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

Volume 56, No. 1 January 2000


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 in medicine.

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 "deficiencies."

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 managed-care contracts?

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 patient privacy.

Comments on proposed privacy regulations must be received by January 3: see enclosed AAPS analysis.

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 established.

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 treatment protocol.

AAPS Calendar

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 others:

"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 prosecution."

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, however distasteful.

Herbert E. Meyer

Members' Page

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 medicine.
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 most.
Robert Gervais, M.D., Mesa, AZ

Legislative Alert

The Next Medicare Reform Fight

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 Presidential debates.

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 United States.

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 problem areas:

  • 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 catheters.

  • 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 workload."

  • 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 cases.

    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 analysis.

  • 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 Foundation.