Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 51, No. 5 May 1995
Dr. Edward Yavitz, an ordinary physician from Rockford,
Illinois, who attended a national meeting, said that a salesman
laughed at him when he asked about buying a device used daily for
cataract surgery in England.
``It is only for sale in the free world-not the United
States of America because the FDA hasn't approved it yet.''
Congress is considering a moratorium on new regulations as
well as specific FDA reforms to facilitate access to new medical
devices. Dr. Yavitz was testifying before the Oversight and
Investigations Subcommittee of the House Commerce Committee on
March 30, 1995.
In other testimony, Glenn Sklar told of sticking his two-
year-old daughter's finger six times daily because the FDA is
dragging its feet on approval of a noninvasive glucose sensor.
Research on new devices, such as a better knee prosthesis,
is being stalled by lack of venture capital. Available funds
dropped by 34 percent in 1993, largely due to delays ``costing us
far beyond what was contemplated in any rational plan prior to
the virtual work stoppage at the FDA,'' according to Ali
Gallagher, founder of U.S. Medical Products. Venture capitalists
refuse to provide seed money for medical technology unless
companies include plans for offshore facilities (BNA's Health
Care Policy Report 12/19/94).
The FDA creates paradoxical demands on innovators, stated
Richard Ashman: ``An idea for a new device must be OLD; the
510(k) application must show that the new device is substantially
equivalent to a device that can be traced back before 1976.
Conversely, an idea for a 510(k) medical device must be NEW;
otherwise the inventor cannot obtain a patent.''
The FDA process was summarized thusly by Joel J. Nobel,
M.D., of ECRI: ``Due process is absent from many FDA activities
....The controversial `reference list' (considered by many as
bureaucratese for blacklisting),...punitive attitudes, overt
threats and intimidation...are used to extend regulation.''
He concluded that the FDA has ``few limits on power and
neither the inclination nor obligation to perceive or admit
error.'' The regulated seldom complain because of fear.
The physician's dilemma is that he might be guilty of
malpractice for not using a device that lacks FDA approval
although it has become the standard of care. This constitutes
``FDA interference in the ability of the physician to practice
medicine,'' even though the FDA never received a legislative
mandate to police or direct the practice of medicine, stated Neil
Kahanovitz at the same hearing.
If the physician does use the device, an HHS ``fraud''
investigation could be the consequence, as reported by AAPS
News in August, 1994. Letters from more than 80 AAPS members
have been delivered to HHS Secretary Donna Shalala. AAPS
requested a moratorium on the sweeping investigation of cardiac
facilities that use state-of-the-art procedures. We also asked
to meet with Secretary Shalala and Inspector General June Gibbs
Brown to discuss our concerns.
Gibbs Brown refused our request because ``this matter is
still an ongoing investigation'' into ``billing practices of some
hospitals.'' Apparently, HHS policy concerning the possible
criminality of ``off-label'' uses of approved medical devices is
to remain a mystery to physicians, as long as bureaucrats are
still poring over ten-year-old billing slips.
Senator Jesse Helms has also written to Secretary Shalala,
citing physicians' ``severe concern that the subpoenas'
enforcement action threatens the very lives of Medicare and
Medicaid beneficiaries'' by stifling the uses of innovative
procedures. As of this writing, he is awaiting a reply.
Even President Clinton has acknowledged the problem of
excessive regulation by a ``one-size-fits-all bureaucracy.'' In
a March 16 speech, he stated that citizens are ``afraid to call
the federal government for advice'' because they might be
punished. ``It really is true that often in the government no
good deed goes unpunished.''
He announced ``the first big step...of a process that we
intend to continue for as long as we have the public
trust.'' Stating that ``compliance, not punishment, should
be our objective,'' he promised to open compliance centers to
help small businesses fix problems. They would be allowed to
spend the fine money fixing the problem. Enforcers would have
discretionary authority to waive punitive fines on small
businessmen they believe have acted in good faith.
With regard to medical devices, Clinton stated that the FDA
``has made American drugs and devices the envy of the world.''
However, he plans to reduce the regulatory burden imposed by this
agency by $500 million (enough to bring one or two new drugs to
market). The FDA will stop demanding a full-blown review for
every minor risk-free manufacturing change. It will stop
requiring costly environmental assessments for drugs that
obviously have no significant environmental impact. And it will
exempt finger exercises and low-risk appliances from the
requirement of pre-approval by the FDA.
These changes, he said, ``lack the sledge hammer subtlety of
a moratorium'' and avoid ``one-size-fits-all deregulation.''
Above all, it circumvents ``paralysis by process'' [i.e. forcing
government agencies to go through burdensome processes such as
scientific assessments and cost-benefit analysis].
Clinton said nothing about the more serious criticisms of
the FDA, such as the human costs of ``drug lag.'' Thousands of
lives may be lost if a life-saving drug is kept off the market
for five years (CEI UpDate Feb. 1995).
Clinton also neglected to mention the FDA-imposed moratorium
on free speech (see p. 3) and its effects on patients for whom
the best treatment is the use of a drug for an unapproved
May 5. Board of Directors meeting, Boise, ID.
May 6. A Free Market Solution to the Managed Care Malignancy,
Boise, ID, call 800-635-1196.
Oct 12-14. 52nd annual meeting, Falls Church, VA.
Oct 10-12, 1996. 53rd annual meeting, La Jolla, CA.
Anti-Fraud Legislation Proposed
An investigative staff report by Senator William S. Cohen
(R-ME), entitled ``Gaming the System,'' gives 50 egregious
examples of how Medicare, Medicaid, and private insurers have
left their doors wide open to fraud. In hearings before the
Senate Special Committee on Aging, FBI Director Louis J. Freeh
said that ``organized crime ...has penetrated virtually every
legitimate segment of the health care industry.'' He estimated
that losses to fraud totalled $418 billion over the last five
years. In 1994, the FBI recovered $480 million in fines,
recoveries, and restitutions plus $32.7 million in seized or
forfeited proceeds (BNA's Health Care Policy Report
3/27/95) or about 0.6 percent of the amount estimated to be lost
in a single year.
The FBI's estimates have been questioned by Faye Baggiano, a
spokeswoman for HCFA. She said fraud ``used to be'' rampant, but
isn't any more (Washington Post 12/22/94).
Senator Bob Dole remarked that it ``kind of scares you to
think what would happen if we had a totally government-run
[health-care] system'' (ibid.).
Cohen introduced the Health Care Fraud Prevention Act of
1995 (S. 245), which would recycle the proceeds from enforcement
efforts to fund more enforcement. It would establish an all-
payer fraud and abuse program to coordinate federal, state, and
private investigations. It prescribes federal prison terms up to
10 years and forfeiture penalties for defrauding a health plan.
Furthermore, it would provide immunity from tort suits for good
faith participation in fraud investigations and create a federal
civil cause of action to allow insurers to recover fraudulent
payments and attorney's fees.
Attorney Harvey Yampolsky urged medical professionals to
defeat this bill because it would federalize medical practice and
establish a new layer of bureaucracy. It would make it difficult
for facilities to hire physicians, since they could be implicated
in fraud that was beyond their control and possibly lose their
licenses. It would allow civil monetary penalties to be imposed
for coding errors. This can happen now, but the bill would
increase penalties from $2,000 to $10,000 and make it less likely
for the government to accept error as a defense (BNA's
Medicare Report 2/24/95).
AAPS submitted a statement for the record, pointing to
previous abuses by fraud investigators (including the case of
Edgardo Perez-DeLeon, see p. 3). Instead of targeting individual
physicians who may simply have made a coding error, AAPS suggests
removing the incentives for committing fraud:
(1) Restore the principle of insurance as coverage for
catastrophes, not prepayment for routine, budgetable expenses;
(2) Remove the tax incentives that favor prepayment
schemes, which also punish those who choose to purchase true
insurance plus self-insurance (e.g. medical savings accounts) for
noncatastrophic expenses; and
(3) Pay benefits directly to beneficiaries rather than to
providers (in other words, outlaw assignment of benefits).
``One Slip Up...
``and the fraud police may be unfairly breathing down your
neck-everyone from the HHS inspector general to private payers''
(according to an advertisement for a subscription to
Physician Practice Coder).
The Coding Connection offers half-day seminars for only
$185. But one slip-up can cost you a bundle...and your
Price Controls Extended to FEHBP
The Omnibus Budget Reconciliation Act of 1993 (OBRA)
requires all FEHBP fee-for-service carriers to begin pricing
certain claims for members over age 65 not enrolled in Medicare
Part B according to the Medicare Part B schedule. Participating
physicians are bound to Medicare Allowed Charges for these non-
Medicare FEHBP beneficiaries, and nonparticipating providers
may not charge more than Medicare charge limits. We
understand, however, that Blue Cross has not lowered its premiums
to affected individuals.
Has Managed Care Peaked?
``Envision giant managed-care health plans serving millions
of people in multi-state territories. You are probably seeing
the future'' (George Anders and Ron Winslow, Wall St J
InterStudy, an HMO think tank in Bloomington, MN, stated
that 15 new plans were launched last year. The AMA has started a
program to help doctors get financing for HMO start-ups. And
Blue Cross has raised its bid to acquire WellPoint Health
Networks to $4.8 billion (Wall St J 3/30/95).
Insiders have raked in enormous profits by converting non-
profit HMOs to for-profits. Investors in Inland Health Plan saw
their stake increased by 6,500 percent when the company was
bought by Aetna. Brokers are now pushing the stocks with talk of
vast new gains to come. However, Martin Weiss says that ``just
as the biotech bubble burst...in 1992, the coming crack in HMO
industry shares could be devastating to unsuspecting investors.''
He advised speculators to short United Healthcare, Foundation
Health, Aetna Life & Casualty, and CIGNA (Safe Money
Beneficiaries may start placing less stock in their HMO.
HCFA reports that the annual disenrollment rate for HMOs ranges
from 16 to 19 percent, two-thirds of whom leave because of
dissatisfaction (BNA's HCPR 12/19/94). HCFA
Administrator Bruce Vladeck cited one study suggesting that
Medicare HMOs cost the government roughly 7 percent more than
fee-for-service, if beneficiary characteristics (PFN
3/95) are accounted for. Nevertheless, some Republicans are
looking to HMOs to contain Medicare costs.
A study by Mathematica Policy Research, released Dec., 1993,
purported to show that ``Medicare HMOs are effective at reducing
utilization without compromising quality of care,'' but a
critical look at the data belies this conclusion. The percentages
of hospitalized patients who died or were readmitted were
``similar'' in HMO and FFS sectors, even though the FFS sector
attracted sicker patients. In the HMO, stroke patients received
significantly less rehabilitation, and colon cancer patients were
less likely to receive preoperative antibiotics or to have a
chest x-ray in the event of postoperative fever. The bottom
line: higher costs despite lower quality.
FDA Sued on First Amendment Grounds. The US District
Court for the District of Columbia ruled March 9 that the
Washington Legal Foundation may proceed with its challenge to the
FDA policy that bans distribution of information on unapproved
uses of drugs and medical devices (Washington Legal
Foundation v. Kessler, DC DC, No. 94-1306, 3/9/95).
In a suit filed June 6, 1994, WLF petitioned the court to
order the FDA to withdraw its Draft Policy Statement on
Industry-Supported Scientific and Educational Activities (57
FR 56412, 11/27/92). The suit also asks the court to
order the FDA to refrain from enforcement actions against
manufacturers that sponsor scientific or educational activities
or distribute textbooks that discuss off-label uses.
The court rejected the FDA's argument that the issues are
not ripe for review. (The FDA has not yet taken ``final agency
action'' on the draft policy.)
The FDA had not interfered with off-label uses until the
past four years, WLF stated, but physicians are now restricted
from receiving information about such uses (BNA's Health Care
Policy Report 3/20/95).
Medicare Manual Exempt from Administrative Procedure
Act. In a March 6 decision, the U.S. Supreme Court ruled 5
to 4 that a provision in the Medicare Reimbursement
Manual is not invalidated by failure to follow the notice
and comment process set by the Administrative Procedure Act
(Shalala v. Guernsey Memorial Hospital, US SupCt, No.
93-1251, 3/6/95). The issue concerned Medicare reimbursement for
an advance refunding loss incurred with refinancing bonds.
In a lengthy dissent, Justices O'Connor, Scalia, Souter, and
Thomas stated that manual provisions should not substitute for
regulations. One result of the decision could be to give HHS
carte blanche to proceed with manual revisions without seeking
public participation in substantive changes (BNA's Medicare
IG Minimally Burdened by Due Process. Lewis Morris,
deputy associate general counsel to the IG for HHS, states that
``we can exclude from program participation any individual or
entity that has either been convicted of a program-related
offense or has committed a program-related offense.
``Those exclusion matters are presented to an administrative
law judge, and the burden of proof is far less for us. Hearsay
is admissible, so it's not a terribly difficult task for us to go
forward with exclusions. They pose a substantial threat. They
are, in fact, a corporate death sentence'' (BNA 3/10/95).
The most effective method of prosecution is to pursue civil,
criminal, and administrative actions simultaneously
Absolute Immunity for Informants. Since January, 1991,
informants communicating with the California licensure board have
enjoyed the same absolute immunity as judges in the courtroom and
legislators on the legislative floor. They cannot be sued for
defamation even if they act maliciously and in bad faith
(Action Report, June, 1991).
FBI Worried about Electronic Claims Submission. Because
electronic claims leave no paper trail, FBI Director Louis Freeh
fears that fraud will be more difficult to detect (Medicare
Compliance Alert 3/20/95). As Dr. Huntoon could tell him
(see p. 4), carriers themselves now alter claims with impunity.
IG Agents Ignore Guidelines. A 1995 edition of the
IG Special Agent Handbook tells agents that they are
supposed to call providers in advance to set up an interview in
cases that could involve civil monetary penalties. They are also
supposed to advise suspects of their right to have an attorney
present. Frequently agents ignore the guidelines, hoping that an
unrestricted, unannounced search may turn up a pretext for
extending the investigation. ``Providers'' who accept government
money should instruct employees in how to respond to
investigators. For example, the response to the ploy that
``honest people have nothing to hide and innocent people have no
need to consult an attorney'' might be that ``honorable
government investigators have nothing to fear from simple delay
of an interview.'' Lawyers may spend much time and money
refuting erroneous information given by well-meaning employees on
an unannounced first visit (Ibid.).
AG Has No Guidelines. In a letter to Mr. Edgardo
Perez-DeLeon (who served a year's term in jail for coding as an
``office visit'' several encounters in which no physical
examination was performed), Stanley Steinborn, Chief Assistant
Attorney General of the State of Michigan, states: ``The
declaratory ruling statute you referred to allows an `interested
person' to obtain a ruling on the application of an agency rule
or regulation from that agency. This department has no rules
to apply regarding the billing of medical services.''
Mr. Steinborn also stated that ``it would not be appropriate
for the Attorney General to address this question which is the
subject of ongoing litigation.'' (Perez-DeLeon is appealing his
After his release, Mr. Perez-DeLeon received bills from the
jail's physician for numerous ``office visits,'' during which he
never had a physical examination.
Delaney Clause Must Be Fully Enforced-or Repealed. For
years, the FDA and the EPA have tried to work around the Delaney
Clause by applying ``de minimis'' standards, saying that Congress
could not have really meant to ban a chemical present at levels
that could not even be measured in 1958. But in February, a
federal court ruled in favor of an environmentalist group and
demanded full enforcement. As a result, the EPA will purge many
widely used, very safe pesticides that in one experiment caused
cancer when given in nearly fatal doses to one species of
laboratory animal. Crop yields will fall, and prices will rise.
The American Council on Science and Health points out that
Delaney is bereft of scientific foundation. Fruits and
vegetables contain a variety of natural carcinogens, yet an
adequate dietary intake actually seems to protect against human
cancer. By threatening the food supply, the court decision will
have a pro-cancer, anti-human, and anti-industry effect
(Elizabeth Whelan, The Washington Times 3/17/95).
Repeal of the Delaney Clause is before the House Commerce
Committee, chaired by Rep. Thomas Bliley of Virginia.
Unfortunately, anti-industry groups may be able to portray this
as a pro-cancer measure, while pro-industry groups are lobbying
for narrow exemptions for themselves. An outright repeal would
destroy the foundation for vast numbers of regulations that
cripple industry on the pretext of ``protecting'' Americans
against non-existent threats.
As Ulysses S. Grant said in 1869, ``I know of no method to
secure the repeal of bad or obnoxious laws so effective as their
Geriatricians Pay to Work. My practice overhead was
71% last year, up from about 50% ten years ago. The increase is
primarily due to Medicare discounts and denials. I lost,
literally lost, $81,602.81 taking care of my Medicare ``insured''
patients, the difference between what I collected and my overhead
percentage cost to break even. If I gave up Medicare, I would
work much less and make $81,602 more. If I saw only Medicare
patients, I would be bankrupt in about one month.
I surveyed other doctors in my community, and my experience
is typical. Physicians are being paid about 35% of their
Medicare billings and writing off about 65%. I sent a copy of a
letter pointing out these facts to my Congresswoman. She offered
to intercede and sent a signature form authorizing her to act on
my behalf, but this is not what I seek. Government by
personality and influence is part of the problem, not part of the
Congress should once again allow physicians to balance bill.
It should also authorize Medicare to pay individual patients
directly the $6,000 per year spent per capita on Medicare HMOs,
thus allowing patients to finance their own care through tax-free
Medical Savings Accounts and high-deductible insurance. With
Medisave, wasteful and care-rationing Medicare HMOs could be
I now give all my Medicare patients a letter to read that
explains my situation. One patient suggested that he and his
wife may drop their Medigap insurance (premium $3,800 per year)
and Medicare Part B ($1,200 per year) and put the $5,000 in a
savings account to pay my fees directly. This was his own idea,
unprompted except that I hand out about 100 copies of Patient
Power a month and he probably read one.
Thomas LaGrelius, M.D., Torrance, CA
Blue Bunglers Break the Law With Impunity. In a letter
dated February 3, 1995, Upstate Medicare admitted that it had
repeatedly and illegally violated its own rules since 1991. They
failed to request additional information before denying claims
for lack of medical necessity and changed the assignment status
from unassigned to assigned on electronic claims.
If physicians had repeatedly violated such rules, the OIG
would be knocking down their doors. But the carrier was not
penalized in any way for violations that HCFA knew about. The
carrier didn't even have to stop the violations. They promised
to do so only after I wrote to my Senator.
Lawrence R. Huntoon, M.D., Jamestown, NY
Internist Punished for Ordering Test. We were denied
an Evaluation and Managment service (99204) because of a ``global
surgical fee'' received. There was no global surgical
fee received, nor was there any ``surgery.'' A
pulmonary function test was performed because after 45 minutes of
initial evaluation, we concluded that her clinical condition
warranted it....I would like to see a reference to one of your
bulletins to state that E & M services are no longer reimbursable
when any other (nonsurgical) services are rendered....
Robert J. Casanas, M.D., Mariposa, CA
HMOs and Veterinarians. To whom do physicians owe
their allegiance? Can the physician simultaneously serve two
masters, that of the patient and of the rationers (managed-care
companies, networks)? How can we as physicians act as the agents
of rationing... and pass ourselves off as uncoerced patient
advocates? How is managed care any different from veterinary
care, where the owner of the pet (third party) decides whether
the cost of the recommended treatment is acceptable?...
It is time for patients to have a financial stake in their
purchase of medical care....Medical savings accounts are the
beginning of the solution....Opening the market to medical care
for the elderly, independent of Medicare, will help keep costs
down....Also, allowing people to keep more of what they earn
(i.e. taxing them less) would mean for less need to ration
because of inability to pay. Until government plunder ceases
(Medicare and other welfare programs), this great country is
unworthy of the liberty so many have given their lives for.
G. Keith Smith, M.D., Oklahoma City, OK
A Roman Solution. When Congress enacted H.R. 5252 in
the midnight last hours of the session, little did the public
realize that Clinton's bill had been enacted for the elderly. The
price will be thousands, if not millions of lives. This
amendment freezes prices physicians may charge and institutes
punishment of physicians who are allegedly ``overcharging.''
This means that the physician risks his reputation, his property,
his bank account, his car, and any other assets the government
may seize to collect the alleged overcharges.
Physicians will react by gradually refusing to accept
Medicare patients...Civil disobedience on the part of doctors
cannot be expected...Civil disobedience on the part of the
elderly, who are owned by the government, will not find them
physicians. I do not know what my colleagues will do, but I have
decided not to charge my Medicare patients. There will be no
bill and no receipt because there is no charge.
The patient who wants me to care for him will simply offer
what was offered in Rome at the time of Cicero, when it was
illegal for attorneys to charge for their services-an honorarium.
So long as I am able to earn a living, I will be able to care for
patients. If the patient cannot offer or pay an honorarium, I
will care for him nevertheless.
John H. DeTar, M.D., Reno, NV
Legislative AlertA Congressional Investigation of
House Speaker Newt Gingrich can't stop stunning official
Washington and the K street groupies who feed off the generous
portions of federal fat or assist their clients to get a good
seat At the Table.
The latest group to get a good case of cardiac arrest is the
managed-care industry. In a March 29th speech to the American
Medical Association, Gingrich called for a congressional
investigation into managed-care industry practices, the fastest
growing sector of the health insurance market.
In the past two years, there has been a major shift,
particularly among mid-sized firms, to managed care. About 63
percent of all privately insured Americans are now enrolled in
Gingrich thinks that managed care is accumulating vast
financial power and that corporate medicine is concerned more
with the bottom line than with the quality of patient care. The
big insurance companies have made ``managed competition'' their
preferred reform option, and managed competition is based largely
on the delivery of services through staff model HMOs. Gingrich
is, ipso facto, taking on big insurance precisely in a
fashion that Hillary and Ira did not. Indeed, the Clinton Plan
would have been an economic boom for large health insurance
Writing in the March 29th edition of the Los Angeles
Times, Edward Chen states that criticism of managed care is
a ``high stakes'' strategy for Republican members of Congress.
But Gingrich, whose popularity has plummeted in the polls because
of his outspoken stand on tough policy issues, is obviously not
afraid of the controversy.
Meanwhile, Senator Charles Grassley of Iowa invited Leroy
Schwartz, MD, chief of Health Policy International, a think tank
based in Princeton, New Jersey, to brief congressional staff on -
the pitfalls of ``managed care''-based reform. Schwartz insists
that the Republicans who favor managed care would ultimately push
Americans into the same box that the Clintons tried to foist on
them with their system of regional alliances.
Commenting on the Gingrich appeal for Congressional
investigations into the managed-care industry, the March 31st
edition of The Washington Post opined: ``It's a major
issue and a worthy topic on which there ought to be some
It is worth noting that in the Federal Employee Health
Benefits Program, 40 percent of enrollees choose managed care (in
contrast to 63 percent of all insured workers). For federal
employees, the decision is voluntary. In contrast, private-
sector workers usually get what their employer gives them. For
the average worker, the closest thing to a single-payer system in
the United States is corporate insurance.
Entitlements Fight Heats Up.
Former Democratic Senator Paul Tsongas is making the rounds
in Washington these days talking about the mind-numbing fiscal
mess of the United States. He was invited as a keynote speaker on
a conference on federal entitlements sponsored by the Cato
Institute, a libertarian think tank in Washington. The conference
focused on the ``third rail'' of American politics (Touch It and
Die): federal entitlements, particularly Social Security and
Unless Americans face this issue, the nation will plunge
into fiscal chaos and economic decline, with a misery index
unlike anything we have ever witnessed in our history, except
possibly during the Great Depression of the 1930s.
According to the bipartisan Concord Coalition, chaired by
Paul Tsongas and Warren Rudman, not one penny of the federal
government debt has been paid off since 1969. When President
Carter left office, the national debt was $900 billion. When
Presidents Reagan and Bush left office, the debt was $4 trillion.
And under President Clinton, the debt will grow another $1
trillion dollars, reaching $5.3 trillion by 1996. Interest
payments on the debt are now the third largest item in the
federal budget, accounting for 14 percent of federal spending.
Defense is only the second largest area of the budget, with 19
percent of the spending.
Because the federal deficit is cutting into investment and
savings-half of all the money American now save is borrowed by
the federal government-the accumulating debt will continue to
drain savings from the private sector, weakening investment and
productivity. In real terms, Americans are not earning any more
now than in the 1950s and 60s. According to the Coalition, if
productivity had grown in the 1970s and 1980s as fast as it did
in the 1950s and the 1960s, the average income for an American
family would now be about $50,000 instead of $35,000.
Federal spending, not an absence of federal taxation, is the
main cause of the deficit, now projected to reach $251 billion by
the year 2000, assuming current spending levels. Right now,
entitlement spending, sometimes called ``mandatory'' federal
spending, makes up 49 percent of all federal spending. This
includes, of course, Social Security (the largest government
entitlement), Medicare, Medicaid, federal and military retirement
programs, and federal welfare (such as Aid for Dependent
Children). ``Discretionary spending'' constitutes only 17
percent of federal spending-not a large enough portion to
eliminate the deficit, much less reduce the nation's huge
mountain of debt. In other words, Congress can't get there-to a
balanced budget-from here. Entitlements will have to be put on
the table for serious slicing.
(The Concord Coalition's definition of ``discretionary'' is
narrower than OMB's. Neither includes off-budget unfunded
liabilities, e.g. $540 billion for civil service retirement.)
Tsongas and Rudman are recommending significant cuts in
Social Security and Medicare. Because these programs are not
means tested, the federal government pays over $81 billion to
American families with incomes over $50,000 per year. In 1990,
the federal government paid $8 billion to Americans with incomes
over $100,000. Their prescription: means test all federal
entitlements, reducing them by 10 percent for each $10,000
increase in income greater than $40,000, up to a maximum cut of
Conservatives generally like the spending restraints, but
they hate Tsongas's tax proposals, including a hefty increase in
the gasoline tax to 50 cents on the gallon by 2000, federal taxes
on alcohol and tobacco, and limitation on the home mortgage
deduction. But the Tsongas-Rudman roadshow is making headway.
On medical issues, Tsongas says that whatever Congress does
must be ``pay as you go, or don't go at all.'' This could mean
the demise of any medical savings account proposals or tax equity
or tax deductibility proposals, unless changes in the current tax
exclusion for health insurance or other spending reductions
offset the calculated revenue losses. Nonetheless, House Speaker
Gingrich has already signalled his intention to pass a federal
medical savings account measure this year.
Medicare on the Block?
The House Republican ``Contract With America'' does not
include any provisions for dealing with Social Security. Gingrich
remarked that no politician in Washington has the moral authority
to deal honestly with Social Security right now, largely because
of the politicization of the issue in recent past. But Medicare
is another matter.
According to the Congressional Budget Office (CBO), Medicare
is expected to cost $176 billion in 1996. The major reason for
the growth is an increase in the eligible population and the
intensity of the demand for medical services. Unless changes are
made, Medicare will account for 21 percent of all entitlement
spending in 1995 and will reach 24 percent by the turn of the
In areas of direct concern to physicians, Members of
Congress are looking at several options, including raising the
deductible in Part B for physicians' services and/or increasing
the coinsurance rate for physicians' services. The Medicare Part
B deductible is now $100 per year, compared with $50 in 1966. In
relation to the ``average annual per capita charge,'' the
deductible has actually fallen. Increasing the deductible to
$150 in 1996 would save the Medicare program $640 million.
Moreover, if the deductible were indexed to the rate of growth in
Part B charges, it would rise to $227 in the year 2000 and the
savings would amount to $8.3 billion over the next four years.
Increasing coinsurance to 25% would reap savings of $12.4 billion
over four years.
Other proposals keep surfacing that are hostile to private
medical practice. At the Cato conference, Tsongas insisted on the
need to push more and more Medicare beneficiaries into ``managed
care.'' On the other hand, Congressional conservatives are
moving toward a restructuring of the Medicare program through
vouchers, a notion promoted by The Heritage Foundation for years.
Speaker Newt Gingrich has been speaking of restructuring Medicare
from the ground up, giving beneficiaries more freedom of choice.
Congressman Bill Thomas, Chairman of the House Ways and Means
Committee, is proposing a ``Medicheck'' idea, another form of a
Medicare voucher. Some conservatives on Capitol Hill want to
incorporate a Medical Savings Account option into the Medicare
system as well.
Most remarkably, The Washington Post, the Keeper of
Establishment Wisdom on these matters, is weighing in on the
conservative approach to Medicare reform. In its March 31st
editorial, The Post noted that in the past, Congress has
resorted to a complex system of price controls to keep the costs
of Medicare under control, but the time has come for Congress to
go beyond past conventional practices: ``[T]he alternative, to
which Republicans-and not just Republicans-tend to be
philosophically drawn, is to rely more on the marketplace and
competition to hold down costs. Instead of paying for health care
directly, the government might begin to give Medicare recipients
vouchers with which to buy insurance. Providers and managed-care
companies would then compete for their business on the basis, at
least in part, of which could provide the broadest coverage at
the lowest price.''
Even more remarkably, John Rother, the government relations
chief of the American Association of Retired Persons (AARP),
stated at the Cato conference that he, too, is amenable to a
restructuring of the Medicare system along the lines of the
Federal Employees Health Benefits Program. This is a dramatic
break with predominant liberal opinion in Washington.
The Clinton Administration has made it clear that it is
opposed to a voucher program for Medicare.
Tax Deductibility for Self Employed
The House of Representatives is now moving on its first
medical insurance measure. HR 831 would permanently extend the
tax deductibility of health insurance for self-employed workers.
Under the House-Senate agreement, the 25 percent deductibility
for such insurance would be restored for 1994, and it would
increase to 30 percent for every following year. Conservatives
are supporting the measure, but many think it is too lame, as it
does not establish tax equity with employees in private corporate
plans, who receive 100 percent tax-free insurance. Gingrich has
said he would like the deduction increased to 40 percent. Many
conservative economists favor 100 percent deductibility of
insurance, not only for the self employed, but for all
individuals. President Clinton included the provision of 100
percent tax deductibility in his Plan, as did many Republican
sponsors of health-care reform legislation. The tax revenues
forgone by the tax exclusion of employer-based insurance amount
to more than $92 billion. The tax break for the self employed is
expected to result in revenue losses of $3 billion over 5 years.
The Congress is ``paying'' for this by eliminating a tax break
for firms that sell broadcast properties to minority-owned
Personnel Is Policy
Big changes in personnel always impact the policy of the
government in ways that are too numerous to imagine. And big
changes are happening.
First, William Galston, formerly of the Democratic
Leadership Council and the progressive Policy Institute, the
moderate-to-conservative think tank of the Democrats, is leaving
the domestic policy precincts of the White House. This leaves
Clinton with no serious counterweight to the claque of sixties
liberals who dominate domestic policy making in the West Wing.
Too bad that Galston did not have more influence during his
Second, Dr. June O'Neill, the Baruch College economist, is
ensconced as the new Director of the Congressional Budget Office
(CBO). It is expected that O'Neill will push CBO in the
direction of ``dynamic scoring,'' a process of accounting for
changes in law that impact economic behavior. The current
practice of ``static scoring'' calculates that price controls
will yield x dollars but disregards the loss to the
economy from regulatory measures. Conservatives want a scoring
procedure that can account for the impact of market changes.
Third, Gail Wilensky, the former chief of the Health Care
Financing Administration (HCFA) during the Bush Administration,
is being appointed as an Congressional advisor to the Physicians
Payment Review Commission (PPRC). Wilensky, whose major job it
was to preside over the imposition of the RBRVS nonsense, is well
known not to be a fan of price controls. Liberals object to
having such a ``partisan'' person preside over the ``scientific''
matter of HCFA's reimbursement of physicians.