AAPS News – Jan 2001

Volume 57, No. 1 January 2001

DRUG ABUSE

If pills are being sold on the street, to be ground up and
injected or snorted, the usual response is to ratchet up the War
on Drugs. Physicians can be delicensed or even jailed for
prescribing such pills to the wrong patient, say a drug addict or
an undercover agent who is lying about his migraines. Patients
can be deprived of needed medications, suffering unnecessary pain
and side effects from inferior substitutes. Children can be
expelled from school under a “Zero Tolerance” policy.

If the drug is Ritalin, however, and the diagnosis attention
deficit hyperactivity disorder (ADHD), patients may be forced to
take the drug and physicians punished for not
prescribing it.

One difference between the two classes of drugs is the
person who is evaluating the condition. No one except the
patient-not even Bill Clinton-can feel the patient’s pain. And
sometimes nobody except a government school official can judge
whether Tom Sawyer manifests ADHD.

ADHD is a relatively new and controversial diagnosis.
According to Sapira’s Art and Science of Bedside
Diagnosis, ed. 2, the term was first used in 1980 to
describe a syndrome of behavior that was called “minimal brain
dysfunction or damage” in the 1960s. In the 1940s and 1950s,
similar behaviors were attributed to brain damage associated with
encephalitis.

In 1994, 90% of the 8.5 tonnes of Ritalin produced worldwide
was prescribed for American children, adolescents, and adults. As
of 1995, more than 2 million persons, mostly boys, had this
diagnosis, and 10 to 12% of American boys between the ages of 6
and 14 were using Ritalin. In 2000, 3 to 4 million schoolchildren
are taking the drug.

The diagnosis is often suggested by schoolteachers or
school psychologists. Diagnostic criteria, delineated in the DSM-
IV, are purely subjective. Quantitative tests (the Continuous
Performance Test and the Matching Familiar Figures Tests) have
shown sensitivity and specificity not much better than 75%,
although increased motor activity (“fidgeting”) can be
quantitatively demonstrated. ADHD symptoms are normally
distributed in the population, with an arbitrary level being
designated as pathological.

The fact that money may flow into schools and school-based
clinics on the basis of numbers of children with this diagnosis
has contributed to the development of a medical, social, and
educational subculture of ADHD. Diagnoses may be made, nearly
exclusively, to meet payors’ requirements, or at least an element
of bias is introduced.

Even if the diagnosis of ADHD is accepted (and a long list
of other conditions including deafness, posttraumatic enceph-

alopathy, and lead poisoning are ruled out), etiology and
treatment remain controversial.

One of the most contentious hypotheses is that childhood
vaccines could trigger ADHD (see, for example, testimony of
Bernard Rimland, Ph.D., a psychologist who founded and directs
the Autism Research Institute, before the House Government Reform
Committee on April 6, 2000.) There is no scientifically valid
evidence of a causal relationship, only an ecological association
with an increase in mandatory vaccines. However, no appropriately
designed studies have been done.

Some physicians believe that dietary deficiencies or
excesses-such as the ingestion of excitotoxins like aspartame –
can cause ADHD symptoms. Such a hypothesis is in the tradition of
Hippocrates, who enjoined physicians to study “what man is in
relation to the articles of food and drink, and to his other
occupations, and what are the effects of each of them to every
one” (Hippocrates, On Ancient Medicine, 20).

Because of treating patients on this basis, Robert Sinaiko,
M.D., a board-certified allergist, came under the California
licensure board’s microscope. Dr. Sinaiko treated a boy whose
mother thought he was not responding well to Ritalin. On a
regimen of allergy shots, off-label use of oral amphotericin B, a
special diet, and no Ritalin, the boy’s symptoms resolved. Dr.
Sinaiko had his license revoked by an administrative law judge
and was ordered to pay $99,000 for the costs of his own
prosecution. Though his license was restored, his practice was
severely restricted, forcing him to close his office (
www.treatmentchoice.com/mercury.html).

Children may be forced to take psychotropic drugs as a
condition of attending school, or child protective services may
investigate parents for neglect if they refuse treatment (see
9/29/00 testimony by Patti Johnson and Peter Breggin, M.D.,
Subcommittee on Oversight and Investigations, Committee on
Education and the Workforce, edworkforce.house.gov).

Hillary Clinton used parental concerns about Ritalin in her
Senate campaign. Citing the threefold increase in the number of
preschoolers on psychotropic drugs-11 in 1,000 are on Ritalin
(JAMA 2000:283:1025-1030)-she proposed more clinical
trials on toddlers. She also said that “we are not here to bash
the use of these medications.” And she did not retract her
commitment to “identify and get help to children who need it,
whether or not they want it or are willing to accept
it.”

Hillary Clinton and Tipper Gore were said to have “taken the
lead on forced psychotropics” at a June, 1999, White House
Conference on Mental Health (Insight 6/12/00). Sally
Zinman, director of the California Network of Mental Health
Clients, called the highly publicized conference an “infomercial
for drugs…[with] absolutely no mention of potential risks.”

Some activists have called for stringent regulations that
would make it virtually impossible for physicians to prescribe
psychotherapeutic drugs to children-as in legislation
successfully opposed by the Arizona chapter of AAPS.

The proper answer is to restore the right and duty of the
physician to prescribe regimen for the good of his
patient (not the school or society) on the basis of his
own best judgment.

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The Mental Health Partnership

Public funding to the public-private partnership involved in
mental health would be augmented in legislation proposed by
Senators Pete Domenici (R-NM), Ted Kennedy (D-MA), and Paul
Wellstone (D-MN): S2639, the Mental Health Early Intervention,
Treatment, and Prevention Act.

This bill would allow the Secretary of HHS to award grants
to private nonprofit organizations to conduct outreach screening
programs to identify children, adolescents, and adults with a
mental illness (§586). It would also provide grants to
“train teachers and other relevant school personnel to recognize
[diagnose?] symptoms of childhood and adolescent mental disorders
and appropriately respond” (§582). It would establish,
through NIMH, a research program to “design innovative ways to
enhance compliance” with outpatient treatment programs. It would
create a grant program to provide integrated child welfare and
mental health services. And it would appropriate $75 million to
fund an “anti-stigma” campaign (§581).

“Many argue [that this campaign] is a promotion for the the
pharmaceutical industry and should not be funded with taxpayer
dollars,” writes Kelly Patricia O’Meara (Insight
10/16/00). “In question also is why taxpayers should be burdened
with funding an anti-stigma campaign which many believe was
created by the mental-health community when it first began
labeling individuals as defective.”

If Tipper Gore is not First Lady, mental health/mass
medication programs may lose some momentum, as the Clinton-Gore
Administration has had a special relationship with
psychopharmaceutical manufacturers (ibid.).

Reinvented Government

In 1993, Bill Clinton said: “We intend to redesign, to
reinvent, to reinvigorate the entire national government.” To
accomplish this, the National Performance Review was set up,
which stated that power needed to be transferred from Congress to
the executive branch and bureaucracy. The core of the new
government is public-private partnerships.

The public-private partnership is a business arrangement-
which has profit as its goal-between government and business or
nongovernmental organizations (such as “nonprofits” or tax-
exempts). Joan Veon explains the implications: The public-private
partnership transfers ownership of an asset, such as a sewer
facility, from government to a new entity. The taxpayers lose an
asset and become customers instead of citizens. The objective of
the partnership changes from service to profit, and a corporation
is empowered to take on “governance” responsibilities-which used
to be responsibilities of government, which was responsible to an
electorate.

“All across America,” Veon writes, “public-private
partnerships are being established that solidify the
government/corporation as ruler. One of the organizations
facilitating this change is the National Council for Public-
Private Partnerships in Washington, D.C.”

The United Nations is also using this mechanism in
establishing global governance. “At Al Gore’s first Global
Conference on Reinventing Government, over a dozen countries came
to testify how they were … all doing the same thing: public-
private partnerships!” (WorldNetDaily
9/6/00).

This mechanism represents a fundamental change in our form
of government, with the coercive potential manifesting itself in
immunization and mental health policy, as well as insurance fraud
investigations (see AAPS News Dec
2000). Review the pamphlet on Economic Fascism.

Insurers Barred from Monitoring Lawyers’ Fees

The Montana Supreme Court held that the attorney-client
relationship is violated when insurance companies that pay
lawyers attempt to require prior approval for legal services or
to review the fees and expenses of lawyers hired to defend
policyholders. The Court held that such actions by insurance
companies would amount to supervising the conduct of the case,
which the Court found to be in violation of State rules
controlling the professional conduct of lawyers. The Court
further held that the attorney-client relationship did not extend
to the insurance company (Wall St J 5/4/00).

Frederick J. White, III, M.D., of Shreveport, LA, suggests
that AAPS bring a parallel case on behalf of physicians.

A Montana plaintiff would be needed, stated AAPS General
Counsel Andrew Schlafly.

Forty States Forfeit KidCare Funds

Robert Pear reports that 45% of the $4.2 billion allocated
by Congress to the SCHIP program (another public-private
partnership) remains unspent after 3 years and will have to be
returned. Yet the number of uninsured children has increased to
11 million compared with 9.6 million in 1993. Some reasons:
difficulty finding eligible children; reluctance by States to put
up matching funds; and rigid federal rules. Only 1,000 of New
Mexico’s 30,000 uninsured children were eligible for the program
(NY Times 9/24/00).

Indictments Skyrocket

Aggressive health care fraud investigations are here to
stay, according to John Hartwig, deputy in the HHS Office of
Inspector General. The FBI’s caseload has increased five-fold,
from 500 cases in 1992 to 2,700 in 1998. Indictments increased
from 400 to 600, and convictions from 100 to 500.

FBI special agent John W. Roberts said: “The lack of
internal controls to stop potential problems is negligence.
Repeated negligence can be considered fraud. You have the duty,
if you are going to be in the system, to know how it works and
why” (BNA’s HCFR 11/15/00).

“What can physicians do in the face of the onslaught?” asks
BNA-as when lawyers, consultants, and agency personnel can
reasonably disagree on the interpretation of variance guidance
materials.

Call the AAPS expanded Limited Legal Consultation Service at
the first sign of trouble. And opt out ASAP.

AAPS Calendar

Dec. 21. Belden hearing (rescheduled), Milwaukee.

Feb. 9-10. Chaos in Medicine: an International
Perspective, Oakland, CA, presented by the Health Care Reform
Educational Institute. Speakers include Vincent Cangello, M.D.;
William McArthur, M.D., Fraser Institute, Canada; Stephen
Pollard, columnist with the International Daily Express
of London; and Jane Orient, M.D. Cost: $245. Contact: Dr.
Cangello, (510) 834-4282,
[email protected].

Oct. 24-27. 58th annual meeting, Cincinnati, OH.

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Novartis, APA Are Sued Over Ritalin

American parents have engaged the legal talent that brought
lawsuits against tobacco, guns, and HMOs to sue the manufacturer
of Ritalin and the APA. Billions of dollars in damages are
sought. Two lawsuits filed in federal courts in California and
New Jersey in September follow on a class-action suit filed in
Texas in May (Br Med J 9/23/2000). Also named in the
lawsuit is Children and Adults with Attention
Deficit/Hyperactivity Disorder (CHADD).

Plaintiffs allege that “Ciba/Novartis planned, conspired,
and colluded to create, develop and promote the diagnosis of
Attention Deficit Disorder (ADD) and Attention Deficit
Hyperactivity Disorder (ADHD) in a highly successful effort to
increase the market for its product Ritalin.” Additionally, they
allege that “the American Psychiatric Association `conspired,
colluded and cooperated with the other Defendants’ while taking
financial contributions from Ciba as well as other members of the
pharmaceutical industry….”

Plaintiffs’ attorney Dick Scruggs accused the company of
“overdefining or loosely defining the disease such that it would
fit every child in America, and creating a market for clinical
psychologists to treat these kids” (abcnews.com 12/13/2000).

The APA cites a Surgeon General’s report concluding that 3
to 5% of American children have ADD. “The diagnosis of attention
deficit disorder is supported by a mountain of scientific
evidence going back more than 50 years.”

The mountain of scientific evidence concerns treatments, not
scientifically determined causes of mental illness, states
investigative reporter Kelly Patricia O’Meara (Insight
10/16/00).

The concept of mental illness as brain disease is the
rationale for drug treatment-and for organizations such as the
National Alliance for the Mentally Ill (NAMI) to push for forced
medication-according to psychiatrist Leon Mosher, former chief of
the Center for Studies of Schizophrenia at the National Institute
of Mental Health (NIMH). Dr. Mosher resigned from the APA in
1998, stating: “The major reason for this action is my belief
that I am actually resigning from the American
Psychopharmacological Association…. [I]n my view, psychiatry
has been almost completely bought out by the drug companies” –

(ibid.).

NAMI is a nonprofit self-help support and advocacy group,
which has been accused of having its “grassroots watered by
pharmaceutical millions”: $11 million in four years from 18 drug
companies.

O’Meara presents a table of selected NIMH researchers, the
other groups and foundations they serve (such as NAMI, APA, and
DSM-IV), and the source of the groups’ funding. This illustrates
the interlocking directorate structure of the public-private
partnership, which resembles that involved in the Advisory
Committee on Immunization Practices (ACIP).

The lawsuits have potential far-reaching consequences both
for manufacturers and the “mental-health establishment,” O’Meara
believes. If the courts find the scientific data for ADHD to be
inadequate, Novartis could be forced to return millions or even
billions of dollars earned from Ritalin sales (and feed enormous
sums to the coffers of the plaintiffs’ lawyers). Such a judgment
would open the doors to additional lawsuits requiring proof of
mental illnesses.

“It is interesting that the anti-tobacco lawyers are taking
the lead in this,” comments Jane Orient, M.D., Executive Director
of AAPS. “Both Ritalin and tobacco can be addicting. And both are
subsidized by the federal government.”

Forced Medication

Educational neglect is a rationale that can be used to force
psychotherapeutic drug treatment (as well as immunizations) on
unwilling children and parents.

In an Albany case, the parents of 7-year-old Kyle Carroll
were hauled into court when they informed the school district
that they wanted to discontinue their son’s Ritalin to see
whether his sleeplessness and anorexia would improve. The case is
apparently the first in the nation in which parents were
pressured by a judge, if not outright ordered, to administer
Ritalin. There was no fact-finding hearing or written opinion and
thus nothing to appeal. The Carrolls consented to an adjournment
in contemplation of dismissal (ACOD) under at least the
theoretical threat of having their son removed from their
custody. The ACOD directed the parents to comply with the
doctor’s treatment, which was a prescription for Ritalin.

Professor Jeffrey Schaler, a psychologist who teaches at
American University, stated that the consent decree constituted
an inappropriate use of judicial authority. The judge acted “in
parens patriae,” he stated. “Invading a child’s body or person
with a chemical is an invasion of privacy and a deprivation of
due process.” The appropriate remedy would have been to impose on
parents the responsibility to see that their child was not
disruptive in school and allowing them to find their own solution
(NY Law Journal 8/17/00).

Accused Neonatologist Commits Suicide

After rounds on Nov. 8, Naren Jadeja, M.D., of Bradenton,
FL, was scheduled to plead guilty to charges of mail fraud,
health care fraud, and giving false statements related to health
care. He faced at least ten years in prison, fines up to $250,000
on each count, loss of medical license, and forfeiture of $1.4
million in assets. Instead, he went to the doctors’ lounge at
Manatee Memorial Hospital and shot himself.

Dr. Jadeja was the only neonatologist in the county, working
seven days a week and 24 hours a day. He frequently cared for
seriously ill premature babies without compensation.

Federal agents met Dr. Jadeja at the door to his home at 7
a.m. one morning, handcuffed him, and took him to jail. He had to
post a $1 million bond.

According to Owen McCarthy, M.D., of Bradenton, “this doctor
was a quiet, unassuming, and extremely competent physician. He
cared for the premature children of many doctors. There are many,
many parents who would be happy to march their children into the
courtroom and tell the court that he is the reason why their
children are alive and healthy. This man had a whistleblower
employee, who I feel created a lot of this supposedly fraudulent
billing in order to get her whistleblower bounty.”

Lyme Specialists Persecuted

About 50 physicians in NY, NJ, CT, MI, OR, RI, and TX have
been investigated, disciplined, or delicensed over the past three
years because of treating chronic Lyme disease in ways they
believe to be necessary and scientifically valid-as with
prolonged antibiotics. NY attorney Michael Schoppmann states that
a physician treating a significant number of patients with that
diagnosis can count on being investigated because the financial
implications are the insurance industry’s worst nightmare
(MSSNY’s News of New York, Dec 2000).

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Members’ Page

Education Is Not the Answer. “Fraud and
abuse”-and the impact of this government assault on physicians-is
getting to be a hot topic everywhere (see, for example, the
President’s message in the Bulletin, Medical Society,
County of Erie, Spring 2000). The government dependency system-
based on the “something for nothing” lie-is breaking down, and
more people are being adversely affected by the government-
sponsored robbery needed to pay for the lie. Thus, a more
threatening bureaucracy, more display of brute force, and more
government abusers paid by the victims are required to accomplish
the same task. This spawns the growth industry whose sole purpose
is to educate and/or defend against some attack by the government
on the individual.

The AMA and many state and local medical societies
(ibid.) are looking to work more closely with HCFA “to
focus on a collaborative approach to educating physicians” about
coding and government rules. The problem, of course, is the
government rules, not lack of education. More education so that
physicians can become more compliant and submissive is not the
answer. Fighting back is the answer.

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

Patients’ Rights and Lies. The American sheeple may
have rights, but the right to know the truth is no longer one of
them. Patients with private medical insurance are not informed
that part of their hospital bill goes to pay for the government
mandate to treat the uninsured or that 59% of the increase in the
uninsured in the Southwest is due to the influx of low-skilled
immigrants, about 40% of whom are here illegally, courtesy of the
government. Until recently, people were not told about Medicare
cost-shifting either. Now that private insurers have started
reimbursing at Medicare rates, the press and the public blame
HMOs (a government creation), rather than the Medicare monopsony,
for the resulting cuts in care.

Speaking of cuts, for a recent one-hour operation of mine,
the surgeon was paid $416 and the anesthesiologist $320. For
comparison, Pinnacle Nissan wanted $300 in labor and $300 in
parts to replace a power window in my car, a repair that takes
about an hour (I saved $300 by doing it myself). With more
regulations and more ersatz rights to “free” care, expect
rationing and shortages as in Canada. The specialists will be at
Pinnacle Nissan, repairing power windows for a living.

Craig Cantoni, Scottsdale, AZ

Still Decertified. Thank you for the results of the
Freedom of Information Act request regarding the decertification
of Ambulatory Surgery Clinics. I notice how quickly reinspections
were done at other facilities. Mine has been waiting since March,
2000. One delay of months was occasioned because I signed a form
in the wrong color ink. My problem (See AAPS News Jan
2000) resulted from my inability to find and hire a professional
legal team within six days to rewrite documents. The regulations
and the inspectors’ guidelines have not changed since my facility
was certified in 1988, and nothing in the ASC has changed. Only
the inspector’s interpretation changed.

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

“Do Good” Government. George Washington declared that
“Government…is force. Like fire, it is a dangerous servant and
a fearful master.” In our attempt to “do good,” we have made
government our master. And fearful it is!

Abraham Lincoln for instance had this to say about alcohol
prohibition in 1840: “Prohibition will work great injury to the
cause of temperance. It is a species of intemperance within
itself, for it goes beyond the bounds of reason in that it
attempts to control a man’s appetite by legislation and makes a
crime out of things that are not crimes….”

Most of our government today is made up of prohibitions,
compulsions, rules, and regulations to control our lives. This
“do good” activity has resulted in disrespect for all law.

Ernest Phillips, Sodus, NY

“Good Insurance.” The so-called health
insurance industry, supported by government policy, expanded
prepaid care- which was offered by hospitals to save themselves
from financial destruction in the 1930s-into a system for
financing most medical expenses. This perverse system would
surely have collapsed save for a 1954 IRS ruling that permitted
use of pre-tax dollars for medical care paid for by employer-
provided insurance. Now Americans spend only 5.3% of after-tax
income on direct payment for medical care, less than half the
amount spent on restaurants and entertainment. With the
destruction of free-market competition, the system has made it
impossible for anyone to afford even more or less routine care
without third-party support. A partial solution: end the
financial penalty for individuals who pay for medical care
directly by making all such expenditures tax deductible.

Steven D. Field, M.D., Northbrook, IL

Punishing Honesty. According to the June issue of
Coding & Medicare Updates, a voluntary refund of a
payment resulting from an honest error may trigger a Medicare
audit, with the prospect of huge fines and loss of the financial
stability required to continue practicing. Every day, as a solo
physician, I find more reasons to discontinue seeing Medicare
patients.

Thank you for being our voice. The AMA is making far too
much money changing codes and selling the coding books.

Dale H. Foster, M.D., Elk Grove Village, IL

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Legislative Alert

The Unresolved Medicare Mess

Regardless of the eventual outcome of the Presidential
election-hanging on chads, dimples, and the legal machinations of
lawyers in Florida and the federal courts-Medicare’s many
problems show no signs of going away; no, they deepen and darken.
The new Congress and the new President will not be able to
continue to put off dealing with Medicare-even if they want to-at
least not in any responsible fashion.

The Technical Review Panel of the Board of Medicare
Trustees, as reported by veteran health care reporter Robert Pear
(NY Times 11/30/00), has just concluded that Medicare
costs are going to go up a lot faster than anyone previously
thought. Last April, the Medicare Trustees said that the
Hospitalization Trust Fund was going to be insolvent by 2025,
meaning that it would run out of funds to pay for hospital
benefits; the Trustees’ technical experts say that the real date
must now be advanced four years to 2021. The reason: Medicare
costs will grow much faster because of advances in medical
technology, not simply growth in the elderly population. The
panelists say that medical technology advances will account for
between one-half to two-thirds of the growth in medical spending
that is not to be attributed to general economic inflation. In
any case, the Medicare spending wave will build faster than
previously expected, and indeed, according to the technical
review panelist, it will mean that Medicare’s annual costs
will double by 2010, amounting to about $440 billion in today’s
dollars, the year before the first wave of Baby Boomers
start to retire.

What about the long-term outlook? Projecting the cost out
over the 75-year period, which is the standard long-range
projection made by the number crunchers for both the Social
Security and the Medicare programs, the technical panelists say
that this means the future annual Medicare costs could be 60%
higher in those out-years, and total medical spending the could
jump from 13.5% to 30% of the GDP.

The United States, of course, is not alone in dealing with
this pressure in its Medicare program; it is universal among the
industrialized nations of the world. In a remarkable speech to
the Royal College of Surgeons in London, Sidney Taurel, CEO of
Eli Lilly and Company, noted that health policy is going to be
changed by three separate, but soon to be interrelated trends,
which will sharply increase the demand for higher quality medical
care.

First, of course, is the rapid aging of human population; it
is far more advanced in Europe, where the ratio of workers to
retirees will drop to 2 to 1 by 2020, than the United States,
which lags about ten years behind the European age wave.
Nonetheless, the Medicare debate is being fueled by the sheer
size of the coming demand for Medicare services.

Second is the “wave of innovative technologies from
biomedical industries”: “The key point is that a succession of
breakthroughs in pharmaceuticals and equivalent advances in other
medical technologies will inevitably have a powerful expansionary
influence on demand and utilization patterns in all systems where
they are introduced.”

Third is the revolution in information technology. Taurel
states: “The Internet and related technologies will transform
health care in many ways, including huge efficiency gains in all
aspects of health care management. But I think their significance
for the future of health care policy will be manifest primarily
in two ways. First, they will continue to amplify the power of
consumer choice in health care as in all other transactions.
Second, medical systems will feel intense and growing pressure
toward transparency in decision-making. By the algorithms of
connectivity, one persons’ experience becomes the common
knowledge of millions with the click of a mouse.”

All of this reopens the debate, with a special urgency, over
the costs and benefits of adding a prescription drug component to
the financially troubled Medicare program. In 1999, the cost
of prescription drugs grew by an estimated 15%, roughly three
times the level of overall health care spending. New drugs
are coming on line at a faster rate. According to the
Pharmaceutical Research and Manufacturers Association, there
are 700 new drugs in the research and development pipeline geared
toward conditions that primarily affect the Medicare
population.

Drug costs will be a driver in coming medical insurance
increases. In 1999, according to an analysis published by the
Center for the Study of Health System Change, those medical
economists who predicted the end of the slow growth in medical
costs have been proven correct. As the Center noted in its
November Data Bulletin, between 1994 and 1998 health insurance
premiums have increase on average only 2%, but in 2000 they
registered a sharp 8.3% climb, with fully insured plans
seeing a 9.6% increase and self-insured plans seeing a 7.1%
increase. In 1999, the Center noted, prescription drug
spending alone accounted for 44% of the cost increase, while
the growth in physician spending accounted for 32%. Inpatient
hospital spending, interestingly enough, accounted for only 3%
and outpatient hospital spending for 21%.

So, drug spending is the item to watch. Since the mid-
1980’s there has been a sharp increase in the overall growth of
spending on pharmaceuticals; they are a much bigger part of
medical treatment today, of course, and the evidence points, as
the Medicare trustees panel has noted, to an even larger role in
the years immediately ahead of us. The problem is, of course,
that prescription drug delivery is affected by the very same ills
that affect the delivery of medical services in the current
employer-based or government third party payment-based system.
In 1987, according to the November edition of Business and
Health, more than 50% of all American drug spending came
directly out of the pockets of individual patients. By 1997, that
dropped to 29%, with the share of insurance payment for drugs
jumping from 30 to 51% during that same ten-year period.
Prescription drug costs, like all medical costs, are
reflecting the inefficiencies of third-party payment. Yet another
argument for medical savings accounts….

Drugs are expensive, but expensive compared to what? In a
recent and remarkable paper for the National Bureau of Economic
Research and Columbia University, “The Benefits and Costs of
Newer Drugs,” Frank Lichtenburg argues that the overall
increase in drug spending must be understood in terms of the
quality of modern drugs and their impact on reducing the other
costs of the medical sector of the economy. Spending is not
simply a reflection of price. While about two-thirds of drug
spending reflected price changes, the increased utilization of
drugs accounted for about one-third of spending growth in recent
years, especially increased utilization of newer drugs. New drugs
cost more than older drugs, and the replacement of old drugs by
newer drugs is the most important reason why drug spending has
increased rapidly in recent years. For example, citing the work
of other economists, Lichtenburg notes that the average cost of
treating a heart attack patient increased from $11,175 in 1984 to
$14,772 in 1991, reflecting a shift from older treatment regimes,
like catheterization and intense medical management, to newer
approaches, like angioplasty and bypass surgery. But the
outcome is better so that while there has been a raw increase in
cost measured by dollars, there has also been a real reduction in
costs in terms of the value of the services and the quality and
length of life effected by changes. Lichtenburg argues that
this same approach should be taken with regard to an evaluation
of prescription drug costs, as well as other medical advances.

The Medicare cost issue bedevils Congress. Since Congress
and the Clinton Administration started congratulating each other
for the effects of the Balanced Budget Act of 1997, and then
quickly realized that they had cut the rate of spending in
Medicare too much and too quickly, pressure has built up to
reverse the economic impact of the BBA. Congress is prepared to
do just that with a $30 billion restoration package, and Clinton
is prepared to veto that package because he thinks that payments
to managed care plans, now dropping out in large numbers, are
excessive. This is the inevitable price we must pay for an
outdated system of central planning and price regulation.

Paving the Way for Medicare Reform

The new President and the Congress should help educate
the public on the reasons for reform. To move a consumer-choice
agenda for Medicare, there are certain areas that are ripe for
Congressional oversight investigations. For example:

The Real Financial Crisis in Medicare. The Clinton or
Gore prescription drug proposal would add $338 billion over ten
years, and 1 billion claims, doubling the total number of claims
to be processed by the carriers and Medicare contractors. The
financial problem is not just the Medicare trust fund, but rather
the coming explosion in Medicare spending, which will start to
hit about 2011, with a profound effect on premiums, taxes, and
the national economy.

Medicare’s Mountain of Paperwork. Congress should focus
on the size of Medicare’s regulatory regime, now estimated at
more than 111,000 pages of regulations, and its cost.
Congressional inquiries should also focus on how the
Administration’s drug proposal will add to HCFA’s authority; and
how HCFA’s system affects the financing and delivery of care,
invites fraud and abuse, and diverts precious time, energy, and
resources away from caring for patients.

Medicare and Medical Technology. There is growing
evidence that Medicare delays and denies life-saving medical
technology to Medicare patients that is readily available to
millions of Americans covered by private insurance. If that is
the case with current and future Medicare technology, it will
also be the case with prescription drugs. These examples should
be highlighted.

Medicare’s Benefit Setting. The Congress should look at
the process whereby benefits are limited in practice by Medicare
carriers and HCFA officials. The Congress should also address the
perennially troublesome problem of denials on the basis of
medical necessity and the cumbersome problem of trying to appeal
Medicare’s benefit denials. The Clinton and Gore proposals would
set up the same type of system for prescription drugs.

How Medicare’s Price Controls Affect the Quality of
Care. The Congress should re-examine the Medicare price
control regime for doctors and hospitals. It is never too late to
go back and force the academic supporters of the Resource Based-
Relative Value Scale (RB-RVS) to defend the theoretical
underpinnings of that structure in public hearings and ask
professional economists to give their best advice and counsel on
how to repair the damage. The Congress should explain to the
public precisely how complex and cumbersome this entire system
is, and how it negatively affects the quality of care. They
should look into the recent HHS proposal to limit payment for
cancer drugs.

What Consumer Choice Teaches. At this time of year, a
special class of Americans-Members of Congress and federal
workers-are choosing from a broad range of private medical
benefits made available to them in the Federal Employees Health
Benefits Program (FEHBP), which has been in existence since 1960.
It is not a perfect system. There are irrational restrictions on
market entry and irrational underwriting practices. There are no
medical savings accounts or flexible spending accounts. But,
these weaknesses aside, it is still a far superior system to that
available to most Americans under the terms of employer-based
medical insurance. And, by every measure, it is far superior to
the Medicare system. Federal workers and their families enjoy
certain privileges:

Broad Choice of Plans. This year about 300
plans are competing for consumers’ business. Virtually all plans
cover between 80 and 90% of prescription drug costs. Federal
workers and retirees do not have to go outside of the system to
buy supplemental coverage for drugs and catastrophic protection,
nor will they pay nearly half their medical bills out of pocket
as Medicare beneficiaries do.

Rational Financing. While the government
spends about $220 billion for the Medicare program, covering
almost 40 million retirees ($5,200 per person), it spends about
$20 billion for the FEHBP, covering 9 million persons ($2,200 per
person). Beneficiaries choose the level of benefits and cost.

Less Bureaucracy, More information, and Higher
Satisfaction. Unlike with Medicare, the government does
not make all FEHBP beneficiaries pay the same for the same
package of benefits. A lot of solid information is available, and
persons are generally satisfied with the plan they choose.
Probably no more than 5% of enrollees will choose to change plans
this year.

The majority of The National Bipartisan Commission on the
Future of Medicare proposed just such a system for the next
generation of senior citizens. For critics who want to know just
how such a system would work, they can look at the dynamics right
in front of them. It is happening right now.

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