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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 56, No. 1 January 2000
ONE AT A TIME
Alexander Solzhenitsyn was once asked how the Soviets had
managed to enslave the Russian people-in that there were so many
Russians and comparatively few Communists. He replied, "They came
for us one at a time." Those who were not immediately targeted
hid, hoping they would not be next.
Under cover of one "crisis" after another-the most recent
being medical error-the federal government is coming for
Americans, and American enterprises, one at a time.
This time, the target is the President of the Arizona
Chapter of AAPS, Robert P. Gervais, M.D., of Mesa.
Here is the sequence of events:
On August 4, 1999, Dr. Gervais received an urgent message
from the Maricopa County Medical Society, inviting him to attend
a focus group session on HCFA's controversial Competitive Pricing
Demonstration Project. The meeting was conducted by Low +
Associates, an independent marketing firm, on August 17, with
HCFA officials observing behind a one-way mirror. Dr. Gervais
spoke out forcefully against the project on the grounds of sound
economics and ethics. He is an articulate spokesman for freedom
At 8:00 a.m. on September 20, Dr. Gervais's Cataract Surgery
Clinic was subjected to a surprise inspection, and 23 pages of
"deficiencies" were cited. He was commanded to correct all
deficiencies by Oct. 12. On Oct. 6, he notified HCFA that
corrections were underway but could not be completed by Oct. 12.
Dr. Gervais was out of town on previously scheduled engagements,
including the AAPS annual meeting, for part of the next two
weeks. On Nov. 5, HCFA received the preliminary plan for
corrections, and on Nov. 19 was notified that a consultant had
been hired to reformulate certain documents to remedy remaining
On Dec. 3, the Arizona Medical Association notified members
triumphantly that "the Demo is Dead," with special thanks to Sen.
Kyl and Rep. Hayworth for their assistance in "eradicating this
project from our community."
On Dec. 6, Dr. Gervais was notified that his clinic was
being delisted by Medicare as of Dec. 26. Legal notice would be
published in the Mesa Tribune on Dec. 11. A letter
signed by Wayne Moon, Director, Hospital and Community Care
Operations, stated that "the seriousness of your deficiencies
limit your facility's capacity to furnish an adequate level of
quality of care or services," and "the Plan of Corrections was
reviewed and found unacceptable" [no specifics given].
The sole judge of the "deficiencies" is apparently Donna
Dymond, Ph.D., H.C.F.A., who personally came from the Region IX
office in San Francisco to do the inspection. Ms. Dymond informed
office personnel that it didn't matter what other inspectors or
other government agencies such as OSHA had stated: her
view was the important one. When asked for specific details about
methods that would be acceptable, she declined to provide
information: it's the doctor's problem to figure that out.
There were no complaints concerning patient harm.
There were no allegations of failure to comply with
policies that were approved in prior inspections since 1983.
There were no deviations from the standard of care in
the community (the clinic follows the same procedures as others
for laundry, handwashing etc.), but only from compliance with
various clauses in the Code of Federal Regulations.
Some "deficiencies": "Patients 1-6's clinical records failed
to document the patients were discharged with a responsible
adult." (The records gave the name of the friend or relative who
accompanied the patient without using the words "responsible
adult.") "Patients 7-9's clinical records failed to document any
documentation concerning discharge [sic.]." (These
patients underwent a YAG laser capsulotomy, which is similar to
flashing a light in a patient's eye. It is not an invasive
intraocular procedure-in fact it is less invasive than an eye
examination-and does not require anesthesia).
The writer of the unsigned HCFA document (possibly Ms. Dym-
ond, Ph.D., H.C.F.A.) uses the phrase "when cataracts were
extracted with the Laser." This is a nonexistent procedure. The
writer is totally unfamiliar with eye surgery.
Is HCFA retaliating against a physician who opposed its
demonstration project, and who, when asked for suggestions,
advised that HCFA personnel find productive employment? Is it
targeting a type of clinic that the government wishes to destroy-
a free-standing surgical facility with one physician, who refuses
Who can say? But the fact is that one bureaucrat has the
power, on short notice, to destroy a physician's livelihood. The
harm inflicted by the language alone, which implies gross
incompetence or malfeasance on the part of the doctor, could be
grounds to award huge damages for libel and slander-if the
perpetrator were a private citizen. But Ms. Dymand and company
are shielded by HCFA's pretext of protecting the public, and the
reality of its awesome brute power.
Kristallnacht is in progress, in slow motion, and
sometimes without any broken glass. When one physician is
attacked, many others are terrorized. When one clinic is shut
down, many others are paralyzed with costly bureaucratic
makework. Costs soar, access shrinks, innovation dries up, and
the clamor for still more government "protection" swells.
The "bad apple" denial mechanism will be invoked by some.
The record is open for their inspection; Arizona's congressional
delegation already has a copy.
Has HCFA gone just a little too far? Will doctors say "one
for all and all for one" and demand accountability from
government? Or will they pay another consultant and hope that the
next knock is on their neighbor's door?
Doctor Declares Independence
In a letter dated November 20, 1999, Joseph C. Keller, M.D.,
of Chesterfield, MO, wrote to Medicare as follows:
This is to notify you that when my participation contract
expires 12/31/99, I will begin charging Medicare enrollees
whatever I want, and contracting privately with some and billing
Medicare for others. I'll probably be charging less than the
"limiting charge." I plan to contract privately with most, but
bill Medicare for some who especially need federal help.
There is no statute prohibiting the foregoing. Title 42,
sec. 1395a(b)(1) says that "nothing in this title shall prohibit
a physician or practitioner from entering into a private contract
with a Medicare beneficiary" if there is a prescribed
written contract with the patient, and a filed affidavit from the
physician. However, nothing in the title prohibits a physician
"from entering into a private contract with a Medicare
beneficiary" anyway, as long as he collects less than
the limiting charge. The language (equivalent to "if" but not
"only if") is designed to trick us into thinking we don't
have rights, rather than to actually take away our rights. That's
how our lawyerly Congressmen hope to avoid hanging, after the
counterrevolution: "We didn't pass a law against your freedom;
you just misread it."
Furthermore, the prescribed contract in sec. 1395a(b)(2)(B)
is illegal because it is fraudulent itself. Medicare enrollees
who can understand the contract won't have time
to. It's fraudulent to induce someone to sign a contract when you
know they don't understand it. Also, 1395a(b)(2)(B)(v)
prescribes that the contract state a falsehood: in truth, the
beneficiary does not have "the right" to the services of
"other physicians." No physician is a slave. Indeed,
beneficiaries often cannot get the services of other
physicians, either because Medicare doesn't pay enough to induce
any other specialist to come to town, or because it doesn't pay
enough to induce him to make an appointment ("Not a surgical
case? Sorry, we're booked up for six months!")
1395(b)(3)(A) says the prescribed contract lacks effect
unless the physician files an affidavit too. Because the contract
is unnecessary and illegal, it lacks effect anyway, so no rights
are lost by not filing an affidavit.
1395a(b)(4) says physician wage controls ("limiting charge")
stand remove when the prescribed contract exists. Since the
contract is illegal, physician wage controls stand removed just
as well, in the absence of said contract.
1395a(b)(5)(B) alludes to the title's nonsensical failure to
define "nonparticipating physician." The U.S.C.A.'s annotator
speculates that the nonsense could be emended by inserting the
word "to" into the text, but the definition as actually printed
is nonsense, void, so the title doesn't apply the "limiting
charge," or anything else, to nonparticipating physicians.
[At press time, HCFA has not yet responded to Dr.
Keller's notification -- Ed.]
Most Physicians Withhold Information
The results from tabulating the first 344 responses to last
month's privacy survey are as follows:
Nearly 78% of physicians said that they had withheld
information from a patient's record due to privacy concerns.
Nearly 87% reported that a patient had asked that information be
kept out of the record. Third parties frequently ask for
information that physicians believe to violate confidentiality:
70% of respondents report such requests from health plans, 51%
from government, and 54% from employers. While only 19% admit to
having lied to an insurer, health plan, or government agency to
protect a patient's privacy, 74% state that they have withheld
information for that reason. As to the effect of the proposed HHS
privacy regulations, 96% thought it would further compromise
Comments on proposed privacy regulations must be received
by January 3: see enclosed
New Patient Safety Crisis Proclaimed
In headline news, the Clinton Administration announced an
Institute of Medicine report claiming that medical errors kill
between 44,000 and 98,000 Americans annually. The answer: a new
federal agency costing at least $100 million per year-and,
according to William C. Richardson, President of the W.K. Kellogg
Foundation, "rigorous changes throughout the entire health care
system." One component would be a mandatory national reporting
system for all serious injuries and deaths, in a format already
Senator Edward Kennedy immediately promised to introduce
legislation to carry out the IOM's recommendations.
"The proposed Center for Patient Safety looks suspiciously
like the Clinton Plan's National Health Board," stated Twila
Brase, R.N., of the Citizens' Council on Health Care. It will
"establish another reason for the federal government to get into
patient's medical records and intimidate doctors who choose to
practice `individual-based' medicine rather than `cookie-cutter'
medicine," she stated.
According to its Immediate Past President Nancy Dickey,
M.D., the AMA would not object to the creation of such an agency
because it might improve data collection.
"Uniformity of criteria, accountability to a national
authority, standardized treatment plans and scrupulous
surveillance both of immediate and long-term outcomes will be
necessary ingredients," writes Sherwin B. Nuland, M.D. (Wall
Street Journal 12/2/99).
The IOM's criteria for attributing death to medical error
are not included in news reports, but need scrutiny. It is
instructive to compare the IOM's conclusions with those of the
National Safety Council (http://www.nsc.org/lrs/statinfo/99008. htm). Deaths
due to unintentional injuries in 1998 were categorized as
follows: total, 92,200 or 34.1 per 100,000 population; motor
vehicle accidents, 41,200 or 15.2/100,000; poisonings, including
drugs and shellfish, 8,400 or 3.1/100,000; drowning, 4,100 or
1.5/100,000; fires, 3,700 or 1.4/100,000; choking, 3,200 or
1.2/100,000; firearms (accidental deaths), 900 or 0.3/100,000;
all other types, 13,500 or 5.0 per 100,000. The last category
includes medical and surgical complications and misadventures, as
well as machinery, air transport, mechanical suffocation, and
excessive cold. Thus, the IOM "finds" the rate of death from
medical errors to be about three to seven times as high as the
1998 rate estimated by the NSC.
The IOM claims that its recommendations could reduce the
rate of medical errors by 50% over 5 years. "Medical error" is
undefined but is likely to mean deviation from a standard
Feb. 5, 2000. Board of Directors meeting, Dallas.
Oct. 25-28, 2000. 57th annual meeting, St. Louis.
AAPS Challenges FDA Pediatric Rule
Together with the Competitive Enterprise Institute and
Citizen Action, AAPS submitted a Citizens' Petition on December
2, 1999, asking the FDA Commissioner to revoke the "Pediatric
Rule" as published at 63 Fed. Reg. 66,632 (1998).
This rule requires manufacturers to subject children to
tests of a drug with a "foreseeable" pediatric use, even if the
company does not intend to market the drug for such use.
Petitioners object to the FDA's unprecedented assertion of
authority to order manufacturers to conduct studies of products
they do not wish to market. AAPS argues that the rule is an
unwarranted intrusion into the practice of medicine.
The "off-label" use of drugs approved for other indications
is recognized as a common and integral feature of medical
practice. Between 20% and 60% of prescriptions written each year
are for such uses. Failure to prescribe off-label could actually
constitute malpractice, especially in areas such as cancer
chemotherapy or AIDS treatment.
Taken to its logical conclusion, the theory underlying the
Pediatric Rule would require manufacturers to conduct clinical
studies to establish the safety and efficacy of all
arguably foreseeable uses of drugs. Failure to do so could cause
a drug to be withdrawn for "misbranding." Note that simply
forbidding physicians to prescribe drugs off-label (an action
that is indisputably outside the FDA's jurisdiction) would only
eliminate certain uses of a drug, whereas the expansive testing
requirement could keep a drug off the market completely.
Congress clearly intended to expedite the costly and lengthy
drug approval process; the rule is inconsistent with this
intention. Currently, it takes nearly 15 years to develop a new
drug-twice the time required in the 1960s. By conservative
estimate, FDA delays have cost the lives of 200,000 Americans
over the past 30 years.
Most importantly, the Rule would subject children to risky
testing of products that will never be marketed in the U.S. at
all. By the FDA's own calculation, fully 30% of the children
exposed to testing under this rule would be put at risk
needlessly. Currently, drugs may be prescribed off-label to
children in the context of a patient-physician relationship on a
one-on-one basis-but only after safety has been
established for adults. This is probably far safer than forcing
manufacturers to test unapproved drugs on groups of children in
the context of clinical studies.
Additionally, Petitioners argue that imposing costs on
manufacturers for formulating and testing products they do not
desire to market is an unconstitutional taking of private
property for public use without just compensation.
Krizek Case Remanded Again
In a decision handed down on October 5, 1999 (United
States of America v. George O. Krizek, M.D., and Blanka
Krizek, 1999 WL 786880 (D.C.Cir.)), the Court wrote:
This prosecution of a single doctor has now spanned
over six years....The five days on which the false
claims were made occurred over twelve years ago.
According to defense counsel, Dr. Krizek no longer
practices medicine and is dying of cancer.
This case (see index to AAPS
News) involves a Washington, D.C., psychiatrist who was
charged under the False Claims Act. Initially, the government
calculated a fine of $81 million for "offenses" that at worst
constituted coding errors by the wife of an extremely busy
physician. The abusive nature of the investigation and
prosecution was described by Dr. and Mrs. Krizek in congressional
testimony on May 7, 1998 (click on "Departments: Testimony," then
"Testimony on Administrative Law" at www.aapsonline.org).
Spending millions of taxpayers' dollars, the Department of
Justice managed to show that, during the hot summer of 1987, when
all other psychiatrists at Washington Hospital Center were on
vacation and Dr. Krizek often had to work all day and all night,
there were 5 days on which billing codes indicated slightly more
than 24 hours of work. (Psychiatry codes, unlike most others,
have a crucial time component.) The Court did, at least, throw
out the government's contention that any billing in excess of 9
hours was ipso facto fraudulent.
Instead of admitting that this outrageous case should never
have been instigated, firing some U.S. attorneys, and investig-
ating them for possible perjury or malicious prosecution, the
government will probably attempt to extract nearly $250,000 from
the Krizeks, and then claim a victory.
Carrier Referred for Investigation
On Dec. 6, 1999, AAPS President Lawrence R. Huntoon, M.D.,
Ph.D., was notified that "the information you sent me, alleging
fraud on the part of Upstate Medicare, has been referred to the
Office of Inspector General, as you requested," in a letter
signed by Coralyn Colladay, Esq., of the Office of the Assistant
Secretary for Planning and Evaluation, Dept. of HHS. On Dec. 7,
Upstate Medicare contacted Dr. Huntoon's office in an effort to
get specific information about which batches of electronic claims
they had deleted.
"They seemed a bit upset," Dr. Huntoon reported. "They said
something about `HCFA investigating them to see if the charges
were true'." Having turned all the information over to HCFA, Dr.
Huntoon does not feel inclined to help Upstate Medicare. "Maybe
they should file a Freedom of Information request," he suggested.
The carriers have access to the same tangled bureaucratic process
that physicians must go through to obtain information from HCFA.
Dr. Huntoon read to them the statement that he has submitted to
Donna Shalala; Nancy-Ann Min DeParle; Robert Berenson, M.D.;
Juliette Jenkins, Chief, Contractor Management Branch; Kathleen
Buto, Deputy Director, Center for Health Plans and Providers; and
"Upstate Medicare is taking government money, our tax money,
with the contractual obligation of performing competent reviews
of Medicare claims. Yet they routinely allow persons with no
medical training, credentials, qualifications, or experience to
make medical necessity decisions....This clearly constitutes
fraud. This case should be turned over to the HHS OIG for
Dr. Huntoon, who has collected massive evidence of carrier
malfeasance, also offered to participate in a qui tam
action against the carrier.
One feature of any totalitarian state...is the
conviction...that the revolution [or the agenda] is
supreme....Are the laws an inconvenience? Circumvent them, ignore
them, change them if you can, break them if you must. Has a loyal
member of the team become a problem? Demote him, banish him to
the hinterlands, if necessary destroy him....Are your political
opponents gaining support? Do whatever it takes to stop them,
Herbert E. Meyer
Unfunded Liabilities. Taking assignment and having a
high volume make you a high-profile target. It's not just the
threat of armed raids or prosecution but the unfunded liability
of having to respond to Focused Medical Reviews. The government
coerces physicians into undercoding so they won't have to respond
to automatic, computer-generated (efficient for the government)
downcoding. If it's already at the lowest code, it can't be
downcoded. The government wins either way: by forcing you to use
your time and money to fight them, with no guarantee of winning,
or by forcing you to take less without a fight.
I believe, however, that I am an unfunded liability for my
local Medicare carrier because I do fight back. Although
HCFA requires carriers to respond to correspondence from doctors
regarding claims problems, they don't get paid by the letter (as
they do by the claim). I think that the more time they spend
researching complaints, the less money they make. What poetic
justice! If more doctors would stand up and fight back, I am
absolutely convinced that we could break the carriers' collective
backs. It's only fair in view of the tremendous claims processing
costs that have been shifted onto doctors.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY
Taxation Without Representation. As I was reading the
front-page story in The New York Times this morning
about the DemRep party adding free prescriptions to Medicare, I
turned to my 8-year-old son and thanked him for voting to pay the
Medicare bills of mom and dad for most of his working life. He
didn't understand what Medicare was, but he did understand that
he doesn't vote, and it isn't right.
Craig Cantoni, Proud Parent of Christopher
CLIA Credentials. Our office lab was threatened with
closure because two RNs who use the urinalysis machine (insert
dipstick and push a button) couldn't find their high-school
diplomas. If they catch up with me (I have no idea where my high-
school diploma is either), I'll have to eyeball the dipstick and
bypass the high-tech machine.
Alieta Eck, M.D., Somerset, NJ
Defining the Terms of the Debate. To force the debate
onto new ground, we need to define the terms. Instead of "fee-
for-service," we need to use terms like "self-directed,"
"personal choice," "consumers' health savings," "wealth
investment account," or "husbanding resources." Our job is to
integrate the concept of individual empowerment into everyday
consciousness and shift the emphasis from what the doctor
gets to what the patient controls with his assets.
We need to let the public know that, initially, direct patient
payment may greatly reduce physician income, because patients are
notoriously cheap with their own dollars. (I know; I sell
contacts, Lasik, and oculoplastics.) Let no one forget that the
best medical care in the world is the product of the free market.
As an ex-Brit, let me tell you that "single-payer" is a hellhole
that even Tony Blair has recognized as a dead loss for quality
Christopher Lyon, M.D., Newport Beach, CA
Recreational Drug. The New York State Medicaid program
will now reimburse for prescriptions of Viagara for males age 19
and older. The cost of one pill would be about the same as that
of a few beers, if I bought it and handed it to the patient. Add
on the bureaucracy, and the cost is much more. If the drug is
successful, there will be more Medicaid babies, and we can put
them on KidCare and benefit still more bureaucrats.
Robert L. Soley, M.D., White Plains, NY
Drug Restrictions for Seniors. HCFA has determined that
certain medications (such as amitriptyline or more than 0.125
mg/day of digoxin) are unacceptable for nursing home residents,
and that residents should not be on more than nine drugs. I have
several notes from the pharmacist every time I make rounds. The
nursing director said that if doctors don't comply with these
state regulations, they would "just have to close the home."
Joseph M. Kuhn, D.O., Payne, OH
"Equalizing" Care. Every system that tries to equalize
quality of care must do so by lowering the standards for all.
What if the Ford company had been prevented from making any cars
except a Model-T until every citizen of driving age had a Model
T? What kind of cars would we have today?
Roy Blackburn, M.D., Monroe, LA
Insurance, Access, and Fairness. The Office of
Technology Assessment found that uninsured persons receive about
75% as much medical service as persons with insurance.
How fair would it be if the uninsured got just as much care
as those who spent a lot of money for insurance? If all got the
same, why bother to buy insurance?
Greg Scandlen, Alexandria, VA
Access for the Sick. The authors of the Canadian system
knew all about the causes of shortages when they foisted
socialized medicine on a gullible population. Lies, lies, more
*** lies by politicians-whatever it takes to win reelection or
get a buck. Note that with wage and price controls, or with
prepayment for consumption, it is the sickest who are harmed the
Robert Gervais, M.D., Mesa, AZ
Legislative AlertThe Next Medicare Reform
When Congress reconvenes in January, look for the Senate
Finance Committee to take the first steps on Medicare reform. The
stakes will be high, for both the Congress and the White House
will seek to position themselves in time for the 2000
The White House is laying the groundwork to push for the
addition of a popular and artificially cheap-and therefore truly
expensive-Medicare prescription drug program, coupled with yet
another expansion of the regulatory power of the Health Care
Financing Administration (HCFA). The White House has already
asked HHS Secretary Donna Shahala to do a 90-day study of the
impact of prescription drug costs on the elderly. The study will
underline the President s case that seniors who buy drugs on
their own pay more for these drugs than those who buy them, say,
through the VA.
If the past is any guide, the Clinton prescription drug
proposal will be accompanied by a well-coordinated political
attack on the pharmaceutical industry, a reprise of the
Administration s 1993 campaign to demonize the industry as
"profiteers" who take advantage of the elderly and the
vulnerable. The industry insists that the design of the proposal
will bring most seniors under the government s drug program, and
that will lead inevitably to price controls on drugs.
Under the current conditions, it takes about $500 million
to get a new medicine from the research lab to the market over a
12- to 15-year period. In 1999 alone, the pharmaceutical
industry will spend $24 billion on research and development,
amounting to 20% of sales revenues. This is the highest plowback
of funds for research and development of any industry in the
The threat of price regulation and the sheer cost of the
Clinton drug proposal are enough to give even ardent liberals
pause. For example, in the Nov. 30 lead editorial, The
Washington Post noted that the President s Medicare proposal
"to add a needed and popular but costly prescription drug benefit
would make that program s financial prospects worse."
Senator John Breaux (D-LA) has already drafted a bill
broadly based on proposals adopted by the majority of the
National Bipartisan Commission on the Future of Medicare. Senator
Breaux s bill is co-sponsored by Senators Bill Frist (R-TN) and
Bob Kerrey (D-NE).
Although rejected by all of the Clinton Administration
appointees on the now defunct Medicare Commission and spurned by
the President himself, the basic Breaux idea of creating a system
of competing private plans in the Medicare program-with a
financing system of government contributions to plans chosen by
retirees-has attracted widespread bipartisan support. Breaux's
model is the Federal Employees Health Benefits Program (FEHBP),
which covers Congress and the federal workforce. (In 1993, as
part of its Health Security Act, the Clinton Administration
proposed to abolish the FEHBP: its range of consumer choice,
compared with the restrictions in the Clinton plan, proved to be
an embarrassment to Clinton Administration officials who were
stumping for that plan.)
Based on experience with the Clinton Administration, only
one thing is certain: Expect the Clinton Administration to fight
any change that weakens the regulatory authority of HCFA.
The Crucial Details
On the details of Medicare reform, the Administration
will pose the standard Clintonian modifications. Yes, you can
have personal choice, but that depends on what you mean by the
word "choice." Translation: you will get the choice that we, not
you, want. Yes, you can have competition among private plans, but
that depends on what you mean by the word "competition."
Translation: there will be no free-market competition. Yes, we
will adopt the "best private sector practices" in making Medicare
more efficient. Translation: we will adopt the most undesirable
features of employment-based health insurance, in which cheaper
is always better.
Health policy is one of those areas in which the slightest
changes in the technical details of legislation result in
dramatically different outcomes. Unintended consequences seem to
be the norm. That is why policy analysts offer muted and rather
noncommittal statements to the effect that such and such
initiative is "a step in the right direction." Those who support
steps in the right direction are often the first to backtrack.
This is a painful fact that too many journalists-desperate to
write about which team is "winning" the debate-and far too many
public officials-desperate "to do something"-seem to grasp.
Why Reform Must Not Neglect the Existing System
Real Medicare reform is not simply about dollars but
will involve significant changes to the structure of the program
to enhance patient choice and foster genuine innovation. In such
a system, there should be no need for HCFA, or anything like
it. Nor should doctors and patients be encumbered by masses
of detailed rules and regulations or bureaucratic or legislative
stupidity, such as the silly Resource-Based Relative Value Scale
(RB-RVS) or other such contraptions.
But in creating a new system for the next generation of
retirees, Congress should not neglect the traditional Medicare
program, which today serves 85% of all seniors. Instead, if
Congress wishes to retain that old system-and for political
reasons that is likely-then it must insist on ways to make that
old system work better. To that end, Congress should focus on key
Dump the current system of administrative pricing for
medical services. Since the beginning of Medicare in 1965,
Congress has been trying to keep down the costs of these
programs largely through an elaborate system of administrative
pricing and fee schedules. This cumbersome process has not only
failed to control costs effectively, but has also resulted in
profound distortions. Under the Balanced Budget Act of 1997, for
example, the administrative pricing system for skilled nursing
facilities has resulted in the shutdown of approximately 2500
home health care agencies, and a reduction in nursing home
services to the elderly, particularly rehabilitation.
Even with all of HCFA s alleged sophistication, there is
evidence that it does not know what it is doing. For example, in
purchasing billions of dollars worth of durable medical
equipment, HCFA uses a fee schedule that specifies how much it
should pay for each item among 1900 groups of products, ranging
from urological catheters to orthotic braces. In a study of this
system, the General Accounting Office (GAO) found that HCFA does
not know what items it is paying for and is paying well above the
market price. One Medicare billing code is used for more than 200
urological catheters, whose wholesale prices range from $1 to $18
dollars, yet Medicare-meaning the taxpayer-shells out $11 for all
Cut Medicare's mass of red tape. According to the
Mayo Foundation, federal health care regulations total 132,720
pages of rules, regulations, guidelines and related paper work,
and more than 111,000 pages of this paperwork apply to the
Medicare program. The scope of HCFA's regulation encompasses
virtually every aspect of the financing and delivery of services:
managing the Medicare trust funds; contracting with private
entities to process an estimated 1 billion Medicare claims each
year; enforcing standards of eligibility; certifying doctors,
hospitals, and clinics; and determining what specific medical
treatments will be reimbursable and under what conditions or
circumstances they will be reimbursed.
With the enactment of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), and the Children s Health
Insurance Program (CHIP) in 1997, Congress expanded the
regulatory reach of HCFA into private-sector health insurance and
state health programs. With the Balanced Budget Act of 1997,
Congress required HCFA to implement 335 separate regulations,
reports and other administrative actions. This Congressional
passion for regulation and control over the financing and
delivery of health care services has resulted in a huge, top-
heavy administrative burden: The GAO told Congress in 1998 that "
substantial program growth and greater responsibilities appear
to be outstripping HCFA s capacity to manage its existing
Eliminate the bureaucratic conditions inviting waste,
fraud and abuse in the Medicare program. With Medicare
contractors processing $700 million in claims each business day,
the current complicated structure of the system is itself an
invitation to fraud and abuse. In 1999, the GAO found that
certain Medicare contractors, the front-line defense against
fraud and abuse, were themselves contributing to the problem.
Since 1993, six Medicare contractors were the targets of federal
civil and criminal actions because of conspiracy, obstruction of
federal audits and the falsification of documents, and false
statements to HCFA auditors. In July 1999, the Justice Department
announced that two more Medicare contractors pleaded guilty to
criminal activity related to Medicare.
Clean up Medicare's "medical necessity" mess. Today,
the Secretary of the Department of Health and Human Services has
the legal authority to make determinations of "reasonableness and
necessity of medical services." In January, 1989, HCFA proposed a
rule defining what is medically necessary or reasonable, but this
rule has never been finalized. So, in practice the Medicare
bureaucracy and its contractors often deny payment for medical
services to Medicare patients even if the services are formally
"covered" by Medicare. It s an arbitrary system. In 1997, based
on a Heritage Foundation study (Heritage Backgrounder
No. 1295) and HCFA s statistics, 19% of all denied claims were
denied because of "medical necessity." If one excludes those
medical services which are denied because of "statutory
exclusion," that number rises to 45%. Medicare contractors have
denied payment for preoperative electrocardiograms, treatment of
precancerous skin lesions, screenings for prostate cancer,
psychiatric treatment, and even the use of anesthesia in certain
Medicare's determinations of "medical necessity" can be
confusing to doctors and Medicare patients alike. For physicians,
a mistake can be costly and even professionally ruinous. For
patients, getting medical claims denials through the Medicare
appeals process can be a nightmare. HCFA officials admit that in
1998 the average processing time for appeals of hospital claims
denied under Medicare part A was 310 days. For Medicare Part B
claims, the average time for administrative law judges to render
a decision was 524 days. This is a disgrace. Worse, though
Medicare patients can legally recover the cost of the denied
benefit and attorneys costs, they cannot sue HCFA or its
contractors for injury.
Adopt market based policies that will cut off the oxygen
supply to the "Medicare Industrial Complex." Medicare s
complicated structure has spawned a new class of consultants,
lawyers, lobbyists, software specialists, and experts in the
arcane world of administrative law. They offer their expertise-
for a high price-on Medicare s rapidly multiplying rules and
regulations to doctors and hospitals. As a result of the
crackdown on fraud and abuse, individuals who once made a living
advising doctors and hospitals on how to maximize their Medicare
reimbursements are now offering Medicare billing "compliance"
services, including handbooks, seminars, conferences and
"compliance" sessions at major professional association meetings.
The September 1999 edition of Physician Practice Coder,
for example, comes with warnings on how to avoid prosecution for
fraud and abuse, noting that many commercial insurers take
Medicare s lead on these payment and "coding" issues.
Taxpayers no doubt would be outraged if they fully grasped
the extent to which this bureaucratic system is generating
wasteful paperwork. No government agency, no think tank, no
independent public policy analysts have yet calculated the
growing amount of time and money that goes into this absurd
paperwork-time and effort taken away from the care of
patients-but it must be enormous. Members of Congress would do
America a real service by ordering the GAO to make such an
Dump the current system of bureaucratic benefit
setting. The process by which Medicare benefits are set is
maddeningly bureaucratic and political. HCFA periodically updates
coverage options to reflect what HCFA thinks are necessary
changes in treatment practices. A GAO study on the internal
regulatory process of HCFA noted that simple coverage decisions
can take 2 to 12 months. When complicated clinical issues are
involved, the process takes much longer, and can even take
several years. If HCFA decides to establish a new type of
coverage or withdraw existing coverage, it must go through the
administrative process of publishing a proposed rule in the
Federal Register, review and incorporate public
comments, and then publish a final notice. This can add another 9
to 12 months to the process. Not surprisingly, because benefit
decisions are often politically driven, the Medicare program has
big gaps in coverage.
If Congress is serious about reforming Medicare, it has a
big job: not only creating a new system for the next generation
of retirees but cleaning up an enormous bureaucratic mess.
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage