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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 48, No. 5 May 1992
Since 1954, the number of federal regulations has increased
from 16,502 to 200,000, with a doubling time of approximately 10
years. The fourth branch of government is invading new areas
such as physicians' private offices as well as tightening its
hold on state and local governments.
In his State of the Union message, President Bush stated
that we needed to ``set the economy free'' and clear away the
obstacles to growth, such as regulations (which have experienced
a 17% growth since he took office). He promised a 90-day
moratorium on new regulations and a ``top-to-bottom review'' of
all regulations that might inhibit economic growth.
The moratorium, which expires in April, had no detectable
effect on regulations applicable to the practice of medicine,
such as the Relative Value Scale and the Clinical Laboratory
Improvement Act of 1988 (CLIA). White House officials did not
respond to AAPS letters or return telephone calls.
Final regulations implementing CLIA went into effect March
30, 1992. Registration fees will probably be due in May. Labs
not qualifying for a waiver will receive a bill for inspection
prepayment in July or August. This fee will range from $300 for
``low volume'' labs doing fewer than 2,000 tests per year to more
than $3,000. HCFA will allow a lead time of about two years for
previously unregulated laboratories before starting to impose
fines of $10,000 per day for noncompliance.
In the assessment of organized medicine, CLIA costs are
``moderate,'' probably about $600 per year at the ``moderately
complex testing level.'' The final rules purportedly demonstrate
that ``political action works,'' though the AMA still has
reservations about unannounced on-site inspections of physicians'
In the opinion of the American Society of Clinical
Pathologists, the rules are a ``grave error'' that will lower the
quality of laboratory testing. Rep. John Dingell (D-MI) will
investigate charges that HCFA held secret meetings excluding
laboratory professionals from the final rule-making. Final rules
eased training requirements, probably because HCFA found that
more than 80% of clinical labs have already encountered personnel
shortages. Physicians with 20 hours of continuing medical
education in lab practice will be qualified to direct the
performance of moderately complex tests.
Only eight tests will be permitted in waivered laboratories:
dipstick urinalysis, ovulation tests, urine pregnancy tests,
nonautomated erythrocyte sedimentation rate, hemoglobin by copper
sulfate, fecal occult blood, spun hematocrit, and blood glucose
by FDA-cleared home-use devices. All others-including
microscopic examination of urine sediment-are considered at least
According to HCFA, the cost of final CLIA rules for all
laboratories will be about $1.67 billion annually by 1996. This
includes $31 million for certification, $477 million for
proficiency testing, $676 million for quality control, $142
million for inspections, and $317 million for personnel.
HCFA's discussion of hypothetical benefits is best sum-
marized by its own statement: ``there exists no irrefutable
evidence demonstrating that the performance of clinical
laboratories, or public health status, will improve tangibly
under regulation.'' However, they assert that the ``inability to
compute dollar values for largely qualitative requirements
further contributes to underestimation of the benefits of CLIA
Many of the 60,000 comments expressed concern about
diminished availability of lab services. So far, only 127,000
registration questionnaires have been returned, of the 600,000
that were sent to laboratories. HCFA notes that research will be
necessary after full implementation ``to assure the public that
access to laboratory services has not been adversely affected.''
The final rule was published in the February 28, 1992, issue
of the Federal Register in 242 pages of fine print. The document
is available for $3.50 from the US Government Printing Office,
Attn: New Order, P.O. Box 371954, Pittsburgh, PA 15250-7954.
Specify stock number (069-001-00042-4) and the date of the issue
Unlike HCFA, which is allowing a grace period for
implementing CLIA, OSHA demands compliance with controls on
exposures to infectious agents even before regulations are final.
One physician was fined $60,000 for violating a regulation-to-be
requiring free hepatitis B vaccine to all employees. Note
that physicians who are incorporated are considered employees and
must develop written exposure-control plans for themselves
too. For details, obtain the Federal Register of 12/6/91
(CFR Part 1910.1030). (See p. 2.)
State and Local Governments
Metastatic federal regulations are also devouring billions
from the budgets of local governments (see p. 2). Because of the
$35,000 cost of compliance with CLIA, the Pima County Health
Department in Arizona may have to stop doing screening-a minor
example to be multiplied by thousands.
``We must put an end to unfinanced Federal Government
mandates,'' Bush said (NY Times 3/24/92). But no relief is in
sight either for the private sector or local government.
Bush Plan: Reform or Abolition of Insurance?
In his medical insurance reform proposal, President Bush
announced his goal that sick people should be able to obtain
health insurance for the same price as healthy people. Many
other proposals, including those by Lloyd Bentsen and Dan
Rostenkowski, have a similar objective.
The result of these ``reforms'' would be to drive healthy
people out of the insurance marketplace, according to an analysis
by John Goodman, PhD, of the National Center for Policy Analysis
``Why buy insurance while you are healthy if you can buy it
for the same price after you get sick?'' Goodman asks. The laws
of economics dictate that people who are undercharged tend to buy
more of something, and people who are overcharged tend to buy
At present, the current annual cost of a typical family
health insurance policy is $2,700. If the policy included the
family's share of the entire cost of the medical system, it would
be $8,000. If an $8,000 premium caused half the American
families to decide not to buy medical insurance, the premium for
the remaining half would be $16,000. The increase in price would
rapidly wipe out any advantage the President's proposed tax
incentives would create for the average family.
A direct subsidy to cover medical expenses of uninsurable
sick people does far less harm than a hidden subsidy through
increasing the premiums of healthy people, Goodman states. He
argues for the accurate pricing of risk, which leads to lower and
more stable prices; which leads to more insured people; which
leads to less uncompensated care; which leads to still lower
Advocates of ``community rating'' as under the Bush plan say
that accurate pricing of risk is the problem, not the solution.
Goodman responds that community rating cannot work in a normal
marketplace. ``It can be sustained only by the force of law or
in markets where there is a single, monopoly insurer.''
Goodman believes that the Bush proposal is ``by far the most
radical of those under serious consideration.'' A true free-
market alternative would restore medical insurance as real
insurance rather than prepayment for the consumption of medical
For more details, see NCPA Media Backgrounder #115, from
NCPA, 12655 N. Central Expressway, Suite 720, Dallas, TX 75243-
Federal ``Health'' Mandates May Bankrupt States
In 1990 alone, President Bush signed into law 20 bills
ordering the states to undertake or expand programs costing
billions of dollars-at their own expense. More regulatory
burdens were passed onto state and local governments during the
1980s than in almost any other decade.
The most expensive regulations involve Medicaid and will
cost the states $38.3 billion. The next most expensive mandates
are imposed by environmental laws; these will cost state and
local governments $32 billion per year by 1995.
Federally required medical programs consumed 14% of all
state budgets in 1990 and will devour 28% by 1995, according to
the National Governors Association.
The expansion of federal authority over state affairs marks
an historic shift, according to Prof. Joseph Zimmerman of the
State University of New York in Albany, author of a study
entitled ``Federal Pre-Emption of State and Local Authority.''
``Congress, with the acquiescence of the Supreme Court, is
slowly usurping the sovereign powers of states and turning them
into administrators of federal policy,'' Zimmerman wrote (NY
The solution, according to Rep. Henry Waxman (D-CA), is
national health insurance, along with national policy on taxes,
welfare, and environmental issues.
Minnesota's Perpetual Motion Machine
The Minnesota legislature is considering a plan to guarantee
medical coverage for the state's 370,000 uninsured. The plan
would be financed by a 2% tax on medical services (a sickness
tax) plus premiums paid by participants.
State Representative Paul Ogren said the tax won't hurt
hospitals and other ``providers'' because the state will pay them
for care they now provide without compensation.
``Every penny raised by this tax is immediately plowed back
into the health care system,'' Ogren said (AP, Tucson Citizen
If you have any employees (including yourself if you are
incorporated), obtain a copy of the federal OSHA regulations.
These might be sent to you by your state or county medical
society. Try first to obtain them from a local society because
state regulations may vary.
For ``willfully ignoring'' the new rules, physicians could
face a fine up to $70,000 and/or have their offices closed until
procedures are ``cleared by the government.'' For simple failure
to comply with complicated standards, fines are up to $7,000 per
day per offense.
Necessary procedures include: a written ``exposure control
plan''; universal precautions; hepatitis B vaccinations for
employees; engineering or administrative controls; personal
protective equipment for all exposed employees with written
procedures for cleaning and maintaining same; staff training (and
complete documentation of same maintained for three years);
keeping medical records for all employees with occupational
exposure for the duration of employment plus thirty (30) years;
standards for handling contaminated laundry; documented accepted
procedures for disposing of contaminated waste (WMI of Arizona
will dispose of a 2 gallon container for $33.50); proper post-
exposure care; biohazard signs; and data sheets for dangerous
chemicals such as vinegar and isopropyl alcohol.
When preparing written procedures, be careful not to leave
out important steps. Use government-written procedures as a
model for the degree of detail required and the assumptions to be
made about the reader. For example, an idea of the required
style might be seen in a government pamphlet on how to clean a
toilet: 1. Flush the toilet. 2. Raise the cover....
A social order is doomed if the actions which its normal
functioning requires are rejected by the standards of morality,
are declared illegal by the laws of the country, and are
prosecuted as criminal by the courts and the police.
Ludwig von Mises
American College of Hyperbaric Medicine Scores Victory Over
Resource-Based Relative Value Scale
In March, the American College of Hyperbaric Medicine
(ACHM), through its President Richard Neubauer MD (formerly
President of the National Alliance of Physicians and Surgeons),
challenged the implementation of the RBRVS and scored an
Until January 1, Medicare always regarded the delivery of
hyperbaric therapy as a physician's service for which payment
would be made by Medicare carriers under two CPT codes, 99180 and
99182. On June 5, 1991, the Secretary of Health and Human
Services issued proposed regulations in the Federal Register, 56
F.R. 25792 that did not even discuss those CPT codes. Curiously,
on November 25, 1991, the final regulations, published at 56 F.R.
59502-59811, listed the two codes as having no physician
component, thereby reducing physician payment to zero.
Consequently, since January 1, 1992, physicians practicing
hyperbaric medicine have received no payment for their services
to Medicare patients.
The ACHM called upon AAPS Counsel for assistance. Upon an
examination of the relevant Medicare amendments, an answer became
readily apparent. The federal government was once again acting
contrary to the Medicare Act. Title 42 U.S.C. Sec. 13952-4(a)(1)
provides that, beginning in 1992, payment for physicians'
services shall be based upon the lesser of the actual charge for
the service or the amount determined under the RBRVS. And,
according to 42 U.S.C. Sec. 13952-4(1)(2), any reductions and
increases of physicians' fees for 1992 must be limited to
15%. Nowhere in the Medicare Act, as amended, was hyperbaric
medicine eliminated as a physician's service or transferred to
any other category. The regulations of the Secretary of HHS
tracked the statute.
Thus, for Medicare to reduce payment for a physician's
service to zero was a violation of the statute limiting the
reductions to 15%.
Only one obstacle stood in the way of raising any
administrative or judicial challenge. The Medicare amendments
creating the RBRVS system included a restriction upon
administrative and judicial review (42 U.S.C. §13952-4(i), see
AAPS News, Apr 1992, p. 1). This restriction would have
barred ACHM from questioning the unlawful decision to eliminate
physician payment for hyperbaric treatment.
At no time in history has Congress ever enacted a provision
that denied both administrative and judicial review of
determinations made under a federal program. Counsel believes
such an enactment patently violates the Fifth and Fourteenth
Amendments to the US Constitution in that it deprives persons of
property without due process of law.
A memorandum of law was crafted by counsel, illustrating the
breach of the Medicare Act by the Health Care Financing
Administration as well as the invalidity of the restriction on
administrative and judicial review. The memorandum suggested
that if Medicare did not comply with the 15% reduction amendment
implementing the RBRVS, the ACHM would challenge the decision to
``zero out'' the relevant codes and necessarily would also
challenge the validity of the restriction on review. Armed with
the memorandum, the officers of the ACHM went to Washington,
D.C., to confer with a congressional delegation and
representatives of HCFA.
On March 25, 1992, HCFA announced that it would recognize
CPT codes 99180 and 99182 ``under the same circumstances as they
were paid by Medicare carriers prior to the implementation [of
The case exemplifies how rapid, organized efforts can force
government to comply with its own laws.
Why One Doctor No Longer Accepts Assignment
A physician was audited on 30 patients over a two year
period to determine whether the surgery he performed was
``medically necessary.'' Medicare chose only cases on which he
had accepted assignment. He was told later that that was because
in assignment cases they ``know that the doctor receives the
money'' and that makes it easier to recover the money.
After multiple exchanges of information, the Medicare
administration determined that in four cases the doctor had
performed surgery that was ``medically unnecessary.'' The
assessed fine was to be the amount of surgical fees involved in
the cases multiplied by a ``factor'' which was determined by the
percentage or number of patients in which he had accepted
assignment over the previous two years. The fine was many, many
times the surgical fees.
A further review was possible but only if the physician was
audited for an additional two years.
A negotiated ``consent settlement'' was paid. Legal counsel
advised that the physician had received the best ``due process''
that was available under the present law.
The physician involved does not know whether or not others
have experienced similar problems.
Medicare refuses to give a prior determination on whether or
not surgery is ``medically necessary'' in a given patient.
Therefore, the physician must inform all patients that Medicare
might deny reimbursement for their procedure and have them sign a
waiver agreeing to pay for it themselves. He must state a reason
for the potential denial even though he does not know the reason
himself. The reason must conform to a Medicare-approved list.
``They denied a patient with a problem as bad as yours or even
worse'' is not on the list.
This information is sent to referring physicians as an
explanation of why assignment can no longer be accepted. It was
obtained by AAPS News through devious means. Permission
to reprint was expressly denied.
Medicare Demands Cancelled Refund Checks
In at least two instances involving two different physicians
in two different states, the Medicare carrier has demanded that
physicians either produce a cancelled check or face a $2,000
fine. Their ``crime'': providing a medical service to a patient
who requested it. The patients had paid privately with the
understanding that no Medicare claim was to be submitted. A
family member, however, had decided that the patient ought to get
the benefits to which he is entitled.
Simply writing the refund check was not enough. Physicians
had to insist that patients cash it.
AAPS is pleased to welcome Drs. Joseph F. Andrews, Jr. of
Norwalk, CT; Lee A. Balaklaw of Cortland, NV; Robert C. Bockoven
of Renton, WA; Emine Cay of Fairfax, VA; Richard Crowder of
Gloucester, VA; Charles A. Crown of New Canaan, CT; Glenn A. Deyo
of Tacoma, WA; John C. Ellis of Chattanooga, TN; Daryl Emery of
Raleigh, NC; Jared M. Hendler of Bainbridge Is, WA; Deborah Keno
of East Orange, NJ; Robert Landsberg of Bowling Green, KY;
Giacomo Mangiaracina of Morrisville, PA; Charles H. McKelvey of
Owensboro, KY; Bruce P. Mindich of New York, NY; Deane Penn of
Alpine, NJ; George Rittersbach of Stuart, FL; William S. Rutti of
Scottsdale, AZ; Rebecca Shadowen of Bowling Green, KY; Patrick
Francis Sheehy of Newport Beach, CA; David Whitaker of Stuart,
FL; and John J. Williams of New York, NY.
New student members are: T Carman of Columbus, OH; Dan
Danaher of Westerville, OH; Ammar Istwani of Columbus, OH;
Richard L. Morgan of Hilliard, OH; and Norvin Perez of Ponce, PR.
With its traditional wisdom, Italy has blended in its health
care system Communism and free enterprise, in a compound that is
neither and both at the same time.
Socialized medicine is accepted for the quasi-joke that it
is....At the other end of the spectrum are the most elegant
private hospitals with the most sophisticated equipment....There
is no government interference, no threats, intimidations,
imprisonment or hanging by the heels closing in on the
profession....In between is the usual plethora of unskilled
dropouts with connections and politicians pushing useless papers
around and making a nice living at the expense of the quality of
care and the fees earned by the doctors.
[In contrast, there is the Washington fog....] Look at the
avalanche of Medicare correspondence cluttering your desk every
day....New rules and regulations, amendments, clarifications that
confuse, always concluding with threats of fines, criminal
prosecution, prison, or revocation of license in case of
Even if the government has the right to destroy us, there
should be a more civilized way to deal with respectable
professionals who in the majority have no police record and who
dislike being addressed as if they were recycled inmates with the
UPIN in block letters on their fatigues.
Graduates of Italian Medical Schools
1992 Newsletter No. 1, 3/21/92
In Support of Stewart v. Sullivan
Dear Dr. Copeland:
What a pleasure it was today to read that you had taken on
Medicare. Congratulations!....[Medicare] regressive policies can
be summarized as ``cost containment through denial of care''....
Their minimal reimbursement policies are an insult and a
disincentive to quality medical care. In a system without
incentive, the State pretends they're paying, and the doctors
pretend they're treating.
Patients and doctors should have the basic right to reject
government interference in their lives. (Consenting adults can
do much worse things under the law)....
Brian McDonagh, MD, Northbrook, IL
[Basically], Lois Copeland's complaint is...my injunction
case under a different flag. I don't know anything about New
Jersey law, but let's assume it's the same as New York's. Lois's
patients want her best judgment and she wants to give it to them,
but can't because the Secretary has made the price of doing so
too high. In effect, he's compelling her to commit
At least let the courts say frankly...that Medicare super-
sedes any state requirements that doctors exercise their best
judgment. Any such duty evaporates with the 65th birthday. In
fact, it's dangerous to persist in it.
If we're to be flunkies, let's have it out in the open so
the public can decide if they like it. In short, no more
Robert Carlen, MD, Sayville, NY
IATROS To Meet in Helsinki
The 9th International Congress of Private and Independent
Medicine will meet at the Hotel Grand Marina in Helsinki,
Finland, August 16-20th, 1992. The focus of the meeting will be
on quality and privacy. This is an opportunity to meet private
physicians from around the world (including Australia,
Switzerland, Lithuania, Norway, the USA, and Finland).
Registration deadline is May 15.
For further information, contact Dr. R.S. Jaggard, (319)283-
June 13, 1992. Board of Directors meeting, Courtyard
Marriott, Lexington, KY.
June 20, 1992. Medicine and Freedom Seminar, Great Falls,
October 15-17, 1992. Annual meeting, Seattle, WA.
Legislative Alert AAPS Report from Washington
A Moment of Silence. Congressman Marty Russo (D-IL),
the chief Congressional proponent of a Canadian medical system
for the US, was defeated by Congressman William Lipinski in the
Illinois primary, despite raising three times as much in campaign
funds ($850,000 to Lipinski's $270,000).
Ironically, Russo had collected $25,000 in contributions
from insurance-related political action committees, whereas
Lipinski had none.
The Bush Medical Care Reform Proposal. The Bush Ad-
ministration's medical care reform package came under further
scrutiny in both the House and Senate this month.
On March 4th, HHS Secretary Louis Sullivan testified before
Senator Ted Kennedy's Committee on Labor and Human Resources.
Senate questions touched upon the sufficiency of the vouchers or
tax credits for the purchase of medical insurance among the low-
income recipients and the ability of the President's plan to
control medical costs. Senate liberals favor such ``cost contain-
ment'' measures as ``expenditure targets'' and price controls.
In the House, Dan Rostenkowski (D-IL), Chairman of the Ways
and Means Committee, questioned Gail Wilensky on a Congressional
Budget Office analysis that showed the President's plan would
save little money. Wilensky claimed that the Bush plan would
save the nation at least $400 billion over the next five years,
primarily by encouraging managed-care programs.
Although the Administration's plan is having rough sledding
on Capitol Hill, no comprehensive proposal (including national
health insurance) is moving quickly. Mandatory, employer-based
insurance is running into a numbers problem, both in the
projected size of payroll taxes and deficits and the likelihood
that millions of Americans could be involuntarily dumped into a
new public medical care program.
Prescription Drug Price Control Measure Defeated. Al-
though the action received little publicity, a proposal to impose
price controls on pharmaceuticals was soundly defeated in the
first up-or-down vote on a price control regime for the medical
industry since the RVS for physician reimbursement was enacted in
This pharmaceutical industry ``reform'' bill, S. 2000, was
offered by Senator David Pryor (D-AR), Chairman of the Senate
Aging Committee, as an amendment to the Democrats' big tax bill,
H.R. 4210. The Amendment was tabled (effectively killed) in a
Senate floor vote of 61 to 36.
Senator Pryor's bill, the ``Prescription Drug Cost Contain-
ment Act,'' is the product of several years of oversight hearings
into the pricing practices of the pharmaceutical industry. The
Pryor amendment would have reduced current tax credits for
research and development for drug companies by a certain
percentage for each point that a drug manufacturer raised its
prices over and above the general level of inflation.
Under Pryor's amendment, the savings from the limitation on
tax credits would have been used to increase the medical-care tax
deduction for the self-employed to 100%. Any remaining savings
would be channeled back into the Treasury for the purpose of
reducing the deficit.
The bill would have established a Prescription Drug Payment
Review Commission, just like the Physician Payment Review Com-
mission that helped establish the Medicare RVS for physicians.
Given Senator Pryor's past pronouncements on the issue of drug
pricing, drug company spokesmen have suggested that the main goal
of such a Commission would be the establishment of a restrictive
drug list (formulary) or some kind of ``therapeutic sub-
stitution,'' giving pharmacists the authority to fill prescrip-
tions with low-price drugs of presumably ``equivalent'' effect
(not necessarily the same chemical compound), instead of relying
on the prescriptive authority of doctors.
Framed as a tax measure, with relief going to the self-
employed, the Pryor amendment was not the sort of blunt instru-
ment used on doctors and hospitals in the public medical in-
surance programs. It was full of politically clever incentives to
secure a favorable vote. But it still failed.
The significance of the defeat of the Pryor
amendment cannot be overestimated. Senator Pryor himself and
many of his Senate colleagues have been holding highly charged
hearings over the past three years, relentlessly attacking the
``price gouging'' of the prescription drug industry. Conserva-
tives on Capitol Hill have been saying all along that the big
drug companies were being painted into the same political corner
as the big oil companies back in the 1970s, with unanswered or
weakly answered charges of ``excessive or obscene profits,''
taking advantage of the public, elderly, children and so forth.
Congressional liberals have been playing an aggressive offense on
drug pricing, while the industry has been fighting a dreary,
With few exceptions, drug companies have been intimidated by
these demagogic attacks and have sought to avoid appearing at
Congressional hearings. Or they have played the pathetic
Washington game of trying to get along with their tormentors on
Capitol Hill and making the very best of a bad situation. Inside
the Washington Beltway, it is a well-known, standard practice,
for example, for big drug companies to hire their Washington
lobbyists from among the ranks of liberal Democratic
Congressional staff. The idea, of course, is to gain friendly
access to ideological or political opponents. It's a Beltway
version of paying tribute. After years of failure in the policy
wars, even the most politically naive of the drug company
executives have learned that hiring liberals from liberal
Congressional staff ranks doesn't make Congressional liberals
themselves any less hostile to industry interests.
Prescription drugs are one of the precious few American
industries that enjoy a positive balance of trade, estimated at
$1 billion this year. At least on this front, Americans are
bashing the Japanese into an economic bloody pulp. But the
success of this industry is grounded in a tremendously sophi-
sticated research and development effort that is only dimly
understood by the American public. It takes an estimated $231
million dollars, say industry spokesmen, to develop a new drug,
and only one out of 5000 compounds discovered eventually makes it
to the marketplace. Moreover, while drug prices have declined as
a percentage of total medical care costs, spending on research
has eclipsed the rise in drug prices.
Members of the Senate were not wandering around asking
questions about what it all meant-after the fact. Unlike
physicians organizations faced with the Medicare RVS, the drug
companies didn't roll over and play dead. Nor were opponents
of price controls in Congress caught napping. Sen. Phil Gramm of
Texas delivered an eloquent and blistering attack on government
price-fixing as something injurious to consumers and ruinous to
the industries subjected to it. Unlike the AMA (which backed the
imposition of the Medicare RVS on doctors in 1989), the PMA (the
Pharmaceutical Manufacturers Association) was battling bravely
against the Pryor amendment. The drug companies fought the battle
on the principle of independence. Also, the Bush Administration
(in contrast to its position in the nondebate on the RVS for
physicians) stood four-square against the imposition of any kind
of price control on the drug companies. HHS strongly opposed the
For doctors facing the inevitable battle about the
extension of the RVS to private practice, the lesson is simple:
Marshal the facts, enlist strong champions for the cause, and
mobilize the allies. Victory is within reach.
The RVS Imperium. It is in the nature of price
controls to multiply and to divide consumers from producers in
the allocation of goods and services. Not surprisingly, the
Physician Payment Review Commission and the Prospective Payment
Assessment Commission (ProPAC) have issued a reports saying that
the imposition of the Medicare RVS and the Medicare DRGs in the
private sector could ``save'' up to $40 billion in national
medical costs by reducing revenues to hospitals. Both panels
noted that the imposition of the Medicare payment rules on the
private sector was attended by serious practical difficulties.
Nevertheless, Rep. Rostenkowski has introduced legislation (H.R.
3626) to do just that.
Adopting Rostenkowski's bill could lower the average
hospital's profit margin from 3.5% to -5.7%, according to the
ProPAC draft report. In 1990, the costs attributed to uncom-
pensated care and to Medicare and Medicaid exceeded government
subsidies by $22 billion. The cost shift to private insurers
raised charges an average of 28% above the cost of treating their
policyholders, the commission stated.
House Majority Leader Richard Gephardt (D-MO) said he would
support extending Medicare methodology to the entire population
though he preferred caps on overall medical spending as in the
Medical Insurance Reform Advances. As another
indication that Congressional proposals for national health
insurance or ``play or pay'' mandatory insurance are stalled,
note the Congressional attention now being given to the ``incre-
mental'' approach to dealing with America's medical care problem:
small group insurance reform.
A proposal by Senator Lloyd Bentsen (D-TX), powerful Chair-
man of the Senate Finance Committee, is in direct competition
with S. 1227, Sen. George Mitchell's ``play-or-pay'' bill, which
was reported out of Sen. Ted Kennedy's Senate Committee on Labor
and Human Resources in February. Bentsen initially tacked his
plan onto tax legislation, but now plans to promote it as a
separate bill. The Bentsen insurance reform package is expected
to remain the centerpiece of any Congressional action that occurs
in medical care policy this year. Its major provisions are as
- Tax Deductibility. The tax deduction for
medical care expenses among the self-employed would be
permanently expanded from 25% to 100%. The 25% tax deduction is
set to expire this year.
- Grants for Insurance Pools. A total of
$150 million would be authorized to encourage states to develop
small employer medical insurance group purchasing programs. The
Secretary of HHS would be given authority to evaluate the success
of this effort, as well as comment on the ``feasibility and
desirability'' of imposing Medicare's payment rates (i.e. RVS and
DRGs) on private insurers covering small business.
- Federal Insurance Standards. Federal
standards for benefits, rates, and underwriting for medical
insurance sold to small businesses (anyone with two to 50
employees) would be established. State authority in certain areas
would be pre-empted by the federal government. For example,
states would be prohibited from enacting any restriction on the
development of managed-care plans and utilization review
practices certified by the federal government.
- Under the Bentsen bill, insurers could not exclude in-
dividuals from group coverage and could not cancel policies
because of poor health or claims experience. There would be
limits (rating bands) on how much premiums could vary within
a specific demographic group. Annual premium increases for
small business insurance plans would be limited to a medical
care cost trend line, measured by the lowest rate charged by
an insurance carrier plus 5 percent.
- Federal ``Cost Containment'' An 11-member
``Health Care Cost Commission'' would be set up to advise the
President and Congress on ways to cut medical costs. With a re-
quirement to report once a year on medical costs, the Commission
would also be authorized to look into administrative costs and
evaluate such strategies as uniform billing by insurers, as well
as federal certification for managed care plans and utilization
In the House, Congressman Fortney ``Pete'' Stark (D-CA),
Chairman of the House Ways and Means Subcommittee on Health is
looking into moving some sort of medical insurance reform
legislation. While Stark wants to impose Medicare on the entire
nation, replete with the DRGs and the RVS, he is now conducting
inquiries into bills that reform private medical insurance,
including legislation introduced by Ways and Means Committee
Members Dan Rostenkowski of Illinois.
Stark himself has introduced a bill that would require
insurance companies to offer community-rated policies. Such an
approach is not supported by the Bush Administration. But look
for this to be an area of compromise if and when the legislative
process gets underway later this Spring.
Speaking for the Republicans on the Committee, Willis
Gradison of Ohio expressed support for small group insurance
reform, but noted that it will likely increase the cost of
medical insurance premiums. The Subcommittee members focused on
the ongoing problem of insurance regulation. That is, if the
small group insurance market is regulated too tightly, the lower
cost medical insurance groups will self-insure in the face of
rising costs, leaving the rest of the groups to pay even higher