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

Volume 46, No. 8 August 1990


In striking contrast to the Pepper Commission, the AMA, the ACP, the AFL-CIO, Chrysler Corp., and many others, a Dallas think tank has prescribed more of what works, instead of more of the same (government intervention) as treatment for the health care crisis. The Task Force Report of the National Center for Policy Analysis (NCPA) addresses the problems of the uninsured, the spiral in medical costs, the threat of rationing, and a tort system that is out of control.

How the Medical Marketplace Differs

Whereas in most markets, the pursuit of individual self interest tends to lower costs and solve problems, in the medical marketplace it has the opposite effect. Normal market forces do not operate, for a variety of reasons:

(1) Consumers are usually spending someone else's money. Less than 10 cents out of every dollar of hospital income and only 28 cents out of each dollar of physicians' fees is paid by patients using their own funds.

(2) Available health insurance plans allow very few options to meet individual budgets and needs.

(3) Little information about price and quality is available to patients.

(4) As normal incentives are replaced by bureaucratic rule- making, the success of physicians and hospitals depends less on service to patients and more on meeting the requirements of third-party reimbursement formulas.

The Role of Insurance

In many respects, medical insurance is not insurance at all, but is prepayment for the consumption of medical care. ``In a very real sense, it is the insurance company, not the patient, that is the customer of medical providers,'' states the report. The ``principal role of the patient is to give consent to medical procedures'' that third parties buy and medical providers sell. That is one reason why patients are given so little information about cost or quality. (There is one remarkable exception. For cosmetic surgery, patients are almost always quoted a fixed price in advance, and generally have more information about quality than for any other type of surgical procedure. Not coinciden- tally, they ordinarily pay with their own money.)

Tax Subsidies for Wasteful Insurance

Federal tax law has an enormous impact on employer benefit plans because the marginal tax rate is so high. Millions of workers take home less than 50 cents of each additional dollar earned. For a highly-paid employee, $1 worth of health benefits is worth as much as $1.97 in additional wages. And since out-of- pocket expenses must be paid with after-tax dollars, whereas employers pay premiums with pre-tax dollars, the tax code encourages first-dollar coverage, the most wasteful type of insurance. For one thing, it usually costs an insurance company about $50 to process a claim for a $50 physician's fee, thus doubling the cost of health care. Also, demand increases when patients perceive that services are ``free.''

The current tax code is inequitable, conferring the largest benefits on the most highly paid workers. NCPA proposes that all taxpayers should receive the same incentive to purchase health insurance, regardless of whether the policies are paid for by individuals or by employers.

To eliminate the subsidy for wasteful insurance, the tax credit should be limited to an amount sufficient to purchase in- surance with, say, a $1,000 deductible and a 20 percent copayment up to an additional $1,000. In addition, the premium saving from a policy with a higher deductible could be deposited in individually owned Medisave accounts, providing self insurance for small medical bills. The tax subsidy would then remain the same, but individuals would be freed from paying for the wasteful consumption of other policyholders and from the arbitrary constraints of third parties.

Freedom of Choice

The key to restoring the medical marketplace, according to the NCPA report, is to put the patient back into the transaction, transferring authority from the political arena and large institutions back to the hands of individuals. Patients need more power to choose-not less.

Ironically, employee benefit law, which was designed to encourage the purchase of health insurance, is actually increasing the number of the uninsured. Individual problem- solving solutions are ``generally forbidden under federal law,...[which] insists that all employees be offered the same coverage on the same terms.'' Employers, unable to afford the required package of benefits that no single employee may actually want, may cancel their group policies altogether.

The NCPA report also proposes giving freedom of choice to the indigent, who are forbidden to pay more than the Medicaid- approved amount to purchase care of higher quality. And all patients are now denied the opportunity to circumvent the high cost of tort law through voluntary agreements.

Members of the NCPA Health Care Task Force include economist Walter Williams; law professor Peter Ferrara; Gerald Musgrave of Economics America (who addressed AAPS in Orlando); and cardiothoracic surgeon Robert Sade, MD, a former Director of AAPS. NCPA President John Goodman, Ph.D., will be a featured speaker at the 47th annual meeting in Scottsdale, and the report will be available.

From Capitol Hill

Medicare Claims Filing Requirement. At press time, seven cosponsors have signed onto Rep. Joe Kolter's bill to repeal the requirement for physicians to file all Medicare claims. They are: Representatives Derrick (D-SC), Hall (D-OH), Jontz (D-IN), Towns (D-NY), Hughes (D-NJ), Emerson (R-MO), and Lewis (R-FL). A Senate bill is in preparation.

If you did not receive a red alert about this bill, you are not on the Action Network. If you would like to receive future alerts, please call headquarters, 1-800-635- 1196.

An AMA study estimated that the average cost of filing a claim is $8.50. In addition, White House budget chief Richard Darman suggests charging doctors a $1 ``processing fee'' for every paper claim submitted, in order to raise $300 million in FY 91.

Relative Value Scale. HCFA Director Gail Wilensky, Ph.D., has sworn to meet the January 1, 1992, deadline for beginning implementation of the RBRVS, despite the fact that much of the needed data won't be available on time. The new payment system-involving 7,000 procedure codes and 500,000 physicians-is an administrative nightmare, dwarfing the problems with DRGs, that involved 467 diagnoses and 7,000 hospitals.

Private insurers, following the strategic lead of Medicare, are undertaking their own studies related to a relative value scale. Procedure-oriented specialties are almost certain to suffer pay cuts. Although there is concern that physicians might drop out of some plans, insurers such as Blue Cross/ Blue Shield may count on their large market share (and the antitrust law from which they themselves are currently insulated) to immunize them against physician nonparticipation.

The dangers of playing ``follow the leader'' were highlighted in a classic lecture by Percy Greaves, Jr.-see the enclosed pamphlet. (Additional copies are $10 per 100.)

IG Has List of MAAC Violators. For the first time, a Medicare carrier has sent the HHS Inspector General a list of doctors who have allegedly violated their MAACs, which went into effect in 1986. This could be the beginning of a wave of referrals to the IG, because it takes several years to establish a pattern of ``knowing and willful'' violations. Some physicians may be exceeding their MAACs without knowing it because occasional changes are made by the carrier between annual updates, and the carrier is not required to inform physicians. Physicians are required to show that they have submitted incorrect bills unknowingly. Physicians may be subject to fines of $2,000 per violation plus exclusion from Medicare. The IG could not say how many doctors were on the list.

Laboratory Regulations. Although final regulations will probably not be available until the end of the year, a HCFA draft proposal calls for federal compliance fees for physician's office laboratories ranging from $156 to $2,151 every two years, depending on the number and complexity of tests performed. In addition, the lab might have to pay from $525 to $1,155 for a complaint investigation (unless no problem was found) and from $220 to $560 for sanctions and hearings (unless the hearing officer overturns the sanction). Convicted violators could spend a year in prison for the first offense. See p. 3 for further details.

Labs that use computers to perform testing or reporting will also have to document preventive maintenance schedules for the computer and system operating limits. Emergency hardware service must be available, and access to the files must be restricted, as by passwords.

The expense of compliance may force many physicians to discontinue their labs, which often just break even. Congress has not evaluated the effect on the cost and availability of service, though it has determined that 50% of all outpatient testing is done in physician office labs. Public health officials are also concerned that they may have to discontinue certain screening programs.

For stool guaiac testing, patients may have the choice of buying a home testing kit for $8.99 (for a single test) or delivering a specimen to a laboratory with a check for $38.55 per specimen. Currently, some physicians will test three specimens for as little as $5.00.

Closing the ``Medigap Gambling House''. A string of bills has been introduced to ``tame'' the $15 billion market for Medigap insurance. The General Accounting Office states that about a third of commercial Medigap insurers pay out less than 60 cents in benefits per premium dollar. The minimum federal standard set by the Baucus Amendments in 1980 is 75 cents for group policies and 60 cents for individual policies. The Health Insurance Association of America states that lawmakers' charges of abuse are grossly exaggerated, and notes that Medigap insurance is ``the most highly regulated form of health insurance.''

H.R. 4242, introduced by Rep. Pete Stark (D-CA), would raise permissible loss ratios to 70 percent (from 60 percent), forbid insurers to sell duplicative coverage, and outlaw sales to senior Medicaid recipients.


Lab Regulations Don't Go Far Enough

With great perspicacity and foresight, Congress has recognized that the doctor who admits to performing a stool guaiac might be tempted to forge ahead into reading Pap smears or undertaking other lab tests that he doesn't know how to do. A $156 certificate to pay for unannounced inspections is badly needed to prevent such malfeasance.

But if patients are threatened by unmonitored blood choles- terol measurements, how much greater the danger from deliveries or major surgery! A doctor who sews up a cut today might be tempted to do a C-section or an appendectomy in his office tomorrow. Preventive legislation is desperately needed. HCFA should require every physician who ever touches the skin with a surgical instrument to pay $5,000 for a certificate of waiver, if he does only ``simple'' procedures, so that HCFA can afford to send an inspector to be sure that he doesn't require inspection. Physicians licensed to perform complex procedures or operations that might hurt somebody should pay more and be inspected more. Then everyone will be safe, and our lawmakers can sleep at night.

Previous regulations of this kind were sometimes deterred by the cost to the public treasury. This is no longer a concern, due to the advent of user fees based on a long-forgotten (pre- July 4, 1776) historical precedent.

The British Army collected the taxes, and the taxes were needed to pay the British Army, which was needed to collect the taxes, . . . .

Jane M. Orient, MD

Federal Laboratory Licensing Now Applicable to Physicians' Office Laboratories

On October 31, 1988, Congress enacted important amendments to the Public Health Service Act, expanding the certification requirements for laboratories. The most important change in the Act was in expanding certification to laboratories operated by licensed physicians, which were heretofore exempt. As of January 1, 1990, the Secretary began the issuance of standards for the licensing of all laboratories. However, the Secretary will not begin the regular inspections of laboratories operated by licensed physicians until July 1, 1991. Physicians will be required to meet the personnel qualifications after that date (See: 42 U.S.C.  263a(f) and (g).)

According to the amended act, all facilities ``for the biological, microbiological, genological, chemical, immunopathological, or other examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings . . . may not solicit or accept materials derived from the human body for laboratory examination or other procedures unless there is in effect for the laboratory a certificate issued by the Secretary [of the US Department of HHS]. . . applicable to the category of examination or procedures'' sought to be performed (42 U.S.C.  236 a(a) and (b)). According to the amended statute, a certificate is valid for two years (42 U.S.C. 263 a(c)(2)).

A certificate may be issued to license, or renew a license, if the laboratory, among other things:

(1) Submits an application (on a form prescribed by the Secretary) describing the characteristics of the laboratory examinations and other procedures performed by the laboratory, including:

(a) the number and types of laboratory examinations and other procedures performed;

(b) the methodologies for laboratory examinations and other procedures employed;

(c) the qualifications (education background, training and experience) of the personnel directing and supervising the laboratory and performing the laboratory examinations and procedures; and

(d) an agreement to provide to the Secretary a description of any change in the information submitted.

(2) Provides the Secretary with satisfactory assurances that the laboratory will be operated in accordance with the standards issued by the Secretary, or, with proof of accreditation of an approved accrediting body.

(3) Agrees to permit the Secretary to make periodic inspections, and agrees to make records available to the Secretary and submit reports to the Secretary as may be required. (See: U.S.C. §263 a(d)(1).)

A laboratory may apply for a certificate of waiver and thus be relieved of the obligations of licensure if it performs only examinations and procedures that are ``simple'' (as determined by the Secretary), have an insignificant risk of an erroneous result, or would pose no reasonable risk of harm to the patient if performed incorrectly; for example, tests approved by the U.S. Food and Drug Administration for home use.

To assure compliance with regulations, the Secretary is given the authority to make announced and unannounced inspections, even of laboratories with certificates of waiver (See 42 U.S.C. §263 a(f).)

Because of the sanctions that may be imposed for failure to comply and submit to inspection, it is important that all physicians who operate laboratories understand the requirements. The AAPS Legal Service will help you by providing information, including regulations when available.

Congress Moves Toward Repeal of McCarran-Ferguson: a Major Victory for AAPS

By a nine to six party-line vote, the House Judiciary Committee, Subcommittee on Monopolies, approved a bill that would repeal certain aspects of the McCarran-Ferguson exemption from the antitrust laws for the ``business of insurance.''

AAPS and its legal service began a drive to seek the repeal of the McCarran-Ferguson Act exemption nearly ten years ago. Over the years, a coalition of consumer organizations evolved in which AAPS became a key participant, offering testimony before the Subcommittee on Monopolies as well as providing information and consultation to members of the House Judiciary Committee, including Representative Peter Rodino (D-NJ) (see AAPS News April and May, 1987).

The bill passed by the subcommittee would eliminate the exemptions from the antitrust laws for insurance companies that engage in price fixing, monopolizing markets, or allocating territories among competing companies, or that require consumers to purchase unrelated policies.

The victory is one of significant proportions and will be the first step in making the insurance industry more sensitive to marketplace pressures. Such a repeal, AAPS has always contended, will create an environment in which medical liability insurance will be marketed more fairly and health care claims will be adjusted with less reliance upon shared information and anticompetitive pressures.

AAPS will provide testimony as the bill comes before the House Judiciary Committee.


Legal Issues to Be Highlighted at Annual Meeting

If your medical staff, like many across the nation, is revising its bylaws, you won't want to miss the LLCS seminar in Scottsdale, Friday afternoon, September 14. A unique program on medical staff issues will include the use of arbitration for resolving medical staff disputes; pitfalls in the bylaws (and why you want your own lawyer, not just the hospital's lawyer, on the committee); and general principles of risk management. Speakers include Kent Masterson Brown, Vickie Yates Brown, and Christopher Shaughnessy of LLCS and Thomas Stipanowich, Associate Professor of Law at the University of Kentucky College of Law.

The McCarran-Ferguson Act will be discussed by Gregg Neal, an attorney in Shelbyville, KY, and the pitfalls of medical welfare practice by R. Steven Geshell, who defends doctors in Honolulu.

Supreme Court Rules in Parental Consent and Cruzan Cases

In two significant decisions handed down at press time, the US Supreme Court agreed with AAPS-and disagreed with the AMA-in two cases in which the organizations had filed amicus curiae briefs on opposing sides.

In the case of Cruzan v. Harmon, the Court ruled that in the ``absence of clear and convincing evidence'' that an incompetent or comatose patient desires removal of a feeding tube, the State of Missouri may statutorily prohibit the withdrawal of nutrition. AAPS argued that depriving a patient of nourishment in order to end her life was a violation of the fundamental ethic of medicine and was contrary to constitutional and common law (see AAPS News 12/89).

The Court upheld the constitutionality of an Ohio statute requiring the consent of at least one parent, or a court, before an abortion could be performed on a minor. The Attorney General of Ohio frequently referred to the AAPS brief in presenting his case. The brief, which cites Minnesota Department of Health Statistics showing a decline in teenage pregnancy rates during the time a parental consent law was in effect, is quoted in a January 22, 1990, report by the US Senate Republican Policy Com- mittee.


Nominating Committee Report

W. Daniel Jordan, MD, Chairman, presents the following slate for consideration at the 47th annual meeting:

President: Claud Boyd, MD, Augusta, GA

President-Elect: John Boyles, Jr, MD, Centerville, OH

Secretary: Donald Quinlan, MD, Northfield, IL

Treasurer: Lowell Campbell, MD, Corsicana, TX

Board of Directors: James Coy, MD, DeLand, FL; Nino Camardese, MD, Norwalk, OH; John Dwyer, MD, Chicago, IL; and Vernon Goltry, MD, Boise, ID.



To be considered at the annual meeting, resolutions must be received in writing at least 30 days prior to the meeting by Resolutions Committee Chairman R.S. Jaggard, MD, 10 E. Charles St., Oelwein, IA 50662.


The Cost of Paperwork

To satisfy a requirement mandating the use of one reporting form, an Ohio hospital had to hire one employee. If

each of the nation's 7,000 hospitals had a similar experience, one form would cost the nation $56 million. The cost of preparing a Medicare or Medicaid report is about $1,000 per nursing home per report. If each of 12,000 nursing homes prepare 1.86 reports per year, the annual cost of this paperwork is $22,320,000 (John Goodman, The Regulation of Medical Care: Is the Price Too High? CATO Institute, 1980).

Sequoia Hospital, a general hospital near San Francisco, reports that since 1966 staff has increased 175%, largely to comply with federal regulations, although the number of inpatients remains the same. Sidney Marchasin, MD, suggests that a mass resignation by government regulators would save billions of medical care dollars, nationwide (Wall St J 6/26/90).


``Freedom'' Is Slavery

Is the world celebrating the ``triumph of liberal democra- cy'' at the ``end of history'' prematurely? In his book The Anticapitalistic Mentality (Libertarian Press, 1972), Ludwig von Mises analyzed the causes of the ``overpowering momentum'' recently acquired by antilibertarian ideas.

It would have been a hopeless venture to attack freedom openly and advocate unfeignedly a return to subjection and bondage. But antiliberalism got hold of people's minds camouflaged as superliberalism. . . .It came disguised as socialism, communism, planning.

The ``end of history'' became a subject of discussion rather recently, after Francis Fukayama's famous essay in The National Interest in the summer of 1989. But as von Mises noted, ``the avowed end of all utopian movements is to put an end to history and to establish a final and permanent calm.''

Von Mises warns against seeking ``contentment in a system in which [humankind's] only task will be to serve as cogs in a machine designed and operated by an almighty planmaker.'' This epoch of history could end as a previous one did: ruere in servitium (they plunged into slavery), said Tacitus of Romans in the age of Tiberius.


AAPS Calendar

Sept 12, 1990. Board of Directors meeting, Scottsdale, AZ.

Prelude to annual meeting: Bureaucrat of the Year Awards Ceremony, Cattleman's Cookout.

Sept 13-15, 1990. 47th Annual Meeting: The Control of Medi cine in the 1990s. Camelview Resort, Scottsdale, AZ.

(Send in your reservation now and save! Early Bird discount only until August 1.)

Oct 17-19, 1991. Annual meeting, Lexington, KY.