1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 59, No. 5 May 2003


As AAPS will inform patients in a national advertising campaign, HIPAA-covered entities should be handing patients a Miranda warning come April 14. That's the real meaning buried in the lengthy privacy notification, which will resemble the Gramm- Leach-Bliley non-privacy notices that you get from your bank and probably throw away.

The Miranda warning, of course, applies to persons arrested as criminal suspects. And anyone with a medical record could be a criminal suspect, with evidence from that record readily accessible to a vast dragnet no warrant required.

For example, a prescription for an opiate might be considered a reason for "oversight." The physician might have demanded a urine screen for marijuana and other controlled substances as a condition for prescribing pain relief. Such specimens should be handled with a "chain of custody" appropriate for crime-scene evidence, advised pain management expert David Greenberg, M.D., at a March 22 seminar sponsored by the Pima County (Tucson, AZ) Medical Society. Could a positive screen found by overseers be used as evidence to prosecute a patient? Or as an incentive to get a patient to testify against a doctor as part of a plea bargain?

As already determined by a federal court, HIPAA appears to do exactly what AAPS predicted: it gives the U.S. unlimited access to personal medical records under its "oversight" power pursuant to the Privacy Rule.

In defending against a qui tam action brought under the False Claims Act, the Louisiana Clinic sought to protect the medical records of nonparty patients. It argued that "Louisiana law requires notice to a patient and a contradictory hearing that includes the patient before a health care provider can produce nonparty patient records without the patient's consent" (US ex rel. Mary Jane Stewart v Louisiana Clinic, 2002 U.S. Dist. LEXIS 24062).The Court ruled:

"These [HIPAA] regulations are clear and unambiguous, and they wholly undermine defendants' arguments to the contrary. Accordingly, I find that the United States may use any information it obtains through discovery in this action in connection with its legitimate government oversight activities, and not solely for purposes of this litigation.

The oversight activities authorized by law include audits; civil, administrative, or criminal investigations, proceedings, or actions; and licensure or disciplinary actions.

Lest we forget, the Privacy Rule is part of a set of regulations intended to support a centrally managed, national medical system through computerized, widely accessible medical records. "Administrative simplification" was the task of Working Group 19 of the Clinton Task Force on National Health Care Reform (see AAPS News Jan 2003), with participants from WEDI, EDS, Telesis, CIS Technologies, US HealthCare, Aetna, Blue Cross/Blue Shield, and numerous other managed-care, technology, and hospital interests.

The intention was, according to a memorandum from Group 19 Leader Tim Hill, to "require, by July 1, 1994, all providers...to use the claim forms, enrollment data sets and utilization review standards set forth by the Secretary." Then the Secretary was to be authorized to mandate automation of transactions for which she had promulgated standards by December, 1995 under pain of civil monetary penalties.

Unique identifiers would be needed to "track problems abusers, chronics," according to handwritten documents that AAPS obtained through discovery in AAPS v Clinton.

Privacy is clearly an impediment to efforts to track "cheaters" trying to evade price controls or rationing. Such actions could be subject to criminal penalties, as in Medicare.

A facade of privacy protection is necessary, however, to gain public acceptance of the tracking mechanism.

The Privacy Rule will indeed have a highly noticeable impact on medical care: Reporter Robert Pear calls it a "quiet revolution" (NY Times 4/6/03). Staff will be preoccupied with forms, training, and compliance exercises. Florists, clergymen, and relatives may have difficulty locating hospitalized patients. Physicians may be denied access to information they need.

At the same time, the computerized medical record will be wide open to unseen agents who are working for "national priorities" or the benefit of the "system," rather than any individual patient. Moreover, as HHS itself acknowledges, "privacy and security are inextricably linked," and the integrity and confidentiality of the computerized data cannot possibly be protected without the security standards which were recently promulgated but are not enforceable until April, 2005.

Traditionally, privacy has been protected by requiring patient consent to release the record. The original Privacy Rule destroyed this barrier by requiring all-or-nothing "consent": patients either agree to release all information for "TPO" (treatment, payment, and "health care operations") or forgo medical treatment. The amended Privacy Rule removes the pretense of consent altogether, so that no patient who has ever seen a covered entity can protect records from federal scrutiny, even by self payment or doing without treatment.

The AAPS lawsuit that seeks to overturn the Privacy Rule on constitutional grounds which established the "country doctor exception" (AAPS v HHS, see AAPS News Jan, Aug, and Nov 2002) has been scheduled for oral argument in the Fifth Circuit Court of Appeals in New Orleans in early May. In the meantime, AAPS will be filing to enjoin enforcement of the Rule on procedural grounds.

This unprecedented massive intrusion of government into every medical encounter must be stopped. AAPS is working on the legislative, legal, and educational fronts.

Texas Repeals HIPAA Law

As members brought to our attention at the San Antonio meeting, Texas had passed a law defining all physicians and "providers" as HIPAA-covered entities, in Sections 181.101 and 181.102 of the Health and Safety Code. An act repealing those sections, S.B. 330, has passed both House and Senate and has been sent to the Governor for signature.


Who Is Investing in HIPAA?

When 1.5 million data files containing medical records and Social Security numbers were stolen from TriWest computers, victims were sent information on identity theft and that's all.

Once 250 million medical records are on 1 million computers, Walt Francis suggests buying stock in an off-shore company that sells personal information. "Better yet, set up that company yourself. For a few thousand dollars in bribes, you can have a data base that will put the [NSA] to shame."

Mr. Francis advises patients to seek potentially embar- rassing medical care under a pseudonym. Pain treatment may be out government-issued picture ID may be required to receive a prescription for a controlled substance.

HHS ignored comments suggesting measures such as a registry of searches and allowing only HHS-certified bureaucrats to search. "Sleep well in the knowledge that your medical records will never be lost," Mr. Francis concluded.


Data Mining

Education Records. Reps. Mike Ferguson (R-NJ) and Christopher Bond (R-MO) propose to permit the CDC to use educational records without parental knowledge or consent, for research on developmental disabilities.

National Crime Information Center (NCIC). AAPS signed an on-line petition asking that the FBI comply with the Privacy Act of 1974 and rescind its decision to exempt the NCIC from obligations to make reasonable efforts to assure accuracy (see www.epic.org/actions/ncic/). NCIC responds to 2.8 million queries per day; inaccurate or incomplete information can seriously harm a citizen.

Texas Agencies Fail to Protect Data. Texas State Auditor's Office Report 03-017, Feb 2003, states that numerous weaknesses in the consolidated network of health and human services agencies permit unauthorized access to confidential files that could be read, copied, modified, or deleted.

Minnesota Data Collection. The Minnesota Department of Health has collected more than 130 million personally identifiable private records, without patient consent. An attempt to repeal the enabling legislation has been dropped for the year, according to Twila Brase of the Citizen's Council on Health Care ( www.cchconline.org).

Homeland Security. A "major crossover between homeland security and medical privacy" results from the HSA's data-mining provisions and Total Information Awareness (Healthcare Compliance Letter 2/18/02; AAPS News Jan 2003).


AAPS Calendar

May 30. Board of Directors meeting, Seattle, Washington.
May 31. Shark-Proof Your Practice seminar, Seattle.
Sept. 17-20. 60th annual mtg, Point Clear, Alabama.
Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.

Ron Paul Introduces Bill to Repeal Privacy Rule

Life-time AAPS member Ron Paul, M.D. (R-TX) has introduced the Patient Privacy Act (PPA), H.R. 1699, which would repeal the mis-named Privacy Rule, repeal the HIPAA provisions authorizing the "standard unique health care identifier" for all Americans, and prohibit the use of federal funds to develop or implement a database containing personal health information. Dr. Paul writes:

Many things in Washington are misnamed; however, this regulation may be the most blatant case of false advertising I have come across in all my years in Congress. Rather than protect an individual right to medical privacy, these regulations empower government officials to determine how much medical privacy an individual `needs.'

Dr. Paul believes that it is the right of individuals, not the government, to determine what social goals warrant allowing others to access their private property, including personal data.


AAPS Members Respond to HIPAA

A Non-Issue in My Practice. "Physicians really do have the solution to this. We can refuse all contracts with third parties and claim HIPAA's country doctor exemption," writes Robert Berry, M.D., of Greeneville, TN. "I have never had to force a patient to sign one of these statements.... I have had patients switch their care from physicians who forced them to sign this document." Dr. Berry's files are as confidential as they were with the old country doctor. "If we as physicians continue to comply with bureaucratic mandates for lucre, then we deserve to be their slaves," he states.

The "Quiet Way to Comply with HIPAA" is to be a noncovered entity. William A. Jones, M.D., of Fort Collins, CO, distributes this handwritten message with a quotation from the HHS motion to the court in AAPS v HHS and a printout from the AAPS web site defining noncovered entities.

"HIPAA-Free Office: Certificate of Privacy Assurance" inspired by the AAPS Model Patient Advisory is available from the ChiroCode Institute, www.chirocode.com.

Model Resolution. A resolution for the California Medical Association House of Delegates, by Stephen J. Walsh, M.D., of San Francisco, asks the CMA to "encourage federal legislation to restore genuine medical privacy and patients' traditional right to consent for their personal medical information release" and to join with other organizations in legal actions against the Dept. of HHS to restore medical privacy.

CMS to Non-Covered Entities: "It is true that if you are a 100% paper office, you...do not have to comply with the HIPAA rules. But is this a good business decision?" writes Cathy Benoit, M.B.A., HIPAA Coordinator for the Atlanta Regional Office of CMS. HIPAA is a "business opportunity."

Final Ruling in AAPS v. Clinton

On March 25, Judge Royce Lamberth "reluctantly agreed" with the U.S. Department of Justice that the award of legal fees to AAPS under the Equal Access to Justice Act (EAJA) was precluded by a 2001 Supreme Court decision. He ordered defendants to pay AAPS counsel $17,138.93 on a 1993 motion for fees for discovery abuse, and closed the docket.

In Buckhannon Board and Care Home v. West Virginia Dept. of Health and Human Services, No. 99-1848, the U.S. Supreme Court decided that the fee-shifting provisions of the Fair Housing Amendments Act (FHAA) and the Americans with Disabilities Act (ADA) required that a party had to either secure a judgment on the merits or a court-ordered consent decree in order to qualify as the "prevailing party." In Buckhannon, the case was mooted after passage of legislation.

The AAPS case was mooted when the DOJ "voluntarily" provided boxes of documents after many hearings and court orders but before a final decision by the Court.

"It appears that the federal government can avoid its responsibility to pay plaintiffs' legal fees under the EAJA by capitulating at the last instant, when it is clear that it will lose in Court, even though the DOJ has prolonged litigation through convoluted legal maneuvers and thereby maximized costs," stated AAPS Executive Director Jane M. Orient, M.D.


Amicus Filed in License Revocation Case

In Gadsden, Alabama, three young adults from prominent families died of an OxyContin overdose. The ensuing media furor pressured the Alabama Board of Medical Examiners to do something about drug diversion. Larry Dixon, its Executive Director said: "It takes a doctor who is prone to writing large amounts of controlled substances, and it takes a `drug shopper.' You get those two together and you've got a good relationship until we get you" (AM News 6/25/01). Thus the Board is on the public record with a promise to "get" a physician based solely on the conduct of his patients, or even a patient's friends.

The Board found its scapegoat in Pascual Herrera, Jr., M.D., a graduate of a foreign medical school. Television stations did interviews with people who said they hoped that Dr. Herrera would go to prison.

Although Dr. Herrera did treat chronic pain and prescribed OxyContin for about 10% of his patients, none were injured by it while under his care, and he had no connection with the tragedies that were on everyone's mind during the hearing. He had also screened out 200 addicts from his practice.

Testimony by his patients demonstrated care that was adequate, even exemplary. Nonetheless, Dr. Herrera's license was revoked on pretexts that included sloppy handwriting.

"That rationale, if affirmed, would support the revocation of the licenses of hundreds of thousands of physicians, and quite a few attorneys as well.... In fact, the handwriting of the Board's own expert was no more legible than Dr. Herrera's," wrote AAPS General Counsel Andrew Schlafly.

The Board failed to articulate with specificity any offense that Dr. Herrera allegedly committed, and there was no proof of harm to any patient. AAPS as amicus urged the Circuit Court of Montgomery County, Alabama, (CV-01-2232-H) to reverse the order of revocation.

Not only do such cases represent a miscarriage of justice, but they have a chilling effect on the practice of all physicians, whose careers could be ruined in order to mollify the public.


Amicus Filed in Mitrione Appeal

The precedent established in the case of Dr. and Mrs. Robert Mitrione (see AAPS News June, Oct 2002, and Jan 2002 Legal Supplement) will affect many physicians.

"Many other AAPS members are deciding whether to continue serving the poor through the Medicaid program, if 23 months in jail can result based on a picayune dispute over $75.25 in claims (the total amount of the remaining conviction here). Where, as here, the conviction was the product of false government testimony, the precedent at stake is even more important," wrote AAPS General Counsel Andrew Schlafly.

The Court erred, AAPS argues, by inferring fraudulent intent rather than mere mistake. A conviction for mail fraud (based on a $25 claim) requires a jury finding of specific intent to defraud, beyond a reasonable doubt. Yet the primary proof of mens rea the false testimony was stricken. Previously, the Court had held that, even in the less demanding context of audits and civil penalties, the sample to establish inappropriate billing must be random and significant. An unrepresentative sample of a mere two claims cannot establish criminal intent.

Additionally, the Court relied on expert opinion to claim that defendants used a therapist who was unqualified under Illinois Medicaid policy, when published federal regulations expressly authorize physicians to use therapists of their own choosing. The Judge then imposed sentence enhancements on the defendants based on her personal disapproval of the medical treatment rendered.

The prosecutor attempted to block the AAPS amicus brief, and then filed motions to disqualify both defendants' briefs before the Seventh Circuit. This was apparently an attempt to force the attorneys to redo all their work, probably at their own expense defendants were depleted of their assets long ago.

Briefs are posted at www.aapsonline.org; click on "prosecutions," then "US v Robert Mitrione." The American Health Legal Foundation funded the AAPS amicus brief.


Tip of the Month: The legal approach of alleging defamation has worked again, where other theories have failed. Claims in defamation are simple to make and do not require one- tenth the cost of an antitrust action. More importantly, immunity under the Health Care Quality Improvement Act does not apply to defamation beyond peer review itself. In Davita Inc. v. Nephrology Assocs., P.C., 2003 U.S. Dist. LEXIS 4770 (S.D. Ga. Mar. 25, 2003), a kidney dialysis center sued its former medical directors for alleged defamation, and the court refused to dismiss the claims. "Under Georgia law, defamation requires proof that a statement was (1) false, (2) malicious, and (3) published. In addition, oral defamation may `consist in ... making charges against another in reference to [a person's] trade, office, or profession, calculated to injure him therein ....'" Id. at *10 (citations omitted). Where defamation exists, an aggrieved physician can sue for it and thereby obtain discovery and conduct depositions of defendants.


Deterrence: Medicare Sanctions

As of January 8, 2003, there have been 26,594 program exclusions, 3,749 involving a medical practice. There were 7,120 program-related convictions, 10,486 license revocations or suspensions, 377 convictions involving controlled substances, and 281 convictions for health care fraud (Medicare Compliance Alert 1/13/03). How many were justified? No one knows.


Liberal "Compassion." As government-provided "free" medical care threatens to bankrupt the county, and the State of New York doesn't have the money to pick up the tab, "Sen. Clinton Pushes for Medicaid Relief," according to the Post- Journal headline (10/19/02) from federal taxpayers.

When will this formula for election success begin to break down? When the public begins to recognize that the "other people" paying the taxes are all of us. The leftist claim of compassion is nothing more than a promise to spread the misery. When there aren't enough other people to spread the costs to, the socialist myth of free stuff to all will be exposed.

How do socialists spell "relief"? F-R-A-U-D.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


Consumer Choice for the Poor? If being poor means that people can't be trusted to make the "right" decisions, say about medical care, what about those at 150% or 200% of poverty? And should they be allowed to climb mountains, a hobby with a high fatality rate? Or to stay on their farm and continue working with large, potentially dangerous animals?

If poverty makes one incapable, why doesn't the state make decisions for college students, who are known to make bad decisions about all kinds of things?

What about those of us who are descendants of poverty- stricken immigrants? Should we have been wards of the state?
Linda Gorman, Englewood, CO


Today's Magicians. Lawyers have a way of altering reality or intent by redefining words. For example: the Framers recognized that government power is restricted to the extent that property is private. So leftist lawyers turned the concept on its head by creating public-private partnerships in order to regiment society. Such lawyers are like the sorcerers of yesteryear who sought answers through magic words rather than the application of reason.
Robert P. Gervais, M.D., Mesa, AZ


The Wrong Question. Legislators are trying to to design a prescription drug benefit that will not have disastrous effects, as on new drug development. But instead of asking how to amortize the costs of research (or shift the cost of prescriptions), we should ask how to lower costs. Essentially, the answer has to do with the role of the FDA. And remember, the largest cost of the FDA is not denominated in dollars but as the opportunity cost of drugs that are never brought to market, or brought to market decades too late for patients who might have benefited from them.
Gerry Smedinghoff, Phoenix, AZ


Non-Participation Is Better. My impression is that the government has less respect for participating physicians, and treats them as their workers. The government also has a political fear of angering a large constituency of senior citizens. Thus, having the senior squarely situated between the government and the physician is the safer way to go.
Alieta Eck, M.D., Somerset, NJ


Opting Out Is Wonderful. When Medicare became a reality in the mid 1960s, I initiated my own "medicare program," which called for a $50 per year deductible followed by a 20% charge for all patient services. Not only were my patients happy with my plan, but I probably lost little or no income and filled out no Medicare papers.

After my anesthesia residency (1973-75), I went into a group practice in which a high percentage of patients were over the age of 65. During that time, I billed Medicare, as was the common practice. However, by 1997, I became so disenchanted with Medicare that I decided its constraints far outweighed the paltry financial returns and began the opting-out process. I have continued to treat Medicare patients without charge. I'm in my fifth year of being opted out; I couldn't have made a better choice. My advice: try it you might like it.
Donald R. Salmon, M.D., Las Vegas, NV


How I Got Out of HIPAA. I told my billing agent to press the "print" button instead of the "send" button. He now mails the bills. It costs less. There has been a slight delay in payment, unworthy of consideration. If your attorney does not know how to advise you, get another attorney.
Samuel A. Nigro, M.D., Cleveland Heights, OH


Who Are the "Bad Docs"? The statement, as by Public Citizen, that the bad doctors are the problem with liability insurance premiums gives me comforting reassurance. Family doctors, pediatricians, and psychiatrists are the good doctors. Neurosurgeons, orthopedists, and obstetricians are the bad doctors. How do I know? The former, my group, pay the lowest rates; the latter, the highest.
James Pendleton, M.D., Bryn Athyn, PA


Hourly Wages. In discussions about the professional liability crisis, physicians may feel uncomfortable discussing their income, which may remain in the six figures. I suggest converting it to an hourly wage. If I use time and a half for overtime, my hourly wage by the end of 2002 dropped to $17- $18/hour, substantially less than I must pay my nurse to compete with other available opportnities. If I say $120,000, most people assume that is $60/hr.
L.L. Penney, M.D., Columbus, MO

Legislative Alert

Medicare's Money Troubles: The Truth

Medicare Trustees have just issued their annual report, and, no surprise, they say that Medicare is in financial trouble. We all know that. We also know that the trouble is rooted in the structure of Medicare as an open ended-entitlement, governed by perverse incentives that encourage cost explosions, and also encourage cuts in reimbursement to doctors, hospitals and other medical professionals. Here are the basic facts for 2003:

#1. The Hospitalization Insurance (HI) program, the part financed by payroll taxes that pays hospital bills, will go broke in 2026, four years earlier than predicted last year.

One perspective is that 2026 is still a long way off, and we can still muddle through until then using the same old gimmicks: flat-out payment reductions; new fee schedules for hospital payment; or switching coverage for certain items, like home health care, from Part A into Part B, where the costs will be picked up through draw-downs on general revenues (a semi-clever way to try to hide the true costs of the program from the ordinary taxpayer). Look for Congressional champions of the status quo to utter such sentiments. The late Rep. Sam Gibbons (D-FL) once famously noted that he never really paid much heed to those Medicare Trustee reports anyway. No point in getting hysterical.

A more reasonable approach is to observe that, wow, Medicare goes broke at the most inconvenient time, just when that massive 77 million baby boom generation is fully into retirement, no longer working and paying the payroll taxes to sustain it, meaning that 2026 is really different than previous dates, when the Trust Fund solvency was a constant irritant rather than a full-blown financial crisis.

An even more reasonable perspective is that the 2026 date is, in fact, nothing less than the end of the projected process of Medicare financial deterioration, and that the beginning of the end is indeed closer than we realize. Why? Because the Medicare Trustees tell us that the HI program starts running in the red, paying out more than it is taking in, in 2013, rather than 2016, just three years into the first wave of the big baby boomer retirement. Feeling a bit edgy yet?

#2. The financial issue is not the solvency of the Medicare HI Trust Fund, but the growth in Medicare spending and its consequences for taxpayers and seniors.

The Trust Fund is just an accounting device for a pay-as- you-go system, the entire structure of which is in deep trouble because of demographic and other changes.

The demographic trends alone are daunting. According to the Congressional Budget Office (CBO), from 1990 to 2010 the number of workers in the American economy will have grown by 33 million, but the number of persons aged 65 and older will have grown by only 8.3 million. But between 2010 and 2030, the growth in the number of workers will slow to only 14.4 million while the number of persons 65 and older will grow by an estimated 30 million, double the rate of workers to retirees. While today there are almost 4 workers for every retiree, by 2030 there will be slightly more than 2 workers for every retiree. In other words, regardless of the state of the Medicare HI Trust Fund, the real financial pressure is the accelerating burden of Medicare spending, and what it will mean for taxpayers, the federal budget, and the premiums of seniors. Next year, Medicare beneficiaries will face a premium increase of more than 12%, a harbinger of things to come. But for taxpayers, you ain't seen nothing yet.

#3. Expect big future tax increases to keep Medicare afloat.

Part B, which pays doctors and reimburses outpatient medical services, is funded by premiums of which seniors pay 25% and taxpayers, 75%. While today, Part B expenditures account for 42% of all Medicare spending, Part B is growing faster than Part A, and that means a progressively larger bite of income tax revenue. How large? According to Professor Tom Saving of Texas A&M University, a member of the Social Security and Medicare Board of Trustees, by 2026, the year that Medicare HI Trust Fund goes broke, Medicare will consume 20% of federal income tax receipts. If Congress were to add a modest drug benefit to the program that would cover just 25% of Medicare patients' drug costs, that would jump to 24% of all federal income taxes. With a very generous prescription drug benefit, paying for 75% of beneficiaries drug costs, the take would amount to 35%. As Professor Saving notes, if you add the projected shortfalls facing the Social Security system, the income taxes taken to make good on the unfunded political promises of both programs would be 44% of total federal income taxes in 2026. No problem.

The CBO expects that the Medicare spending will continue to accelerate, long after the baby boomers are in retirement, largely because of the demand for medical services. So the line doesn't dip when the last baby boomer draws his last breath.

CBO states that if Medicare is consuming a mere 2.4% of GDP today, it will consume 9.2% in 2075, the out-year limit of projections normally made by the Medicare trustees.

As Douglas Holtz-Eakin, the new Director of CBO, recently told the Senate Special Committee on Aging: "If the Medicare program's costs today accounted for 9.2% of GDP, they would equal half of what is now spent under the entire federal budget. If the program's higher costs were added to what is now expended, total federal receipts (which currently absorb about 18% of the GDP) would have to be one-third larger. And if those increased costs were paid for entirely through a payroll based tax, the rate now set at 15.3% on the earnings of most workers would have to more than double a rise equal to roughly $6,000 per worker (that is, $3,000 each for the worker and his or her employer)."

Practically speaking, what does this 75-year projection mean? For most of us who are baby boomers, this is not a problem we will face at least directly. It's the problem facing the grandkids. Keep that in mind. Those who defend the status quo, and keep promising something for nothing, including artificially cheap Medicare prescription drugs, have quietly, without much fanfare, muttered a few choice words for the taxpayers of the next generation: Go to Entitlement Hell. After all, why should they care for future generations? How many future generations are going to vote for them?

And Yet, "Medicare Controls Costs"

... even better than the private sector! That is the substance of the argument presented by Marilyn Moon, the Urban Institute's prominent health policy analyst. (See Cristina Boccuti and Marilyn Moon, "Comparing Medicare and Private Insurers: Growth rates in Spending Over Three Decades," Health Affairs, March-April 2003). Moon argues that Medicare performed better than the private sector in "controlling the rate of health care spending growth" largely because of Medicare's ability "to price aggressively for the services it covers."

Pricing "aggressively" in Medicare means imposing and enforcing price controls. OK. We get it. On sector A of the economy you impose price controls; on Sector B of the economy, you don't. Sector A's costs don't grow as quickly as Sector B's. And water is powerfully wet.

Moon and Bocutti's analysis covers three decades. They base their calculations on enrollee spending, compare like services, and do a comparative analysis of cumulative spending for Medicare and the private sector. On March 17, Moon presented her findings at a Washington conference sponsored by the Alliance for Health Reform. Joseph Antos, a health policy analyst with the American Enterprise Institute and former Assistant Director of CBO, notes that Moon's basic point is well taken on the raw numbers, but her analysis doesn't tell the whole story. As Antos recounts, it is not only what you are spending that counts, but also what you are buying for the dollars spent. Over the period 1970 to 1999, private medical insurance spending did grow faster than Medicare overall, but the content of private coverage grew even faster. According to Antos, while private spending increased 44.8%, the private sector benefits grew by 80.2% over that period. In other words, the value of private insurance grew even faster than its costs.

Antos also makes the standard economic argument against price controls. They are inefficient inherently. Medicare's aggressive pricing is not at all related to local market conditions, and in Medicare the adoption of new medical technologies is slowed, regardless of demand for these services. For doctors, Medicare's alleged efficiency resulted in a fee cut of 5.4% cut in 2002, and a projected 4.4% cut in 2003, which was only corrected by Congressional intervention. Medicare may formally pay for something, but Medicare patients won't get it unless they find a doctor, hospital, or clinic who can offer it at the government-controlled price, sustain the financial loss, and still stay in business.

And on this point, Congress should start to worry. According to a survey sponsored by the Medicare Payment Advisory Commission, the percentage of doctors accepting all new Medicare patients dropped from 76% in 1999 to 70% in 2002. The reasons are not hard to fathom. About 77% of physicians expressed concern about Medicare payments, and about 75% had concerns about Medicare rules and paperwork.

Breaking Ranks in the House of Representatives?

House Democratic leaders proposed a comprehensive Medicare prescription drug benefit that would cost between $800 billion and $900 billion over a ten-year period. Signed on to the gigantic proposal are Minority Leader Nancy Pelosi (D-CA); Rep. Charles Rangel (D-NY), ranking member of Ways and Means; and Rep. Steny Hoyer (D-MD), House Minority Whip. The Bush Medicare drug proposal is "too meager" and competitive markets are anathema.

In a move sure to upset the Leadership, two House members, Rep. Cal Dooley (D-CA) and Rep. Rahm Emmanuel (D-IL), a former domestic policy wizard in the Clinton White House, proposed that Congress target low-income seniors for help with drugs, rather than creating a universal benefit. Under the Dooley-Emmanuel plan, Medicare would pay 80% of drug costs greater than $4,000 in a year. The benefit could be delivered through private plans, retiree plans, or state pharmaceutical assistance programs, and would cost approximately $400 billion over ten years, roughly the same as the Bush proposal. Under the Dooley-Emmanuel proposal, the $4,000 deductible would not apply to seniors who had incomes less than 200% of poverty. CBO estimates that 17% of the elderly will have drug expenses that exceed $4,000 per year.

Dooley and Emmanuel got the support of 16 of their Democratic colleagues. Politically, this is big stuff. In effect, on the crucial prescription drug issue, they have forged a "New Democrat" block, which, given the tight margins in the House, will quickly emerge as another serious power block.

The Left Attacks the President's Model for Reform

In a direct counterattack on the President's model for a future Medicare system, Families USA recently published a monograph, widely distributed on Capitol Hill, spelling out why the Federal employees plan is a bad model for Medicare. The reasons: 1. Medicare beneficiaries are less healthy than FEHBP enrollees. (Fact: FEHBP also covers retirees.) 2. The program would face adverse selection problems. (Fact: the FEHBP does not have a significant adverse selection problem because of its design). 3. Poorer Medicare beneficiaries may not be able to afford higher premium for generous health plans. (Fact: ditto for federal retirees. The answer: means test the program.) 4. Medicare beneficiaries will have difficulty making informed decisions. (Tacit Premise: You are not as smart as federal retirees.) 5. Plans could withdraw, and that would be disruptive. (Fact: FEHBP plan withdrawals have not resulted in disruption of coverage for workers or retirees.)

The FEHBP is the largest group health insurance in the world. It has solid coverage and high rates of satisfaction. The left has been frustrated with the program because it has been an embarrassing showcase of how ordinary individuals can make sound choices. In 1993, the Clinton Administration called for its abolition, and proposed instead to fold federal employees into the Clinton Plan. Federal workers and retirees never to be trifled with protested vigorously.

During the great August 18, 1994, debate on the Clinton Health Plan, Sen. Carl Levin (D-MI) said: "Madam President, I think we have hit a sensitive nerve this afternoon on this Federal employees insurance.... It is not just us, it is 9 million Federal employees and their families who have this insurance. If it is good enough for us, why is it not good enough for the rest of the people of America? ... The American people are entitled to an answer. If we voted it in for ourselves and the 9 million Federal employees and their families, why will we not provide them the same protection? That is the question they are asking.... Call up the office of your Member of Congress and say, `I would like to take a look at that plan that you folks have provided for Federal employees and yourselves'." Got it?

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