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Volume 54, No. 2 February 1998


A long-awaited ruling in the case of AAPS v. Clinton was handed down by Judge Royce Lamberth on December 16, 1997. The federal government was ordered to pay AAPS the sum of $285,864.78, as attorney's fees, costs, and sanctions.

The motion for sanctions and contempt against Ira Magaziner, who directed the Interdepartmental Working Group of the President's Task Force on Health Care Reform, was filed May 16, 1994, because of Magaziner's sworn declaration that all members of the Working Group were full-time employees of the federal government. This patently false declaration thwarted early attempts by AAPS to obtain discovery about the secretive group.

Congressman Bill Archer (R-TX) called upon the President to fire Magaziner from his position as a senior presidential aide and not to bill taxpayers for the penalty. Clinton has declared that he will stand by Mr. Magaziner, who was "vindicated" by then-U.S. attorney Eric Holder. (Holder was called on by Judge Lamberth to investigate the possibility of prosecution for perjury. Since then, Holder has been promoted to the second- highest position in the Department of Justice. Magaziner's defense counsel Charles Ruff, a friend of Holder, has become White House Counsel.)

Magaziner was not the only official excoriated in Judge Lamberth's opinion, which states: "It is clear that the decisions here were made at the highest levels of the government, and the government itself is-and should be-accountable when its officials run amok. There were no rogue lawyers here misleading this court. The court agrees with plaintiffs that these were not reckless and inept errors taken by bewildered counsel. The Executive Branch of the government, working in tandem, was dishonest with this court....

"It is beyond a `strained interpretation,' it is dishonest to argue to this court that people are employees when there was never a piece of paper created that said they were employees-with or without pay."

Conduct of the Executive Branch constituted clear evidence of an attempted cover-up, the Judge concluded. "It seems that some government officials never learn that the cover-up can be worse than the underlying conduct. Most shocking to this court, and deeply disappointing, is that the Department of Justice would participate in such conduct.

Lamberth agreed with Holder's determination that successful prosecution for perjury would be difficult: "[T]here is not proof beyond a reasonable doubt that Mr. Magaziner intended to mislead the court when he signed his declaration on March 3, 1993." Magaziner had relied upon the advice of White House attorneys, including Vincent Foster, "who is deceased and could not now testify as to any advice-and Associate Attorney General Webster Hubbell-now a convicted felon, whose credibility could be impeached."

The Department of Justice continued its obstructionist tactics late into the case. Even at the time that the White House was trying to moot the case by turning over documents, "it took weeks of prodding by plaintiffs' new counsel [Thomas Spencer], and inspections of produced material, to identify a number of discrepancies that led to further court hearings and orders before the court could finally declare the case was moot." Therefore, the Judge did not disallow attorney's fees incurred late in the case, after AAPS refused an Executive Branch attempt to settle the case and release all officials from the threat of sanctions for misconduct.

Vexing questions remain, and many expected documents never turned up. Few travel vouchers, specifically mentioned by the Judge as germane in his order granting a Motion to Compel were ever produced. As early as April, 1993, Clinton's second cousin Catherine Cornelius was arranging Task Force members' travel through WorldWide Travel, a company owned by Clinton's friends Harry and Linda Thomason. Cornelius was installed as head of the White House Travel Office when the entire staff was fired late in May, 1993.

From documents that were released, it is clear that Magaziner had to be aware of the factual and legal significance of the "federal employee exemption" scam and of the red flags being raised by the appointment of private-sector representatives to leadership positions on the various committees. Still, the groups pressed on in an attempt to meet their 100-day deadline to draft legislation that would have put all of American medicine under federal control. The pressure to stonewall the court came from the top-as evidenced in the new book Friends in High Places by former Clinton friend and confidant Webster Hubbell.

According to Hubbell, Hillary Rodham Clinton was infuriated by the filing of the lawsuit in February, 1993, and shouted at attorney Vince Foster: "Fix, it Vince! Handle it, Vince!" Foster's friendship with Hillary Rodham Clinton had become an attorney-client relationship, and a very troubled one at that. After Foster's body was found in Fort Marcy Park on July 20, 1993, Hubbell's days continued to be filled with issues such as the AAPS lawsuit.

Attorney General Janet Reno twice refused Congressional requests to appoint an independent counsel to investigate misrepresentations about the Task Force, including testimony before Congress that only $300,000 (rather than more than $11.9 million) had been spent. It's time for Congress to act.

"Based on documentary evidence, the revelations of Webb Hubbell, and the conclusions of Judge Lamberth, there is more than enough basis to believe that a major `cover-up' existed in the highest levels of our government," writes Thomas Spencer. The issues of obstruction of justice need to be reviewed before the Statute of Limitations expires, barring prosecutions."

Barr Demands Special Counsel

On Dec. 24, Congressman Bob Barr (R-GA) demanded that Attorney General Janet Reno appoint a special counsel outside the Justice Department to investigate the "sordid case of unlawful arrogance" that Judge Lamberth found at the "highest levels of government." Barr stated that "the taxpayers should not be made to pay for the illegal and unprofessional conduct of those who have done so much to impair...the lawful processes of government." If Reno chooses not to act, Barr stated that he would ask for her removal as Attorney General.

Westmoreland Acquitted; Judge Shocked by Raid

In a rare procedure, U.S. District Judge Joseph R. Goodwin threw out all the charges against Danny Westmoreland, D.O., of West Virginia before sending the case to the jury, saying the prosecution had failed to present a case and that all patients had been treated correctly. The action ended a two-year ordeal that included an armed raid in which agents pointed guns at patients and the doctor's nine-year-old son (see AAPS News July 1997). Judge Goodwin called this episode "one of the most outrageous things I've ever heard of."

Commenting on the acquittal, U.S. attorney Rebecca Betts said, "This is not the outcome we hoped for."

"Everyone knew he was innocent," stated one of Dr. Westmoreland's patients, who had supported him throughout his tribulations. "Now the federal government knows it too."

Restricted Access in Government Medicine

As pressures build for "universal access" under a government system in the U.S., some reminders of the effects of such one- tiered systems worldwide are timely:

In Britain, the goal of Tony Blair's Waiting List Action Team is to reduce waiting periods to no more than 18 months for non-life-threatening ailments (IBD 12/23/97).

In France, physicians who exceed the designated growth ceiling must forfeit fees collected beyond that point. A centralized government computer system is under development to assure that physicians do not perform "unnecessary" procedures or prescribe "unnecessary" drugs. More than 70% of physicians participated in a one-day strike.

Drastic German budget cuts are expected to result in long waiting times. Tight central controls have been placed on pharmaceutical sales. German and French ophthalmologists are reportedly traveling to Italy to perform procedures (Ocular Surgery News 5/1/97).

In Canada, about 11% more were waiting for treatment than in 1996 and waiting longer. The most recent survey by Statistics Canada found that more than 1 million Canadians felt they needed but did not receive care in 1994, and that 30% of these patients were in moderate or severe pain. Canadians purchase about $1 billion worth of medical services in the U.S. each year. Nonetheless, 21 cents of every dollar earned by a Canadian worker in 1995 was spent on health care, and the unfunded liabilities are expected to increase from $1.1 trillion to $3.7 trillion between 1995 and 2050 (NCPA).

AAPS Calendar

Jan. 17. Board of Directors meeting, Las Vegas, NV
Oct. 8-10. 55th Annual meeting, Raleigh, NC

Citizens Confront Bureaucracy

On Monday, November 24, about 70 citizens from as far away as Bowling Green, Ohio, braved a blizzard to march to the IRS office in Jamestown, NY, in support of Jacob Lapp and his family. AAPS director Lawrence Huntoon, M.D., led the procession, carrying an American flag. The Lapps want to meet with the IRS in public to discuss their tax situation and explain why they cannot in good conscience comply with IRS demands (such as filing forms that are inherently dishonest).

Based on a simple hand-written document by Revenue Officer Douglas Stelmach, with no court order, oath or affirmation, or documentation, the IRS has been confiscating almost all of the family's income (see AAPS News Dec 1997). The IRS claims that the assessment of $51,249 is an estimate of payroll taxes due by the Lapps for the period 1991-1996 and that an estimated assessment was necessitated by the Lapp's unwillingness to meet in private with officials to discuss and disclose their financial records. The Lapps have declared that the assessment is inordinately high and based on arbitrary and erroneous calculations. An Open Letter from the Independent Citizens Committee for the Fair Treatment of the Lapp Family, signed by twelve citizens, states:

"We, as citizens of the United States, have a duty to strive for justice for all fellow citizens. When our government, through abuse of the power we vested in it, serves to create injustice rather than protect the people from injustice, we must remind the government of its proper duty.

"Therefore, we, the undersigned, as citizens, believe we have standing to register complaint against our servant, the government, and call upon our equals, the citizens, to act as witnesses and, if necessary, arbiters of the controversy in question....The IRS assessment has been reviewed by this committee and we have reason to believe that it is, in fact, incorrect and was either deliberately inflated to force the Lapps to meet privately with the IRS, by depriving the family of its livelihood, or is an egregious error and miscalculation."

According to Dr. Huntoon, IRS officials said that they felt "intimidated," although the protestors behaved courteously and offered carnations (declined because it is illegal for officers to accept gifts). A few citizens were allowed to enter the building. They were told that the IRS could not discuss the issues; the public's business cannot be conducted in public.

As quoted in the Buffalo News (11/25/97), Elwin H. Powell, a sociology professor at the University of Buffalo, called the protest an important first step in forcing the IRS to break its secrecy.

"Government secrecy promotes deceit, corruption, and abuse of power," Powell said.

Thanks to help from many neighbors and friends, the Lapps believe they may make it through the winter (though spring planting will be very difficult). Local merchants have accepted third-party checks, some from AAPS members, in exchange for cattle feed and warm boots for the children. A local dentist treated the children without charge, and radiologist Jay Salwen, M.D., an AAPS member, provided a free MRI to complete a hydrocephalus work-up on one of the children.

Some of the Committee members have suffered negative repercussions. Journalist Frank Parlato, Jr., was viciously attacked on page 1 of the Buffalo News. The Reverend Gary Noyes was fired as pastor of the Gerry United Methodist Church because his Christian behavior-standing up for a neighbor-was judged "too political."

Seniors Sue over Private Contracting

United Seniors Association and four Medicare-eligible patients have filed suit in the U.S. District Court for the District of Columbia, asking the court to enjoin the Department of HHS from interfering, by threats or otherwise, with the plaintiffs' right to contract privately for medical goods and services on a case-by-case basis.

Plaintiffs cite a 1923 Supreme Court case that found a Nebraska state statute prohibiting foreign language instructions in schools to be unconstitutional (Meyer v. Nebraska, 262 U.S. 390, 43 S. Ct 625, 67 L.Ed. 1042 (1923)):

While this court has not attempted to define with exactness the liberty thus guaranteed [by the 14th Amendment], the term has received much consideration and some of the included things have been definitely stated. Without doubt, it denotes not merely freedom from bodily restraint but also the right of the individual to contract, to engage in any of the common occupations of life, to acquire useful knowledge, to marry, establish a home and bring up children, to worship God according to the dictates of his own conscience, and generally to enjoy those privileges long recognized...as essential to the orderly pursuit of happiness by free men [citations omitted]. This case was relied upon later in striking down an Oregon statute that required children to attend public schools (Kent v. Dulles, 1958).

Attached to the complaint are a number of affidavits from the plaintiffs' chosen physicians. One by orthopedist and AAPS member Robert Nirschl, M.D., states that Medicare beneficiaries have in the past requested him not to file claims because they did not want to have their illnesses disclosed. (Some were under psychiatric care, and some were cancer patients.) He also stated that certain beneficial services were being denied to Medicare beneficiaries because Medicare did not consider them to be "cost- effective." Moreover, the highest quality goods and services may be withheld because of Medicare's payment policies and bureaucratic requirements.

Three physicians filed affidavits stating that they would not be able to afford to privately contract with Medicare- eligible patients as contemplated in Section 4507 of the Balanced Budget Act and that their services would be unavailable if plaintiffs should wish to engage them privately.

United Seniors spokesman Mike Korbey stated that they hoped for court action soon.

AAPS Physicians Opting Out

A number of AAPS members have been calling upon the Limited Legal Consultation Service to help them withdraw completely from the Medicare program, despite the prospect of a significant loss of income. One physician said she was prepared to lose the 30% of her revenues that now comes from Medicare. However, she believes that this loss will be offset by other patients who have been unable to get an appointment because of her overly crowded schedule.

Physicians are notifying patients that any billing to Medicare is prohibited and that Medigap insurance will probably not be in effect for care outside the system. If patients wish to seek care from a physician or facility who will accept Medicare, physicians should make their records available and assist as needed with continuity of care.

"Anti-Fraud" Activities Thriving

According to the annual report of the Office of Inspector General (OIG) for the Dept. of HHS, $1.2 billion was recouped from health care fraud investigations, an amount five times greater than recovered in the previous fiscal year. Additionally, 2,719 individuals and entities were excluded from Medicare and Medicaid, a 93% increase. Success is attributed to the "reliable funding source" made available by the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The agency's full report is available at http://www.dhhs.gov/proorg/oig/(BNA's Health Care Policy Report 12/15/97).

Enforcement tools include: a fraud hotline, which has received 42,000 calls in 1.5 years; bounties of up to 30% paid to insiders for tips leading to successful suits; advisory opinions, for which the OIG demands $100/hour and reams of information, all of which may be used against the entity; holding buyers responsible for compliance violations in a practice they have purchased; a compliance plan for laboratories, under which they are to monitor the medical necessity of tests ordered by physicians; and sting operations, such as a dummy home health agency or an undercover agent posing as a job applicant. An especially powerful tool added by HIPAA, carrying disproportionately heavy prison terms, is adding a charge for "money laundering," on which the accused can be convicted without being found guilty of any underlying fraud (BNA's Health Care Fraud Report 9/24/97).

One Alaska hospital noted that an audit revealed $40,000 in billing errors over a 4-year period versus $140,000,000 billed correctly. For this error rate of 0.03%, the Dept. of Justice demanded payment of more than $50,000 to avoid a lawsuit claiming more than $1.42 million in damages. The hospital stated that the HCFA/DOJ process provides no reasonable dispute resolution method and ensures that money will be diverted from medical care to mechanisms for defending against unjustified accusations of fraud.

Pitfalls are numerous. An anesthesiologist is in violation of the regulations on billing for personally performed services if he leaves the room briefly to use the restroom or obtain a piece of equipment. New evaluation and management (E&M) codes, developed by the AMA in collaboration with HCFA, are so fraught with hazard that enforcement is being delayed. Required documentation is so voluminous that doctors wonder how they can possibly examine a patient and do all that recording. HCFA stated that a scribe, who notes down every word the doctor says while examining a patient, is acceptable as long as she documents that she is writing in the presence of the physician (Part B News 10/13/97).

Trivial paperwork violations have become a "boom industry" for federal prosecutors, writes James Bovard (The American Spectator, Jan 1998), citing the example of Dr. George Krizek (see AAPS News Oct 1996). The government now exists, he says, "not to safeguard its citizens but to expand the domain of its own power by destroying the lives of those who fail to cross theirt's or dot their i's."

The "post-hoc criminalization of medicine" will neither eliminate fraud nor have an impact on inflated medical bills, according to a special report by Citizens Against Government Waste. "There are only two ways of holding men accountable: prices and prisons. Enforcing price controls requires throwing people in jail," some of whom may have honestly misunderstood a regulation. The alternative: allow prices to be set by a free market that punishes overcharges by loss of market share.

Members' Page

New Medicare Documentation Requirements. At the interim AMA meeting in Georgia, a proposal submitted by the Georgia delegation to rescind the new AMA/HCFA E&M guidelines failed by only one vote. Instead, the AMA has "committed to educational initiatives for physicians" to learn compliance, despite the fact that, in the words of alternate delegate Thomas Price, the guidelines "infringe on the most important asset of a physician, which is his or her clinical judgment. This is not just the criminalization of medicine, but the dumbing down or mediocritization of care."

"We strongly encourage physicians to begin using the new guidelines as soon as possible so they will have become familiar with them when they become the only standard in July," stated AMA President Percy Wooten.

There is, of course, an alternative to the "shoot yourself or we'll do it for you" approach. It is called fighting back. How shameful that the AMA is participating in this bureaucratic process to the detriment of the entire profession.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


Briar Patch. Dear Fellow Burnout Candidates: I'm sorry to tell you that I just posted some really awful Medicare fee reductions that will knock your socks off if you didn't already know about them. Personally, I'm going to exercise the new Medicare "opt-out" option and set up contracts with all my Medicare patients at my fee levels, not Medicare's. Under this new rule we must receive all payments directly from patients, and we are not permitted to bill Medicare for any service for two years from the time we opt out. Oh, pleeeeease don't throw me in that briar patch!
AustinTxMD, http://home.earthlin k.net/~austintxmd


On ClintonCare 2. Clinton's new proposals for "health plan quality" are likely to contain several choice gifts to special interest groups, including the right of trial lawyers to sue employers for "malpractice," while capping doctors' liability. A bill that is a likely template for ClintonCare 2 was recently analyzed by Duke University Law Professor Clark Havighurst: "I know of no other piece of health-care legislation that would be as destructive of consumer choice, as protective of provider economic interest, as antithetical to the antitrust effort to break down the old medical cartel, or as beneficial to plaintiffs' lawyers as this bill would be. Even the Clinton Health Security Act took a less prescriptive approach."

Remember that every 1% increase in the cost of insurance causes 200,000 Americans to lose their coverage and leads to a 2.6% drop in small-business coverage. Rep. Armey is right: If enacted, ClintonCare 2 will drive up prices and increase the pressure for a government-run health system, even as it creates the regulatory apparatus needed to operate such a system.
Ernest J. White, Alexandria, VA


Thanks to the Committee. [In its public rally to support us,] the Committee [see p. 2] created a strength and delivered a powerful message (which I believe nobody ever dared to do before) in exposing the corruption of the IRS. It may open a door and shed a glimmer of hope for other troubled, oppressed citizens. I believe the results are already evident. If it were not for the outrage of friends like you and neighbors, my husband and I would very likely be behind bars.

The tyrants don't like the light shone on them. Have you read the book or the article by Nathan Stoltzfus (Dissent in Nazi Germany, Atlantic Monthly, Sept. 1992)? It's an account of the Aryan wives of Jewish men who went out on the streets in groups to protest for the release of their husbands. The officials finally released them because of fear that others might learn of the protest against Hitler....
Barbara (Mrs. Jacob) Lapp, Cassadaga, NY


Be Wary of the Popular. Hitler himself wrote in Mein Kampf that "mass popular support was the distinguishing characteristic of the Nazi party." He also said that "all roads to power start with the people." Hitler was not an overtly bloody, nasty, feelingless character. He had his plan figured out. Get the people's support. Become a good person in their eyes. Become their "helper." Accomplish that, and you can get away with murder. Sound familiar?

Yet three small protests, initiated by women, were impressively successful, all being nonviolent and widespread in an area, meaning they acted collectively rather than singly. And this was a country where people were executed for as minor an offense as telling an anti-Nazi joke, when they acted singly....It is a sad thought that the Holocaust may have been prevented if the German masses...had spoken up....

[In our work against the abuses of Child Protective Services], we've been said to be supporters of low characters or people of low intelligence. That is nothing to be ashamed of, because the crushing of their rights will lead to the crushing of ours...We learned that [certain government officials] will stop at nothing....or at almost nothing. Truth, persistence, and consistency still confound them. I'm convinced if more would join us in passive noncooperation and resistance against bad government practices, we could change our present system.
Rachel B. Lapp, Chautauqua County Jail December 1993

[A copy of Rachel Lapp's article is available upon request. The article by Stoltzfus was summarized in AAPS News Jan 1993.]

Legislative Alert

Twenty-some Questions The controversy and confusion over precisely what Section 4507 of the Balanced Budget Act of 1997 does and does not permit deepens. The Health Care Financing Administration (HCFA) has been circulating no less than 22 questions and answers on the provision, and the United Seniors Association has published 29. The AARP, which opposes private agreements between doctors and their Medicare patients, also has been weighing in with fact sheets, warning Members of Congress that liberalized private contracting will make senior citizens vulnerable to greedy and unscrupulous doctors.

The HCFA piece is the most interesting. Some "new perspectives" are emerging:

1. HCFA concedes that there are "some circumstances" in which a doctor who has not opted out of the program for two years may still refrain from sending a bill to Medicare (Question 21), if a patient does not want his illness disclosed. This would be a victory for confidentiality, but a new twist for HCFA. It is not clear where this confidentiality exception is to be found-perhaps in the "penumbra" of the statute.

2. If a doctor opts out of Medicare for two years, he can not enter into a private agreement in an emergency situation. But if he finds himself treating a patient in an emergency situation, he can file a claim (subject to all the Medicare rules) and does not have to provide emergency care without charge (Question 17). Again it is hard to tease this liberalized interpretation of the statute from the raw language.

3. Physician assistants, clinical nurse specialists, certified registered nurse anesthetists, certified nurse midwives (!), clinical psychologists, or clinical social workers may set up private contracts with Medicare patients, pursuant to the balanced Budget Act of 1997, but optometrists, chiropractors, podiatrists, dentists, doctors of oral surgery, or physical or occupational therapists may not (Question 3). Just what Congress had in mind all along?

4. Physicians in group practice who decide to contract privately and give up Medicare reimbursement for two years do not obligate their colleagues in the group practice to do the same (Question 6). This is one of the key "assurances" that Senator Jon Kyl (R-AZ) sought from HCFA Administrator nominee Nancy Min DeParle just before the Congressional recess. (Incidentally, for what it's worth, either to Senator Kyl or anybody else in Congress, DeParle is quoted in the December 15 BNA's Health Care Policy Week as saying that she did not make "any promises" to Senator Kyl to get him to "lift the hold" on her nomination as Administrator of HCFA.)

5. Participating doctors who want to opt out of Medicare for two years would have to do it at the beginning of the year, but HCFA is exploring whether it would be "administratively possible" for doctors to opt out at "other times" as well (Question 5). The key concern here is the administrative convenience of HCFA, not that of doctors or patients.

Expect more questions than clear answers to be generated as this debate, still in its early stages, matures. Both liberals and conservatives are unhappy with Section 4507. It s the kind of thing that s bound to happen when Members of Congress, coached by politically tone-deaf Congressional staff, are rushing to compromise with clever Administration wonks in a budget bill the size of a telephone book.

Penumbras Not waiting for an answer to all the questions about Section 4507, United Seniors Association and four of its members have challenged the constitutionality of Section 4507 (see p. 3). In The Washington Post, syndicated columnist James Glassman notes the irony of the litigation: the conservatives, among other things, will use arguments hammered out by liberal judges in abortion cases, namely the Constitutionally protected right of "privacy" discovered by the Court in Griswold v. Connecticut (1962). Griswold challenged a Connecticut law that forbade the use of contraceptives under pain of fines or imprisonment. Justice William O Douglas, a champion of liberal jurisprudence, cited the Ninth Amendment to the Constitution: "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people." In this case, Douglas argued that "specific guarantees in the Bill of Rights have penumbras, formed by emanations from those guarantees that help give them life and substance [T]he right of privacy which presses for recognition here is a legitimate one. The present case, then, concerns a relationship lying within the zone of privacy created by several constitutional guarantees . We deal with a right of privacy older than the Bill of Rights."

Given the reigning vitality of "penumbras" and "emanations" of Sixties liberal jurisprudence, like them or not, it is hard to imagine what Nineties "liberals" will argue. Anything is possible, including some weird proposition that one gives up his Constitutional liberties when one enrolls in a federal entitlement program. In any case, the privacy argument has been employed in several major cases since then, including the big-time abortion litigation. For leftwing health policy analysts, the challenge will be to argue that the privacy of the doctor- patient relationship is narrowly confined only to assaults on traditional morality like physician-assisted suicide or abortion on demand. [Federal judges have already ruled that one's privacy or one's sovereignty over one's own body-or that of one's unborn child- does not extend to hiring an assistant at cataract surgery (NY State Ophthalmologic Society v. Bowen 854 F.2d 1379 (D.C. Cir. 1988).]

Medicare s Administrative Pricing 101

Recall that just four years ago the Clinton Administration proposed a giant plan that would rely almost exclusively on managed care. Recall also that the Clinton Administration s Medicare reform proposal was the expansion of consumer choice of managed-care plans, a veritable copy in many respects of its own discredited health care plan for the "private market." And recall, as well, that the Congressional Republicans, hardly fleet of foot in the health care arena, can hardly separate their idea of Medicare "choice" from the choice of private plans with government standardized benefits just like the traditional Medicare. So, choice means that all seniors get plans with the same benefits, all governed by new federal rules.

Well, while the Washington policy elites and their pals in academia were singing the praises of managed care as the next best thing to five-cent beer, managed care has been having a little public relations problem recently, and while the Clinton Administration, without so much as a blush of embarrassment, is milking the public sentiment for yet another round of extensive federal regulation of the already heavily state- regulated private health insurance market, the Congressional Republicans are flapping about trying to figure out how they can somehow preserve employer-based health insurance and still escape the wrath of doctors and patients alike.

Congressional health policy specialists may want to look at what s happening to managed care under the Medicare program. Recall that managed care did not catch fire with the elderly as quickly as it did with employers who were desperate to have their employees sign up and get over their extravagant love affair with fee-for-service medicine paid for with other people's money. But Medicare has another twist. Managed-care plans in Medicare are "private" in name only-the kind of "private plans" the Clinton Administration and its allies on the newly formed Medicare Commission are likely to promote: standardized benefits, HCFA supervision, formal government "cost controls," etc.

Medicare managed-care plans are starting to cut back on the generosity of their benefits. Why? Congress has imposed a new payment mechanism. In the past, Congress has approved generous payment increases to HMO s: 5.9% in 1997 and 10.1% in 1996. For 1998, the payment increases will be 2 to 3%. So, what will the managed care providers do? They will act like any other set of firms in any other sector of the economy faced with similar regulatory or administrative pressures.

Medicare s administrative pricing is, in effect, a form of price control. In the general economy, when there is a price control, there are certain inevitable consequences. Nobody expects to impose a price control on the widget industry and seriously project the same number of widgets of identical quality. Right? But medical care is different, you say?

According to Milt Freudenheim (NY Times 12/22/97), managed-care companies are shifting costs to seniors and getting rid of some of their "most popular" features-free drugs, eyeglasses, and dental care. Of course, services are always "popular" when the persons getting them mistakenly think that they are "free." Of course, medical care is "different," right?

One of the more disagreeable developments of this Medicare business has been the practice of dropping covered benefits or medical services without notice. Not surprisingly, Congressman Jerrold Nadler (D-NY), has introduced legislation that would forbid managed-care plans to reduce or drop services except once a year at the beginning of a contract. Expect strong bipartisan support for this one.

The Meaning of the Upcoming Quality Debate Watch the State of the Union. Expect President Clinton to take a high profile on the health care issue again. Unlike his Congressional counterparts on Capitol Hill, Clinton knows how to play the issue to his advantage, and he has flawlessly outmaneuvered Congressional Republicans ever since the demagogic 1995 debate on Medicare.

The President s key objective is, as it has always been, to expand federal control over medicine. Whatever one thinks of the President s policy and performance, he can be credited with having the "vision thing." The President views health policy systemically. He concerns himself with specifics only as the occasion to effect broader structural changes in the system. He says that the system is "badly broken," but, of course, beneath that "fixit" rhetoric is a far- reaching program for radical overhaul and federal control.

The Congressional Republicans, with precious few exceptions, don t have the vision thing. They see the issue in terms of specific problems, anomalies, inequities, or inconveniences that have to be "fixed," as with portability, or guaranteed renewability of insurance, or 24-hour deliveries, or mastectomy coverage, or gag clauses, or disclosure requirements. Clinton understands this strategic weakness of Congressional Republicans perfectly, and exploits it joyfully. So, it would not be surprising to hear Clinton formally endorse, to wild bipartisan cheers in the House and Senate Chambers, The Patient Access to Responsible Care Act, the highly regulatory bill introduced by Congressman Charlie Norwood (R-GA). For the Republicans, the bill is an opportunity to "fix" the problems of managed care. For the White House, it will be another step toward federal control of medical financing and delivery.

Just follow the playbook for a replay of Kennedy-Kassebaum. Get a Republican sponsor, engender a bipartisan spirit of cooperation and a need to "do something," bargain on the details into the night, threaten a veto, insert another set of slightly rewritten provisions of the previously discredited Clinton Plan into the text of a giant bill that nobody in Congress is likely to read closely, and then drive the agenda right into the Rose garden.

Congress is on defense because of its unwillingness or simple inability to tackle the central issue head on: the fundamental, persistent, politically contrived distortions in the health insurance market. Congressional leaders should ask themselves some serious questions. Why is quality a problem in health insurance, but not in many other markets?

Free markets measure and reward the delivery of quality service in often ruthless and mysterious ways, and consumers, without the assistance of anything that looks like HCFA in any other sector of the economy, do indeed discriminate among various products or services precisely on the basis of their reputation for quality. Real consumer choice and real competition can do wonders in securing quality. Regulation does wonders in discouraging it. A government standard, especially in a highly regulated market, will almost guarantee that the lowest legally allowable common denominator will prevail, rather than the pressure to meet or exceed the expectations of consumers by establishing a qualitative competitive edge.

The Republican Congressional performance over the past four years has been a rhetorical parade of speeches on the virtues and values of a free market in medicine, accompanied by a regulatory reality that establishes a system utterly opposed to what GOP leaders say they are for. The legislative process, beset by the efforts of interest groups to micromanage their competitive position by statute, has resulted in a hodge-podge of compromises and contradictions, with only one theme emerging: a larger federal role in medicine. Congressional Republicans appear to be satisfied with any health bill, no matter how misdirected or bureaucratic, as long as they can add a tiny demonstration project for medical savings accounts. Then, as in Kennedy-Kassebaum, they weigh their own MSA demonstration project down with so many rules and qualifications that to hard- working, time-pressed, paperwork-hating middle-class entrepreneurs, the effort seems hardly worth it. While the official number of only 22,051 MSAs established by June 30, 1997, may be misleading (other surveys show many more), at best the number is far less than expected.

A New Year s Resolution for Congress: Think about a medical system based on personal choice by a free people. Then act so as to make it happen.

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