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 60, No. 5 May 2004

THE COVERAGE TRAP

The second "Cover the Uninsured Week" is coming to a town near you May 10-16, sponsored once again by the Robert Wood Johnson Foundation. The National Spokesperson is a star who plays a doctor on TV, Noah Wyle of ER. The stories of uninsured persons coming to a Chicago emergency room "have had a profound effect on me," he said.

RWJF claims that 44 million Americans have to "live without health coverage," and 1,000 events are planned to dramatize their plight. Medical students will organize "teaching events"; thousands of clergymen ("faith leaders") will tell their congregations that "health care for all is a moral imperative"; and a major paid advertising campaign will bolster the events.

While 43-44 million sounds like a crisis number, the actual number of uninsured could range from around 10-12 million (about 3-4% of the population) to 290 million "at risk" of losing insurance and already uninsured for something.

About 14 million are eligible for Medicaid but not enrolled. Since coverage is retroactive to the start of a problem as soon as they do enroll, they are really covered. About 18 million earn more than $50,000 per year and pay for care in cash, so they are self-insured. No matter what is done, some will be uninsured. Just as there is, according to Milton Friedman, a natural level of unemployment, there may be a natural number of uninsured. Even with mandatory auto insurance in 47 states, 13% of drivers are uninsured, according to the Council for Affordable Health Insurance.

No one can possibly be insured against every risk, and everyone who gets insurance through employment will become uninsured if he becomes unemployed (no one can afford COBRA). Medicare and Medicaid recipients are dependent on programs doomed to bankruptcy. Thus, the natural state is of Universal Uninsurance. If one demands the unachievable endpoint, the chimera of Universal Insurance, then mandatory government coverage must be the ultimate agenda.

As Harris Wofford asked during his winning 1991 senatorial campaign: "Prisoners receive free medical care. Shouldn't Pennsylvanians and all Americans expect the same thing?" His opponent, U.S. Attorney General Richard Thornburg, couldn't really respond, "Do we really want to force all Americans to have the same deplorable healthcare as prisoners?" without condemning himself as head of federal prisons (William L. Anderson, 2/3/04, www.Mises.org).

The RWJF show will claim to feature ideologically diverse groups and will offer bipartisan celebrities such as former Surgeon General C. Everett Koop. All "sensible systemic reforms" are supposed to be discussed. These have in the past included pay or play and the Canadian model, and Tennessee has been touted as a success, states Linda Gorman.

"They and their acolytes spend lots of money...sending slick presenters around...to do the socialized medicine dog and pony show. It is effective and a major pain to combat. Kind of like a virus that keeps coming back because you can't ever kill it completely the organizations supporting it keep mutating and changing form."

As Robert Berry, M.D., described the 2003 Cover the Uninsured public relations campaign, "[RWJF] appealed to one of the most base of human appetites the urge to feel charitable and just without actually doing charity and justice. Issuing invitations to indulge in town meetings and other photo ops, it offered participants the chance to change the world in a single sound bite, "Health Coverage for All."

The approach to consumer-directed health plans which are starting to take off and are projected to reach nearly 25% market share by 2010 should be revealing. Ron Pollock of Families USA claims that consumer-directed care is an "incredible misnomer." Self-described ethics experts are calling it "intellectually and emotionally complex" and a "blunt instrument" (Managed Care Magazine, Sept 2003).

RWJF tries to portray the discussion as one of reform (more incremental socialism) versus the status quo, but consumer- directed plans are the radical reform. Attempting to control utilization from the demand side, rather than the supply side of insurance companies and providers, is "a 180-degree shift from a traditional managed care program," stated Robert Booz of Conning Research and Consulting (ibid.).

"`Ration' is the only part of `rationality' these people are familiar with," explains Linda Gorman.

AAPS will participate in a joint event in Chicago with the Heartland Institute during Cover the Uninsured Week, which coincides with a Board of Directors meeting. The objective is to bring the patient power concept into the debate.

Dependence on third parties is a recent phenomenon. "Insurance was rare and unimportant when I went into practice," writes Milt Kamsler, M.D. That was in the pre-1965 days when a day in the hospital cost $39 in New Jersey. Instead of feeling insured and entitled, people felt responsible. And physicians and the community felt impelled to help those in need. A sense of community and true charity are the only real insurance, writes Alieta Eck, M.D. (Courier News 3/28/04).

Only a system founded on individual freedom and responsi- bility can permit excellent medical care to flourish. The alternative is the siren song of utopian "fairness" receiving equally miserable medical care whether you want it or not.

Can armies of consumers, fighting for the right to be in charge of their own medical care, turn back the intensified effort to trap them into "coverage" and dependency? Were not bourgeois "Armies of Consumers" an essential element in the War for American Independence? (Breen TH, The Marketplace of Revolution, see NY Times 2/28/04). The secret weapon of 1776 needs to be deployed again.


Charity v. Altruism

Charity is not altruism that requires one to sacrifice self for others. Charity is free-market compassion. It cannot be demanded. It cannot be extracted. It cannot be centrally controlled. Charity results from volitional self interest. Whoever gives charity obtains a reward. The giver feels good and receives the gratitude of the receiver. Religious people store up good works for reward in Heaven.

Remarkably, charity resembles Adam Smith's reminder that we do not get our dinner from the benevolence of the butcher, the baker, and the brewer, but rather from their self interest. Each exchanges value for value and in so doing expands the good. In free exchange, each has a vested interest in peace, basic fairness, and ethics.

Just as the achievements of a free market are close to infinite, so are the fruits of true charity. Just as markets work best when uncoerced and unregulated, so does charity.

Free-market medicine cannot provide 100% coverage because it allows some to elect not to be treated and recognizes that some are beyond help. Charity inherently has some of the same limitations but can approach 100% coverage. Charity stimulates ingenuity. Charity initiates innovation. Because charity is rewarded, unlike altruism, charity grows and inspires.

  Madeleine Pelner Cosman, Ph.D., J.D.

TennCare Not Viable

Launched in 1994, TennCare was an effort to expand coverage to the state's uninsured and uninsurable by implementing managed care for the entire Medicaid population. It will consume 36% of total state appropriations by 2008, and is not financially viable over the 5-year horizon (Health Care News, Feb 2004). It costs about $5,500 per recipient or $22,500 for a family of four. It has almost no limits on scope of coverage. Yet many of its beneficiaries attend Dr. Robert Berry's cash-only clinic because they can't get a timely appointment with a TennCare provider. To survive, physicians stack their schedules with patients with simple chronic problems, explains Dr. Berry. "So much is wasted in the petty political game of `you pretend to pay us and we pretend to care' that there is little left for the truly sick."

 

How Much Does Uninsurance Cost You?

In stating the uninsured cost "us" a lot of money, the Institute of Medicine imply that "we" would be better off forcing people to buy insurance or forcing taxpayers to buy it for them. In fact, the uninsured pay for about one-third of the services they use (IOM). Some hospitals collect 95% of the charges they bill to the uninsured (IBD 2/5/04). Explicit programs such as disproportionate share pay about one-third of costs incurred by the uninsured. Only about one-third of uninsured charges, or 3.5% of total medical spending, is shifted to payers less than the average department store loses to shoplifting, states Greg Scandlen of the Galen Institute.

"Liberalism is really piecemeal socialism, and socialism always attacks three basic social institutions:...Religion, because it offers a rival authority to the state; the family, because it means a rival loyalty to the state; and property, because it means material independence from the state."
Joseph Sobran

 

Medicare Debt Coming Due

Even in restrained actuarial language, the conclusions to the 2004 Medicare Trustees Report are ominous: "The HI [Hospitalization Insurance] Trust Fund fails the Trustees' test of short-range financial adequacy....A general revenue transfer to cover expenditures this year is only the tip of the iceberg of the additional demands that the Medicare and Social Security trust funds soon will be placing on Federal general revenues...."

(See www.ssa.gov/OACT/TRSUM/trsummary.html).

The nation long ago repudiated Thomas Jefferson's view that "no generation can contract debts greater than may be paid during the course of its own existence." James Madison disagreed, saying that "The improvements made by the dead form a charge against the living who take benefit from them." He, however, opposed "unjust or unnecessary burdens."

The national debt now stands at $7 trillion (see www.publicdebt.treas.gov/opd/opd.htm for the exact amount) plus other obligations of much greater magnitude. Much of it is in the hands of our competitors and enemies.

Beneficiaries of government coverage have no enforceable contract to guarantee that those benefits will ever be paid.

 

Consumers, HSAs at the Gates

Insurers and agents in every state are poised to take advantage of the tax-advantaged Health Savings Accounts included in the Medicare bill. For a list in your state, see www.americanhealthvalue.com or call (800) 914-3248.

For an analysis of whether an HSA, HRA, or FSA would be right for you, and for questions and answers about HSAs, visit www.cahi.org.

Five good reasons for an HSA, states American Health Value are: tax savings, earned interest, reduced insurance premiums, portability, and long-term savings.

 

HIPAA Transactions Still Non-Compliant

For physician practices, especially small ones, compliance with the transaction code sets is hovering below 15%. CMS states that it will now pay HIPAA-noncompliant claims no earlier than 27 days after receipt, a delay that is in line with paper claims. The "contingency plan" to accept these legacy claims will come to a stop at some still unspecified date.

A full 20% of covered entities still report being noncom- pliant with the privacy rule 9 months after the deadline.

 

AAPS Calendar

May 13 or 15. Town hall on consumer-directed medical care, with Heartland Institute, Chicago
May 15. Board of Directors meeting, Chicago.
Oct. 13-16. 61st annual meeting, Portland, Oregon.


Liability Uninsurance

Almost all American physicians are one lawsuit or perhaps one more premium increase away from being uninsured for professional liability. And if they do not have a "tail" on a claims-made policy, they also lose coverage for incidents that occurred while they were still "insured."

More physicians are deciding not to pay the protection money, which they view as a magnet for lawsuits in addition to being unaffordable. An estimated 3,000 to 5,000 of Florida's physicians have gone bare, including 33% of its obstetricians.

States that require malpractice insurance for licensure are: Colorado, Connecticut, Georgia (for optometrists who use drugs), Kansas, Massachusetts, Pennsylvania, Rhode Island, and Wisconsin. Florida requires physicians to prove that they can pay a $250,000 award. New Jersey has no statutory requirement, but the Board of Medical Examiners insists on coverage of $1 million per case and $3 million per year. States that require insurance in order to benefit from awards caps are: Indiana, Nebraska, Nevada, New Mexico, and New York.

A number of physicians ask their patients to sign waivers of liability, believing that the occasional patient who declines is likely to be especially litigious. Some AAPS members have asked our General Counsel to help draft a form (see enclosure).

Tip of the Month: Whistleblowing can be "disruptive" to a hospital. But it is essential to promoting quality medical care, and physicians should not be punished for it. Yet hospitals are calling whistleblowers "disruptive physicians," and summarily suspending their privileges. Even when there is no threat of harm to a patient, hospitals are bypassing due process with this draconian action. "Be creative," one hospital attorney exhorted administrators. Here's an actual example, used more than once: an administrator interrupts a surgeon's operation in order to demand that his assistant immediately leave the operating room. When, predictably, the surgeon complains, the hospital cites him as disruptive!

 

OIG Work Plan for "Fraud Recoveries"

The Health Care Fraud and Abuse Control (HCFAC) budget of CMS, OIG, the Dept. of Justice, and the FBI has leveled off at an all-time high of $1.075 billion, after 6 years of mandatory increases under HIPAA. The government will bring back much more than that in settlements and fines, says Attorney Kathleen McDermott, but "just because there will be huge settlements with drug companies, that shouldn't lead government to do the same to nonprofit hospitals, nursing homes and other providers" (Medicare Compliance Alert 2/9/04).

The program can also be viewed as working on the supply side to control utilization and thus costs.

Areas targeted in the 2004 OIG work plan include providers' failure to track payers properly and return overpayments resulting from secondary payer errors. There is a maze of rules determining whether Medicare or a private insurer should be billed first (MCA 3/29/04).

Quality of care and medical necessity will also be scrutinized, despite the lack of published standards. Attorney Alice Gosfield urges physicians to "standardize" their care because "studies show that there is a six-fold increase in the chances of getting sued for malpractice or medical necessity for not following established clinical standards of care."

Other target areas include: consultations, coding of evaluation and management services, use of modifier -25, place- of-service errors, care plan oversight, the medical necessity of diagnostic tests, and services and supplies incident to a physician's service.

The OIG has identified a significant number of services ordered by physicians who have been excluded from Medicare. Such physicians are precluded from ordering, as well as performing services for Medicare beneficiaries. OIG will attempt to quantify amounts paid by Part B for such services.

Note that a physician who has opted out cannot be excluded, as was noted in the case of a physician that Medicare tried to exclude on the sole basis of failure to repay student loans of 10 to 20 years ago, despite going through bankruptcy since that time. (Be aware that the world's major debtor does not forgive debts.)

Medicare has issued proposed regulations governing its permissive authority to exclude individuals from Medicare/ Medicaid programs for submitting claims "in excess" of "usual charges." According to a Davis Wright Tremaine analysis, this has the effect of redefining "charges" by equating them with "payments." DWT advises providers to review contractual agreements to accept less than Medicare charges.

At the same time, HHS Secretary Tommy Thompson scolded hospitals for saying that Medicare rules prevented them from cutting prices for the uninsured (Wall St J 2/20/04). HHS guidance says that hospitals do not need permission of a fiscal intermediary to offer discounts to patients "who cannot afford their hospital bills." Further guidance is needed on whether this includes all uninsured patients regardless of income. HHS instructions do not require hospitals to seize the homes of low-income patients (BNA's HCFR 3/3/04).

Fear persists, not only because of the new proposed rule but because of the Antikickback Statute and its prohibitions on patient inducements (MCA 3/22/04).

Opting out remains the only way to assure a physician's continued ability to serve Medicare-eligible patients, but only those willing to forgo their benefits when receiving privately contracted services.

 

Whistleblower Awarded Nearly $1 Million

Psychiatrist David Springer, M.D., who lost his job after speaking out about patient-care problems at the state-run Delaware Psychiatric Center, was awarded $973,895 in compensatory damages by a federal jury. The jury also awarded $25,000 in punitive damages against Renata Henry, director of the agency that oversaw the center, for acting "recklessly, intentionally, or maliciously" (AP 4/2/04).

 

AAPS Challenges Arizona "Clean Elections" Law

Together with Matt Salmon, Dean Martin, and Lori Daniels, AAPS has sued in federal district court over the constitutionality of an Arizona ballot initiative passed in 1998. This requires candidates who choose to forgo government funding of their campaigns to pay dollar-for-dollar matching funds to their publicly funded opponent whenever an independent expenditure is made on their behalf. The law imposes additional stringent campaign financing reports on nonparticipating candidates, another way of punishing them for not taking public money. AAPS claims that the Act has a chilling and neutralizing effect on the free speech of candidates and groups who wish to speak independently in campaigns.

Read the Complaint (PDF)


Correspondence

Government a Net Winner? While physicians rejoice over a paltry 1.5% Medicare fee increase, CMS announces that the government netted $2 billion in payments for erroneous coding or other violations in 2002. CMS plans to focus on practitioners with a high percentage of improper claims. Internists are said to submit 26.38% of claims improperly, and general physicians, 22.12%. What will the final sum of the equation be? This is like watching a pickpocket play a shell game.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

 

On "Best Practices." So-called evidence-based medicine came out of academia with very little scrutiny, and advocates are reluctant to put their ideas to the test. In most cases, we don't know what the best practices are. Imposing a bureaucratized process to define them would create a whole new culture of medical rent-seeking, with parties invested in a certain protocol resisting any change. We are moving to an era in which medicine is customized to the unique needs of each individual. EBM would kill off this revolution.
Greg Scandlen, Galen Institute

 

EBM is structurally flawed. The process of determining what studies get funded is hardly random.... Perversely, EBM validates insurer policies such as drive-by deliveries because "there is no evidence that they cause harm." EBM is the latest magical solution to an intractable problem. The total imposition of this "science," overriding patients' choices, would be a form of fascism, which scientists would too willingly accept.
Philip Alper, M.D., Burlingame, CA

 

Those who push EBM want their recommendations, and only theirs, to have regulatory force. A better approach would be to have competing groups offer seals of approval.
Linda Gorman, Independence Institute

 

Conflicts. I remain stupefied by the fact that many staunch conservatives and libertarians do not recognize managed care's inherent conflict of interest although as John Bogle wrote with regard to the mutual fund industry, "it's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it" (Wall St J 2/23/04).

How can a physician sign a contract promising to serve the interest of the insurer (which profits from minimizing care), while simultaneously entering into an implied contract with the sick (who want to maximize treatment)?

Like fund shareholders, managed-care patients have had severe constraints placed on their "right to choose."
Robert P. Gervais, M.D., Mesa, AZ

 

On Cash-Based Practice. You have a choice. All you have to do is not sign the contracts, or give the insurers notice that you are cancelling the contracts. If you don't, some other physician in your community might get a jump on you in starting a practice like mine. You run the risk of encountering a buzz saw by what Harvard Business School Professor Clay Christensen would call a disruptive innovation a cheaper, more efficient way of doing something directed at the low-end user that eventually catches on in the mainstream and comes to dominate the market. If consumer-driven products achieve a 75% market share in the next 5 years as some policy experts are predicting, cash-based clinics will be strategically placed. Do you want to be left behind?
Robert Berry, M.D., Greeneville, TN

 

Wised Up, Opted Out. I accepted Medicare for 4 months, and discovered that none of my claims were paid. I was doing house calls and was told that the home is not an appropriate place of service. The main reason I opted out was that there are a lot of uninsured patients on the plains of northeast Colorado, and it was illegal for me to charge them fair and reasonable fees while tied up with Medicare. While not paying me a dime, Medicare required me to charge everybody according to Medicare regulations. Now people pay me $1.60 per minute, my collection rate is 98%, my fees are less than half those of a typical doctor, and I enjoy what I do. Get off the plantation, as the good doctor from Mississippi says.
Jim Brook, D.O., Fleming, CO

 

Medicine Deteriorating. The best and brightest don't apply to medical school. Quality has plummeted, attitudes toward patients are indifferent, and malpractice suits are epidemic. The coarsening and commoditization of our once noble profession impels us to return to the free market as fast as we can, before the House of Medicine looks like the South Bronx, another example of the effects of price controls.
Herb Rubin, M.D., UCLA School of Medicine

 

Cost Shifting Must Stop. I'm looking forward to the day that a public hospital announces that it can no longer treat Medicare patients because it has determined that getting $0.75 on the dollar for half its patient base is not a viable business practice.
Sean Parnell, Heartland Institute

 

The Proper Mandate. Our legal system says that a buyer must pay for what he buys. All we need to do is enforce this mandate rather than trying to force people to pay for other buyers' purchases. Direct out-of-pocket payment is the only rational method. For the poor, there are special programs.
Joseph Lee Pugh, Diamondhead, MS


Legislative Alert

Aftershocks

Medicare won't leave the national headlines. It doesn't get any better. It just keeps on getting worse. With the release of the 2004 Medicare Trustees Report, the full impact of the fiscal disaster is unfolding. And the failure of Congress to address the problem effectively is becoming clearer, day by day.

It is rare that a large number of conservative health policy analysts and the editors of The Washington Post see eye to eye. But consider this: "When Medicare Reform again became a serious possibility last year, we argued that cost control had to lie at its center. We were not alone: Many in Congress on both sides of the aisle also wanted to use a new prescription drug benefit as a `carrot' to convince politicians and the public of the need to make deeper changes in the program itself. In the event, neither Congress nor the White House had the nerve or the sense of responsibility. They passed hugely expensive legislation with only a few experiments in cost cutting" (Wash Post 3/25/04). The editorialist got that right.

The Post's editors note that the release of the 2004 Medicare Trustees Report, which details the deterioration of Medicare's financial condition, comes at the same time that a controversy has exploded over the apparent decision of top Administration officials to keep Congressmen who were considering the bill from seeing internal White House cost estimates that were far higher than those prepared by the Congressional Budget Office (CBO). The CBO cost estimate for the first ten years was $395 billion, and the OMB cost estimate was $534 billion. The CMS (Center for Medicare and Medicaid Services) actuaries were undertaking several analyses of the legislation during its consideration through the summer of 2003. "All our estimates showed that the cost of the drug benefit, through 2013, would be in the range of $500 billion to $600 billion." That is what Richard S. Foster, Chief Actuary of the Medicare program, told The New York Times on March 14, 2004. For the record, Mr. Foster recently told the House Ways and Means Committee that he was threatened with losing his job if he revealed that information to members of Congress during the debate on the Medicare Modernization Act.

So The Post editors go on to observe: "That incident provided more proof that no one is prepared to discuss Medicare costs truthfully. Republicans who claim to care about high spending were willing to cover up the costs for political advantage. Democrats who want to revisit the recent prescription drug bull conveniently forget that their proposal an ever larger prescription drug benefit was hardly going to be cheaper. Real reform will require not just bipartisan cooperation but bipartisan honesty." They got that right, too.

Day by day, the politics gets worse. Tom Scully, former chief of CMS and Rick Foster's boss, has left the government and taken a private sector job. Because of traveling, he told the House Ways and Means Committee, meeting on April 1st, that he will be unable to appear. Scully told the Committee in a two-page letter that he did not allow Foster to communicate directly with members of Congress without his permission. Meanwhile, Doug Badger, the President's adviser on health policy, also declined to appear. Badger is a solid conservative, well known as a first- rate health policy analyst and "stand up" guy in Washington circles. The White House, not Badger, made the decision (NY Times 4/02/04). In declining the invitation for Badger to testify, the White House cited the long-standing principle of executive privilege. Traditionally, White House aides, who are not subject to Senate confirmation, are expected to be able to give confidential advice to the President and are exempt from requirements to testify before the Congress. Ways and Means Committee Democrats sought and failed to get a subpoena to get both men to testify and are thus playing the Administration response as a "cover-up."

On another front, House Democrats, led by Rep. Steny Hoyer (D-MD), are turning up the heat on the case of Rep. Nick Smith (R-MI), who stated that he had been subject to strong-arm tactics, including what appears to be bribery, during the legendary 3-hour House vote on the Medicare bill last Nov. 22, 2003. This matter is before the House Ethics Committee, and will soon see the light of day, one way or another.

Meanwhile, the polls are going south on the drug benefit. For months, the polls registered widespread confusion, skepticism, and hostility, with stronger opposition among those most familiar with the details of the Medicare drug benefit. Now comes the latest USA/CNN/Gallup poll, which says that only 36% of seniors view the drug provisions favorably. So, the November Medicare political triumph has yielded bitter controversy over cost estimates, a deepening financial crisis in Medicare, a series of public investigations and bad publicity, and declining public support.

Diagnosing a Deepening Mess

How did Congress and the Administration get into this mess? Let us count the ways.

First, the fundamental mistake of Congressional Republicans was stealing Senator Ted Kennedy's Medicare playbook. Congressional leftists have long wanted a universal drug entitlement in Medicare. That was their policy; that was the key piece of the agenda fully compatible with their broader objective of nationalizing American medicine on the installment plan. Congressional Leftists, we repeat, basically won, courtesy of the Congressional Republicans, and with the acquiescence of the Bush Administration. Recall that the original Bush proposal of a targeted drug benefit was rational, responsible, simple, and affordable. The target was low-income seniors without drug coverage.

Because Bush wanted to tie drug coverage to private plans, his proposal ran into opposition from Democrats in the winter of 2003, and then top Republicans, namely Speaker Dennis Hastert and Senate Finance Committee Chairman Charles Grassley, also undercut the White House. They insisted on a universal drug entitlement. The Bush team backed down. So now the Republicans are paying the price for a left-wing policy that was only temporarily and superficially popular.

Second big mistake: The substitution of bumper sticker health policy for solid analysis. The better policy all along was to target the minority of seniors 22 to 25% without drug coverage, be generous with that assistance, and add a catastrophic provision to cover high-end drug costs. But the bumper sticker was too attractive to resist. The sound bite of universal coverage was seemingly irresistible; everybody would be covered; everybody would be treated the same. Affordable drugs for all. Sounded great. So, with the acquiescence of the White House for political reasons, more or less shameless, we have a bipartisan exercise in bad public policy.

The policy analysis was simply ignored. For example, there was never a shred of evidence for a universal access problem among seniors to prescription drug coverage. The professional literature, as well as government studies, showed just the opposite. The CBO said that 75% of seniors have drug coverage; CMS said 76%; the Joint Economic Committee said 78%. In their report last year the responsible adults at the Joint Economic Committee warned Congress not to disrupt or displace the drug coverage that already exists, but to learn from private sector examples, and to build on these examples, not tear them down, directly or indirectly.

Third big mistake: taking the short-term Medicare cost estimates seriously. CBO's predictions almost never come true. We have many examples of this. But the most glaring is the drug benefit provided under the Medicare Catastrophic Act of 1988. CBO's projections made during the debate on that first big Medicare drug bill doubled in less than one year.

In this far-from-exact science, everything depends on the technical assumptions that the government actuaries use. You have to consider the behavior of the beneficiaries, the behavior of the providers, and the behavior of the firms that are vending services. In this case, CMS assumed that 94% of the Medicare population would be enrolled in the drug program, and CBO estimated that number to be 87%. One of the reasons for this 7% difference was that CBO assumed that Medicare enrollees who did not sign up for Medicare Part B, which covers physicians' services, would not be likely to sign up for the new Medicare part D. Will they or won't they? Who knows?

The truth is, as conservative analysts pointed out repeatedly, the creation of an universal entitlement is the creation of a program of unknown costs. Unknown, but surely huge. Leftists in Congress who are suddenly concerned about the cost estimates of the drug bill are transparently incredible.

While this is certainly a serious business, it is nonetheless an entertaining spectacle. The Democrats backed proposals that would have doubled spending on Medicare drugs in the first ten years, ranging anywhere from $800 billion to nearly $1 trillion. Senator Kennedy said that he was much happier with an $800 billion drug benefit. The AARP said, last year, that they would consider nothing less than $750 billion over ten years to be a "meaningful" drug benefit. No matter how you calculate, these dwarfed the proposals advanced by the Administration and Congressional Republicans. So, if the Republicans are guilty of a momentary fit of fiscal irresponsibility and they are then the Democrats would plunge America into fiscal madness.

In either case, we are talking about big taxes. Medicare Trustees say that the drug benefit alone will impose $8.1 trillion in unfunded liabilities over the next 75 years. "Unfunded liabilities" is a fancy phrase for the current and future promises that we are making to seniors that are not paid for; taxes will have to be raised by that amount, or benefits will have to be cut. Today, based on the CBO estimate, the "smaller number" if you please, the Heritage Foundation's Center for Data Analysis estimates that a 40-year-old person working today will pay an extra $16,000 in taxes until he reaches age 65, just to cover the additional costs of the Medicare drug benefit. Of course, the actual levels of taxation could be much higher, and Heritage does have a well-earned reputation for conservative estimates, in every sense of the word.

Next: Gov't Control of the Pharmaceutical Market?

While the cost estimates are being debated, and the Medicare Trustees are predicting big tax increases for the drug benefit, the Republicans, on the defensive over the latest developments, may be confused as to what to do next. But not Senator Edward M. Kennedy. He does not have any time to be confused. He has a goal, and he knows exactly what role he and his Senate allies will play in this unfolding drama.

Senator Kennedy's bill, S.1992, would give the Secretary of HHS the authority to purchase prescription drugs in bulk and negotiate directly with drug manufacturers over price. This approach has broad appeal among Democrats, and is their main response to rising Medicare drug costs. It's a fair question: Would not Medicare secure greater bargains for seniors if the government purchased all of the drugs?

A CBO analysis, as stated in a March 3 letter to Senate Majority Leader Bill Frist, concluded that striking the Medicare law's current restriction of government "negotiation" would have "a negligible effect on federal spending." CBO pointed out that risk-bearing private plans would have powerful incentives to negotiate the price discounts and secure savings for seniors.

The common assumption is that Medicare's market clout would be superior to that of private sector entities. But this is not accurate. Currently, some private-sector networks are even larger than Medicare. For example, Advance PCS covers 75 million Americans; Medco Health Solutions, 65 million; and Express Scripts, 57 million. Every one of these prescription drug networks, already serving numerous private health plans, is larger than the Medicare program, which has no experience whatsoever in managing drug benefits. So, the best option would simply be to allow seniors to enroll in such networks, if they wished to do so, and get the benefit of the discounts that are already being provided in the private sector.

Meanwhile, it is clear that Congress will have to revisit the Medicare law, sooner or later. They should follow the advice of David Walker, Comptroller General of the United States. In his September 17, 2003, speech at the National Press Club, Mr. Walker said: "With regard to existing policies and programs, it is time to restructure existing entitlement programs to make them secure, sustainable and aligned with 21st Century economic, demographic and other realities. It is also time that we took steps to review and rationalize our promises in order to help ensure that we can deliver on the promises that we make." Good idea.

Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.