr. Weitzel for first-degree murder even though he was acquitted on that charge. A hearing on the double-jeopardy issue is scheduled for May 18. If he loses, the prosecutor has vowed to appeal.

    Now bankrupt, and his medical license suspended, Dr. Weitzel faces legal bills of up to $150,000 to continue the fight.

    The "questionable" charts and a summary of the legal events are posted on the Internet at www.weitzelcharts.com . Trial testimony is also to be posted. (Having been told by the prosecutor that Dr. Weitzel had "murdered" their loved one, families previously happy with his care have sued him for malpractice. This enabled him to obtain a $25,000 trial transcript at the expense of his malpractice insurer.)

    Members are invited to go to the web site and come to their own conclusions. There are several ways to help Dr. Weitzel if you wish to do so: (1) Attend the hearing on May 18 (call AAPS for details); (2) Provide your questions or opinions to AAPS to be forwarded at an appropriate time to officials such as those on the Board of Professional Licensure (be sure to let us know whether or not you wish to have your name used); (3) contribute to Robert Weitzel, MD, Legal Defense Fund, c/o Peter Waldo, Esq.- Trustee, 9 Exchange Place, Suite 1000, Salt Lake City UT 84111 (not deductible).

    Dr. Weitzel may be contacted at [email protected] He would be happy to answer questions, send more information, or speak to interested physician groups.

     

    False Claims Act "Punitive"

    Justice Scalia's statement that "the current version of the FCA [False Claims Act] imposes damages that are essentially punitive in nature" has been called "revolutionary." See Ver- mont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S. Ct. 1858, 1868 (2000). The Ninth Circuit Court cited this statement to support its ruling that FCA penalties must be analyzed to determine whether they violate the Excessive Fines clause of the Eighth Amendment (USA v. Mackby, No. 99-15605). The District Court decided that the defendant had knowingly caused false claims for physical therapy services to be submitted by using his physician father's PIN in boxes 24k and 33, when Dr. Mackby had not been involved in the patients' care. For Medicare overpayments of $58,151.64, the defendant was assessed treble damages plus a civil penalty of $555,000 (111 claims x $5,000), for a total of $729,454.92. The case was remanded to the District Court for a "fact-intensive inquiry" to determine whether the fine and treble damages were "grossly disproportionate" to the offense.

    This decision is highly pertinent to the case of George Krizek, M.D. (see AAPS News, Sept 2000).

     

    "Religious Sincerity" Hearings Struck Down

    The State Health Department's scheme to "regulate" religious exemptions to childhood vaccines was overturned by the Wyoming Supreme Court in LePage v. State of Wyoming, Department of Health (2001 WY 26).

    Mrs. Susan LePage had submitted a request for a religious exemption to the hepatitis B vaccine, although her children had received other vaccines in the past. After further inquiry, the State denied her request on the grounds that, in their view, it was based on personal, moral, or philosophical beliefs rather than a principle of religion or a truly held conviction.

    The Supreme Court held that the issuance of an exemption is a ministerial duty, not a discretionary function of the Department of Health. The statute does not provide for any inquiry into the sincerity of belief, and if it did, would call into question the Constitutional prohibition against government interference in the free exercise of religion. The exemption is "self-executing upon submission of a written objection."


     

    Members' Page

    Sentinels. A physician stopped me in the hall and told me that as an avid bird watcher he particularly enjoyed In Praise of Crows. He told me that crows are very intelligent birds and are one of the few birds that actually watch out for each other. In fact, there is a "Sentinel Crow" that usually sits high in a tree and watches while other crows are eating. His job is to watch out for predators and to warn the others. The crows trade off, relieving the sentinel so he can eat too.

    Today, I received a memorandum in the hospital mail that demonstrates how the Robert Wood Johnson Foundation/ AMA "Education for Physicians on End-of-Life Care" (EPEC) is starting to filter down to our communities. Various programs with nice- sounding names, designed to indoctrinate the public, are planned, such as the "Theatre for Change Actors" (no, I didn't make up that name). At every one of the theatre presentations, they will be handing out Advance Directive forms. The two pronged approach is: enabling via the paperwork and implementing by co-opting the language ("Choosing Your Healthcare on Your Own Terms"), as if euthanasia or physician-assisted suicide could be termed "health care." It's hard to argue against, just as it is hard to argue against the federal "Children's Health Insurance Program" without sounding as if you're against children.

    Post those sentinels!
    Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

     

    Is Ignorance Best? Given the insurmountable hassles that physicians must deal with, and since physicians apparently can't interact with Medicare or managed care on an intelligent medical basis, they are better off (at least financially) by adopting a stance of rational ignorance and doing whatever they're told by whoever has power over them. Patients know little about the care they are receiving, and less about its cost. Why should they? What difference would it make? Smedinghoff's Law applies: Efficient allocation of resources cannot be done by rationally ignorant participants.
    Gerry Smedinghoff, Actuary, Wheaton, IL

     

    Actuarial Malpractice. Government experts are like the explorers of old. Columbus didn't know where he was going, and when he returned, he didn't know where he had been. He therefore advocated a return trip-at government expense.

    When Medicare was enacted in 1965, government actuaries projected that costs would reach $9 to $12 billion by 1990. The actual cost: $107 billion. Schoolchildren could have done better with a dart board. On the effects of the Health Insurance Portability and Accountability Act (HIPAA) of 1996, the Senate Labor Committee projected a 2 to 4% increase in federal medical insurance premiums in 1998. The OPM projected an 8.5% increase. The actual increase: 15% (R Miniter, Wash Times 10/21/97). That's 400% more than the Labor Committee's projection, and 200% more than OPM's.
    Ernest J. White, Alexandria, VA
    http://ERNIEWHITESWARREPORTS.com, 3/16/01

     

    Is It OK to Sell the Dog? During a World War, European nations had a centrally determined price for everything, including bread and eggs. Farmers found their costs exceeded what they were allowed to charge. So, as the story goes, the farmer would sell his dog along with the eggs. He would collect his 30 cents for the eggs, and $5.00 for the dog. When the buyer left the farm, the dog would come trotting back. Everyone was satisfied. The buyer had his eggs, which otherwise would have been unavailable. The farmer had a reasonable return for his labor-and his trusted dog, which got sold several times a day....
    Alieta Eck, M.D., Somerset, NJ

     

    What Is Retirement? Yesterday's op-ed on prescription drugs was a howler. Jim Driscoll of Arizona Citizen Action said that seniors shouldn't have to dip into their retirement savings to spend $1,000 a year on prescriptions. Doesn't "retirement" mean that you are living on your savings and not working? Using that same logic, retirees shouldn't have to pay for food, shelter, or clothing out of their retirement savings. They should be able to charge young workers for those things. I'll tell my mom and dad to send their bills to my son, but their old- fashioned sense of morality and self-reliance will keep them from doing so. The Driscolls of the world have only one tool in their kit: other people's money.
    Craig Cantoni, Capstone Consulting, Scottsdale, AZ

     

    Quality Measure. I would argue that there are such things as measurably high quality plans. My favorite is the "quit rate" or the "disenrollment rate." When employees have choices in Open Season, as in the FEHBP, knowing that in the last Open Season 20% left Plan X and only 2% left Plan Y tells you something important about service. Raw quit rates can be adjusted statistically to remove such non-quality causes as higher premiums. Unfortunately, OPM stopped publishing quit rates several years ago. They currently use employee survey results, which aren't too shabby if they focus on heavy users (as opposed to healthy ones-see comments from Dr. Robert Reid, AAPS News Apr 2001). OPM also uses JCAHO and NCQA accreditation information, which is next to worthless.
    J.F. Walton
    http://groups.yahoo.com/group/HealthBenefitsReform
    [Members may want to join some lively discussions there.]


    Legislative Alert

    The Good and Bad News on Medicare's Finances

    The Medicare Board of Trustees has good news, sort of, and bad news, absolutely.

    The good news is that the life of the Medicare Part A Trust Fund, the Hospitalization (HI) Trust fund, financed by a 2.9% percent federal payroll tax, has been extended from 2025 to 2029. The reason: stronger than expected economic growth and lower than expected program costs.

    The bad news is that Medicare's overall financial situation has worsened. According to the Medicare Trustees, "Medicare still faces financial difficulties that come sooner-and in many ways are more severe-than those confronting Social security. While both programs face similar demographic challenges, Medicare costs per enrollee are projected to rise faster than wages and eventually will place greater demands on the federal budget and beneficiaries."

    In making the comparison to Social Security, the Trustees say, "Medicare spending is expected to exceed the costs of Social Security. The financing gap for HI alone-which constitutes just over half of total Medicare costs-is larger than the gap for Social Security, and the HI Trust Fund will become insolvent 9 years sooner than the combined Social Security trust funds."

    The Trustees say that rising costs are attributable to a change in a major assumption: per capita Medicare costs will rise faster because of advances in medical technology. This means that while the Medicare hospitalization trust fund will not be bankrupt until 2029, the spending from the HI Trust Fund will start to be greater than the taxes supporting it-meaning the flow of red ink starts-in 2016. Not far away.

    What would it take to make the HI trust fund whole and balance the account for the long term-defined by the Trustees as the next 75 years? Congress doesn't usually focus on long-term financing. But the Trustees note that, if Congress were serious about doing that-they are clearly not-it would mean an immediate 60% increase in HI Trust Fund income, raising the payroll tax from the current 1.45 to 2.44% for employees and their employers. If they were to cut HI spending, it would mean a 37% cut in Medicare HI spending for "currently projected levels" or a combination of the two measures. Big tax increases or savage benefit cuts. Take your poison.

    The Trustees note, however, that the real Medicare problems cannot be understood simply in terms of the solvency of the HI Trust Fund, but rather the impact of Medicare spending on the program, the taxpayers, the beneficiaries, and the general economy. The Medicare Part B Trust Fund will never be insolvent, of course, because Medicare Part B is an open-ended entitlement system, in which the beneficiaries pay only 25% of the costs, and 75% of the costs by law are covered by draws on the Treasury. Part B is growing faster than the HI program. According to the Congressional Budget Office (CBO), HI benefits have accounted for 68% of Medicare's total costs; in 2001, it will decrease to an estimated 58%; and by 2011, the first year the massive baby boom generation starts to retire, it will amount to 53%.

    As David M. Walker, Comptroller General of the United States, recently told the Senate Finance Committee, "Clearly, it is total program spending...relative to the entire federal budget and national economy that matters. This total spending approach is a much more realistic way of looking at the combined Medicare program's sustainability. In contrast, the historical measure of trust fund solvency cannot tell us whether the program is sustainable over the long haul. Worse, it can serve to distort the timing, scope and magnitude of our Medicare challenge."

    The CBO recently reported that Medicare spending will more than double over the next ten years, even before the baby boom generation starts to retire, reaching $491 billion by fiscal year 2011. Based on CBO projections, this means that over the next ten years, Medicare spending as a share of total federal spending will jump from 12 to 19% percent. This corresponds to a growth from 2.3% of the Gross Domestic Product (GDP) today to 4.5% in 2030, and 8.5% in 2075.

    The three big entitlements-Medicare, Social Security, and Medicaid-will together eat up about 75% of the federal budget in 2030, according to CBO Director Crippen-assuming no changes in priorities or spending patterns. Of course, that is not likely to happen. It is hard to imagine a future world in which federal spending is little more than a series of income transfers, mostly from overtaxed young workers to millions of retirees, without some sort of political upheaval.

    Over the long term, what kind of taxpayer obligations are we talking about? Senator Charles Grassley (R-IA), Chairman of the Senate Finance Committee, in commenting on the Trustees' report to the House Ways and Means Committee on March 20, affirmed that over the next 75 years, the promised benefits under Social Security and Medicare "will exceed the scheduled payroll taxes and premiums by $465 trillion."

    Unfortunately, too many senior citizens think that their previous payroll taxes and their premiums somehow finance their benefits; they are profoundly mistaken. Today, as the CBO has noted, 87% of total Medicare revenues for both Part A and Part B come from current taxpayers, and only 13% from Medicare beneficiaries' premium and tax payments. The gap between program income and total Medicare spending is widening; it is projected to be $64 billion in 2001 and $136 billion in 2011.

    High on Drugs

    The CBO also sprinkled a little sobriety on the Medicare prescription drug debate. Leftists in Congress want to spend twice as much as the Bush Administration, more than $300 billion compared to $153 billion over a ten-year period, and chide the Bush Administration for not being robust enough in its commitment to add a new drug benefit to Medicare.

    But the CBO is asking the policymakers in Washington to take stock of what they are getting into on this issue. Their official projection is that increases in spending by seniors on prescription drugs over the next ten years will dwarf the growth of the economy, the federal budget, and even the Medicare program itself.

    The CBO notes that less than one-third of the current Medicare population is without coverage for prescription drugs. Nearly 70% of those who have coverage get it through a plan that supplements Medicare coverage. But the entire Medicare population accounts for 40% of the purchases of prescription drugs, which amounted to $75 billion in sales last year. Not surprisingly, Medicare patients paid about 45% of their drug bills out of pocket, compared to 39% for the non-Medicare patient population. The CBO also reported that spending patterns are heavily concentrated. Based on 1997 figures, about 13% Medicare patients spent $2000 or more on prescription drugs, and this group accounted for about 45% of total drug spending by Medicare patients.

    What is the hard core problem? The CBO estimates that about 10 million Medicare patients do not have access to prescription drug coverage. They are very old, disproportionately 85 years and older; they live in rural areas; and they fall between the proverbial cracks-i.e. they are not poor enough for Medicaid, but they are not fortunate enough to have access to employer-provided retirement coverage for prescription drugs. About 26 states provide prescription assistance programs for seniors, and most low-income seniors currently get public assistance for drug payments through these state programs. Middle- and upper-income seniors get coverage mostly through the Medicare HMOs or employment-based retiree health plans. Bush wants to earmark $48 billion over four years to channel funds, via block grants, to the states to assist the low-income elderly who don't have access to prescription drug coverage, but this is running into resistance from conservatives and moderate Democrats in Congress who think it will undermine Medicare reform, and from leftists in Congress, like Senator Kent Conrad (D-ND), who want to add prescription drug coverage to the old Medicare program.

    The Urgency of Medicare Reform

    President Bush, of course, wants to move Medicare reform this year. And he's gotten help from the independent non-partisan agencies that monitor the fiscal health and programmatic behavior of the Medicare program. A broad range of experts from the CBO, the General Accounting Office (GAO), and the Office of Management and Budget (OMB) has stressed that Medicare needs to be reformed. The summary of the 2001 Annual Report from the Medicare Trustees concluded that Medicare needs to be reformed and strengthened at the "earliest opportunity."

    One would think that with this level of professional analysis and the gravity of the players issuing the early warning signals, Medicare reform would have an easier road ahead. Think again. Congressional opponents of Medicare reform are simultaneously trying to block the Bush tax relief plan and confuse the upcoming Medicare debate in a fashion similar to the notorious "Mediscare" campaign of 1995. At that time, it will be recalled, leftists in Congress and the Clinton Administration were successful in arguing that the Congressional Budget proposal would finance a $270 billion tax cut with cuts in Medicare funding; the fact that the Congressional leadership neither intended nor did any such thing, relying instead on the earliest version of Vice President Al Gore's famed "lockbox" to plow back any savings in Medicare back into Medicare, made little or no difference. President Clinton won the public relations campaign hands-down, and it was the beginning of the end for former House Speaker Newt Gingrich, who was clearly outmaneuvered by the White House Spin Machine. Looks like the tactic is back, according to the Washington Post, which recently noted that "liberals" in Congress think they can beat the Bush Tax plan by saying that it will cut into Medicare funding, and using the "Byzantine financing" of Medicare to their advantage in the process.

    Of course, if you have an open-ended entitlement like Medicare-and thus an unlimited draw on general federal revenues, then, logically, a tax cut or any other spending priority- national defense, for that matter-necessarily "threatens" Medicare. The only thing that doesn't threaten Medicare is the status quo's unimpeded growth, in which Medicare and Social Security will simply impose higher and higher taxes on working families and take larger and larger chunks of federal spending and the national economy.

    While the Medicare Trustees report has been circulating in Congress, and the CBO and the GAO have been offering their commentaries to the Senate Finance Committee and the House Ways and Means Committee, Senators John Breaux (D-LA) and Bill Frist (R-TN) have been promoting their Medicare reform proposals. The first bill, The Medicare Preservation and Improvement Act of 2001 (S.357), is an update of legislation that the Louisiana Democrat had introduced in 1999. It provides for a comprehensive reform of the Medicare program based on the exhaustive 1999 work of the National Bipartisan Commission on The Future of Medicare. This revised version of Breaux-Frist legislation would establish a new "Medicare Competitive Premium System," creating a Medicare system that would look very much like the Federal Employees Health Benefits Program (FEHBP). The system would go into effect on January 1, 2004. As a back-up measure, Senators Breaux and Frist have introduced The Medicare Prescription Drug and Modernization Act of 2001 (S. 358), an update of a more incremental reform of the Medicare program combined with a guaranteed senior access to prescription drug coverage. It is a more modest piece of legislation, and would also go into effect in 2004.

    While differing in scope, both bills would establish a new agency to administer plans and benefits, rather than relying on the Health Care Financing Administration (HCFA), the agency that today runs the traditional Medicare program; both would foster market competition among providers and drug providers; both would provide access to prescription drugs for seniors; both would subsidize the drug costs of low-income seniors fully and provide a sliding scale of subsidies or discounts for others; and both would address the way in which Congress and the Administration measure and monitor the solvency of the Medicare program, a perennially troublesome issue. Given CBO's most recent projections, the whole issue becomes even more troublesome.

    On Medicare reform, again, America has no time to waste.

    Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.