1601 N. Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
Association of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 54, No. 4 April 1998


The private contracting debate shows that Medicare is an entitlement turned upside down by HCFA policy.

Government benefits are not supposed to be automatic: one must apply for them. One jumps through hoops to get the benefits. Why should one have to run an obstacle course to escape from a "benefit" (and its attached strings)?

The default option should logically be that a person is not eligible to receive taxpayer largesse, rather than the opposite.

The Kyl-Archer bill (S. 1194, H.R. 2497) itself shows how backward our perceptions have become. It's supposed to have a liberating effect. However, to take advantage of the bill a person would have to enter a written contract, detailing services to be received, and have the services reported to HCFA. Citizens not eligible for Medicare need not have such legalistic formal arrangements in order to receive private medical care. Moreover, the bill does not apply to "emergency" services, unless a contract was signed prior to the emergency. An analogous provision would invalidate agreements made with a lawyer after a person was arrested or sued.

The Kyl-Archer bill was heard before the Senate Finance Committee on Feb. 26 (see enclosed summaries of testimony). In the view of AAPS observers, the witness list was stacked against private contracting, and the focus was directed to inaccuracies in the United Seniors Association lawsuit and direct-mail campaign. One of their key arguments is that under �4507 of the Balanced Budget Act, seniors will not be able to obtain "screening" (as opposed to "diagnostic") tests for prostate cancer, or other desired but "unnecessary" services, because their doctors have not opted out of Medicare.

Not so, asserted HCFA. "If Medicare doesn't cover a service, no private contract is needed." For services that might or might not be covered, Administrator DeParle said physicians should file an "Advance Beneficiary Notice" or ABN.

Physicians may fear to order such tests or to file ABNs because a "pattern" of ordering "unnecessary" services could lead to severe punishment, argued United Seniors representative Kent Masterson Brown. This point seemed to be lost in the Senate hearings, and the outcome in court is not yet known.

Testimony by the various witnesses showed persistent confusion about the legal status of private contracting both before and after the Balanced Budget Act was passed. And Medicare carriers continue to issue statements that are inconsistent with each other or with the plain language of the statute. AAPS has sent certified letters to DeParle concerning the question of whether Medicare HMO patients may freely purchase services outside their HMO. Additionally, we have inquired about carrier instructions for letters to patients, which assert that opted-out physicians are bound by Medicare price controls. These instructions are in direct conflict with �4507. Replies have not yet been received.

HCFA has issued a number of statements to the effect that certain services (routine physicals, cosmetic surgery, etc.) are either "not covered" or that HCFA will not interpret the law so as to apply to them. Contemplated lawsuits, such as a challenge by one of the 1.5 million Americans who choose not to enroll in Medicare Part B, will probably not be brought because of such assurances: a court could determine that a challenge is not ripe or that a plaintiff does not have standing.

Administrative, legislative, and judicial remedies all appear dubious at present. Reliance on the pronouncements of HCFA officials is dangerous as they do not have the force of law. The Kyl-Archer bill is unacceptable as currently written; modifications later in the legislative process could make it still worse. It is unlikely to pass with a veto-proof majority in any form. Litigation is a consideration, but the shifting legislative situation makes it difficult to formulate strategy.

In our assessment, this battle will only be won in the field, by patients and physicians exercising their rights. Until Congress passes a law repealing Sections �1801-1803 of the Social Security Act and stating that Americans, if eligible for Medicare, lose their right to purchase private medical services, there is no clear statutory prohibition against receiving or providing private (non-government funded) medical care. Congress probably will not enact such a clear prohibition, especially now that it has seen the outrage caused by �4507. If it did so, the law would be clearly unconstitutional.

It is the eagerness of physicians and patients to collect "their piece of the pie" (or cake) that makes it so easy for HCFA to win by intimidation. As the late Dr. R.S. Jaggard said, "When you hold out your hand to take the money, that's when they snap the handcuffs on your wrist." It is the doctor's signature on the HCFA 1500 (or worse, the Medicare Participation Agreement) that gives HCFA its power, and by which he arguably waives all his rights. If HCFA starts requiring physicians to apply for the status of Medicare provider and pay a user fee, those who do so will voluntarily place themselves under HCFA's jurisdiction.

If Congress really wanted to rein in HCFA's abuse of power, the first step would be a simple law that stated "services may be eligible for Medicare coverage only if a claim for reimbursement is filed." Then those who cared about patients not being able to collect their benefits should repeal the requirement that physicians file the claims (patients could do so until 1990). The person filing the claim is the one subject to the rules concerning reimbursement. (For Medicare to set fees is illegal under �1801.) If that is too stingy, the beneficiary's complaint is with HCFA and the taxpayers, not his physician.

Unless a few principled men and women exercise their rights and turn down the loot from legal plunder, the march toward socialism will continue to its inevitable conclusion.

Self-Managed Doctors

California, long the state most heavily infested with managed care, may be coming full circle. With the active support of the California chapter of AAPS, traditional practice associations are springing up around the state, modeled on the Independent Doctors Traditional Practice Association of the South Bay (INDOC), founded by Thomas LaGrelius, M.D., a family physician in Torrance, CA. Dr. LaGrelius reports:

For years, physicians have left traditional private practice and joined HMOs and PPOs because they were unable to compete with the networks of physicians and hospitals vigorously marketed by managed-care plans. Independent doctors and patients seeking non- managed care had great difficulty finding each other.

Californians are fed up with managed care. The perceived quality of care in hospitals involved in managed care has been falling. Additionally, many HMO patients now have "point of service" options and are seeking affordable alternatives to the care foisted on them by their employers. They too do not know where to go. INDOC was created to fill this need.

INDOC is a nonprofit, mutual benefit corporation. Still growing, the organization has about 80 members representing most medical fields. All efforts and funds are directed to promoting the private, unmanaged practices of our members. The public media has received us favorably, and the local cable TV outlets broadcast interview segments for us without charge. Member lists and biographical information are available at our web site (www.indoc.com). Funding sources include pharmaceutical companies (such as Glaxo and Astra-Merck) and Medical Savings Insurance (telephone 888-MY-OWN-MD).

Four classes of membership are available, representing greater or lesser levels of involvement with managed care. Those few members who belong to an HMO are committed to exiting entirely from this arrangement by January 1, 2000. All members must be board certified, have a good malpractice history, and provide direct patient care. They must have a private, independent practice.

An exciting development is the impact that this small organization is having on our local 1000-physician community. We are on our way to gaining control of a small but excellent hospital which will have very limited or no HMO involvement. Doctors are avoiding HMOs or resigning from them in order to join INDOC. The incentives are shifting in favor of private medicine. If the idea spreads, the red tide of managed care, once considered unstoppable, could be rolled back.

To start such an organization, you need one or two doctors who know the local community and can identify excellent private physicians to form the nucleus of the group. These doctors will have a lot of work to do initially, but their own practices will benefit rapidly due to improved marketing.

For additional information, contact CAAPS at (415)759-7695, or INDOC at (310)214-9921.

Arizona and Others Reject AMAP

On March 3, AMA officials William Jessee, M.D., and Randolph Smoak, M.D., met with representatives of the state and county medical societies in Arizona to "discuss implementation of the American Medical Accreditation Program (AMAP) in Arizona." The message conveyed forcefully by James Angiulo, M.D., Past President of the Pima County Medical Society, was that Arizona was not interested in implementing AMAP. He felt that resolutions introduced by the Arizona Medical Association were abundantly clear:

"Resolved: that the AMA Board of Trustees strictly limit AMAP to providing only credentialing services and only in those states which specifically request those services;...and that the AMA Board of Trustees not allow AMAP to include involvement in local medical issues including but not limited to environment of medical care, physician office site visits, physician compliance with practice parameters, and evaluation and/or verification of physician competence."

Another resolution stated: "Resolved: that further development, marketing, and implementation of the AMAP program be ceased [sic.] until a report is issued and reviewed by the House of Delegates."

Nationwide FAX alerts may have given physicians the idea that Arizona had changed its position.

Jane Orient, M.D., Vice President of PCMS, asked the rhetorical question of how the American Bar Association would expect to be received in a room full of lawyers if it suggested that lawyers had to periodically open their files to reviewers, who would pass judgment on such issues as whether they settled or appealed too many cases.

A survey of all state medical societies and about 200 county and specialty societies has yielded few responses to date. So far, four are in favor, five opposed, and four have no opinion. If you would like a copy of the survey to bring to your society, call (800)635-1196; or it may be downloaded from our web site.

A Message from the Grassroot Grannies

To the tobacco factories: Shut your doors! If the government can shut down, so can you. Then everyone will be on your side too. You can't fight bureaucracy, so don't try. Let them come to you, asking for the things you provide: tax money, jobs, and something that a lot of people want.

Of course, everybody knows, or should know, that tobacco use may shorten your life. So do many other things; but with them it's a matter of choice. Your product is being used as the pretext to limit our freedom and our private property rights. The only way to stop that is for you to take it away from them. When there's a big hullaballoo, you have the perfect answer for them. And it's not "the devil made me do it." The government says it wants everyone to quit smoking, and "we're only trying to help."

Arizona AAPS Files FOIA Requests on Kid Care

Arizona is rushing to grab its share of federal dollars to add to tobacco tax funds for KidCare at a mere four times the cost of private insurance. The state has been "chosen" to demonstrate the "reinvention" of public health, with the aid of a grants from the Kellogg and the Robert Wood Johnson Foundations. The chapter has filed FOIA requests to research a possible connection.

"State Freedom of Information Acts are a little-used but very powerful tool," stated AAPS Counsel Andrew Schlafly. For sample letters and general guidance, visit our web site.

AAPS Calendar

May 30. Board of Directors, Hyatt-Regency at DFW Airport
Oct. 9-11. 55th annual meeting, Raleigh, NC

AAPS Litigation

AAPS v. Clinton. As expected, the defendants have filed a notice of appeal from Judge Lamberth's order to pay AAPS attorney's fees under the Equal Access to Justice Act, as sanctions against misconduct by defendants and their represen- tatives. Interestingly, Ira Magaziner has filed a separate appeal.

E&M Documentation Guidelines. The AAPS Board of Directors has decided to file a lawsuit challenging the new Evaluation and Management (E&M) documentation guidelines on both statutory and constitutional grounds. Members will receive a letter concerning this issue; in fact, some will receive more than one copy because there is no way to delete current members from mailing lists obtained elsewhere. If you receive a copy of a recruitment letter from us, please pass it along to a colleague and urge him to join us.

A Memorandum of Law on this subject, prepared by Andrew Schlafly, may be downloaded from our web site.

The American Health Legal Foundation has voted to fund the litigation. Your tax-deductible contributions will be greatly appreciated!

Criminal Fraud Case Dismissed

Criminal charges of mail fraud and CHAMPUS fraud based on alleged miscoding by a busy family physician were recently dismissed, and the case referred to the civil enforcement division. This case was described in the August, 1997, issue of AAPS News. It is quite unusual for a prosecutor to drop a case that had already proceeded this far. The active support of the physicians' local colleagues and the national attention focused on the case probably helped.

Retroactive Fee Determinations Upheld

On Feb. 24, the U.S. Supreme Court upheld the decision of the Eighth Circuit in the case of Regions Hospital v. Shalala (96-1375), ruling that a 1990 reaudit of Graduate Medical Education reimbursements for 1984 did not constitute an impermissible "retroactive rule." This reaudit computed an average per-resident amount of $49,805 in contrast to the original $70,662, and a new total of $4.9 million compared with an original $9.9 million. The new basis was used to compute reimbursements for future years was well as past years within a three-year window.

A prescription "is not made retroactive merely because it draws upon antecedent facts for its operation," ruled the court.

The Secretary, after missing a congressional deadline by three years, realized "tardily" that the hospital's reimbursement for 1984 was "inconsistent with reasonableness standards."

In a dissenting opinion joined by Justices O'Connor and Thomas, Justice Scalia wrote that the Secretary's assertion that Congress gave her authority to make a whole new baseline assessment made no sense according to usual guidelines of statutory construction.

"We are not governed by legislators' `overriding purposes,' however, but by the laws that Congress enacts. If one of them is improvident or ill conceived, it is not the province of this Court to distort its fair meaning (or to sanction the Executive's distortion) so that a better law will result. The immediate benefit achieved by such a practice in a particular case is far outweighed by the disruption of legal expectations in all cases-disruption of the rule of law-that government by ex post facto legislative psychoanalysis produces."

The Midnight Knock on the Door

"Once they start going to people's houses at night, that's serious," stated attorney Mike Mustokoff of Philadelphia, in an article on how to prepare your employees for an investigators' visit to discuss upcoding (Medicare Compliance Alert 2/23/98).

Other compliance notes:

The Inspector General has released guidelines for a "voluntarily developed and implemented" compliance program for hospitals. The guidance imposes a duty on plans to disclose to enforcement authorities, within 60 days, any conduct that it has reason to believe "may violate criminal and/or admini- strative law." There is no de minimus standard. The text of the guidelines and analysis are published in BNA's Health Care Fraud Report 2/25/98.

The AMA has released a compliance plan for physicians' offices. Federal sentencing guidelines give a substantial break to "providers" who have such a plan. However, if you have one and fail to follow it, you could be nailed for that (Medicare Compliance Alert, 12/1/97, (888)287-2223).

What Should Doctors Do?

Physicians should face facts: It is impossible to comply with Medicare regulations. Not even HCFA knows what they are. Bureaucrats can make them up retroactively, without regard to the actual statute. What physicians should concentrate on is doing the right thing. Is it possible to do the right thing while taking the government money? If you think not, here is a Twelve Step program for withdrawal:

1. Don't sign any new agreements with HCFA (such as the EDI contract), especially without reading the fine print.

2. If you have signed a participation agreement, withdraw from it at the earliest possible date.

3. If you are not contractually bound to do otherwise, file only unassigned claims. If the carrier sends you money by mistake, send it back and demand to have the error corrected.

4. Educate your patients about the Medicare Cake Walk (probably impossible if you are taking Medicare money).

5. Educate your patients about the specific effects that Medicare has on their ability to obtain the best care. Never, ever cover for HCFA!

6. Calculate the overhead and the unfunded liabilities incurred every time you file a Medicare claim (and the savings and peace of mind from not filing claims).

7. Educate your partners, your family, and colleagues.

8. Specialize in non-covered services. Keep the costs reasonable. (You're under patient-guided price controls.)

9. Wean yourself from dependence on government or third- party money: cut overhead, don't buy that expensive computer system, and pay off your debts.

10. Try new things, like evening or weekend hours.

11. Consult our LLCS if you want advice about officially opting out of Medicare.

12. Ask yourself: "What if I just do it?" Could there possibly be a law that forbids you to refuse government money while continuing to serve those who ask for your help? Could such a law be either constitutional or enforceable?

If a doctor is punished by Medicare, will it because of the money that he didn't take?

Members' Page

Dear Medicare Program Education and Training Unit: I would address this letter to a real live person, but as is typical of bureaucratic unaccountability in the Medicare program, no person bothered to sign the letter written to me.

Thank you for reminding me that I am a Non-Participating Physician. I am particularly proud of that status and most certainly intend to continue it. Since you have been so kind as to send an "educational" letter to me, I will reciprocate in kind.

Did you realize that the Medicare program steals from the poor (minimum-wage workers, who may not even be able to pay their own medical bills) and gives to the rich? In any event, there is no provision in the U.S. Constitution that authorizes legalized plunder by the government. Those physicians who participate in Medicare and take these funds are accepting stolen money. Medicare is nothing but a Ponzi scheme. If the government is truly seeking to crack down on health care fraud, might I suggest that you consult a mirror? Medicare is the biggest healthcare fraud in this nation.

I appreciate the sample fee calculation that you supplied. I am well aware of the fact that physicians who choose not to participate in the legal plunder are suffering financial loss. In the example provided, the patient's reimbursement for a nonparticipating physician's services is 51 cents less than the government payment to a participating physician for the same service. I consider 51 cents to be a small price to pay for freedom and integrity. I would not participate even if participating physicians were paid $51,000 more than those who choose not to be enslaved by the government. My freedom and integrity are not for sale at any price.

I hope you will not consider me impudent when I think that I, after all my years of training, am much better qualified to practice medicine than one of your medically untrained bureaucrats-the ones who dictate medical care in the Medicare program. I have seen many examples of harm done to patients via the clinically imprudent and sometimes nonsensical "policies" dictated by HCFA/Medicare. Not only are Medicare bureaucrats incompetent to practice medicine, it is illegal for them to do so (see �1801 of the Social Security Act). Were I to participate in Medicare, I would be condoning this wanton law-breaking by government bureaucrats.

I would like to remind you of a document called the U.S. Constitution. Despite HCFA's presumptions to the contrary, it also applies to citizens over the age of 65. Americans do not lose their right to provide for their own medical care simply by becoming eligible for the Medicare program. This has to do with a concept called freedom. Freedom is so highly valued in this country that there are those who have actually given their very lives in defense of it. To squander the sacrifice of these brave men and women by surrending our freedom, via participation in this evil program, would be unconscionable.

It is my understanding that pursuant to the U.S. Constitution any physician may privately contract with any Citizen for any medical service at a mutually agreed upon price without filing any document with any bureaucracy. Such services are not covered by Medicare. In coming to this conclusion, I note that any law or regulation which conflicts with the U.S. Constitution is not valid.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


Are Private Contracts Private? Some of the language in the proposed Kyl-Archer bill (H.R. 1194) was taken directly from the British law governing their socialized system. However, H.R. 1194 contains a provision that could be interpreted as requiring physicians to report to the federal government everything that the bureaucrats want to know about "private" contracts.

Great Britain has had a socialized medical system for almost 50 years. Today, many doctors spend part time in the socialized system and part time in private practice, without the British government snooping into private medical records. If that's socialism, what do the U.S. Congress, President, and Medicare bureaucrats have in mind?
Robert J. Cihak, M.D., Aberdeen, WA


On Compliance with the Law. When serving as a senior executive for the National Cancer Institute, a government bureau, I was given instruction by a government attorney on how to avoid compliance with the Freedom of Information Act (FOIA). He explained how to organize files so that people looking for information from their own files could not get that information if we knew how to file it differently so that it was not easily available under FOIA.
Robert K. Oldham, M.D., Franklin, TN


It's Not Insurance. We must stop referring to unfunded "entitlement" programs as "insurance," a deception that has misled the public for decades. As Ed Annis thundered when Medicare was hatched, "they prostitute the name insurance...It is not insurance. It is a government dole!"

I for one am continuing to pay premiums (only about $600 per annum) to the U.S. Life catastrophic policy formerly with AAPS, with a substantial deductible ($15K) which could be raised from securities held. Ever since the insurance industry was told by LBJ in 1965 to quit competing with Medicare, or be taken to the woodshed, they have remained intimidated and only recently some have been emboldened to test the waters.
Thayer Smith, M.D., Downey, CA
[AAPS-sponsored insurance can continue past retirement--Ed.]

Playing Defense in an Era of Balanced-Budget Liberalism

Congress, after counting scheduled recesses and the August break, will have less than 70 legislative days to complete business this year. Members of Congress, anxious about job security, want to get home to campaign for re-election. The projected end of the session is October 9.

This does not leave much time for solid legislative deliberations on the tough issues, but it does mean that there is always an opening for truly bad stuff, pet projects, and goofy mandates, jammed willy nilly into the fine and impenetrable print of the big year-end spending bills that nobody either can or cares to read. That s how the medical profession and America s patients got saddled with Section 4507 of the Balanced Budget Act of 1997. It is also how the silly Resource-Based Relative Value Scale (RBRVS) for Medicare physician reimbursement got enacted back in 1989. Stick this stuff in telephone books, wait three or four weeks for it to come to the surface, and then declare that Congressional Intent-an increasingly precious commodity-was whatever is politically expedient at the moment for the folks back home.

The majority s spirit is troubled. Remarkably, Republican Congressional leaders are still at a political disadvantage in dealing with a scandal-plagued White House on the Big Issues. This is, in itself, an incredible development; and if you made it the subplot of a hot political thriller, a President bogged down by charges of illicit sex and various other machinations, it would be dismissed by the fiction publishers as simply too implausible. But there it is. The implausible is reality.

There is an intellectual and political price for arguing incessantly about the need for a balanced budget without making an even stronger case for smaller government. And conservatives on Capitol Hill are paying that price. For years, Congressional conservatives have been deploring big deficits and higher taxes, arguing that the Country can t afford more liberal programs. Now that the federal budget is supposed to be going into balance, they can t oppose liberal initiatives with the old argument pulled out of an accountant's handbook: we can t afford it. Now, the Congressional Budget Office (CBO) says that the surpluses are coming and could be big. With a deficit of $22 billion for 1997, according to a report in the March 3 National Journal, the federal government is already running about a $9 billion surplus. Using CBO baselines for current law, that could mean a surplus of between $25 and $50 billion in 1998, and as much as $100 billion in 1999. If this scenario holds, it changes the big picture considerably. It means that the United States is heading into the new and uncharted fiscal territory. This has profound consequences for policy.

What to do with the Budget Surplus? The Clinton Administration has outlined its programmatic and spending priorities. Use the funds to buck up the Social Security Trust Funds-"Save Social Security First"-and pump up federal spending on new programs. Therefore, liberals in Congress, working with the Clinton Administration, will be pushing hard the remainder of the year for initiatives on child care, education, and Medicare expansion for early retirees.

A lot of Congressional Republicans would like to channel surpluses into debt reduction or tax cuts or a combination of both. It is reported that Congressman Bill Thomas (R-CA), who chairs the House Ways and Means Health Subcommittee, is examining ways to change the tax treatment of medical insurance. Thomas realizes that much of the debate today is skewed and wrongheaded because the problem is in the genetic structure of a market driven by a perverse tax policy, not in lack of regulations. Thomas, along with Congressman Jim McCrery (R-LA), is looking at tax credit options. The idea is picking up steam among a lot of Members who are uncomfortable with the Patient Access to Responsible Care Act (HR 1415), sponsored by Congressman Charles Norwood (R-GA). The growth of a pool for tax relief for individually purchased insurance, or group insurance outside of the place of work, holds out opportunities for real reform.

Keeping the Cap on Federal Spending

Conservatives in Congress will be fighting to keep in place the "spending caps," so central to the Balanced Budget Agreement they thought they had last year, and will look for ways to cut taxes. The spending-cap issue is crucial. If the cap is broken, the liberals in Congress will be able to break out of the current fiscal strictures and it s back to bellying up to the same old bar for the same old sauce, luring the otherwise sober Republicans over for just one more spending binge.

The menu of conservative tax cut proposals is virtually endless, ranging from killing the Death Tax, otherwise known as the inheritance tax, to ending the so-called "marriage penalty" and initiating some sort of tax credit or increased tax exemption for young children as a way to counter the Administration s new "day care" proposals.

The funds available for tax reduction or spending initiatives could be even richer. There is, of course, the so- called Tobacco Agreement, which could mean more Big Bucks. Liberals in Congress will try to tap into any such money vein as a way to fund social spending initiatives, and conservatives could see it as a way to finance expanded tax relief for private health insurance for non-employer based plans or even a new base of funding for expanded Medical Savings accounts in the Medicare program for the next generation of retirees.

Are We Sure About That Surplus?

Before Congress manages to spend the hypothetical surplus, somebody needs to check the accounting. According to the Concord Coalition, Clinton's proposed "balanced budget" borrows $101 billion from the Social Security Trust Fund in order to produce a $9.5 billion surplus.

Moreover, instead of simply booking the Treasury's debts in the trust fund, the government also credits the fund with interest on those IOUs. Over the next five years, some $325 billion in fictitious interest will be included in federal revenue projections-roughly half of the $660 billion in budget surpluses projected for the next five years (Jeff Taylor, Investor's Business Daily 2/27/98).

Next Step in Medicare Contracting Debate

On Friday, March 6, the federal District Court of Washington, D.C., heard oral arguments in the case of United Seniors Association v. Shalala (1998). The United Seniors, represented by Kent Masterson Brown, are seeking an injunction against the imposition of Section 4507 of the Balanced Budget Act of 1997.

The plaintiffs argue that restrictions on private contracting are an affront to personal liberty and privacy. The government s response is that personal liberty and privacy, as ordinary Americans would understand it, don t really exist for seniors anyway. It s great reading for anyone interested in learning how the Clinton Administration really thinks about such things. The court, Judge Thomas Hogan presiding, is expected to rule on the case within the month.

On February 26, the Senate Finance Committee, chaired by Senator William Roth (R-DE), held a hearing on the Medicare private contracting issue. Testimony is summarized on pp. S3-4. One thing is certain, whatever lame excuse Congress offers or however the federal court case is decided: the issue is, and will remain, politically explosive for the rest of the year.

Medicare Commission Underway

Also on Friday, March 6, Chairman John Breaux (D-LA) called to order the first meeting of the vaunted Medicare Commission, created by the Balanced Budget Act of 1997. Breaux has shot a big shell across the Clinton Administration bow on the extension of Medicare to early retirees. He thinks that any such expansion should only be considered within the context of the Commission s recommendations, due a year from now. Needless to say, liberal Democrats in the House and Senate, itching for a vote on the proposal, are unhappy, and so is the Clinton Administration. But from the vantage point of those who want serious Medicare reform, a restructuring of the system based on consumer choice and competition, his signal was a welcome beam of light. Moreover, Senator William Roth chimed in supporting Breaux s delaying maneuver, thus toughening up the majority position at least in the Senate.

The sparring over the Clinton Medicare expansion is starting to bring other alternatives out into the open. The Progressive Policy Institute, the think tank identified with the "moderate" Democratic Leadership Council, has released a report calling for the opening up of the FEHBP for individuals aged 62 to 64 who are uninsured, rather than enrolling them in the Medicare program. Senate Minority Leader Thomas Daschle (D-SD) is also pushing this approach.

Republican Senators are also playing with tax changes to give this class of early retirees health insurance options. Senator Phil Gramm of Texas makes the valid point that indeed, 86% of the folks in this age category already have insurance. Much like the liberal KidCare proposals, however, there does not have to be a crisis in any real sense to create the political momentum to "do something." In any case, a likely proposal to emerge from Congressional Republicans as this debate matures is to give all individuals, including early retirees, full deductibility for their health insurance premiums. For most folks this would result in a sharp reduction in the cost of insurance and would increase access to coverage.

In either case, the original Clinton proposal of simply expanding Medicare appears to be in serious trouble on Capitol Hill, and the problem is not just coming from Republicans.

What is not out of trouble is, of course, the Medicare system itself. The size of the problem that Senator Breaux and his colleagues have to deal with looms like the proverbial Iceberg on the Titanic s horizon. It is bigger and more dangerous than it looks. As Watson Wyatt Worldwide, a benefits consulting group, notes in a recent report on health and retirement trends, America s oldest baby boomers started turning age 50 at the rate of eight per minute as of January 1, 1996, a trend that will continue for the next decade. Moreover, the share of the population over age 65 will grow as much between 2010 and 2030 as between 1930 and 2010. Today, the proportion of Americans over age 65 is one in eight; by 2030, it will grow to one in five. At the same time, the number of working Americans to support retirees will trend downward. In 1950, 46% of the men over the age of 65 were still in the workforce, compared with only 16% in 1996. Interestingly, the number of women in the workforce over age 65 has held constant at 10% of that age group.

The problem now is not confined to the growth of the over-65 population. It is more complex. Worse, at least from the standpoint of the productivity of the economy, the proportion of men of age 55 to 64 who work, the very group to which Clinton wants to extend Medicare coverage, has been declining dramatically. Today, only 65% of that group is in the workforce, compared with 87% in 1950.

As The Washington Post editorialized on March 6: "By making Medicare available, the government may induce more people to retire earlier even as many think it is in society s interest to induce them instead to work longer, thereby adding to revenues while reducing costs when the baby boomers reach retirement age." The Post goes on to note that the Senate, last year, tried and failed-thanks to the liberals and their allies among "senior citizens groups"-to do the right thing and raise Medicare s age of eligibility from 65 to 67 over the next thirty years. This aborted proposal was designed to track changes already adopted in the Social Security program.

Per capita medical expenditures in the United States are about $3500 today, but the aging of the population will push up that number significantly, as will an increased demand for higher levels of medical technology. The specific impact of age, as factored out by Watson Wyatt Worldwide, will be to increase per capita medical costs to $4,300 by 2030.

Update on PARCA

More cosponsors are withdrawing from Norwood's mega- regulatory bill: Matt Salmon (R-AZ), Jim Bunning (R-KY), Larry Combest (R-TX), and Jay Dickey (R-AR).

Meanwhile, the American Chiropractic Association is weighing in heavily on the side of the bill. Its description is right on target: it's a "comprehensive" package which would establish "national standards" for health plans, including managed-care plans. It would ensure access to an "adequate mix and range of providers" and would not permit discrimination against providers because of language or lack of affiliation with a hospital. Nor could plans discriminate in participation or reimbursement against any health professional solely on the basis of licensure. The plans would have to have a quality improvement program that "systematically and continually" reviews patients' health status and access to preventative care.

The Coalition for Patient Choice, opposing the bill, includes the Small Business Survival Committee, the Council for Affordable Health Insurance, and Eagle Forum. Their press release quotes Clark Havinghurst of Duke Law School: "I know of no other piece of health care legislation that would be as destructive of consumer choice, as protective of provider economic interests, as antithetical to the antitrust effort to break down the old medical cartel, or as beneficial to plaintiff's lawyers as this bill would be. Even the Clinton Health Security Act took a less prescriptive approach.

Summary of Testimony on Kyl-Archer Bill: Medicare Beneficiaries Freedom to Contract Act, S. 1194, H.R. 2497

Hearing before the Senate Finance Committee
Feb. 26, 1998

Nancy-Ann Min DeParle, Administrator, HCFA: Physicians who choose to provide covered services to Medicare beneficiaries under private contracts must `opt out' of the Medicare program for two years....Requiring a physician who chooses private contracting to opt out for a finite period of time has two key policy implications. First, it diminishes the opportunities for fraud and abuse....Second, [it] allows a beneficiary to make an informed choice of physician. In this way, the beneficiary could choose a physician, before seeking care, based on knowledge of whether the physician would accept Medicare payment or require private contracts for all services...." [italics and underlining in original; boldface added]

"There has been substantial misunderstanding about what section 4507 of the Balanced Budget Act does, so I would like to clarify several major points....

"Medicare rules apply only to individuals enrolled in Medicare....Therefore, a private contract is not necessary for a physician to provide services to an individual who is Medicare-eligible, but who is not enrolled in Part B....

"Medicare rules apply only to services covered by Medicare....If Medicare doesn't cover a service, no private contract is needed, and physicians are not limited in what they can charge....a physician does not have to opt out of Medicare for two years in order to provide a non-covered service to a Medicare beneficiary. That was the law a year ago; it's still the law today....[For example,] Medicare currently covers diagnostic PSA tests only....Therefore, a private contract is not needed when a beneficiary wants a PSA test for screening purposes because it is not now a covered service....

"An Advanced Beneficiary Notice (ABN)...is used by a physician who believes that a service, which Medicare covers under some circumstances, may not be paid for by Medicare in a particular case....An ABN is not a private contract....Therefore, a physician using an ABN remains in Medicare, while a physician using a private contract for services covered by Medicare would voluntarily opt out.

"I understand that some physicians have expressed concern that widespread use of ABNs is not an acceptable practice. We are concerned that ABNs may be misunderstood by beneficiaries and the medical profession. We will be working with these groups to improve ABNs to make them easier to use....

A beneficiary may, in some instances, refuse to authorize the release of medical information needed to submit a claim. In this case, a physician who remains in Medicare does not have to submit a claim for a covered service....

"If a beneficiary who is enrolled in a managed care plan receives a service from a physician who does not have a contract with the plan, and the service is not authorized by the plan, then the service is not a `covered service'....A private contract is not necessary in order to provide the service. The physician does not have to opt out of Medicare for two years to provide this service....

"Any private contracting provision must strike a balance between expanding physicians' ability to charge higher fees and protecting the Medicare program and beneficiaries....

"[U]nder S. 1194, Medicare would not know which claims were the subject of a private contract [even with a `no-pay claims' approach]; and thus would not be able to deny payment for such claims with certainty....

"Medicare's capitated payments to managed care organizations include payments for physicians' services. S. 1194 would allow a physician who is a member of a managed care network to privately contract with a beneficiary who is a member of that managed care plan. This feature would result in overpayment to managed care plans....

"Beneficiaries who encounter numerous physicians requiring private contracts and out-of-pocket payments for Medicare-covered services would find the Medicare premium a wasted payment....We should not place beneficiaries in situations where they have to renounce the Medicare coverage for which they have paid in order to obtain a service....

"We and PPRC have found no overall problems with access to care...."

Senator Jon Kyl:

"The right of seniors to pay out of their own pocket for the health care of their choice is essential to our nation's concept of liberty. In fact, there is no more fundamental principle at stake in any legislation before us....

"Imagine a law that made it illegal for seniors to supplement their Social Security check with private funds! Such a law would be met with derision and disbelief."

Representative Ben Cardin (D-MD):

"Prior to the passage of the Balanced Budget Act, federal law did not address the issue of private contracting between physicians and beneficiaries....

"[With S. 1194], the potential for increased fraud and abuse in Medicare is overwhelming. Many doctor's offices have established electronic billing systems to file Medicare claims. Without the protections in current law, doctors could easily bill both Medicare and their patients....

"Nothing in the Balanced Budget Act affects the ability of seniors to pay doctors for services that Medicare does not cover....

"I have introduced H.R. 3259, The Medicare Private Contracting Clarification Act of 1998....My bill clarifies that no private contract is required for services that Medicare does not cover. It is designed to put an end to the false rhetoric and scare tactics that are making seniors fearful for their future....[I]f any legislation is needed (and I am not sure that any is), H.R. 3259 should be that legislation."

Senator Richard Durbin (D-IL):

"Prior to the advent of `Private Contracting', rich and poor Medicare beneficiaries were treated the same and no one was shut out from seeing a doctor based on their inability to pay more than the Medicare fee schedule copay....We are in danger of creating a two-tier system of care....

"The net result of `private contracting' is that it promotes health care rationing. Its proponents falsely charge that the current system produces rationing by government. Many of my constituents have been receiving a lot of false information in the mail that has scared them. These mailings have claimed that the government is preventing them from accessing necessary health care services."

Beatrice Braun, M.D., AARP Board member:

"Prior to the BBA, physicians and beneficiaries were not permitted to contract privately outside of Medicare for services covered by the program. Many beneficiaries were not aware of this restriction. The bi- partisan physician payment reform law of 1989 established the requirement that all doctors treating Medicare patients file the claim with Medicare....

"The Balanced Budget Act actually expanded previous Medicare law by allowing physicians to contract privately with beneficiaries for services that would otherwise be covered by the program....

"The legislation [S. 1194] may...tie the hands of program administrators seeking to protect the fiscal integrity of the program....The use of the term `minimum' indicates a reticence to provide specific and detailed information,...such as the specific service provided....

"Older Americans already spend about one-fifth of their income out-of-pocket on health care. Most of the beneficiaries I talk to are looking for relief from high health care costs, not for ways to spend more money out-of- pocket."

Kent Masterson Brown, Counsel, United Seniors Association:

"Nothing in the Medicare Act prohibited private contracting prior to the enactment of §4507. "With the enactment of �4507, claims-filing is now mandatory [sic.] unless the physician agrees to cease to participate in Medicare.

"All that is needed for HCFA to begin the sanction process against a physician is a `pattern' of what it claims are `unnecessary services'....

"The Inspector General of HCFA issued a `Model Compliance Plan for Laboratories' on March 3, 1997 -- 62 Fed Reg. 9435-9441 -- stating that Medicare may regard screening tests...as `unnecessary,' and may impose sanctions against physicians who order them....

"One expert [T.P. Blanchard, 34 St. Louis Univ. L.J. 939-1049 (1990)] has referred to the ABN not as the `waiver of liability' but the `liability of waiver.' While an ABN may technically absolve the physician of monetary liability to the patient, it does not absolve the physician from sanction by the Medicare program....ABNs must be used sparingly or the physician will face potentially ruinous legal action by the Secretary. To one expert [Blanchard, ibid.], this process is nothing more than HCFA's `resort to ad hoc secret law to reduce benefit payments by trick, trap or terrorism'....

William A. Reynolds, M.D., President, ACP:

"The ACP [American College of Physicians] is concerned that private contracting as proposed can: 1) create access problems where none existed, 2) increase administrative complexity for physicians, who will be struggling with billing errors and ad hoc income testing of their patients, and 3) produce conflict in the physician-patient relationship.

"The bill as written requires provision of only minimal information necessary to prevent double payment for a service delivered under a private contract....Inadvertently, Medicare or a point-of-service plan could be billed for a service already charged to the patient....

"The ACP is also concerned that private contracting runs counter to the incentives of the Balanced Budget Act to encourage use of managed care and to use health resources economically....

Edward Hill, M.D., AMA Trustee

"HCFA has taken the position that beneficiaries and physicians are prohibited from entering into...private con- tracts...While many concluded that [Stewart v. Sullivan] allowed beneficiaries and physicians to enter into private contracts, HCFA remained firm that private contracting was not an acceptable practice....

"While HCFA officials recently stated that physicians are not required to submit a claim to Medicare if the beneficiary refuses to authorize the claim (e.g. for mental illness or HIV/AIDS claims), there had not been any official written guidance on this issue until a question and answer document was issued just last month, and even that document is not clear on this issue....

"Neither physicians nor patients are likely to make wide-scale use of private contracting, but the option will be important in certain circumstances...."

Jane M. Orient, M.D., Executive Director, AAPS (written testimony only):

"The right of senior citizens to use their own resources to obtain the medical treatment of their choice is one of the self-evident, unalienable rights recognized in the United States Declaration of Independence. If a citizen may not exercise the liberty to use his own property to protect his own life, then the government has violated his basic rights.

"Title XVIII (Medicare) of the Social Security Act was passed as an entitlement to help senior citizens pay their medical bills, not as a barrier to private medical care....

"We are opposed to S. 1194 in its current form because of a provision that would require patients and physicians to inform the federal government of all private medical transactions involving a person who...has become eligible for Medicare Part A or Part B....

"Although the reporting provision has been referred to as the `Anti-Fraud Provision,' it actually turns the entire law into the `Medicare Beneficiary's Restricted Freedom to Contract' Act....An analogous law would be a Citizen's Right to Freedom of Speech Law providing that publishers may print and citizens may purchase written materials as long as they inform the government of each transaction, filing a form equivalent to the HCFA 1500...with officials believed to favor the Alien and Sedition Act passed during the administration of President John Adams....

"The perils of this reporting requirement extend far beyond the Medicare program. It would establish a dangerous precedent for forcing citizens to report on a wide variety of lawful activities....[An] analogous provision would force grocery store owners to file a form with the federal government reporting all cash purchases by persons eligible to receive food stamps, whether they use them or not.

"Private contracting, [a right based in the U.S. Constitution as well as the statute that established Medicare], protects patients [in a number of ways]: 1) [It] improves access to medical care [already restricted by covert rationing]....2) [It] protects patient privacy.

"Congress should repeal all laws that restrict [exercise of the right to private contract], and HCFA should be restrained from actions that impede or deter the exercise of that right. The right should not be further impaired by the unconstitutional burden of filing a `dummy claim' under the specious rationalization that this will deter fraud."