Volume 51, No. 5 May 1995

MORATORIUM

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 indication.

AAPS Calendar

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 professional life.

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 3/30/95).

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 Report 3/10/95).

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.

Legal Briefs

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 Report 3/10/95).

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 (ibid.).

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 conviction.)

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 stringent execution.''

Members' Page

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 solution.

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 phased out....

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 Alert

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 managed-care plans.

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 companies.

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 hearings.''

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 Medicare.

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 85 percent.

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 century.

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 businesses.

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 tenure.

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.