Volume 48, No. 5 May 1992

REGULATIONS METASTASIZE

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.

CLIA

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' office laboratories.

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 moderately complex.

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 overall.''

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 (2/28/92).

OSHA

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 (NCPA).

``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 less.

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 prices, etc.

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 care.

For more details, see NCPA Media Backgrounder #115, from NCPA, 12655 N. Central Expressway, Suite 720, Dallas, TX 75243- 1739, (214)386-NCPA.

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 Times 3/24/92).

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 3/12/92).

OSHA Rules

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 impressive victory.

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 RBRVS].''

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.

New Members

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.

Roma Docet

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 noncompliance.

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 malpractice....

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 illusions....

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- 3491.

AAPS Calendar

June 13, 1992. Board of Directors meeting, Courtyard Marriott, Lexington, KY.

June 20, 1992. Medicine and Freedom Seminar, Great Falls, Montana.

October 15-17, 1992. Annual meeting, Seattle, WA.

Legislative Alert

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 November, 1989.

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, defensive action.

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 Pryor amendment.

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 German system.

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 follows:

• 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 reviews.

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 premium costs.