AAPS News – May 2003

Volume 59, No. 5 May 2003

MIRANDA WARNING FOR PATIENTS

As AAPS will inform patients in a national advertising
campaign, HIPAA-covered entities should be handing patients a
Miranda warning come April 14. That’s the real meaning buried in
the lengthy privacy notification, which will resemble the Gramm-
Leach-Bliley non-privacy notices that you get from your bank and
probably throw away.

The Miranda warning, of course, applies to persons arrested
as criminal suspects. And anyone with a medical record could be a
criminal suspect, with evidence from that record readily
accessible to a vast dragnet no warrant required.

For example, a prescription for an opiate might be
considered a reason for “oversight.” The physician might have
demanded a urine screen for marijuana and other controlled
substances as a condition for prescribing pain relief. Such
specimens should be handled with a “chain of custody” appropriate
for crime-scene evidence, advised pain management expert David
Greenberg, M.D., at a March 22 seminar sponsored by the Pima
County (Tucson, AZ) Medical Society. Could a positive screen
found by overseers be used as evidence to prosecute a patient? Or
as an incentive to get a patient to testify against a doctor as
part of a plea bargain?

As already determined by a federal court, HIPAA appears to
do exactly what AAPS predicted: it gives the U.S. unlimited
access to personal medical records under its “oversight” power
pursuant to the Privacy Rule.

In defending against a qui tam action brought under the
False Claims Act, the Louisiana Clinic sought to protect the
medical records of nonparty patients. It argued that “Louisiana
law requires notice to a patient and a contradictory hearing that
includes the patient before a health care provider can produce
nonparty patient records without the patient’s consent” (US
ex rel. Mary Jane Stewart v Louisiana Clinic, 2002 U.S.
Dist. LEXIS 24062).The Court ruled:

“These [HIPAA] regulations are clear and
unambiguous, and they wholly undermine
defendants’ arguments to the contrary.
Accordingly, I find that the United States
may use any information it obtains through
discovery in this action in connection with
its legitimate government oversight
activities, and not solely for purposes of
this litigation.

The oversight activities authorized by law include audits;
civil, administrative, or criminal investigations, proceedings,
or actions; and licensure or disciplinary actions.

Lest we forget, the Privacy Rule is part of a set of
regulations intended to support a centrally managed, national
medical system through computerized, widely accessible medical
records. “Administrative simplification” was the task of Working
Group 19 of the Clinton Task Force on National Health Care Reform
(see AAPS News Jan 2003), with
participants from WEDI, EDS, Telesis, CIS Technologies, US
HealthCare, Aetna, Blue Cross/Blue Shield, and numerous other
managed-care, technology, and hospital interests.

The intention was, according to a memorandum from Group 19
Leader Tim Hill, to “require, by July 1, 1994, all providers…to
use the claim forms, enrollment data sets and utilization review
standards set forth by the Secretary.” Then the Secretary was to
be authorized to mandate automation of transactions for which she
had promulgated standards by December, 1995 under pain of civil
monetary penalties.

Unique identifiers would be needed to “track problems
abusers, chronics,” according to handwritten documents that AAPS
obtained through discovery in AAPS v Clinton.

Privacy is clearly an impediment to efforts to track
“cheaters” trying to evade price controls or rationing. Such
actions could be subject to criminal penalties, as in Medicare.

A facade of privacy protection is necessary, however, to
gain public acceptance of the tracking mechanism.

The Privacy Rule will indeed have a highly noticeable impact
on medical care: Reporter Robert Pear calls it a “quiet
revolution” (NY Times 4/6/03). Staff will be preoccupied
with forms, training, and compliance exercises. Florists,
clergymen, and relatives may have difficulty locating
hospitalized patients. Physicians may be denied access to
information they need.

At the same time, the computerized medical record will be
wide open to unseen agents who are working for “national
priorities” or the benefit of the “system,” rather than any
individual patient. Moreover, as HHS itself acknowledges,
“privacy and security are inextricably linked,” and the integrity
and confidentiality of the computerized data cannot possibly be
protected without the security standards which were recently
promulgated but are not enforceable until April, 2005.

Traditionally, privacy has been protected by requiring
patient consent to release the record. The original Privacy Rule
destroyed this barrier by requiring all-or-nothing “consent”:
patients either agree to release all information for “TPO”
(treatment, payment, and “health care operations”) or forgo
medical treatment. The amended Privacy Rule removes the pretense
of consent altogether, so that no patient who has ever seen a
covered entity can protect records from federal scrutiny, even by
self payment or doing without treatment.

The AAPS lawsuit that seeks to overturn the Privacy Rule on
constitutional grounds which established the “country doctor
exception” (AAPS v HHS, see AAPS News Jan, Aug, and Nov 2002) has been scheduled for oral
argument in the Fifth Circuit Court of Appeals in New Orleans in
early May. In the meantime, AAPS will be filing to enjoin
enforcement of the Rule on procedural grounds.

This unprecedented massive intrusion of government into
every medical encounter must be stopped. AAPS is working on the
legislative, legal, and educational fronts.

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Texas Repeals HIPAA Law

As members brought to our attention at the San Antonio
meeting, Texas had passed a law defining all physicians and
“providers” as HIPAA-covered entities, in Sections 181.101 and
181.102 of the Health and Safety Code. An act repealing those
sections, S.B. 330, has passed both House and Senate and has been
sent to the Governor for signature.

Who Is Investing in HIPAA?

When 1.5 million data files containing medical records and
Social Security numbers were stolen from TriWest computers,
victims were sent information on identity theft and that’s all.

Once 250 million medical records are on 1 million computers,
Walt Francis suggests buying stock in an off-shore company that
sells personal information. “Better yet, set up that company
yourself. For a few thousand dollars in bribes, you can have a
data base that will put the [NSA] to shame.”

Mr. Francis advises patients to seek potentially embar-

rassing medical care under a pseudonym. Pain treatment may be
out government-issued picture ID may be required to receive a
prescription for a controlled substance.

HHS ignored comments suggesting measures such as a registry
of searches and allowing only HHS-certified bureaucrats to
search. “Sleep well in the knowledge that your medical records
will never be lost,” Mr. Francis concluded.

Data Mining

Education Records. Reps. Mike Ferguson (R-NJ) and
Christopher Bond (R-MO) propose to permit the CDC to use
educational records without parental knowledge or consent, for
research on developmental disabilities.

National Crime Information Center (NCIC). AAPS signed
an on-line petition asking that the FBI comply with the Privacy
Act of 1974 and rescind its decision to exempt the NCIC from
obligations to make reasonable efforts to assure accuracy (see
www.epic.org/actions/ncic/). NCIC responds to 2.8 million
queries per day; inaccurate or incomplete information can
seriously harm a citizen.

Texas Agencies Fail to Protect Data. Texas State
Auditor’s Office Report 03-017, Feb 2003, states that numerous
weaknesses in the consolidated network of health and human
services agencies permit unauthorized access to confidential
files that could be read, copied, modified, or deleted.

Minnesota Data Collection. The Minnesota Department of
Health has collected more than 130 million personally
identifiable private records, without patient consent. An attempt
to repeal the enabling legislation has been dropped for the year,
according to Twila Brase of the Citizen’s Council on Health Care
(
www.cchconline.org).

Homeland Security. A “major crossover between homeland
security and medical privacy” results from the HSA’s data-mining
provisions and Total Information Awareness (Healthcare
Compliance Letter 2/18/02; AAPS News Jan 2003).

AAPS Calendar

May 30. Board of Directors meeting, Seattle,
Washington.

May 31. Shark-Proof Your Practice seminar, Seattle.

Sept. 17-20. 60th annual mtg, Point Clear, Alabama.

Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.

Ron Paul Introduces Bill to Repeal Privacy Rule

Life-time AAPS member Ron Paul, M.D. (R-TX) has introduced
the Patient Privacy Act (PPA), H.R. 1699, which would repeal the
mis-named Privacy Rule, repeal the HIPAA provisions authorizing
the “standard unique health care identifier” for all Americans,
and prohibit the use of federal funds to develop or implement a
database containing personal health information. Dr. Paul writes:

Many things in Washington are misnamed; however, this
regulation may be the most blatant case of false
advertising I have come across in all my years in
Congress. Rather than protect an individual right to
medical privacy, these regulations empower government
officials to determine how much medical privacy an
individual `needs.’

Dr. Paul believes that it is the right of individuals, not
the government, to determine what social goals warrant allowing
others to access their private property, including personal data.

AAPS Members Respond to HIPAA

A Non-Issue in My Practice. “Physicians really do have
the solution to this. We can refuse all contracts with third
parties and claim HIPAA’s country doctor exemption,” writes
Robert Berry, M.D., of Greeneville, TN. “I have never had to
force a patient to sign one of these statements…. I have had
patients switch their care from physicians who forced them to
sign this document.” Dr. Berry’s files are as confidential as
they were with the old country doctor. “If we as physicians
continue to comply with bureaucratic mandates for lucre, then we
deserve to be their slaves,” he states.

The “Quiet Way to Comply with HIPAA” is to be a noncovered entity. William A. Jones, M.D., of Fort Collins, CO,
distributes this handwritten message with a quotation from the
HHS motion to the court in AAPS v HHS and a printout
from the AAPS web site defining noncovered entities.

“HIPAA-Free Office: Certificate of Privacy Assurance”
inspired by the AAPS Model Patient Advisory is available from the
ChiroCode Institute,
www.chirocode.com.

Model Resolution. A resolution for the California
Medical Association House of Delegates, by Stephen J. Walsh,
M.D., of San Francisco, asks the CMA to “encourage federal
legislation to restore genuine medical privacy and patients’
traditional right to consent for their personal medical
information release” and to join with other organizations in
legal actions against the Dept. of HHS to restore medical
privacy.

CMS to Non-Covered Entities: “It is true that if you
are a 100% paper office, you…do not have to comply with the
HIPAA rules. But is this a good business decision?” writes Cathy
Benoit, M.B.A., HIPAA Coordinator for the Atlanta Regional Office
of CMS. HIPAA is a “business opportunity.”

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Final Ruling in AAPS v. Clinton

On March 25, Judge Royce Lamberth “reluctantly agreed” with
the U.S. Department of Justice that the award of legal fees to
AAPS under the Equal Access to Justice Act (EAJA) was precluded
by a 2001 Supreme Court decision. He ordered defendants to pay
AAPS counsel $17,138.93 on a 1993 motion for fees for discovery
abuse, and closed the docket.

In Buckhannon Board and Care Home v. West Virginia Dept.
of Health and Human Services, No. 99-1848, the U.S. Supreme
Court decided that the fee-shifting provisions of the Fair
Housing Amendments Act (FHAA) and the Americans with Disabilities
Act (ADA) required that a party had to either secure a judgment
on the merits or a court-ordered consent decree in order to
qualify as the “prevailing party.” In Buckhannon, the
case was mooted after passage of legislation.

The AAPS case was mooted when the DOJ “voluntarily” provided
boxes of documents after many hearings and court orders but
before a final decision by the Court.

“It appears that the federal government can avoid its
responsibility to pay plaintiffs’ legal fees under the EAJA by
capitulating at the last instant, when it is clear that it will
lose in Court, even though the DOJ has prolonged litigation
through convoluted legal maneuvers and thereby maximized costs,”
stated AAPS Executive Director Jane M. Orient, M.D.

Amicus Filed in License Revocation Case

In Gadsden, Alabama, three young adults from prominent
families died of an OxyContin overdose. The ensuing media furor
pressured the Alabama Board of Medical Examiners to do something
about drug diversion. Larry Dixon, its Executive Director said:
“It takes a doctor who is prone to writing large amounts of
controlled substances, and it takes a `drug shopper.’ You get
those two together and you’ve got a good relationship until
we get you” (AM News 6/25/01). Thus the Board is on
the public record with a promise to “get” a physician based
solely on the conduct of his patients, or even a patient’s
friends.

The Board found its scapegoat in Pascual Herrera, Jr., M.D.,
a graduate of a foreign medical school. Television stations did
interviews with people who said they hoped that Dr. Herrera would
go to prison.

Although Dr. Herrera did treat chronic pain and prescribed
OxyContin for about 10% of his patients, none were injured by it
while under his care, and he had no connection with the tragedies
that were on everyone’s mind during the hearing. He had also
screened out 200 addicts from his practice.

Testimony by his patients demonstrated care that was
adequate, even exemplary. Nonetheless, Dr. Herrera’s license was
revoked on pretexts that included sloppy handwriting.

“That rationale, if affirmed, would support the revocation
of the licenses of hundreds of thousands of physicians, and quite
a few attorneys as well…. In fact, the handwriting of the
Board’s own expert was no more legible than Dr. Herrera’s,” wrote
AAPS General Counsel Andrew Schlafly.

The Board failed to articulate with specificity any offense
that Dr. Herrera allegedly committed, and there was no proof of
harm to any patient. AAPS as amicus urged the Circuit Court of
Montgomery County, Alabama, (CV-01-2232-H) to reverse the order
of revocation.

Not only do such cases represent a miscarriage of justice,
but they have a chilling effect on the practice of all
physicians, whose careers could be ruined in order to mollify the
public.

Amicus Filed in Mitrione Appeal

The precedent established in the case of Dr. and Mrs. Robert
Mitrione (see AAPS News June, Oct 2002, and Jan 2002 Legal Supplement) will
affect many physicians.

“Many other AAPS members are deciding whether to continue
serving the poor through the Medicaid program, if 23 months in
jail can result based on a picayune dispute over $75.25 in claims
(the total amount of the remaining conviction here). Where, as
here, the conviction was the product of false government
testimony, the precedent at stake is even more important,” wrote
AAPS General Counsel Andrew Schlafly.

The Court erred, AAPS argues, by inferring fraudulent intent
rather than mere mistake. A conviction for mail fraud (based on a
$25 claim) requires a jury finding of specific intent to defraud,
beyond a reasonable doubt. Yet the primary proof of mens rea the
false testimony was stricken. Previously, the Court had held
that, even in the less demanding context of audits and civil
penalties, the sample to establish inappropriate billing must be
random and significant. An unrepresentative sample of a mere two
claims cannot establish criminal intent.

Additionally, the Court relied on expert opinion to claim
that defendants used a therapist who was unqualified under
Illinois Medicaid policy, when published federal regulations
expressly authorize physicians to use therapists of their own
choosing. The Judge then imposed sentence enhancements on the
defendants based on her personal disapproval of the medical
treatment rendered.

The prosecutor attempted to block the AAPS amicus brief, and
then filed motions to disqualify both defendants’ briefs before
the Seventh Circuit. This was apparently an attempt to force the
attorneys to redo all their work, probably at their own
expense defendants were depleted of their assets long ago.

Briefs are posted at www.aapsonline.org; click on
“prosecutions,” then “US v
Robert Mitrione.” The American Health Legal Foundation funded
the AAPS amicus brief.

Tip of the Month: The legal approach of alleging
defamation has worked again, where other theories have failed.
Claims in defamation are simple to make and do not require one-
tenth the cost of an antitrust action. More importantly, immunity
under the Health Care Quality Improvement Act does not apply to
defamation beyond peer review itself. In Davita Inc. v.
Nephrology Assocs., P.C., 2003 U.S. Dist. LEXIS 4770 (S.D.
Ga. Mar. 25, 2003), a kidney dialysis center sued its former
medical directors for alleged defamation, and the court refused
to dismiss the claims. “Under Georgia law, defamation requires
proof that a statement was (1) false, (2) malicious, and (3)
published. In addition, oral defamation may `consist in …
making charges against another in reference to [a person’s] trade, office, or profession, calculated to injure him therein
….'” Id. at *10 (citations omitted). Where defamation
exists, an aggrieved physician can sue for it and thereby obtain
discovery and conduct depositions of defendants.

Deterrence: Medicare Sanctions

As of January 8, 2003, there have been 26,594 program
exclusions, 3,749 involving a medical practice. There were 7,120
program-related convictions, 10,486 license revocations or
suspensions, 377 convictions involving controlled substances, and
281 convictions for health care fraud (Medicare Compliance
Alert 1/13/03). How many were justified? No one knows.

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Correspondence

Liberal “Compassion.” As government-provided “free”
medical care threatens to bankrupt the county, and the State of
New York doesn’t have the money to pick up the tab, “Sen. Clinton
Pushes for Medicaid Relief,” according to the Post-
Journal headline (10/19/02) from federal taxpayers.

When will this formula for election success begin to break
down? When the public begins to recognize that the “other people”
paying the taxes are all of us. The leftist claim of compassion
is nothing more than a promise to spread the misery. When there
aren’t enough other people to spread the costs to, the socialist
myth of free stuff to all will be exposed.

How do socialists spell “relief”? F-R-A-U-D.

Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

Consumer Choice for the Poor? If being poor means that
people can’t be trusted to make the “right” decisions, say about
medical care, what about those at 150% or 200% of poverty? And
should they be allowed to climb mountains, a hobby with a high
fatality rate? Or to stay on their farm and continue working with
large, potentially dangerous animals?

If poverty makes one incapable, why doesn’t the state make
decisions for college students, who are known to make bad
decisions about all kinds of things?

What about those of us who are descendants of poverty-
stricken immigrants? Should we have been wards of the state?

Linda Gorman, Englewood, CO

Today’s Magicians. Lawyers have a way of altering
reality or intent by redefining words. For example: the Framers
recognized that government power is restricted to the extent that
property is private. So leftist lawyers turned the concept on its
head by creating public-private partnerships in order to regiment
society. Such lawyers are like the sorcerers of yesteryear who
sought answers through magic words rather than the application of
reason.

Robert P. Gervais, M.D., Mesa, AZ

The Wrong Question. Legislators are trying to to design
a prescription drug benefit that will not have disastrous
effects, as on new drug development. But instead of asking how to
amortize the costs of research (or shift the cost of
prescriptions), we should ask how to lower costs.
Essentially, the answer has to do with the role of the FDA. And
remember, the largest cost of the FDA is not denominated in
dollars but as the opportunity cost of drugs that are never
brought to market, or brought to market decades too late for
patients who might have benefited from them.

Gerry Smedinghoff, Phoenix, AZ

Non-Participation Is Better. My impression is that the
government has less respect for participating physicians, and
treats them as their workers. The government also has a political
fear of angering a large constituency of senior citizens. Thus,
having the senior squarely situated between the government and
the physician is the safer way to go.

Alieta Eck, M.D., Somerset, NJ

Opting Out Is Wonderful. When Medicare became a reality
in the mid 1960s, I initiated my own “medicare program,” which
called for a $50 per year deductible followed by a 20% charge for
all patient services. Not only were my patients happy with my
plan, but I probably lost little or no income and filled out no
Medicare papers.

After my anesthesia residency (1973-75), I went into a group
practice in which a high percentage of patients were over the age
of 65. During that time, I billed Medicare, as was the common
practice. However, by 1997, I became so disenchanted with
Medicare that I decided its constraints far outweighed the paltry
financial returns and began the opting-out process. I have
continued to treat Medicare patients without charge. I’m in my
fifth year of being opted out; I couldn’t have made a better
choice. My advice: try it you might like it.

Donald R. Salmon, M.D., Las Vegas, NV

How I Got Out of HIPAA. I told my billing agent to
press the “print” button instead of the “send” button. He now
mails the bills. It costs less. There has been a slight delay in
payment, unworthy of consideration. If your attorney does not
know how to advise you, get another attorney.

Samuel A. Nigro, M.D., Cleveland Heights, OH

Who Are the “Bad Docs”? The statement, as by Public
Citizen, that the bad doctors are the problem with liability
insurance premiums gives me comforting reassurance. Family
doctors, pediatricians, and psychiatrists are the good doctors.
Neurosurgeons, orthopedists, and obstetricians are the bad
doctors. How do I know? The former, my group, pay the lowest
rates; the latter, the highest.

James Pendleton, M.D., Bryn Athyn, PA

Hourly Wages. In discussions about the professional
liability crisis, physicians may feel uncomfortable discussing
their income, which may remain in the six figures. I suggest
converting it to an hourly wage. If I use time and a half for
overtime, my hourly wage by the end of 2002 dropped to $17-
$18/hour, substantially less than I must pay my nurse to compete
with other available opportnities. If I say $120,000, most people
assume that is $60/hr.

L.L. Penney, M.D., Columbus, MO

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Legislative Alert

Medicare’s Money Troubles: The
Truth

Medicare Trustees have just issued their annual report, and,
no surprise, they say that Medicare is in financial trouble. We
all know that. We also know that the trouble is rooted in the
structure of Medicare as an open ended-entitlement, governed by
perverse incentives that encourage cost explosions, and also
encourage cuts in reimbursement to doctors, hospitals and other
medical professionals. Here are the basic facts for 2003:

#1. The Hospitalization Insurance (HI) program, the
part financed by payroll taxes that pays hospital bills, will go
broke in 2026, four years earlier than predicted last
year.

One perspective is that 2026 is still a long way off, and we
can still muddle through until then using the same old gimmicks:
flat-out payment reductions; new fee schedules for hospital
payment; or switching coverage for certain items, like home
health care, from Part A into Part B, where the costs will be
picked up through draw-downs on general revenues (a semi-clever
way to try to hide the true costs of the program from the
ordinary taxpayer). Look for Congressional champions of the
status quo to utter such sentiments. The late Rep. Sam Gibbons
(D-FL) once famously noted that he never really paid much heed to
those Medicare Trustee reports anyway. No point in getting
hysterical.

A more reasonable approach is to observe that, wow, Medicare
goes broke at the most inconvenient time, just when that massive
77 million baby boom generation is fully into retirement, no
longer working and paying the payroll taxes to sustain it,
meaning that 2026 is really different than previous dates, when
the Trust Fund solvency was a constant irritant rather than a
full-blown financial crisis.

An even more reasonable perspective is that the 2026 date
is, in fact, nothing less than the end of the projected process
of Medicare financial deterioration, and that the beginning of
the end is indeed closer than we realize. Why? Because the
Medicare Trustees tell us that the HI program starts running in
the red, paying out more than it is taking in, in 2013, rather
than 2016, just three years into the first wave of the big baby
boomer retirement. Feeling a bit edgy yet?

#2. The financial issue is not the solvency of the
Medicare HI Trust Fund, but the growth in Medicare spending and
its consequences for taxpayers and seniors.

The Trust Fund is just an accounting device for a pay-as-
you-go system, the entire structure of which is in deep trouble
because of demographic and other changes.

The demographic trends alone are daunting. According to the
Congressional Budget Office (CBO), from 1990 to 2010 the number
of workers in the American economy will have grown by 33 million,
but the number of persons aged 65 and older will have grown by
only 8.3 million. But between 2010 and 2030, the growth in the
number of workers will slow to only 14.4 million while the number
of persons 65 and older will grow by an estimated 30 million,
double the rate of workers to retirees. While today there are
almost 4 workers for every retiree, by 2030 there will be
slightly more than 2 workers for every retiree. In other words,
regardless of the state of the Medicare HI Trust Fund, the real
financial pressure is the accelerating burden of Medicare
spending, and what it will mean for taxpayers, the federal
budget, and the premiums of seniors. Next year, Medicare
beneficiaries will face a premium increase of more than 12%, a
harbinger of things to come. But for taxpayers, you ain’t seen
nothing yet.

#3. Expect big future tax increases to keep Medicare
afloat.

Part B, which pays doctors and reimburses outpatient
medical services, is funded by premiums of which seniors pay 25%
and taxpayers, 75%. While today, Part B expenditures account for
42% of all Medicare spending, Part B is growing faster than Part
A, and that means a progressively larger bite of income tax
revenue. How large? According to Professor Tom Saving of Texas
A&M University, a member of the Social Security and Medicare
Board of Trustees, by 2026, the year that Medicare HI Trust Fund
goes broke, Medicare will consume 20% of federal income tax
receipts. If Congress were to add a modest drug benefit
to the program that would cover just 25% of Medicare patients’
drug costs, that would jump to 24% of all federal income taxes.
With a very generous prescription drug benefit, paying for 75% of
beneficiaries drug costs, the take would amount to 35%. As
Professor Saving notes, if you add the projected shortfalls
facing the Social Security system, the income taxes taken to make
good on the unfunded political promises of both programs would be
44% of total federal income taxes in 2026. No problem.

The CBO expects that the Medicare spending will continue to
accelerate, long after the baby boomers are in retirement,
largely because of the demand for medical services. So the line
doesn’t dip when the last baby boomer draws his last breath.

CBO states that if Medicare is consuming a mere 2.4% of GDP
today, it will consume 9.2% in 2075, the out-year limit of
projections normally made by the Medicare trustees.

As Douglas Holtz-Eakin, the new Director of CBO, recently
told the Senate Special Committee on Aging: “If the Medicare
program’s costs today accounted for 9.2% of GDP, they would equal
half of what is now spent under the entire federal budget. If the
program’s higher costs were added to what is now expended, total
federal receipts (which currently absorb about 18% of the GDP)
would have to be one-third larger. And if those increased costs
were paid for entirely through a payroll based tax, the rate now
set at 15.3% on the earnings of most workers would have to more
than double a rise equal to roughly $6,000 per worker (that is,
$3,000 each for the worker and his or her employer).”

Practically speaking, what does this 75-year projection
mean? For most of us who are baby boomers, this is not a problem
we will face at least directly. It’s the problem facing the
grandkids. Keep that in mind. Those who defend the status quo,
and keep promising something for nothing, including artificially
cheap Medicare prescription drugs, have quietly, without much
fanfare, muttered a few choice words for the taxpayers of the
next generation: Go to Entitlement Hell. After all, why should
they care for future generations? How many future generations are
going to vote for them?

And Yet, “Medicare Controls Costs”

… even better than the private sector! That is the
substance of the argument presented by Marilyn Moon, the Urban
Institute’s prominent health policy analyst. (See Cristina
Boccuti and Marilyn Moon, “Comparing Medicare and Private
Insurers: Growth rates in Spending Over Three Decades,”
Health Affairs, March-April 2003). Moon argues that
Medicare performed better than the private sector in “controlling
the rate of health care spending growth” largely because of
Medicare’s ability “to price aggressively for the services it
covers.”

Pricing “aggressively” in Medicare means imposing and
enforcing price controls. OK. We get it. On sector A of the
economy you impose price controls; on Sector B of the economy,
you don’t. Sector A’s costs don’t grow as quickly as Sector B’s.
And water is powerfully wet.

Moon and Bocutti’s analysis covers three decades. They base
their calculations on enrollee spending, compare like services,
and do a comparative analysis of cumulative spending for Medicare
and the private sector. On March 17, Moon presented her findings
at a Washington conference sponsored by the Alliance for Health
Reform. Joseph Antos, a health policy analyst with the American
Enterprise Institute and former Assistant Director of CBO, notes
that Moon’s basic point is well taken on the raw numbers, but her
analysis doesn’t tell the whole story. As Antos recounts, it is
not only what you are spending that counts, but also what you are
buying for the dollars spent. Over the period 1970 to 1999,
private medical insurance spending did grow faster than Medicare
overall, but the content of private coverage grew even faster.
According to Antos, while private spending increased 44.8%, the
private sector benefits grew by 80.2% over that period. In other
words, the value of private insurance grew even faster than its
costs.

Antos also makes the standard economic argument against
price controls. They are inefficient inherently. Medicare’s
aggressive pricing is not at all related to local market
conditions, and in Medicare the adoption of new medical
technologies is slowed, regardless of demand for these services.
For doctors, Medicare’s alleged efficiency resulted in a fee cut
of 5.4% cut in 2002, and a projected 4.4% cut in 2003, which was
only corrected by Congressional intervention. Medicare may
formally pay for something, but Medicare patients won’t get it
unless they find a doctor, hospital, or clinic who can offer it
at the government-controlled price, sustain the financial loss,
and still stay in business.

And on this point, Congress should start to worry. According
to a survey sponsored by the Medicare Payment Advisory
Commission, the percentage of doctors accepting all new Medicare
patients dropped from 76% in 1999 to 70% in 2002. The reasons are
not hard to fathom. About 77% of physicians expressed concern
about Medicare payments, and about 75% had concerns about
Medicare rules and paperwork.

Breaking Ranks in the House of Representatives?

House Democratic leaders proposed a comprehensive Medicare
prescription drug benefit that would cost between $800 billion
and $900 billion over a ten-year period. Signed on to the
gigantic proposal are Minority Leader Nancy Pelosi (D-CA); Rep.
Charles Rangel (D-NY), ranking member of Ways and Means; and Rep.
Steny Hoyer (D-MD), House Minority Whip. The Bush Medicare drug
proposal is “too meager” and competitive markets are anathema.

In a move sure to upset the Leadership, two House members,
Rep. Cal Dooley (D-CA) and Rep. Rahm Emmanuel (D-IL), a former
domestic policy wizard in the Clinton White House, proposed that
Congress target low-income seniors for help with drugs, rather
than creating a universal benefit. Under the Dooley-Emmanuel
plan, Medicare would pay 80% of drug costs greater than $4,000 in
a year. The benefit could be delivered through private plans,
retiree plans, or state pharmaceutical assistance programs, and
would cost approximately $400 billion over ten years, roughly the
same as the Bush proposal. Under the Dooley-Emmanuel proposal,
the $4,000 deductible would not apply to seniors who had incomes
less than 200% of poverty. CBO estimates that 17% of the elderly
will have drug expenses that exceed $4,000 per year.

Dooley and Emmanuel got the support of 16 of their
Democratic colleagues. Politically, this is big stuff. In effect,
on the crucial prescription drug issue, they have forged a “New
Democrat” block, which, given the tight margins in the House,
will quickly emerge as another serious power block.

The Left Attacks the President’s Model for Reform

In a direct counterattack on the President’s model for a
future Medicare system, Families USA recently published a
monograph, widely distributed on Capitol Hill, spelling out why
the Federal employees plan is a bad model for Medicare. The
reasons: 1. Medicare beneficiaries are less healthy than FEHBP
enrollees. (Fact: FEHBP also covers retirees.) 2. The program
would face adverse selection problems. (Fact: the FEHBP does not
have a significant adverse selection problem because of its
design). 3. Poorer Medicare beneficiaries may not be able to
afford higher premium for generous health plans. (Fact: ditto for
federal retirees. The answer: means test the program.) 4.
Medicare beneficiaries will have difficulty making informed
decisions. (Tacit Premise: You are not as smart as federal
retirees.) 5. Plans could withdraw, and that would be disruptive.
(Fact: FEHBP plan withdrawals have not resulted in disruption of
coverage for workers or retirees.)

The FEHBP is the largest group health insurance in the
world. It has solid coverage and high rates of satisfaction. The
left has been frustrated with the program because it has been an
embarrassing showcase of how ordinary individuals can make sound
choices. In 1993, the Clinton Administration called for its
abolition, and proposed instead to fold federal employees into
the Clinton Plan. Federal workers and retirees never to be
trifled with protested vigorously.

During the great August 18, 1994, debate on the Clinton
Health Plan, Sen. Carl Levin (D-MI) said: “Madam President, I
think we have hit a sensitive nerve this afternoon on this
Federal employees insurance…. It is not just us, it is 9
million Federal employees and their families who have this
insurance. If it is good enough for us, why is it not good enough
for the rest of the people of America? … The American people
are entitled to an answer. If we voted it in for ourselves and
the 9 million Federal employees and their families, why will we
not provide them the same protection? That is the question they
are asking…. Call up the office of your Member of Congress and
say, `I would like to take a look at that plan that you folks
have provided for Federal employees and yourselves’.” Got it?

Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage
Foundation.