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Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 60, No. 4 April 2004


"Best practices" and "payment for quality" are being sold to physicians as protection against malpractice liability and a potential source of bonus payments.

And if they are unimpressed with the proverbial carrot, always just out of reach, and object to the principle or the added burden of gathering and reporting quality data, "They simply need to get over it, because it's going to happen," stated National Quality Forum President and CEO Kenneth Kizer, M.D. (AM News 3/1/04). Federal and state governments can exert enormous leverage because they now pay nearly 50% of all medical costs.

Minnesota may soon enact legislation directing the commissioner of health to "identify five best practice guidelines" and to "monitor and track the extent to which Minnesota health care providers follow the guidelines" (see www.cchconline.org). Adherence to accepted guidelines would constitute an "absolute defense" against an allegation that a practitioner did not meet the standard of care.

The law would not change the burden of proof in an action alleging inappropriate application of a guideline, and as Twila Brase, R.N., points out, "it could be inferred that any practice not approved by the Board is malpractice, and therefore ripe for litigation" (Health Care News 2/04).

The new Medicare law has a provision that "will offer 0.4% higher payments in 2005 to hospitals that report performance data on 10 quality measures for all patients, not just Medicare beneficiaries" (AM News, op. cit.). As of Feb. 20, 1,407 hospitals had shared data on at least one of the clinical quality categories. "While CMS calls participation `voluntary,' hospitals are probably participating to avoid 0.4% pay cuts mandated in the Medicare Modernization Act" (Medicare Compliance Alert 3/1/04, emphasis added in both quotations).

UnitedHealthcare has retained KJD Company to abstract information from medical records of private physicians for the Health Plan Employer Data and Information Set (HEDIS). "The assessment process also provides you, as a participating physician, with feedback from your patients that enables you to make the most appropriate diagnosis, recommend a course of action, and (with the patient's input) implement that course of action for health improvement or health care maintenance," states a "Dear Doctor" letter from Robert Jacqmin, M.D., National Medical Director for Quality.

Not surprisingly, Senator Hillary Rodham Clinton favors a government-created infrastructure for quality. Quality Measurement was Working Group 9 of Cluster Group III in the Clinton Healthcare Task Force Interdepartmental Working Group, headed by Arnold Epstein, a Robert Wood Johnson fellow working in the office of Sen. Kennedy. Both the Robert Wood Johnson Foundation and UnitedHealthcare were key players in formulating the Clinton Health Security Act, which the Republican Congress continues to enact piecemeal. And both organizations are especially strong in Minnesota. A leader in four Working Groups was UnitedHealthcare Vice President Lois Quam, who was also former Chairman of the Minnesota Health Care Access Commission.

Misgivings about the process were noted in a partial transcript of the Quality Working Group: "I have concerns about a theory of quality control that will tend to become bureaucratic, a system of checkers checking other checkers rather than something that really helps people on the front lines. Why do you need to collect so much information?...I worry about that because those are process measures, those are measures that can be gamed.... I'm uncomfortable with stating that we can't really measure what we want to measure so we'll measure something else.... We could move to having as many computer systems as there are doctors."

Indeed, the data being sought are process or performance measures, or at best surrogate endpoints. The CMS hospital reporting initiative looks at whether patients with heart problems received aspirin, beta blockers, and ACE inhibitors, and whether pneumonia patients received a Pneumococcal vaccination (eight of the ten items concern the use of pharmaceutical products, without regard to individual circumstances).

Is it purely coincidental that the National Committee for Quality Assurance (NCQA) is funded by the pharmaceutical industry? (See Hall of Shame at www.aapsonline.org.)

The out-patient data, as in the Arizona Diabetes Initiative, concern the percentage of patients who had a measurement of hemoglobin A1c, LDL, or blood pressure in the past year, and the percentage with levels < 7%, 100, or 130/80, respectively.

Mortality rates, amputations, blindness, strokes, or renal failure are not among the measurements. A study with a 6-year follow-up showed that while an intervention group had significantly better target measures, the mortality and rates of diabetic complications did not differ (JAMA 2002;288:1909-14).

It is acknowledged that physicians are too busy responding to acute problems to focus on the chronic disease protocols or ways to collect quality points (as in "Snakes, ladders, and spin:...a comprehensive review of strategies to optimise data for corrupt managers and incompetent clinicians," BMJ 2003;327: 1436-1439, bmj.com). Implementation within a system is envisioned, with computerized reminders and nag nurses. Small or solo practices usually don't see enough patients to do a meaningful assessment, so they can't be rewarded for high quality. "Those who choose to organize their practices as solo practitioners will just be out of that income stream," said Robert Reischauer of the Urban Institute (AM News, op. cit.).

The "best practices" advocated by Clintonite reformers are clearly large institutional practices amenable to top-down command and control by government and other third parties.

Past "Best Practices"

Charles Phillips, M.D., of Fresno, CA, lists some examples: irradiation of the thymus gland; diuretics to treat edema of pregnancy; hormone replacement therapy to prevent osteoporosis. It was bizarre and obviously wrong to treat peptic ulcer with antibiotics. "The Annals of Emergency Medicine," writes Dr. Phillips, "demonstrated that any `evidence' used to create `best practices' involves 12 layers of potentially biased choices; therefore such material should not be viewed as pure and universally accepted" (www.cchconline.org).


Government Suppresses Data

A $500 million demonstration project called Healthy Start, a RWJF-supported program, aimed to reduce infant mortality by 50%. In 1997, the federal government barred a presentation by researchers from Mathematica Policy Research, Inc., of preliminary data showing little effect (Seattle Times 11/13/97). In 2004, the program is ongoing (www.healthystartassoc.org ), but significant positive outcomes data have yet to be reported.

Under the pretext of an "increased risk of a breach of confidentiality," Mark and David Geier's long-awaited access to the CDC's Vaccine Safety Datalink data was terminated. The approved analysis was to determine whether acellular DTaP increased the risk for acute or chronic adverse events (from a list of 15) within 30 days or 1 year following vaccination. Instead, the Geiers attempted to compare autism rates in those receiving 100 mcg of thimerosal from DTaP to those receiving no thimerosal from DTaP. (See J Am Phys Surg, spring 2003).


Thimerosal Controversy

Are recommendations to remove thimerosal from pediatric vaccines merely precautionary? Or is there serious toxicity? At a Feb. 9 meeting at the Institute of Medicine (IOM), the controversy was discussed ( www.iom.edu/subpage.asp?id=18065).

The California Environmental Protection Agency rejected a petition from Bayer Corporation to remove thimerosal from the list of mercury and mercury-containing compounds, or alternately to reconsider its determination that thimerosal caused reproductive (including developmental) toxicity.

Thimerosal contains ethyl mercury, as Paul Offit pointed out (Wall St J 2/9/04), whereas EPA standards were recommended for methylmercury. The California EPA report, posted under "vaccine information" at aapsonline.org, states that ethylmercury has also been shown to accumulate in the brain and cause neurotoxicity. Moreover, it is converted into inorganic mercury, which is clearly a developmental toxin.

WHO guidelines on thimerosal adopted in February, 2003, state that thimerosal is used in the inactivation of vaccine antigens, not simply as a preservative. A "preservative-free" vaccine may still contain thimerosal. The elimination of this component could affect vaccine safety and efficacy; the resulting products could require further clinical trials.


Charles Pavey, M.D., R.I.P.

Charles Pavey, M.D., born 1906, died on Feb. 17. He served as President of AAPS in 1957. In 57 years of practice, he delivered about 25,000 babies. Many of his innovations became standard practice in obstetrics.


Did You Miss a Meeting?

Tapes of the winter meeting in Orlando are now available: Andrew Schlafly on Medicare, Peer Review, Licensure, and Other Legal Issues; William Sutton and Mike Lowe on Defending Your Practice Against Prosecutions, Audits, and HIPAA Violations; and H. Todd Coulter, M.D., on Eliminating Third-Party Payments. Call (800) 635-1196 for an order form, or print an order form; other meeting tapes also available.


AAPS Peer Review Committee Needs You

The new AAPS Peer Review Committee is exploring the possibility of offering independent reviews to members who feel they have been the victim of a sham peer review. We need volunteers in all specialties to serve as expert reviewers and to generate a report of their findings. Any costs would be paid by the physician requesting the review. Please contact the chairman, Dr. Larry Huntoon, at [email protected]


How "Best Practices" Are Determined

There are influential people who want to tie compliance with "evidence-based medicine" (EBM) to payment, malpractice, and even licensure, writes Greg Scandlen. But the studies cited as evidence "assume that people behave like molecules," observes Linda Gorman. One study, stating that Colorado Medicaid mental health performs better now that the state has set up a treatment network, "uses heavy statistics to massage the data set." But half the sample appears to have dropped out and is missing from the analysis! "The prospect of using such studies to derive treatment protocols and settle torts ought to scare the socks off everyone."

The "research mafia" is policy-driven, Gorman says. "What the forces of darkness want to change is the way the evidence is interpreted. Rather than skilled experts making up their own minds, they want to use the Soviet method: a small group of academics will interpret existing data for all of us."

A treatment may be so superior that a study is terminated prematurely on ethical grounds. Thus, no study meeting the standards of EBM may exist. The final choice is based on cost, regardless of clinicians' experience that one drug clearly works better, writes Gerald Yorioka, M.D., who served on a Washington State Drug Use committee. "We must not be deceived by the magician's cloak. It is even worse when it becomes the politician's cloak, with dagger."


AAPS Calendar

April 19. "America's in Pain" March on Washington. See painreliefnetwork.org for details.
May 15. Board of Directors meeting, Chicago.
Oct. 13-16. 61st annual meeting, Portland, Oregon.

AMA Stands for Absolute Immunity

The AMA finds it "generally unlikely" that physicians would abuse peer review to affect competition or to knowingly pass along false or misleading information. Such an act would be contrary to professional and ethical standards, and its discovery would "seriously jeopardize their standing among colleagues and in the institutions where they practice."

The AMA speculates that "what seems far more likely is that the subject of an investigation will be angry enough at those who participated in the investigation to file a retaliatory lawsuit." The risk of exposure to the "unquantifiable impact of litigation where his professional judgment and integrity is being challenged" is so intimidating that anything short of absolute immunity for physicians participating in peer review "virtually guarantees professional silence" (AM News 3/15/04).

Thus, the AMA and the Connecticut State Medical Society are urging the Connecticut Supreme Court to overturn the ruling in Chada v. Hungerford Hospital et al., which allows a psychiatrist to proceed with a defamation lawsuit. This is the second case to put a chink in the peer reviewer's armor of immunity. In a California case, Allen Hassan v. Mercy American River Hospital (see AAPS News Dec. 2003), the Court found no grounds for a doctor's claim to proceed but left open the possibility for future litigants. This decision is posted under "Peer Review Injustice" at www.aapsonline.org.

Patient safety is cited as the justification for shielding peer reviewers, even those who maliciously bear false witness.

Yet the AMA does recognize that physicians who speak up on quality-of-care issues may be labeled "disruptive" and have their hospital privileges terminated (AMAVoice Jan/Feb 2004). And how does this happen? The hospital launches a sham peer review, with physician complicity.

Exposure of abuses, AAPS believes, is the first step toward restoring physicians' rights to hold accusers accountable.


No Due Process in New York

"In its zeal to maximize the number of physician license suspensions and revocations, the Office of Professional Medical Conduct (`OPMC') has, sub silento, stripped away many of a physician's basic liberties as the cost for the privilege to practice medicine in this State," write attorneys Michael Schoppmann and Rudolph Gabriel (The Medical Society Bulletin, Winter 2004, Erie and Chautauqua Counties).

The right to counsel, the right to a speedy trial, the right to review evidence before a hearing, and the right to a local hearing, are all disregarded. There is currently no statute of limitations on OPMC investigations.

Testimony by AAPS General Counsel Andrew Schlafly before the NY State Assembly on the need for OPMC reform is posted under "Licensure" at www.aapsonline.org.


AAPS Files Amicus in Limbaugh Case

Under a sweeping application of the Florida "doctor shopping statute," the State of Florida obtained an ex parte search warrant to seize all of the medical records of radio talk show host Rush Limbaugh.

In an amicus brief filed before the District Court of Appeal of Florida, Fourth District, (case no. 4D03-4973), AAPS General Counsel Andrew Schlafly argues that the records seizure signals "an attempt by the State ultimately to interrogate Limbaugh's doctors about what he did or did not tell them. This tactic thereby turns the doctor against his own patient, triggering breach of the Oath of Hippocrates that has governed the medical profession for 2400 years."

A patient's comments (or lack thereof) to a doctor while seeking treatment for pain is presumptively protected speech under the First Amendment to the U.S. Constitution. "Only a compelling state interest and strong evidentiary showing, after full notice to the patient, would justify this intrusion, and even then disclosure should only be with the strict safeguards required by Whalen v. Roe, 429 U.S. 589 (1977)."

Allowing these warrants to stand would have a chilling effect on the practice of medicine in Florida. The only way physicians could escape the Catch 22 of being ordered to testify against their patients would be to avoid treating pain patients.

Florida Statute 893.13(7)(a)(8) reads as follows: "To withhold information from a practitioner from whom the person seeks to obtain a controlled substance or a prescription for a controlled substance that the person making the request has received a controlled substance or a prescription for a controlled substance of like therapeutic use from another practitioner within the previous 30 days."

The AAPS brief, posted under "Pain Management" at www.aapsonline.org, was funded by the American Health Legal Foundation.


Overextending Criminal Law

Article 1, Section 8, of the U.S. Constitution authorizes Congress to "provide for the Punishment of counterfeiting the securities and current Coin of the United States" and to "define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations."

More than 3,000 offenses are now punishable as federal crimes, and the number of crimes in most state penal codes has doubled over the past century. Caseloads in federal courts have doubled since 1980, and the number of prisoners in federal custody has increased by nearly 180% since 1990 (U.S. DOJ).

The phenomenon is explained by the "one-way ratchet of law- and-order politics." Being tough on crime wins elections. And once on the books, criminal statutes (such as anti-dueling laws) are virtually never rescinded.

The line between tort and crime is slowly disappearing, and the definition of a crime may be at the sole discretion of a law- enforcement agency. Criminal sanctions may be imposed without showing a culpable mental state through the doctrine of strict liability. The reach of the law can be arbitrarily expanded to almost everyone as ordinary activities are defined as crimes. (Cato Policy Report Nov/Dec 2003). A web site devoted to "fighting against the current trend to criminalize everything" is www.overcriminalized.com.


No Reassurance on Opioid Prescribing

At a press briefing on pain management sponsored by the American Society of Law, Medicine, and Ethics, experts said that "the fear of being prosecuted for overprescribing opiates is exaggerated." However, about 12% of chief prosecuting attorneys had brought criminal charges for prescribing during the preceding year. In a survey of state medical boards, 37% said that disciplinary actions for overprescribing opioids increased from 1997 to 2001, and 40% said they stayed the same (Internal Medicine News, 9/15/03).


Insurers Adopt New Extortion Tactic. To implement a cost-saving measure called "take backs" reminiscent of the clawbacks used by the Canadian government insurance companies have created "Administrative Disciple Committees." These very intimidating committees generate demand letters for amounts ranging from $20,000 to $300,000 per physician. If the physician balks at the repayment demand, the matter goes to arbitration. This process basically assumes physician guilt and acts only to determine settlement amounts. This egregious tactic of retroactive denials may be in violation of New York State's Prompt Pay Law.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY


How Big Is the Blob? The government bureaucracy that is a major threat to the future of our nation is amorphous, so its dimensions are difficult to determine. We know, however, that U.S. manufacturing employment has plummeted to a record low of 12 million workers while government employment has rocketed to a record high of almost twice as many. Public-sector unions have become one of the largest special-interest groups in local and national politics. Personnel departments are de facto agents of government, feeding reports to the Blob to keep it from devouring their companies. It is impossible to measure the effects of the diktats of a cadre of bureaucrats on the morale and productivity of their 280 million subjects.
Craig Cantoni, Scottsdale, AZ


Rights Legitimate Force. Having declared medical care to be a right or entitlement, government is obligated to use its power against the innocent, such as the grandchildren, to pay for it. Because government must supervise the use of tax money, it must also impose costs of compliance with rules on doctors who would never abuse the right of contract between patients and physicians, now outlawed by Medicare.
Robert P. Gervais, M.D., Mesa, AZ


HSAs Better for the Sick. The worst-case scenario for a couple with an HSA and a combined deductible of $5,000: $5,000 + $3,936 (premium) = $8,936. With Blue Cross/Blue Shield and the same two lightning-bolt events, the total expense would be: $1,000 (deductible) + $8,460 (premium) = $9,460, about $500 more. To anyone except the most desperate statist, the choice of what is most economical is clear.
Sean Parnell, Heartland Institute, Chicago, IL


Firing Customers. Sometimes companies shed business simply to survive. One small business I know fired a Fortune 500 customer that was a big slice of revenue. It was just a pain to work with, and it required a whole employee just to make the big company pay in 90 days. After firing the behemoth and surviving the near-death experience caused by lack of cash flow, the little company also figured out that it should avoid customers who expect hours of training in exchange for an instrument costing a few thousand bucks....
Linda Gorman, Independence Institute, Englewood, CO


The Best Hope for Medicine. Doctors don't need to fight the world. They need to take the advice they give from time to time to their patients. Dr. Berry took control; Dr. Cherewatenko took control; Dr. Eck took control; Dr. Rubin took control. AAPS preaches taking control. Physicians have tremendous power, but they are underusing it. The greatest thing physicians can do to make their world better is to say "no" to third-party contracts. Your services will still be needed.
Joseph Lee Pugh, Diamondhead, MS


Simple Care Thrives. We have 2,000 physicians now with the fortitude and self-confidence to make a living practicing their profession for a reasonable fee. But many doctors are so beaten down that they are scared to compete in the out-of- network, free-market model. They are so used to people showing up because they are "on the list" that they believe they will have no patients in their reception room if they don't participate.
Vern S. Cherewatenko, M.D., Renton, WA


A Solo Survivor. I left a group of seven in 1986 because it had become a consumer outlet for HMO and PPO subscribers. While I never made enough to fund a profit-sharing plan, I always paid my staff of four and was able to practice personal medicine for all who came through our door. Just 13 miles from downtown St. Paul, with no agreements with the rampaging HMOs of MN, I collected 92% of my charges (10% off for cash payment). The collection ratio went down to 73% when I was ready to slow down and took on a 40-year-old partner who insisted we couldn't survive without PPOs. After joining every plan in the Twin Cities, he is struggling.

As I travel in my locum tenems, I pass out AAPS materials and try to wake up more physicians.
Stanley Johnson, M.D., Larkspur, CO


It's About Control. The way we structure our medical system will determine whether we keep our liberty or become wards of the state. Otto von Bismarck started the first government-run health system, with the conscious intent of making people beholden to the government, thus solidifying imperial power. The centralized record-keeping system was ultimately used by a subsequent regime (Hitler's) for purposes such as euthanasia.
Lee Hieb, M.D., Yuma, AZ

Legislative Alert

Still More Medicare Fallout

Remember when the enactment of the Medicare Modernization Act was described as a political coup for the Republicans? Remember the conventional political wisdom that the Republicans had "stolen" the drug issue from the Democrats and taken the issue off the table?

As predicted here, no such thing has happened. The Act is causing headaches, fiscal and otherwise. It's a hard sell back home with seniors and taxpayers.

There is still time to fix the big drug provisions, which take effect in 2006. Instead of trying to make a flawed policy work, a better idea would be to build on the drug discount card, targeting taxpayer dollars to those with high drug costs or low incomes, or both. At the very least, the Congress should delay implementation of the massive entitlement, for several reasons:

The drug provisions to the extent that they are understood are likely to be unpopular among the very beneficiaries they are designed to serve. According to a recent Kaiser Family Foundation survey, 55% of seniors have an unfavorable view of the law, while only 17% have a favorable view. Of the seniors who said that they knew the law had passed, 73% had an unfavorable opinion of it. According to Congress Daily, the National Republican Congressional Committee recently advised its members to "lower expectations" on the drug benefit.

The projected costs are already far in excess of the original projections, as explained in last month's issue. The ten-year estimates are only the tip of the proverbial iceberg. Instead of reforming Medicare so as to absorb the demographic shock of the Baby Boom generation, the new entitlement makes the fiscal situation worse. Financed out of general revenues, it doesn't even have the fig leaf of a trust fund to give it a patina of fiscal responsibility. Tax cuts are already in jeopardy.

Forget the Congressional excuses, the endless explanations, and solemn reaffirmations of their good intentions. The Good Book says that by their fruits you will know them. There you have it: more entitlement spending and higher taxes.

The drug entitlement is already accelerating the loss of private employer-based drug coverage. It is impossible, of course, to have a universal drug benefit without crowding out existing drug coverage. The likely impact of the drug entitlement will be to encourage large corporations drop or, more likely, scale back their existing retiree coverage to the level mandated by law, with its complicated benefit structure and large gaps in drug coverage. That process is already underway.

It is going to be an administrative nightmare. Like the Balanced Budget Act of 1997, the Congress has made numerous changes in Medicare. The implementation of these changes is to be carried out by the Centers for Medicare and Medicaid Services (CMS), the agency formerly known as the Health Care Financing Administration (HCFA), arguably one of the most poorly performing agencies of the federal government. CMS must implement changes in payments for doctors, hospitals, medical devices, and cancer drugs.

Additionally, Congress has authorized a major overhaul of the flawed Medicare+Choice program, replacing it with a new Medicare Advantage program that will consume a great deal of effort from a career staff already stretched beyond its capacities, inasmuch as it must also cope with the huge and ever larger Medicaid program, the State Children's Health Insurance Program (SCHIP), and the enforcement of the Health Insurance Portability and Accountability Act (HIPAA).

The drug entitlement will pose a special challenge. Government entitlements are often sold as administratively simple affairs. But 'tain't so. At the January 2004 Bipartisan Congressional Health Policy Conference, Nancy-Ann DeParle, Clinton's HCFA Administrator, noted that the Medicare bureaucracy will have to develop a new delivery system for prescription drugs for 42 million people, who will start to enroll in the new program on November 1, 2005. The tacit premise is that few existing drug coverage options will survive the onset of the new entitlement. Over the next several months, the Secretary of HHS must establish regions for the drug plans and determine therapeutic categories to be included in the formularies; set standards for the new Prescription Drug Plans (PDPs), the private plans that provide drug-only coverage, which don't exist in market-based fact, but only in non-market-based theory; determine part D premiums for the drug coverage; provide employer subsidies to firms that retain drug coverage and provide federal subsidies for low-income beneficiaries; assure the provision of at least two plans, either PDPs or MA plans, or a combination of them, in every region of the country, and establish a fallback drug plan if two such plans, either a PDP or MA plans, do not materialize.

The Uninsured and Distorted Insurance Markets

Medical costs are still soaring, more folks are being priced out of coverage or are losing it, and the taxpayers are picking up a higher and higher proportion of the costs of the uninsured either directly through public program expansions or indirectly through higher premiums to offset the cost of uncompensated care, particularly in hospital emergency rooms.

To defend the status quo amounts to the defense of the continued expansion of government. Medicaid, instead of contracting as so many expected because of the big budget problems of the several states, is actually expanding. As USA Today recently reported, Medicaid covered 42.4 million people, more people than Medicare, last year. CMS reported that Medicaid grew by 3.9% last year 1.6 million people and it will grow another 2.1% this year. The Left will look to expand Medicaid even further, enrolling working families in the nation's largest welfare program.

The Bush Administration is tackling the problems with a focus on the implementation of the health savings accounts (HSAs), coupled with the extension of tax deductibility to the premiums for catastrophic coverage associated with those plans. The first battleground over HSAs will be the Federal Employees health benefit program (FEHBP). Bush's Director of the Office of Personnel Management Kay James has announced her intention to open up the program to HSA plans. But James is running into strong opposition from the National Association of Retired Federal Employees (NARFE) and the federal unions, namely the National Treasury Employees Union (NTEU) and and the American Federation of Government Employees (AFGE). The NARFE-union position is that HSA plans will lead to adverse selection in the program and a death spiral: HSAs will drain off the young and healthy members of the workforce and leave the older and sicker folks in the traditional plans.

The standard adverse selection arguments against HSAs are overdone. Indeed, folks with high and predictable medical costs are likely to find an HSA very attractive. The more likely impact of HSAs will be to dampen costs and expand direct patient control over medical dollars. According to a February 25, 2004, study by the Joint Economic Committee of Congress, since 1960 real per capita medical spending has increased sevenfold; and a key factor has been the fact that since 1960, the proportion of medical bills paid out of pocket has decreased from half to barely one seventh. By moving from a comprehensive to an HSA plan, the costs will become transparent for patients and doctors for routine medical expenses. While this may not reverse the spending trends, which are governed by several factors, it certainly could dampen them.

The Bush Administration is also promoting refundable tax credits, worth $1,000 per person and up to $3,000 per family. Critics say that the credits are not generous enough to reduce significantly the number of the uninsured. This dispute often centers on the design of the credits and the kind of coverage that families would or could buy with the assistance of a credit. The Administration is also promoting association health plans (AHPs) and increased funding for community health programs. Backers of AHPs want small businesses to be able to pool their resources and reduce costs by purchasing through associations.

The Big Issues

The debate on medical care has not gone far enough; it is invariably framed simply in terms of insurance coverage. Other dimensions are routinely overlooked. The most important are:

Loss of control over key medical decisions by both doctors and patients. This includes the range of treatment options and the privacy of their medical records. Given the ideological bent of most of Washington's health policy analysts, complaints about loss of patient control tend to focus on private managed care plans. This misses the broader point. Managed care is only a manifestation of the underlying problem. Millions of Americans are enrolled in plans by their employers or by state Medicaid bureaucracies. In those circumstances, the patient's power is reduced or eliminated entirely. Today, one cannot, for all practical purposes, fire a poorly performing insurance company; only the employer or the government agency can. Physicians believe that they can either put up with it, or go invest in real estate. Tomorrow must be different.

The unfairness in the tax treatment of medical insurance. Hardest hit are moderate to low-income workers who work for small firms. Because they do not get any medical insurance at the workplace, they do not get the tax breaks that accompany employment-based insurance. Thus, compared to other workers, they pay a higher proportion of their income in taxes.

The growing bureaucratization of medicine through third-party payment systems. This includes the cancerous growth of regulation and red tape, particularly for physicians. This is contributing to a dangerous demoralization of the medical profession. The growth of HSA plans, fostering a restored patient-physician relationship, could reverse these trends.

What Is To Be Done?

Ideally, the best solution involves two basic steps. The first is to abolish the entire system of existing tax breaks for medical insurance. Market distortion and inequity, and the frustration of consumer choice and consumer-driven competition are the main reasons for eliminating the current tax regime. Current state and federal tax breaks amount to $189 billion, according to John Shiels, an analyst with the Lewin Group. If you don't want to impose a $189 billion annual tax increase on Americans, then the second step is to decide how to provide equitable tax relief for medical expenditures.

Conservative and libertarian economists tend to favor a national system of tax credits, structured so as not to discriminate against consumer choice. The "free rider" issue has to be confronted: what to do about persons who refuse to buy coverage and then incur a catastrophic cost? One suggestion is that those who impose costs on the taxpayer should lose their personal exemption from income tax.

The second needed change concerns the basic rules for medical insurance. These need to require that every product offer real insurance, i.e. catastrophic coverage for unforeseen and expensive events. Other requirements include a provision for some limited underwriting for health risk, such as tobacco use, as well as underwriting on the basis of age, sex, and geography; guaranteed renewability of coverage; and fiscal solvency requirements. Ideally, the basic insurance rules should be set at the state level. On issues such as statewide purchasing pools, subsidies for low-income folks, and reinsurance mechanisms to cope with adverse selection, policy trails off into the weeds, and so many get lost and confused. But these are often technical issues, and experience here is the best teacher. With 50 states, you can have 50 teaching moments. States potentially hold the greatest promise for creativity and innovation in the redesign of insurance markets.

The key political decision is whether to undertake a total transformation of the system in one major effort, or create a parallel system of tax credits for the uninsured and expand it over time. Large employment-based health insurance works pretty well, and probably should not be disturbed; small companies, however, are not the best vehicles for delivering insurance, and the expansion of a new tax credit system for the employees of small firms, as well as for persons now struggling in the individual market, makes a great deal of sense.

For the Record: Based on its voting analysis, the prestigious National Journal has recently identified Sen. John Kerry (D-MA) as the "most liberal" United States Senator. Senator Kennedy ranks 12th, well behind Senator Hillary Rodham Clinton, who ranks 7th.

Robert Moffit is Director, the Center for Health Policy Studies at the Heritage Foundation, Washington, D.C.