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

Volume 51, No. 8 August 1995


On July 31, 1995, more than 200 physicians have pledged to challenge the Medicare regime, which attempts to impose its rule on every person who has a statutory entitlement to Medicare funds.

On Medicare Patient Freedom Day, these physicians will refuse to file HCFA forms or to accept Medicare money. This much is unquestionably acceptable to the federal government, whose officials have repeatedly said, ``You don't have to treat these patients, Doctor.''

But many physicians will continue to serve their Medicare- eligible patients on a private-contract basis. For purposes of this event, physicians will set the 30th Anniversary Memorial fee of $1, simply to establish the existence of a patient-physician contract. The patient is, like all customers, free to accept or reject the offer of service at this price. (Our attorney suggested a price of $1 or the Medicare-established copayment, whichever is lower. And those who fear an antitrust complaint from colleagues might want to treat established patients only.)

Many physicians and their consultants believe that it is illegal to care for a Medicare-eligible patient without filing a claim and saying ``Mother, may I?'' Their belief is based on statements in the Medicare carrier manual and numerous intimidating communications from carriers. Their fears are not groundless. We know of at least three physicians who have been scrutinized by HCFA for providing charitable services, although as far as we know, no one has been punished for providing nonreimbursed services (even if privately paid).

All physicians who accept government money are subject to audit. At best, an audit is a frightening and disruptive experience. At worst, it can result in demands of payment of huge sums of money or even criminal prosecution (see p. 3). We doubt that there is a single physician who would be found blameless in the eyes of a determined auditor armed with myriad ambiguous regulations.

For some AAPS physicians, every day is Medicare Patient Freedom Day (see p. 2), except that their nonreimbursed fee is probably not $1.

AAPS believes that the activities of Medicare Patient Freedom Day are perfectly lawful. First, the Law of the Land (the U.S. Constitution) states: ``The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people'' (Ninth Amendment) and ``The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are preserved to the States respectively, or to the people'' (Tenth Amendment). The Constitution does not enumerate or deny the right of any citizen to purchase private medical care, nor does it delegate power to regulate private medical treatment.

Furthermore, the Medicare statute signed into law by President Johnson in 1965 states:

§ 1801. Nothing in this title shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which Medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.

§ 1803. Nothing contained in this title shall be construed to preclude any State from providing, or any individual from purchasing or otherwise securing, protection against the cost of any health services.

Although the courts approved federal government regulation of medical services funded by the federal Treasury, in the case of AAPS v. Weinberger in 1975, the imposition of Medicare regulations on services not reimbursed by Medicare has never been adjudicated.

In a June 14 certified letter to Bruce Vladeck, AAPS counsel informed HCFA of the Anniversary event. Physicians will state their position that private contracting is essential to the protection of patients' rights. The Secretary of HHS is invited to state her position and to advise AAPS ``in the unlikely event that your administration wishes to pursue enforcement actions against these physicians.'' No response has been received as of July 9.

At this time, Congress is considering many ``options.'' Most of these involve a ``choice'' of managers, with heavy involvement by government and government-favored corporations. The would-be managers and decisions-makers are even insinuating themselves into a role in Medical Savings Accounts. As Plans proliferate, patients' personal plans and personal needs are in danger of total submersion.

Various forces, especially managed care, threaten to wash away patients' and physicians' independence. In a free economy, we believe these waters will recede. But to survive the flood, we must establish a bulwark of freedom: the undisputed legal right of patients and physicians to contract with each other outside any third-party system.

AAPS will petition Congress to pass legislation guaranteeing the right to private contract. Media events are planned to inform the public of the need to assert our freedom.

It is not too late for you and your own patients to participate. For a copy of the Pledge and physician information sheet, by FAX on demand, call 703-716-3404 and follow the instructions.


If you love wealth greater than liberty, the tranquility of servitude greater than the animating contest of freedom, go home and leave us in peace. We seek not your council, nor your arms. Crouch down and lick the hand that feeds you; and may posterity forget that you were our countrymen.Sam Adams

How I Contract with Medicare Patients

I recently became aware of a colleague's disapproval of my private contracting arrangements with Medicare patients. While I feel no need for his sanction (he does not need to concern himself with my opinion of his billing methods), I will try to explain my method more completely.

I have considered private contracting with Medicare patients since Dr. Lois Copeland, President of AAPS, was featured in the summer 1993 issue of Policy Review. I have recently met several physicians who have never filed a Medicare claim, having contracted privately with patients since the inception of Medicare. In its pure form, the patient must agree to pay a certain price for the physician's service. The physician is free to set the price at $0 if the patient is destitute or may charge his regular fee. If a patient wishes to use his Medicare benefits, the physician refers him to someone who will work with the patient on this basis. In anesthesia practice, this last step could mean extreme inconvenience for patients and surgeons, so I have developed a hybrid form.

I prefer to think of my fee as an honorarium. In Roman times, attorneys were paid by honorarium, depending upon the clients' ability to pay and their satisfaction with the service. This method gives me great flexibility and tremendous incentive. I have been truly amazed by the number of patients who have paid me, by the absence of complaints (with one exception, from a very wealthy patient), and most importantly by the change in my own attitude. There is not an anesthesiologist I know who does not look at his schedule and say to himself (and occasionally to others), ``Another damn Medicare patient.'' Those days are gone for me. I can now look patients in the eye and say, ``I'll send you a letter explaining why I can no longer deal with your insurance. Pay me what I suggest, part of it or none of it.'' I also tell these patients I would rather give their anesthetic for free than deal with Medicare....

The only hope I have of being paid is to control the one variable under my control: Provide absolutely the best anesthetic care that I can, as the agent of the patient in a completely uncontaminated way. All of these patients understand my frustration with Medicare. The patients have been victimized by their insurance even more than we have.

I have lost money since deciding to contract rather than file claims. Many patients exercise the ``pay nothing'' option, and others are not mentally or emotionally capable of understanding the concept. I find it more gratifying to provide my service free of charge than to submit an assigned Medicare claim, knowing that 75 percent of the Medicare money I would receive has been wrenched from the taxpayer at the point of a gun. The decision to contract was not made in the interest of lining my pockets, extorting money from patients, or avoiding tax liability. I was simply no longer content with thinking of patients as yet another ``damn Medicare patient.'' It is not their fault that they are insured by a rationed, socialized scheme. Jettisoning Medicare is the most liberating act of my practice to date. I only regret that I did not do this sooner.
G. Keith Smith, M.D., Edmond, OK

AAPS Member Helps to Defeat License Surcharge

Tucked away in Wisconsin Governor Tommy Thompson's 1995 budget were an array of new fees and hidden taxes, including a $300 surcharge on medical licenses. As part of an attempt to provide property tax relief, the money would have gone into the state's general fund.

The Governor tried to sell the idea to physicians by promising an increase in Medical Assistance payments if they would accept the surcharge. The Wisconsin State Medical Society lobbied against the surcharge. The Wisconsin Academy of Family Physicians assumed a passive role in the battle, stating that the surcharge was a ``done deal'' and that the Academy should concentrate on preserving the funding of family practice residencies. The Chairman of the Academy's Legislative Affairs Committee warned against becoming vocal on a ``pocketbook'' issue and said that there could be retribution from the Governor if physicians did not cooperate.

Albert L. Fisher, M.D., obtained from AAPS copies of a report detailing HCFA's effort to recoup $450 million in Medicaid overpayments from nine states that had violated the rules concerning provider taxes. He distributed the reports to members of the Joint Finance Committee. In the days before the vote, a change in momentum was detected by organized medicine's lobbyists. To everyone's surprise, what had been considered a ``done deal'' was eliminated from the budget by the Joint Finance Committee.

``This proves that harebrained legislation can be derailed,'' stated Dr. Fisher.

Nominating Committee Report

The Nominating Committee, chaired by Donald Quinlan, M.D., proposes the following slate of officers to be elected at the annual meeting, October 12-14:

President: Dr. Don Printz of Lilburn, GA
President-Elect: Dr. John Dwyer of Chicago, IL
Secretary: Dr. W. Daniel Jordan of Atlanta, GA
Treasurer: Dr. R. Lowell Campbell of Corsicana, TX
Immediate Past President: Dr. Lois Copeland of NJ
Directors: Drs. Claud Boyd, Jr., of GA, Curtis Caine of MS, Charles McDowell, Jr., of GA, and Michael Schlitt of WA.


To be considered at the 52nd annual meeting, October 12-14, Resolutions must be received by September 12. Send to Resolutions Committee Chairman Don Printz, 354 Arcado Rd Suite 4, Lilburn, GA 30084.

AAPS Calendar

Sept. 16. Health Care Reform and You: the Rest of the Story

New Brunswick, NJ, Hyatt Regency Hotel, cosponsored by the Freedom in Medicine Foundation and Affordable Health, featuring Drs. John and Alieta Eck, Louis Keeler (MSNJ President), Robert Moffit of Heritage, Lois Copeland, Merrill Matthews of NCPA, John Lanzalotti, and Nino Camar- dese. Mark Hiepler, Esq., will discuss the $89 million verdict against HealthNet, and Mayor Bret Schundler of Jersey City will discuss the MSA program he instituted for city employees. For information, call Affordable Health, Inc., (908)562-0033.

Oct 12-14. 52nd annual meeting, Falls Church, VA.

Oct 21-25. American Society of Anesthesiologists meeting in

Atlanta. AAPS will have a display (F-40), and AAPS members (Drs. Nahrwold, Schlitt, and Orient) will present a panel on Alternatives to Managed Care.

Oct 10-12, 1996. 53rd annual meeting, La Jolla, CA.

Legal Briefs

Michigan Appeals Court Rules that Criminal Intent Necessary for Health Care Fraud

On April 21, 1995, the Court of Appeals for the State of Michigan upheld the felony conviction of Victor Premen, D.D.S. (No. 152049, LC No. 91-003744). The defendant had billed Blue Cross/Blue Shield of Michigan for applying amalgams to the teeth of children when in actuality he had applied sealants, which were not a covered benefit.

One dental assistant testified that Dr. Premen looked over the claims before signing them, and another testified that she was instructed to use the code for amalgams when sealants were applied. On this basis, the jury determined that Dr. Premen had ``knowingly'' committed fraud, although he contended that there had simply been a clerical error.

The Court found the Health Care False Claims Act [MCL 752.1003(3); MSA 28.547(103)(3)] to be constitutional. Dr. Premen had argued that it was unconstitutionally vague because it failed to provide fair notice of proscribed conduct and conferred unlimited discretion on the trier of fact.

Importantly, the Court held that health care fraud under the statute is a specific intent crime. In other words, the defendant must know that his behavior is a crime. A footnote to the opinion reads: ``The magistrate's erroneous conclusion that health care fraud is not a specific intent crime is rendered harmless by the sufficiency of the evidence of intent presented at the preliminary examination'' [emphasis added].

Conviction for a general intent crime simply requires proving that the defendant submitted a claim intended to result in payment and that he ``should have known'' the claim to be in violation of the rules.

Highlighting the importance of this distinction, the Attorney General of Michigan took the unusual step of petitioning for rehearing, even though the decision was a victory for the State:

This erroneous interpretation [that fraud is a specific intent crime] will thus negatively impact the efforts of the Department of Attorney General to carry out its function as a Medicaid Fraud Control Unit to investigate and prosecute instances of fraud under the Medicaid False Claims Act.

The interpretation has a critical bearing on the appeal of former office manager Edgardo P‚rez-DeLeon, who spent one year in the Ingham County Jail (see AAPS News July & Oct 1994, and Feb and May 1995) for Medicaid fraud. The jury received instructions pertaining to a general intent crime.

In contrast to the Premen case, prosecutors of Mr. P‚rez- DeLeon presented no proof of misrepresentation of material fact or of any intent to defraud anyone. According to an appeals brief prepared by Andrew Schlafly (with the support of the American Health Legal Foundation): `` [D]efendant P‚rez-DeLeon meticulously and accurately represented the exact nature of the services performed, all of which were essential to the well-being of his patients.''

Furthermore, ``no matter how great the problem of health care fraud may be-the prosecutor frequently alluded to a perceived crisis-the holding in Premen prevents attacking such problem by transforming mere billing disputes...into felony crimes.'' This means that ``the statutory and constitutional rights of defendants cannot be trampled upon in the name of public policy.''

Schlafly cites the case of Cheek v. United States (498 U.S. 192 (1991), in which a felony conviction for tax fraud was overturned due to lack of specific intent, even though the defendant's offense was egregious and his misinterpretation of the tax code was not objectively reasonable:

The Cheek holding applies with particular force to the case at bar. Here defendant P‚rez-DeLeon, a Spanish-speaking office manger dedicated to serving a Spanish-speaking community, was faced with the task of interpreting complex and confusing health care regulations....[H]e was convicted despite an absence of proof of specific intent. Defendant P‚rez-DeLeon's purported misinterpretations were certainly more reasonable than those made by the defendant in Cheek; defendant P‚rez-DeLeon's conviction must be overturned as well.

Fraud Hotline Announced

At a July 7 public meeting about the Medicare crisis, Sen. John McCain (R-AZ) announced that a new hotline (800-368-5779) has been opened by the HHS Inspector General for reporting Medicare fraud. Seniors were urged to examine their Medicare billings and report possible overcharges. Sen. McCain proposes to return a portion of the take to the informant.

HCFA Responds on Medicare Exclusion

``I actually got a response to my letter,'' reports Lawrence Huntoon, M.D., of Jamestown, NY (see letter to ``Dear Comrade Vladeck,'' AAPS News July 1995). Thomas Ault, Director of the Bureau of Policy Development, writes:

``Dear Dr. Huntoon:

``Administrator Vladeck asked that I thank you for your letter regarding the Medicare program. Please excuse the delay in my reply.

``I can surely understand your concern about physician participation in the Medicare program. In this regard, we are making increasing use of staff members in our regional offices who are often in the best position to be of assistance to the people in their area. Therefore, your inquiry has been referred to the officials in our New York Regional Office for further action. Thank you for bringing this matter to our attention.''

Bring Harry and Louise to Your Radio Station

Harry: Hi, Honey, what's the matter?

Louise: Well, I've been looking for a job with good health care, and it just doesn't exist. Why is health care tied to our jobs?

Harry: You know we wouldn't have to worry about it if we could write it off like our bosses.

Louise: What would that take, an act of Congress?

Harry: I don't know, but I'm going to call my Congressman and find out.

Louise: Good idea.

Announcer: This has been an announcement from...(your name and number).

This skit puts forth the crucial but seldom mentioned fact that medical insurance is linked to employment because of federal tax policy. Cassette or reel-to-reel tape is available for $10 from Bert A. Loftman, M.D., 105 Collier Rd, Suite 5030, Atlanta, GA 30309. Ask your radio station to run it as a PSA.

Members' Page

Administrative Simplification. When we submitted our claims on paper, we were told that the Medicare carrier couldn't help making all those mistakes because they were simply human. So in 1990, when the carrier offered ``free software'' to bypass their ``simple humans,'' like bumpkins falling off a hayrack we said ``sure, we'll try it.'' This was very expensive. The initial versions provided no way to correct typographical errors without redoing all of the claims in a 50-claim batch. Last year, like good ducks flying in government formation, we ``migrated'' to the National Standard Format. The only thing faster about this format is that the Medicare carrier is able to delete our claims faster. Numerous times, our carrier has deleted all of our claims (as in erased, all gone) or portions of our claims (as in ``we can't process your claims because of incomplete information'' -information the Blue Bunglers erased).

When I complained to my Congressman, a secretary of the Deputy to the Deputy Assistant Secretary for Health Policy in HHS called to say that I might have violated the Privacy Act by so doing. She also asked: given all these problems we have with Medicare, why do I continue to see Medicare patients at all? I take that to mean that HHS fully recognizes the adverse and bungling nature of the bureaucracy, and that their official position is to suggest that physicians stop treating Medicare patients as a way to avoid constant hassles.
Lawrence R. Huntoon, M.D., Jamestown, NY


Administrative Complication. As I do ``high complexity'' testing in my office lab, CLIA regulations demand that I prepare 27 policy and procedure manuals, maintenance and quality control logs. Maintaining these manuals and logs consumes more than 30 percent of my technicians' time, serving no purpose other than satisfying government inspectors. Just to perform simple urinalyses and cultures in his office, a urologist must jump through innumerable hoops. When it was unreasonable to do quality control on a particular test, one physician simply created a fictitious log. CLIA forces honest and productive citizens to cheat or evade in order to survive.

When underworld thugs force businessmen to pay protection money so they can continue in business, it is called extortion. Is the CLIA fee to continue doing what we have done for years any different? The costs to my small family practice amounts to about $9000 per year in inspection fees, proficiency testing, extra reagents, equipment, and labor to comply with regulations. It is no mystery why at least ten family physicians in our small community have ceased to provide laboratory services.

CLIA inspectors willfully violate our Fourth and Fifth Amendment rights....This bad law should be repealed.
Richard D. Fisher, M.D., Sun City, AZ


After the CLIA inspectors invaded and spent 3 hours in my office, I had bills in the thousands of dollars to make modifications. Equipment I had never needed in 35 years of practice suddenly became mandatory if I were to continue to provide lab testing. Patients used to be able to find out their potassium 30 minutes after a fingerstick; now it takes a venipuncture and at least 24 hours. Not the least to mention is the embarrassment caused me by the inspectors' ill manners. The experience was reminiscent of an IRS audit.
C. J. Kienzle, M.D., Scottsdale, AZ


In 1950, Dr. Harvey Blank traveled to France and brought back the Tzanck smear, a quick and inexpensive method of diagnosing certain herpetic skin infections. Dr. Blank, Chairman of Dermatology at the University of Miami, taught me to do the test and had me teach laboratory technicians. Now I can no longer do the test without special certification from CLIA, costing more than $900. In an average year, my total income from the test (not deducting overhead) might be $200.

It does seem odd that those who originally introduced the procedure must now be certified by those who learned from them, and at their own expense.
Philip M. Catalano, M.D., Bradenton, FL


To Members of the Health Care Task Force: I am responding to an article by Dr. Jeffrey Morris (``What They Didn't Tell You About Health Care Reform'') in Review of Ophthalmology, May, 1995. It is clear that the ``Task Force'' was a blatantly illegal attempt to seize control of a sixth of the U.S. economy. Most of the advisors had special interest agendas....Especially ominous is the role of the Robert Wood Johnson Foundation in this and reform efforts in many states. Kentuckians are already victims of this. I wonder how Dr. Morris feels about being an advisor to ``an anonymous and amorphous horde,'' as the Task Force was called by the Justice Department in trying to explain why the Federal Advisory Committee Act was ignored.
Gerald E. Sullivan, M.D., Bowling Green, KY


Equal Protection of the Laws. If I waive the Medicare deductible and copayment, that's considered fraud. However, the Medicare HMOs advertise that their patients do not have to pay the deductibles. They are a substitute for Medicare and Medicare supplements. Can I be a substitute?
Bruce Schlafly, M.D., St. Louis, MO

Legislative Alert

Medicare and the Battle of the Budget

House and Senate conferees have agreed to the first balanced budget in 25 years. The Fiscal Year 1996 Concurrent Resolution will balance the budget in seven years by reducing the rate of the growth in federal spending to 3 percent annually. This means spending would increase from $1.5 trillion in 1995 to $1.875 trillion in 2002. The Department of Commerce is to be eliminated. The Budget Resolution outlines the spending decisions of the Congress, and it cannot be vetoed by the President.

While the major focus of the Budget effort has been to reduce spending or the growth in spending, the House and Senate Conferees have also agreed to tax law changes. But tax reductions will only occur after the authorizing committees of the Congress, the panels with specific jurisdiction over certain program areas, have reached their reduced spending targets.

Under the Concurrent Resolution on the Budget, Medicare will grow from $178 billion in 1995 to $274 billion in 2002. In percentage terms, this means that Medicare spending will grow at an annual rate of 6.4 percent, rather than the current 11 percent, delaying bankruptcy of the Medicare Trust Fund from 2002 to 2005. Once the fund is depleted, there is no authority to pay hospitalization costs for the elderly.

The Trustees report that an additional payroll tax of 3.9 percent (an additional $1,760 from a worker earning $45,000 per year) would be required to pay Medicare Part A expenses if the Trust Fund goes in the red.

Outside of the federal government, no serious economist thinks that Medicare's spending rates are sustainable. Many Members of Congress are desperately searching for a way to restructure Medicare in a fundamental way, to redirect the incentives that are currently driving it into bankruptcy.

In an attempt to slow annual growth rates in Medicaid from 10.5 percent per year to 4 percent by 2002, the House-Senate conference agreement would make block grants to the states.

Clinton's Response

In his State of the Union message, Bill Clinton told Congress and the American people that while he favored spending restraints, he would ``protect'' Medicare and other entitlement programs from any budgetary changes, and thus initially submitted a federal budget proposal in February that provided for substantial deficits for as far as the eye could see. After hesitations and reversals, he finally submitted a proposal for balancing the budget in ten years instead of seven.

Clinton's proposed cut in the Medicare growth rate is actually a percentage point deeper than that of Congress, but it is being called only half as deep. The Administration started from a different baseline.

The Clinton proposal only angered liberals in Congress, who had planned to repeat on Medicare the effective ``School Lunch'' strategy (``they are taking food from the mouths of starving children'').

The White House may have made another political calculation, not only on the budget, but on Medicare. The American public is for a balanced budget. Furthermore, the politics of Medicare may be changing. The old calculation is that Medicare, like Social Security, is the Third Rail of American politics. (If you touch it, you're politically dead.) This may no longer be true. The reason: the word of the fiscal crisis in Medicare is seeping out into the consciousness of Middle America, including the Baby Boomers who are fearful of their future retirement prospects and the Twenty Somethings, who are coming to age and wisdom about the future taxes they are going to have to pay to keep the current crop of old folks and the 77 million Boomers in the style to which they are accustomed. As P. J O'Rourke says about the Twenty Somethings, they should quit whining, turn their baseball caps around, and get a job. But when they do, they are not likely to be happy with the Awesome Rip-Offs they've got coming to them in their paychecks.

The Seniors Lobby

Focus groups of senior citizens conducted in Maryland by Citizens for a Sound Economy showed that, not surprisingly, most old folks don't know that Medicare is on the edge of bankruptcy. They feel that if there really is a crisis, Congress will simply do something about it, out of fear of losing seniors' votes. They think that waste, fraud, and abuse are the major reasons why the Medicare system has financial problems, and that the blame for this rests on doctors and hospitals.

In the meantime, the heretofore fearsome AARP lobby is being regularly questioned by Senator Allen Simpson of Wyoming about what they are doing with all of that federal tax money anyway. AARP normally pushes Congress around; now Congress is pushing AARP around. Things have really changed on Capitol Hill this year.

Consumer Choice Proposals

The most encouraging factor is the emergence of a variety of consumer-choice proposals to reform Medicare.

The libertarians over at the Cato Institute are pressing the envelope of change. They argue that most of the proposals for Medicare reform being discussed on Capitol Hill miss the point and are bound to fail to reduce spending. The Cato answer is to raise the Medicare deductibles, lift the caps on reimbursements for doctors and hospitals, set up Medisave accounts and gradually transform the Medicare system into a back-up system of catastrophic insurance. Give the elderly a chance to get out of Medicare, says Cato, and raise the age of eligibility for Medicare along with the age of eligibility for retirement.

The bipartisan Committee for a Responsible Federal Budget, headed by former Congressman Robert Gaimo and Former Senator Henry Bellmon, strikes another political chord: ``Anyone who opposes reducing spending for Medicare and Medicaid as part of the effort to balance the budget (no matter which baseline growth path is used) is surreptitiously arguing for multiple future tax increases.''

Along with others, Senator Robert Packwood of the Senate Finance Committee, between appearances before the Senate Ethics Committee on sexual harassment charges, is trying to make the Clinton Administration officials come clean on fixing the Medicare Trust Fund. Congressional Republicans want to compel the Medicare Trustees to make specific recommendations to assure the Trust Fund's fiscal solvency. The Clinton Administration has been steadfastly saying that it knows the Trust Fund is in trouble, but Medicare should be reformed as part of a broader health care reform, like the one that Hillary and the Task Force came up with in 1993. In other words, go along with us on regional alliances, the national health board, price controls, new reams of rules or regulations, or Medicare ``buys'' it. But this stance by the Administration once again ensures that they will be standing on the sidelines of Congressional reform efforts.

The AMA is entering the fray with a rather comprehensive reform of the Medicare system. This would allow the elderly to stay in the traditional Medicare system if they wish to do so, but alternatively they may be able to pick and choose private health care plans, for which they will be reimbursed up to a dollar amount. A Medisave option would be included.

The Heritage Foundation has also unveiled a comprehensive proposal along similar lines. This would establish a voucher system, coupled with a Medisave option and catastrophic coverage. Like the AMA plan, the Heritage plan would switch Medicare from a defined benefits system to a defined contribution system similar to the Federal Employee Health Benefits Program. The FEHBP offers a range of plans at a range of prices. Beneficiaries can choose leaner plans and pocket the difference in price.

Heritage also proposes some other short-term budgetary fixes for the Medicare system, including means-tested subsidies. Heritage would restore the premium paid for Part B to its original 50 percent match. (Currently, senior citizens pay 30 percent of the Part B premium; the permanent level is projected to be 25 percent.) In a June 27 briefing for the Washington press corps, Heritage spokesmen said that if Congress fails to undertake fundamental reform, it will be left with only two alternatives: a dramatic reduction in the quantity or the quality of Medicare coverage, or sharply higher taxes for already overtaxed middle class families. There's no way out.

It is difficult to calculate the savings to be realized from allowing seniors to benefit from cost-conscious decisions concerning their medical care. A plan proposed by J. Patrick Rooney, chairman of Golden Rule Insurance Company, was calculated to save about $250 billion over seven years, according to a study by Milliman and Robertson, a Seattle consulting firm.

Rooney's plan would make the elderly responsible for the first $4,000 of medical bills, in exchange for placing $2,000 into a Medicare Reserve Account for each enrollee. Funds in this account would accumulate tax-free and could be used to pay routine costs, including those that Medicare does not cover, such as prescription drugs. If people dropped their Medigap policies and applied the average cost of $1,000 toward direct payment, their remaining exposure of $1,000 would be only about half of what they now pay out of pocket (see Investor's Business Daily 6/29/95).

CLIA Repeal Languishing

Congressman Bill Archer (R-TX) has introduced legislation (H.R. 1386, the Clinical Laboratory Act Amendments of 1995) to exempt physician office laboratories from CLIA, unless they engage in the interpretation of Pap smears. At present, the bill is not making much progress. Congressman Thomas Bliley (R-VA), Chairman of the Commerce Committee, has not yet scheduled hearings. A number of AAPS members have sent letters to Mr. Bliley urging him to hear this bill (for samples, see p. 4), with carbon copy to Andrew Shore, legislative aide to Mr. Archer, 1236 Longworth Bldg, Washington, DC 20515.

Do we have your FAX number? If you have not received recent Action Alerts, you are not on our FAX network, possibly because we repeatedly received ``invalid media'' messages. Please FAX your number to (520)326-3529.

Medical Savings Account Bill Gaining

On June 13, House Ways and Means Chairman Bill Archer introduced bipartisan legislation to provide for Medical Savings Accounts. Key provisions of the Archer-Jacobs bill:

  • Employers, or individuals without employer-provided medical insurance could make contributions to an MSA, which would be excluded from taxable income.

  • The maximum MSA contribution would be the amount of the catastrophic insurance deductible, subject to an overall maximum of $2,500 for individuals and $5,000 for families.

  • MSA funds used to pay for medical expenses would be excluded from workers' taxable income; funds withdrawn for other purposes would be taxed, and an additional 10 percent penalty would be assessed on such withdrawals.

Savings to accrue from widespread adoption of Medical Savings Accounts have been calculated to range from 10 percent to 40 percent per year. The low value is an extremely conservative estimate made by the American Academy of Actuaries. According to the Council for Affordable Health Insurance, the actuaries understate both administrative cost savings and decreases in consumption. A 1992 study by the National Center for Policy Analysis estimated that if everyone switched from traditional third-party insurance to MSAs, medical costs would decrease by about 30 percent. A Cato Institute study estimated that if MSAs were adopted widely enough to reduce third-party coverage to about 25 percent of medical spending, national medical costs would be decreased by 40 percent per year (see Peter Ferrara, NCPA Brief Analysis No. 164, June 26, 1995, 12655 N. Central Expy, Suite 720, Dallas, TX 75243, 214-386-6272).

The Archer-Jacobs bill is gaining cosponsors and is said to be on a fast track out of committee.

[Further information on MSAs: Stephen Barchet, Medical Savings Accounts: A Building Block for Sound Health Care, the Evergreen Freedom Foundation, PO Box 552, Olympia, WA 98507, 360-956-3482, $15; Michael Tanner, ``Medical Savings Accounts: Answering the Critics,'' Policy Analysis #228, Cato Institute, May 25, 1995, 1000 Massachusetts Ave., NW, Washington, DC 20001, 202-842-0200, $4; Peter J. Ferrara, ``More than a Theory: Medical Savings Accounts at Work,'' Policy Analysis # 220, Cato Institute, March 14, 1995, $4.]

Regulatory Reform Act of 1995

On June 28, Senator Dole announced the completion of a bipartisan package of regulatory reforms, S. 343. This includes risk assessment, cost-benefit analysis, judicial review, and congressional review. It substitutes for the Delaney Clause the provision that federal agencies may not refuse to approve a substance on the basis of safety when the product ``presents a negligible or insignificant foreseeable risk to human health resulting from its intended use.'' For further information, contact Project Relief, 818 Connecticut Ave. NW, Suite 1100, Washington, DC 20006, 202-496-0791.