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 56, No. 8 August 2000


To the claim that the United States has the "best health care system in the world," the World Health Organization (WHO) has an authoritative answer in the World Health Report 2000: The U.S. is only 37th, just ahead of Cuba, which is 39th.

The report does not have a byline, except in the "Message from the Director General" (Dr. Gro Harlem Brundtland). There are various speculations about who wrote it.

Karl Marx was suggested by Robert Helms of the American Enterprise Institute (Wall St J Europe 6/29/00). Like the Communist Manifesto, the report advocates progressive taxation. It does not, however, call for confiscating private property outright or nationalizing the means of production.

Perhaps it was authored by Abbott and Costello; it is a "Who's on First?" routine (" `WHO' Said What?" by Michael Arnold Glueck, M.D., and Robert J. Cihak, M.D., AAPS President Elect, Scripps Howard News Service 6/30/00).

Bismarck is credited for the first model of state-mandated social insurance (p.12), but the concept has since evolved.

Students of the Clinton Health Care Task Force might suspect the Robert Wood Johnson Foundation because of the allusions to donations leveraged to affect public policy and institutional structure and values. ("[D]onors ... help create the necessary organizational and institutional capacity," p. 103.) RWJF and WHO have a lot of ideas in common: clinical protocols, comprehensive information gathering, primary health care, and contracts between public and private entities. The health priorities are also uncannily similar: immunizations, tobacco taxes, and condoms. (For the worst scourge in Africa -malaria- which kills a baby every 12 seconds, WHO offers "case management" and, where cost- effective, impregnated mosquito nets; but no equations for the megatonnage of "quality inputs" needed to match a ton of DDT.)

The best candidate for authorship, suggested by Greg Scandlen of the National Center for Policy Analysis, is the Queen of Hearts from Wonderland-judging from the report's through-the- looking-glass perspective on ethics and economics.

Her Majesty's words mean exactly what she wants them to mean: nothing more, nothing less. Her favorite words are "fairness" and "goodness," which signify, according to Scandlen, that "the disabled should be dead, health care should be strictly rationed by the government, and no one should be allowed to pay a doctor directly to provide a health service."

"Fairness" requires that prepayment should be the preferred, if not the only means of purchasing services. It is "unfair" for some to use their wealth to purchase better health, or for others to take advantage of natural endowments such as good health to enhance their wealth. It is "fair" to compel each person to "contribute" to everybody else's health care-and ubiquitous and costly administrators-but "unfair" to "force" him (if poor) or allow him (if rich) to buy his own. "Fairness" means equality. Because "health, unlike income or nonhuman assets, cannot be directly redistributed" (Her Majesty might like to try!), redistributing income is the best that can be done.

"Goodness" is measured by goal achievement, which requires social choices. That's another problem with out-of-pocket payments: "no one makes this choice [of expenditure levels] overall; it results from millions of individual decisions."

The rankings by WHO are derived from the Philosopher Queens' concepts of fairness and goodness. No points are awarded for availability of highly trained personnel or state-of-the-art equipment, response time of emergency services, or rates of survival of critical illness. The "health level" is a function of disability-adjusted life expectancy; disabled survivors of major trauma lower the score. Health level accounts for only 25% of the ranking; 25% is based on distribution of health, as in "equality of child survival"; 12.5%, on health system responsiveness; 12.5%, on distribution of responsiveness; and 25%, on fairness of financial contribution. Thus, 62.5% of the ranking is a measure of equality. Nations with less diverse populations will always score higher-probably explaining why Andorra ranks 4th, and Oman is 8th.

Dr. Brundtland is pictured with a benign smile, and the rhetoric of the report is mild and restrained. But while the Queen's heart may bleed for The Poor, there is but limited compassion for the sick. Priorities will be enforced by rationing care. Oregon is one model. Others include Colombia, Bangladesh, and Zambia.

"Rationing requires `careful governance of the agents' who act for patients and assess their competing health needs." In addition, "there is now a need for active stewardship to regulate [control] the quality of diagnosis, prescribing, and compliance." Furthermore, "central policy and guidance" are required to "coordinat[e] ... public and private investment decisions." If stewardship is weak, goals will be defined de facto by purchasers and market forces, rather than by Society.

Stewardship of health is ultimately the responsibility of government, the report states. However, ministries of health are vulnerable to "capture" by special interests and to political pressures. Senior policy officials may have a rapid turnover. Hierarchical bureaucracies have disadvantages. Hence the need for unspecified private partners (such as "donors") with a vaguely defined but crucial role in the new global scheme. This will involve "virtual systems ... held together by a shared policy vision and information, and by a variety of regulatory and incentive systems designed to reward goal achievement and punish capture, incompetence, and fraud."

The Queen may not be shouting "Off with their heads!", at least not yet. But if Alice has studied the history of fascist economies, she will understand the message to anyone who hopes to rise above the level of the masses. (See www.who.int.)

Lessons for Medicare Anniversary

July 30, designated by AAPS for the annual commemoration of Medicare Patient Freedom Day, marks the 35th anniversary of the enactment of Medicare in 1965.

Recent proposals show the need to recall "Medicare's Origin: the Economics and Politics of Dependency" (Charlotte Twight, Cato Journal 1997;16(3):309-338, www.cato.org). This article details how the government deliberately "restructured political transaction costs" to overcome the public opposition that had blocked Medicare for 50 years. "History shows that Medicare did not and could not achieve passage without the misrepresentation, cost concealment, tying, and incrementalism to which its supporters ultimately resorted."

Such tactics have become the norm. For example, titles of bills imply laudable objectives inconsistent with the legislation's full impact. The Health Insurance Portability and Accountability Act jeopardizes private medical practice and the privacy of medical records. And the Patient's Bill of Rights imposes a costly regulatory regime on all health insurance plans.

With Medicare, "the gulf between what the public thought and what was actually in the bill was enormous." While advocates raised the specter of financial ruin from catastrophic illness, Medicare actually had no coverage for prolonged hospitalizations [cf. the proposed drug benefit]. The disavowal of federal controls over medical practice or charges were meant to allay public anxiety but were disingenuous from the start. The financing method concealed present and future costs; supporters continually downplayed the regressive nature of the payroll tax, which was called a "contribution."

Medicare still might not have passed had it not been tied to the Social Security Amendments of 1965, which included an across- the-board 7% increase in cash benefits to Social Security recipients [cf. Medical Savings Accounts and HIPAA].

The original idea was to make Blue Cross the sole carrier, bringing in some straightforward interest-group politics. The public-private partnership idea aided passage in other ways. The AHA preferred to have Blue Cross perform utilization review because having the federal government do it would cast the government in the role of "appearing to question or interfere in medical practice," causing considerable furor. Blue Cross was to "serve as a lightning rod, increasing the transaction costs to the public of resisting involvement of the federal government."

Congress knew that Medicare would take money from the poor and middle class to subsidize the rich; Sen. Allott (R-CO) called it a "program of Robin Hood in reverse." It also knew that it would create a vast new dependency. Sen. Mundt (R-SD) described it as "another step toward destroying the independence and self- reliance in America which is the last best hope of individual freedom for all mankind." Seniors were not the main beneficiaries: Sen. Carl Albert (D-OK) said Medicare will "serve well those of us who support it."

Twight concludes: "America's willingness in 1993 to seriously discuss a virtual government takeover of medical practice in the United States via President Clinton's 1,342-page Health Security Act attests to the long-run power of such changed institutions to reshape people's ideologies and thus the degree of government authority to which they acquiesce."


AAPS Calendar

Oct. 25-28, 2000. 57th annual meeting, St. Louis.

Oct. 24-27, 2001. 58th annual meeting, Cincinnati.


NY Proposes Resolution for Free CPT Codes

At the AMA annual meeting in Chicago in June, the NY delegation introduced a resolution asking the AMA to seek legislation requiring HCFA to provide physicians, free of charge, with all codes and information needed to complete HCFA forms correctly, including National Correct Coding Initiative material. The fiscal note was $20,800,000. The resolution did not pass.


Drug Costs

Hillary Clinton and Sen. Slade Gorton (R-WA) have a little list of drugs that cost more in the U.S. than in Canada. And they have a prescription for equalization-through the help of the federal government. Gorton has teamed up with Washington Citizen Action, which advocates a single- paymaster health-care system, and introduced a bill that would prohibit drug companies from charging Americans more for their products than they charge in other countries.

Michael Walker of the Fraser Institute points out that many products, not just drugs, cost less in Canada. If they didn't, they wouldn't sell. The collapse of the Canadian dollar over from the past decade, from $0.87 to $0.67 in U.S. dollars, has resulted in a 24% decline in Canadian personal incomes compared with American. Moreover, from one-third to one-half of the price differential is due to higher legal liability costs in the U.S. (Wall St J 5/19/00).

Dr. William McArthur of Vancouver, BC, who is scheduled to speak at the AAPS annual meeting in October, explains that Canadian price controls can force manufacturers to lower prices of certain products, thus imposing a disproportionate share of development costs on Americans. On the other hand, some drugs are more expensive in Canada; in fact, the overall average price is higher in Canada (NCPA Brief Analysis #323, 5/19/00).

Actuary Gerry Smedinghoff observes that if Canada, Germany, France, or the UK buys drugs by the truckload, at a volume discount, it hasn't eliminated the costs of distributing drugs to the user, but has simply transferred them from the drug manufacturer to taxpayers, with a loss in efficiency.

If the desire is to lower drug costs rather than redistributing or "equalizing" them, the answer is to reform the FDA, writes AAPS member William K. Summers, M.D., with James Driscoll (Wall St J 6/21/00). The average cost of developing a new drug is $650 million, of which $600 million is spent on human efficacy trials. Then, the market rejects 70% of new drugs for not being effective. "The FDA should be limited to monitoring safety," the authors conclude.

Gerry Smedinghoff points out that in the early 1960s it cost about $500,000 and took 25 months to develop a new drug and bring it to market. Inflation would have raised that price to $1 million by 1978, but the actual cost then was $54 million and 8 years of effort (see Milton and Rose Friedman, Free to Choose, 1979, p. 206). Silicon Valley operates on the timetable known as Moore's Law, which holds that the cost of digital technology drops by 50% every 18 months, while the speed of microchips doubles. "The federal government and the FDA operate on the timetable of Moron's Law, which doubles the cost and time for approving a new drug every 18 months."

"The problem with the `uniqueness' of the drug industry is not economic, but regulatory," Smedinghoff writes. "Take the FDA out of the picture and 1,000 flowers will bloom."

Supremes Rule

Boy Scouts of America v. Dale: In what is believed to be the most important ruling in a decade, the Supreme Court upheld, 5:4, the right of the Boy Scouts of America (BSA) to exclude homosexuals from serving as scoutmasters. Writing for the majority, Chief Justice Rehnquist stated that the mission of the BSA is to instill values in young people. The BSA asserts that homosexuality is inconsistent with the values that it wishes to instill. "It is not the role of the courts to reject a group's expressed values because they disagree with those values or find them internally inconsistent." The organization's "expressive activity" was held to be protected under the First Amendment.

Justice Stevens dissented along with Justices Souter, Ginsburg, and Breyer, writing that the Court failed to accord the "courageous State" of New Jersey the respect due to the "right to experiment" in social and economic matters. The New Jersey law does not, in their view, "impose any serious burdens" on the BSA's "collective effort on behalf of [its] shared goals." The Judges also referenced the Scout's duty to be "obedient" even if "he thinks [the laws] are unfair."

The dissenters see the case as one involving freedom of association rather than expression. The former is far from absolute: "until today, we have never once found a claimed right to associate in the selection of members to prevail in the face of a State's antidiscrimination law."

"This narrow decision reflects the precariousness of the right to follow one's conscience if it conflicts with the goals of a governmental social experiment," stated AAPS Executive Director Jane M. Orient, M.D.

Stenberg v. Carhart: The Court ruled 5:4 that the Nebraska ban on partial birth abortion unless it is necessary to save the life of the mother "violates the Federal Constitution, as interpreted in Casey and Roe." The lack of an exemption to preserve health is found to impose an "undue burden" on a woman's right to choose an abortion. Moreover, in banning procedures in which a "substantial portion" of the child is in the birth canal before it is killed, the statute is found to be too ambiguous: A local prosecutor might interpret it to mean a foot, rather than a "child up to the head," thus classifying a legal dismemberment abortion (D&E) as a proscribed intact extraction (D&X). In a discussion that Justice Breyer said might seem "cold or callous, to some, perhaps horrifying," he quoted abortionist Carhart to the effect that in a D&E, the os cervix actually performs the disarticulation after he pulls a piece of the body through and exerts traction.

Breyer also noted that the Nebraska law "does not directly further an interest `in the potentiality of human life' by saving the fetus in question from destruction, as it regulates only a method of performing abortion."

In a concurring opinion, Justices Stevens and Ginsburg write: "the notion that either of these two equally gruesome procedures performed at this late stage of gestation is more akin to infanticide than the other...is simply irrational."

Strong dissents were filed by Justices Rehnquist, Scalia, Kennedy, and Thomas, frequently citing the AAPS amicus brief. Justice Scalia writes that the result was not just a misapplication of the "undue burden" standard established in Planned Parenthood of Southeastern Pa. v. Casey: It shows the validity of his argument, in dissenting to that opinion, that the "undue burden" concept is "unprincipled in origin" and "unworkable in practice." The others write that the health exception requirement "eviscerates Casey's undue burden standard and imposes unfettered abortion-on-demand." It would give "each physician a veto power over the State's judgment."

The decision is a departure from the fundamental canon that statutes are to be construed in a way that avoids constitutional difficulty. A "statute is not unconstitutional on its face merely because we can imagine an aggressive prosecutor who would attempt an overly aggressive application."

The State's interest goes beyond protecting an individual unborn child; it includes "preserving the integrity of the medical profession," "erecting barriers to infanticide," and "forbidding medical procedures which ... might cause the medical profession or society as a whole to become insensitive, even disdainful, to life." Justices Stevens and Ginsburg may be unable to discern a moral difference between a partial birth abortion and other procedures, but Nebraska, 29 other states, the U.S. Congress, and millions of Americans can.

The dissenters conclude: "We were reassured repeatedly in Casey that not all regulations of abortion are unwarranted and that the States may express profound respect for fetal life. Under Casey, the regulation before us today should easily pass constitutional muster. But the Court's abortion jurisprudence is a particularly virulent strain of constitutional exegesis."


Dr. DeTar Files Complaint on Redlener

John DeTar, M.D., reports that "in 1962, after General Edwin Walker had been taken by the Kennedy Administration to the Federal Springfield criminally insane facility,... I found that a VA doctor, Charles Edward Smith, had `studied part of the health record and the newspaper report' and decided that Gen. Walker was insane. Smith's opinion was used by Bobby Kennedy to justify the incarceration.... I was so incensed that I complained to the AMA Judicial Council that Dr. Smith had violated the AMA code of ethics by rendering a medical opinion without examining his `patient.' The AMA bounced this to the American Law Foundation, which ultimately (one to two years later) rendered an opinion ... that what Dr. Smith did was okay, but no one else should do it. This put a stop to incarcerating persons for political incorrectness-for a while."

Dr. DeTar has written to the Office of Professional Misconduct, NY Department of Health: "I allege that Irwin Redlener, M.D., has scandalized the entire medical profession by his words, actions, and deeds and that he is therefore a proper candidate for loss of Medical License and criminal prosecution.... As a matter of public record Dr. Redlener wrote a letter, appeared on television and in radio interviews, and by other other public actions did appraise the patient [Eli´┐Żn Gonzalez] ... and provide an opinion on the home in which the patient was resident, holding that the patient was in a state of `imminent danger to his physical and emotional well-being in a home' ... that was `psychologically abusive.' Dr. Redlener therefore claimed competence to provide an opinion on a patient whom he had never met, interviewed or examined (even rudimenta- rily), also claiming intimate and personal knowledge of the patient's home environment....

"If the behavior of Dr. Redlener is not an appropriate subject for your investigation, ... then any other physician will be free to duplicate his atrocious activities. The discrediting of the medical profession will then advance ... to general toleration of ... the illegal practice of medicine without the patients even knowing that they have been evaluated in absentia...." (See New York State Education Law, §6530).

Members' Page

The Fruits of "Cooperation". From a letter to Thomas Reardon, M.D., President, AMA: Most members are now aware that in 1983 the AMA made a secret agreement with HCFA that resulted in the CPT codes being used by HCFA as the exclusive coding system. This generated a revenue stream of tens of millions of dollars annually for the AMA, financed on the backs of physicians who are forced to buy new coding books each year. The system has been totally bastardized, with codes developed for individual services being "bundled" into a single code. HCFA has decreed in its "Correct Coding Initiative" (CCI) that the CPT codes are no longer "correct." This rampant "bundling" is a fraud implemented for the purpose of forcing physicians to finance medical care for government dependents, since the government can no longer pay for the care it promised to those it forced into dependency.

I assume the reason that the AMA has not fought the insult of the CCI more vigorously is that such action might interfere with the revenue stream from its "public-private partnership" with HCFA. Meanwhile, physicians are being enslaved by the government. It's time the AMA stopped focusing on its CPT book sales and royalties and did something to help physicians rather than hurting them.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


The "Bundling" Scam. When you take your car for an oil change, is the mechanic a criminal if he doesn't "bundle" in a free brake job? Bundling is a fiction, a fraud. In a classic Orwellian switch, the crime of cheating doctors out of their hard-earned wages is turned on its head, and the doctors are labelled as felons for "unbundling" or charging for their work. This became possible when the profession allowed price-fixing in Medicare and by proxy in insurance for all age groups.
Christopher Lyon, M.D., Ph.D., Newport Beach, CA


Other Partners. United Healthcare, under the name Ingenix, recently purchased St. Anthony's Publishing, owner of Medicode Publishing. Prior to the Ingenix purchase, printed interpretations of ICD-9 and CPT-4 were not questioned.

In the spring issue of the AMA catalog, Medicode products were listed. Medicode has a contract with the AMA. Perhaps physicians could survive the insurance industry if known insurance industry businesses were not used and promoted by physicians' representatives such as the AMA.
Debbie Fehr, Coding Compliance Auditor, Phoenix, AZ


Ulterior Motives. Dr. Reardon's praise of United HealthGroup for discontinuing preauthorizations [see AAPS News June 2000] is exactly why I quit the AMA.... Dr. Reardon praised United for doing exactly what the AMA criticizes, namely making decisions for its own financial gain (saving $100 million wasted on a pointless exercise), not for patient care.
Ian Schorr, M.D., Dover, NJ


Unity Works! Guided by AAPS leadership, especially Jose Guerra, MD, and Andrew Schlafly, Esq., our medical staff, by choosing strong physician leadership, was able to achieve physician unity which was uncompromising in its quest for physician-driven medical care.

The result: (1) We were able to prevent takeover of our community hospital by a regional conglomerate; (2) We were able to halt the hospital's predatory designs on physician's practices and save our emergency medical group from being cannibalized; (3) The hospital CEO resigned, having found "another opportunity"-he persisted too long with his vision of managed care and insistence on the "Mother-May-I" game....

Our next focus is to control costs by retaining decisions locally, between employers and physicians. This will eliminate much of the expense that corporate insurers add to the system. We are returning to the physician/patient/hospital relationship historically known as "fee for service."

Despite our successes, we remain on guard. The metastatic seeds of non-medical healthcare (blueprint, agenda, and program) were sown long ago. They have spread and are initially too small to be seen. They will eventually grow, and when found, they must be swiftly eradicated.

Thank you to all AAPS members. Without your support, AAPS resources would not exist. Enlist your colleagues!

When we thought our cause lost, AAPS's strong hand guided us from darkness. Keep up the great work!
Robert T. McQueeney, M.D., Marinette, WI


Medicare Drug Program. From a letter to Congress: A prescription program, like any socialist endeavor, would be a lose-lose situation. Without price controls a drug program would benefit pharmaceutical companies and their stockholders at the expense of taxpayers. With price controls, research and development would suffer along with our future health.

Many prescription drugs are very expensive, but adequate alternatives are usually available. If not, free drug samples help to lower the average cost. In our practice, which is neither suburban nor rich, we have not seen any senior's life or limb in jeopardy because of lack of access to medications. Access gaps are filled by the prescription assistance programs already in place: for example, the Smith-Kline-Beecham program for the expensive heart drug Coreg. No patient who asks goes without. If a Medicare prescription drug program is enacted, these charitable outlays will disappear.
Shannon Grubb, M.D., Mt. Orab, UT

Legislative Alert

Congress on Drugs

The House of Representatives has just passed a major prescription drug program for Medicare patients on a largely party-line vote of 217-214. The bill engendered political theater. House Democrats walked out because the Rules Committee did not permit a separate vote on the Democratic alternative bill. Senate Minority Leader Thomas Daschle referred to the House rules as Kremlinesque. Of course, anybody who remembers the Good Old Days of House Speaker Tip O'Neill and Big John Dingell and Big Dan Rostenkowski also remembers that GOP minority bills were routinely railroaded far away from any serious consideration on the House floor, and floor amendments were dismissed as cranky annoyances by Republican rubes and backwoods hayseeds who represented "Fly Over" country. Seen from 30,000 feet, that's the territory where ordinary Americans engage in productive work so they can ship the government 40% or more of their income.

The House bill will provide a benefit worth $40 billion over 5 years. It would give seniors the choice of at least two plans offered by insurance companies, covering half of drug costs up to $2,100, with a stop loss at $6,000. House Democrats are proposing an $80 billion program over 5 years, based on the same benefit structure as the Clinton plan, which is now estimated to cost $250 billion over 10 years.

The House bill has three major elements: It is a subsidized, voluntary prescription drug plan open to all 40 million Medicare patients; it is delivered through private insurance and Medicare+Choice plans; it will be administered by a new Medicare Benefits Administration. Yes, MBA, very business-like. Unlike HCFA, the new agency is designed to encourage competition, not regulation. Maybe. We'll see.

Unquestionably, the House has a marginally better policy than that developed by the White House and its allies in Congress-who will, of course, stomp around, hold their breath, turn blue, and periodically bloviate about the fact that the Tip O'Neill style management of the House prescription drug debate prevented seniors from getting the "real coverage" they deserve, and getting it good and hard.

The basics are worth repeating. The Clinton Medicare drug proposal would establish a subsidy for first-dollar drug coverage, up to 50% of the cost of the drug bill up to $5000. The subsidy -not in any way an insurance product-would be financed by an artificially low "premium" of $26 per month. Yes, of course, first-dollar coverage is not a prescription for cost control, but that is not the point. The point is reducing private-sector coverage in order to expand public-sector coverage. And the point of public-sector coverage is government control. To fortify the government control requires the right infrastructure. Presto, the Clinton Administration and its allies have just the thing: regional HCFA contractors, insulated by strong rules from any consumer pressures. For economists, such an arrangement is the worst of all possible worlds-a government-sponsored, geographically based private monopoly.

Critics charge that the Clinton proposal expands federal control over drug pricing; about 30% of all drug sales are to seniors. The Boston Consulting Group reported that it can cost more than $500 million to develop a new medicine. Controlling revenue means controlling research and development.

With artificially low prescription drug premiums, the incentives would fuel high utilization-doctors would be writing prescriptions like mad-and the real costs of the drug benefit would soar into the fiscal stratosphere. At which point, the pressure would be to impose price controls or formularies. Price Control + Benefit Control = The Ballgame.

While the House bill may be better than the Clinton proposal, it falls far short of the comprehensive, patient- centered Medicare reform that a growing number of members from both sides of the aisle see as necessary, especially for the next generation of senior citizens. Moreover, the House policy is still burdened with three major potential difficulties. First, the program emphasizes up-front coverage and relies on Medicare+Choice plans-already in deep trouble-to deliver the goods. Second is the perennial problem of eligibility and the impact of subsidies for low-income people. If subsidies are too low, they don't help the people who need the help. If subsidies are too high, private entities are encouraged to dump retirees. And then there is the problem of adverse selection. What happens when high-risk patients congregate in a few plans, driving costs up and forcing these plans to fold?

Medicare and the Budget Surplus

Official Washington is awash in accounting gimmicks, and the fondness for same is bipartisan. The latest is the so-called Medicare Lock Box. It sounds great. Lock Medicare monies or budget surpluses away for a rainy day, and there will be plenty of money for Medicare, and then we won't have to do the hard work of reforming the thing. A socialist's dream.

Clinton announced recently that budget surpluses are going to be richer than expected: $4.19 trillion over 10 years. Too many Americans believe that surpluses somehow mean an automatic reduction of the national debt. But that can occur only if Congress and the White House make sure that every penny of the projected surplus goes to debt reduction. Fat chance. Flush with unforeseen cash, based on a better-than-expected economic performance and higher-than-expected revenues, the President has offered Congressional Republicans a "New Deal": Give Clinton a $250 billion Medicare prescription drug benefit, and he would agree to marriage penalty tax relief worth $250 billion over the same period of time (10 years). The response: No Deal. Wise decision. One of President Reagan's worst mistakes was to trade tax reductions for promised cuts in spending, which never materialized. Don't trust, and there is no need to verify.

As to the Medicare Lock Box, please recall that Republicans proposed a similar solution for Social Security in 1999. The idea is to put the money in a real safe place, perhaps under Alan Greenspan's pillow at the Federal Reserve. A variant of this idea has been proposed by Al Gore. Under his formulation, projected surpluses in the hospitalization trust fund would be put in the Lock Box, wherever it is, and used to reduce the national debt. Then, as the national debt is reduced, the government would reinvest the Medicare interest savings. This would be done by putting Treasury Bonds into the Medicare Part A Trust Fund. There is a hitch: Treasury bonds are really IOUs, promises to pay that are to be redeemed by general revenues-tax dollars from you and me and the kids. Gore claims that his proposal would enable the government to extend the life of the Medicare trust fund by about 25 years.

The Lock Box proposal would have two effects. The political effect would undercut tax cuts. The structural effect would establish, in principle, general revenue funding for Medicare Part A, which was designed as a traditional "social insurance" program in which, at least in principle, beneficiary taxes would pay for beneficiary benefits. This structural reliance on general revenues would complete the transformation of Medicare into a welfare program. It is precisely the kind of policy change that would have driven the old liberals nuts with rage, but they are all, or most of them, strangely silent on this radical change. That must mean that either the old liberals are really gone, or that they have lost their voices or their principles. Thus far, the only news analyst to even address this change is Chris Matthews, a former Tip O'Neill staffer, who now hosts the popular television news talk show Hardball. In the longer term, making Medicare more explicitly a welfare program undermines political support, especially among young people. But, that's tomorrow, as Clinton might say, and this is today.

While the Lock Box concept is politically attractive, grown- ups should not be misled but should recognize it for what it is: a statement of good intentions. It changes nothing. In reality, Congress can always vote to spend the money in the Lock Box on other priorities any time it wishes. Recall, too, that its viability depends on future surpluses. Federal budget surpluses are notoriously volatile. We could just as quickly end up with big shifts in the opposite direction. Most importantly, the Lock Box ignores the fact that Medicare spending is going to gobble up larger and larger chunks of the federal budget and the national economy. Comptroller General David Walker has told Congress that the Medicare program is "unsustainable" in its current form-with or without the Lock Box.

The Medicare+Choice Disaster

Private health plans, faced with a combination of mind- numbing micro-management by the Administration and incompetent price setting by Congress, are dropping out of the three-year-old "Medicare+Choice" program. On June 29, Karen Ignani of the American Association of Health Plans announced that more than 711,000 Americans would be affected by health plan withdrawals. That very same day, Aetna U.S. Health Care notified HCFA that it was withdrawing from the Medicare + Choice program in 11 states, including Florida and Texas, and that this action would affect 355,000 Medicare patients. Aetna CEO William Donaldson said: "The decision to exit certain Medicare markets was reached with great reluctance, but was made after an exhaustive review of alternatives, such as significant benefit and premium modifications."

While official Washington offers lame excuses for the continuing loss of private coverage, the real reason is bad federal policy, especially the massive over-regulation of plans by HCFA. Having HCFA organize a market is like putting the Mafia in charge of the Better Business Bureau.

"Private" plans in Medicare are private in name only. The inflexible bureaucratic structure, which is based on price controls and central planning, was made worse by the Balanced Budget Act of 1997 (BBA). In his July 22, 1999, testimony before the Senate Finance Committee, CBO Director Dan Crippen stated: "Under current law, there is effectively no price competition among Medicare+Choice plans. Medicare uses an administered pricing system to set its payments to plans, and plans are not permitted to offer cash rebates or other financial incentives to encourage enrollment. Instead, they have incentives to increase optional benefits rather than to reduce costs. Consequently, even if the beneficiaries gain if they enroll in managed care plans that are more efficient than fee for service, Medicare does not. Moreover, beneficiaries who might prefer less generous benefits for a lower price do not have that option."

Managed-care plans in Medicare are paid on the basis of a formula. Congress determined that under the old formula, where payments were tied to the performance of fee-for-service medicine, the taxpayers were paying too much, and that the federal government was the only organization in America that was actually losing money on managed-care plans. So, with enactment of the notorious BBA, Congress substantially altered the formula, resulting in a $97 billion reduction in Medicare payments to these plans over a 10-year period. While medical costs are again rising and at rates approaching double digits, the formula provides for a 2% increase. HCFA insists that participating plans were still "overpaid" because they attracted better health risks. HCFA, once again, was wrong. Under administrative pricing, the federal government either pays too much, or too little, or does not account for enough factors in the price setting, or does not account for the right factors. Official Washington insists, however, on sticking with this old failed system.

HCFA's Regulatory Overkill

In a detailed and penetrating analysis, The Medicare+Choice Program: Is It Code Blue? (Washington: Shaw Pittman, June 8, 2000, www.shawpittman.com), Janice Ziegler and Bruce Fried, a former Director of the Center for Health Plans and Providers at HCFA, write, "The regulatory complexity of the M+C program has taken on mammoth proportions.... [T]he breadth and depth of regulatory requirements have imposed a level of micro-management that significantly hampers-or, in some instances, restricts altogether-the ability of M+COs to make essential business decisions regarding how care should be financed and operations structured...."

The requirements go far beyond Congressional intent. For example, the law directed the Secretary of HHS to develop a risk-adjustment mechanism accounting for variations in costs. Ignoring private-sector specialists, HCFA developed an extremely complicated mechanism that requires plans to collect and report "encounter data" for each medical service given to each Medicare patient. As Fried and Ziegler observe, "This requires M+COs to essentially create Medicare fee for service claims and submit them to HCFA-not for payment, but for the sole purpose of scoring each beneficiary's health risk. As a result, M+COs must redesign their data systems and train staff to handle complicated fee for service coding protocols, electronic formats, and specialized procedures (such as edit programs)." While Congress did not intend this mechanism to reduce payments to Medicare+Choice plans, the proposed methodology will reduce plan payments by an additional $11.2 billion over the period 2002 to 2004. Thus far, Congress has done nothing to reverse these regulatory excesses.

Incredibly, the same Washington experts who have brought about this disaster now want to give HCFA control over prescription drugs. No, they can't be dismissed as incompetent clowns. No, they are not crazy. Yes, they are deadly serious.

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