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

Volume 58, No. 6 June 2002


The team of Edward Kennedy and Hillary Clinton is determined to "progress" toward "the day when all Americans will have the health insurance coverage that should be their birthright," instead of "drifting backward" (Boston Globe 4/28/02). "The time is long overdue for America to join the rest of the industrialized world...." [and embrace socialism].

The next incremental step would be to force all employers of more than 100 employees to provide health benefits. This proposal will be introduced soon but won't pass-yet.

Kennedy/Clinton undoubtedly ask why a country that can [could-it no longer can, having drifted backward] put a man on the moon can't provide medical insurance for all-or abolish poverty, pain, and sickness.

Rabbi Daniel Lapin posed an analogous question: why can't the most advanced industrial nation in history make an airplane that can fly without wings or jet fuel? The answer: natural law, such as gravity (America's Real War).

Just as water doesn't run uphill (Bill Orient's First Law of Contracting), the "trickle-up theory of medical care" doesn't work. The core argument for Canadian socialized medicine is: "Force the affluent to experience the same level of consumption as the poor, and the affluent will raise the poor's standard of living to their own" (Globe & Mail 2/21/02). One might as well try to warm up the swimming pool by shivering in it.

A nation that has photographed the dark side of the moon seems incapable of seeing the other side of entitlements: Cantoni's "invisible man"-the taxpayer, under- or uncompensated "providers," and those who bear the opportunity costs of diverting resources. Nor does it discern the force and deception involved in the unnatural, involuntary redistribution of wealth.

The effects of entitlement, as to government subsidies, free emergency care, or pain-and-suffering judgments, include:

Debt: Workers have been deceived into thinking that payroll taxes are funding their retirement needs, just as Pinocchio was persuaded by the blind cat and the lame fox that if he planted his gold coins in the Field of Wonders and went away, a money tree would grow. So-called trust funds are stuffed with debt. Unlike privately held debt, this debt is really, as Richard Relph points out, a liability contingent upon continuing the program-it could be wiped out at a stroke of the President's pen without affecting the nation's credit rating. Because the government uses cash accounting, the long-term liabilities are largely hidden from view.

Skyrocketing costs: As the Henry J. Kaiser Family Foundation noted, "no approach our nation has tried, over the past thirty-five years, to control health costs has had a lasting impact." That's because none addressed the cause: third-party payment. Nobel laureate Milton Friedman estimates that we are paying twice what we would with direct payment, and getting little in return except for bureaucratization and dissatisfaction (Senate Republican Policy Committee, www.senate.gov/~rpc/releases/1999/hc032602.htm).

Authoritarian controls and scapegoating: Having renounced the peaceful way to allocate scarce goods-prices- we are left with the only alternative-brute force-as in the "anti- fraud initiative" (Wall St J 4/1/02). Compliance training is "like the hamster in the little cage-it never ends," stated consultant Ben Frosch (Medicare Compliance Alert 3/11/02).

Decline in services: While AAPS has chronicled restriction of services to Medicare beneficiaries for years, others are now confirming the accelerating trend. A Washington State Medical Association membership poll found that 57% of respondents were either taking no new Medicare patients (45%) or dropping all Medicare patients (12%). Physicians are going on strike in an insidious manner, as by early retirement. There is a 30% decrease in applications for general surgery residencies (Arch Surg 2002;137:255-256). Medical school applications are down 26% over the past five years, according to the Association of American Medical Colleges (Wall St J 1/19/02). It could get worse: to reach the resource-allocation level of Canada, the U.S. would have to fire 171,000 physicians. The next step is lower standards, which are probably being masked by grade inflation. The endpoint was reached with total socialism in the USSR. William Summers, M.D., on touring the former Soviet Union in 1992, concluded that the average physician had about as much knowledge as an American licensed practical nurse.

Overall government impoverishment: The projected quadrupling of Medicaid long-term care costs by 2030 will crowd out all other state expenditures. (State Factor 4/02).

"New Code of Professionalism": The AMA pressured members of the Federation to sign onto the Declaration of Professional Responsibility, originating in the World Medical Association. This enshrines the "obligation for promotion of social justice" as one of three fundamental principles.

The need for a "new" ethics (see AAPS News Nov 2000) shows that entitlements are not just part of a Marxist economic system or political program. If they were, the disastrous results would have discredited the concept long ago. But what Marx did was to found a new religion, with the omnipotent state as its god. "This idol appealed to men more than any other in history, because it made all morality relative.... [I]t indulged all of men's basest instincts while ever appealing to his noblest motives" (R Martin, "May Day," www.theVanguard.org).

Entitlements are a mess of pottage. They bear bad fruit: deceit, improvidence, waste, coercion, envy, poverty, sliding- scale ethics, and the impending death of private medicine. Our birthright is our unalienable right to life, liberty, and property. Only from this mainspring of human progress can flow virtue and enterprise, bringing us prosperity, excellent medical care, and other good fruits of a peaceful civil society.

Physician Shortage

In 1976, the Graduate Medical Education National Advisory Committee (GMENAC) confidently predicted a 22% excess of physicians by 2000 (Chest 2001;120:327-328). In 1997, HCFA decided to pay 41 hospitals in New York $400 million over next six years to teach 2,000 fewer doctors (AAPS News 4/97). The Health Professionals Review Group, an audit group directly responsible to Ira Magaziner on the Clinton Task Force on Health Care Reform, called for government quotas on the number of specialists (AAPS News 6/00).

The expert central planners failed to account for two factors: demand, as from the demographic time bomb called the Baby Boom, and supply, as in the response of current and would-be physicians to working conditions. They expect to get it right next time: "our professional societies must embark on strategies of physician workforce planning" (Chest, op cit.).

Intelligent persons are generally not attracted to a field in which they are routinely expected to spin straw into gold, or to incur personal debt for the dubious privilege of working.

"Buried in the insurance changeover [Medicare and Medicaid] in 1965 was the provision that all fees would henceforth be the same, and that particular absurdity of equal pay for equal work has been carried over, by law of Congress, to include nurse practitioners, chiropractors, and similar people....," writes George Fisher, M.D. "Why go $100,000 in debt to be paid the same as someone who went to a diploma mill? Why take complicated cases with a high risk of liability suits if you are paid the same as for easy cases, whether you have any special skill or not? I am proud of my profession for resisting these obscene incentives as well as they do, but the public need not suppose that the resistance will last forever."

Reports from a few states:

Arizona: A report prepared for the Goldwater Institute by Jeffrey Singer, M.D., and Craig Cantoni finds that Arizona had a physician:patient ratio of 185 per 100,000 in 2000 (172 if adjusted for number of retired physicians), compared with a ratio of 194.6 per 100,000 recommended by GMENAC, and an unadjusted ratio of 198 per 100,000 in 1990. The authors blame federal regulations and price controls, stating that "all physicians in all states are treated to some extent like indentured servants." In Arizona, the hidden tax on physicians is higher because of the large population of illegal aliens who must be treated without compensation, by federal law (Arizona Issue Analysis 165, Oct 2001, www.goldwaterinstitute.org).

California: A 2001 survey by the California Medical Association (CMA), entitled "...And Then There Were None," showed that more than half the physicians in California are so dissatisfied that they plan to retire or move out of state in the next three years. While acknowledging the need for better data, the CMA warns that "if these trends continue, California will be left with a non-functioning health care system unable to provide for patients." In Sacramento and El Dorado counties, the number of active physicians declined by 13.4% between 1995 and 2000, while population increased by 9.6%. The physician:patient ratio decreased from 205 to 165 per 100,000.

Utah: The Medical Education Council of the State of Utah concludes that the state is on "the verge of a crisis." There is growing evidence that physicians are beginning to retire as much as 10 years before the traditional age of 65. This would mean that Utah would have to replace 1,600 physicians, or 42% of the current work force in the next 10 years, and as much as 95% in the next 20 years.


Giving Is Not the Same As Being Robbed

In answer to the insistence that those who do not plan for their own care must be cared for by the rest of us, Tom LaGrelius, M.D., explains: Faulty logic-holding that irresponsible people are entitled to care, and that it is therefore okay to rob responsible people-is what has gotten us into our current dilemma. Insurance mandates would just perpetuate it.

"As a decent human being, I have a responsibility to help the helpless," Dr. LaGrelius writes. However, recipients of such help should know that they are receiving charity, not an entitlement. Moreover, all charity must be local, never federal.

An imperfect emergency call system that worked fairly well was destroyed by EMTALA, which made charitable doctors resentful about being robbed, Dr. LaGrelius states.

Manya Helman, M.D., wrote that when a patient lamented about how the Oregon physician shortage was affecting her, "I mulled aloud in a thoughtful voice, to her surprise and mine: `Well, I could work longer hours, get home at 7:00, have to move the kids from one neighbor's house to another. What if I refused? I guess you could have the government declare emergency powers and enslave physicians. What if we refused then? I guess you could hold our families hostage and threaten us. Or, we could simply correct the problem. If we paid physicians fairly, we could recruit them to come to our state'."


Entitlements Mean Prohibitions

Criticisms of Canadian medicare can no longer be dismissed as the distant grumblings of Fraser Institute types after the report of Michael Kirby and other Canadian Senators from the Standing Committee on Social Affairs, Science, and Technology. The system is "not fiscally sustainable," technology gaps widen, and waiting lists are cruel and long (National Post 4/29/02). Yet virulent opposition to private care continues. A CT scan clinic offering services that are deemed medically unnecessary is called "another example of the erosion of Canada's public health-care system." Christine Burdett, chairman of Alberta-based Friends of Medicine, states that the clinic "appears to allow people to pay to avoid waits in the public system." And even if that's not the case, "there's reason to question why people should be allowed to have an unnecessary service performed at all" (Toronto Star 2/22/02).


AAPS Calendar

Sept. 18-21. 59th annual meeting, Tucson, AZ.
Sept. 24-27, 2003. 60th annual mtg, Point Clear, AL.

* * *

The question of legal plunder must be settled once and for all, and there are only three ways to settle it: (1) The few plunder the many; (2) Everybody plunders everybody; (3) Nobody plunders anybody.
Frederick Bastiat, The Law

Paying Physicians Could Be a Crime

Some hospitals are finding that they cannot meet their obligations under the Emergency Medical Treatment and Active Labor Act (EMTALA) without paying specialists to take emergency call. Irony of ironies: if they pay, they could be vulnerable to investigation under the Anti-Kickback and Stark rules. CMS will be looking for large numbers of referrals from physicians to the hospital (Medicare Compliance Report 5/8/02).


Policy Is Not Law

The convictions of two HCA executives for making false statements to Medicare and CHAMPUS were overturned by the U.S. Court of Appeals (United States v. Whiteside, 11th Cir., Nos. 99-15197, 00-12759, 3/22/02) on the basis that no Medicare regulation, administrative ruling, or judicial decision existed to support the prosecution's theory. Robert Whiteside and Jay Jarrell had been sentenced to two to three years in prison and up to $1.7 million in restitution for reporting debt interest as being capital related, according to the current use of funds underlying the debt rather than their original use. Contradictory expert testimony lent credence to the defendants' argument that their interpretation was not unreasonable, the Court found (BNA's Health Care Fraud Report 4/3/02).

The Medicaid fraud conviction of optometrist David Vainio, who had been sentenced to five years in prison, was overturned by the Montana Supreme Court because it was based on violation of an administrative policy that had not been adopted in compliance with Montana's Administrative Procedure Act (MAPA) (State of Montana v. David G. Vainio, No. 00-469, 2001 MT 220). The prosecution argued that the Medicaid statute criminalizes violations of "statutes, regulations, rules, or policies." The defendant noted that the Court had twice held that an agency's failure to comply with MAPA invalidates a purportedly adopted rule.

"The Medicaid statute cannot, through the mere insertion of the word `policies,' implicitly override MAPA's protection of the public's constitutional right to participate in administrative government." The Court agreed with the defendant that "an informal policy which has been the source of confusion and administrative appeals cannot be the basis of a criminal charge if due process is to have any meaning." The defendant also pointed out that while he was being held criminally liable for violating an informal policy, the Montana Department of Health and Human Services has been excused from violating rules which it had formally adopted.

Numerous other convictions are being reversed on similar grounds, for example, the conviction of IRL "Chip" Ward for violations of the Occupational Safety and Health Act (OSHA) in the Eastern District of Pennsylvania (U.S.A. v. IRL "Chip" Ward, criminal no. 00-681, 2001 U.S. Dist. LEXIS 15897). The Court found that the regulation itself was so ambiguous that a reasonable person could not have determined whether it applied to the defendant's activities. Moreover, the Administrative Procedure Act (APA) prohibits application of OSHA's informal interpretation in a criminal case.


Dr. Mitrione Moves for New Trial

On July 8, Dr. Robert Mitrione's Motion for a New Trial Based on Newly Discovered Evidence will be heard in federal district court in Springfield, IL. Dr. Robert Mitrione and his wife Marla Devore were convicted of Medicaid fraud (see AAPS News, Legal Supplement, Jan. 2002).

A memorandum by the Peoria Medical Society in support of the Motion argues that "the indictment and convictions here fail to cite violation of any binding federal rule. Accordingly, the convictions directly contravene the recent Supreme Court teaching in Christensen v. Harris County, 529 U.S. 576 (2000), and over 150 decisions that have recently relied on it." As the Court reiterated in the Ward case, "no one may be required at peril of life, liberty, or property to speculate as to the meaning of criminal statutes." Convictions cannot "rely on testimony by government witnesses about their interpretation of the law."

The Peoria Medical Society also notes that the Exhibit sprung on defendants near the end of the trial, purporting to show that defendants had billed for services never rendered in an incredible 28% of cases, lacked any basis in fact. An independent auditor, who reviewed the patient files utilizing the audit procedures described by the government witness in her trial testimony, found that the government's results were "not reasonably accurate," having an error rate of more than 50%. The Exhibit that strongly influenced the jury to convict "contains mathematical errors in the government's favor and evidences a lack of due care in its preparation." Moreover, "it is misleading in the way the chart is constructed." The auditor failed to conform to the generally accepted auditing standards that require the preparation and retention of working papers. The government witness could provide no verifiable evidence for the totals used in the Exhibit. The Recoupment Spreadsheet that claimed $16,84- 8.79 in overpayments to Dr. Mitrione should be corrected to show less than $4,400 in overpayments.

AAPS also filed a memorandum in support of the Motion, arguing that "Defendants' convictions are unprecedented because they are based on compliance with federal law, rather than violation of it." Because of the Supremacy Clause, federal law overrides conflicting state law. Moreover, "it is axiomatic that a criminal conviction is unjustified if it relies on a vague, ambiguous, or conflicting legal requirement."

Motions are posted in their entirety at www.aapsonline. org; click on "prosecutions." AAPS thanks the American Health Legal Foundation for its support.


Tip of the Month: Sham peer reviews often ruin a good doctor's reputation. In defense, many doctors have sued for antitrust, or medical staff bylaws, or due process violations. But those lawsuits often take years, and are even blocked in states that require exhaustion of ineffective administrative remedies first. A better option may be to sue for simple defamation. Specific damages need not be proven if a false statement imputes (1) a serious crime to the doctor (such as violating EMTALA or Medicare laws) or (2) unfitness for a professional role. Pollard v. Lyon, 91 U.S. 225, 226 (1875).


Not-Quite-Ex-Post-Facto Law

New Jersey nurse Susan Malady challenged her 10-year exclusion from Medicare under HIPAA on the basis that her crime, to which she had pleaded guilty, preceded the passage of the Act in 1996. The Administrative Law Judge and an Appeals Panel affirmed the exclusion because the period of her indictment extended to September 3, 1996, one week after the passage of HIPAA. "If even one criminal act occurs after the statute goes into effect, it will make the exclusion fully applicable" (Civil Money Penalties Reporter Spring 2002).


"As Sick As It Gets." In his book by this title, Rudolph Mueller, M.D., member of Physicians for a National Health Plan, asserts that "it pays not to participate." Apparently, Dr. Mueller doesn't read the Medicare Bulletin; every year, Medicare emphasizes that "your Medicare fee schedule amounts are 5% higher if you participate." Federal law limits the amount that nonparticipating physicians can balance bill, and in 1994 the New York State Balance Billing law reduced the permitted amount billed to 105% of the Medicare-approved fee. Thus, the maximum that a nonparticipating physician can collect is 99.75% of the Medicare fee-and the minimum is $0, if the patient pockets the reimbursement check and refuses to pay.

So who is being driven by the money?
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


BaitNSwitch Lottery. According to a Jan. 15 article in The Wall Street Journal, six major California insurers are planning to pay bonuses to doctor groups that earn high marks on "quality measures" that will probably include compliance with recommended childhood immunizations and a "patient satisfaction" score. Michael Rothman, senior program officer at the Robert Wood Johnson Foundation, stated: "What is exciting about this is that the plans are lining up signals about performance ... and all saying they will tie money to it."

It's sort of a medical lottery. Health plans won't pay adequately to provide these services on an ongoing basis, but if you give enough service away, you might hit the jackpot. It costs them almost nothing-compared with actually paying for services rendered-but gives them great PR.

Capitation means: "We pretend to pay you, and you pretend to work."
James G. Knight, M.D., San Diego, CA


Why Fight? There's an old Madison Avenue adage: "Nobody really knows what happens when you advertise. But everybody knows what happens when you don't." Take out "advertise" and insert "fight," and you've got it. Fighting for free-market reforms would allow us to spend less time and treasure fighting each other and more on the battles that need to be fought for the benefit of all. For example, most patients use one of the two heavily subsidized, hideously inefficient systems: government or employer-provided insurance. Time to open up a variety of other arrangements, such as tax-exempt medical savings accounts, co- ops, barter, and cash for service.
Michael Glueck, M.D., Newport Beach, CA


Patience. How in-kind taxpayer-provided comprehensive medical benefits for 1.5 million dual-eligible military/Medicare beneficiaries (TriCare) was achieved is a useful lesson: 25 years of grassroots, unrelenting, same-message efforts made by hundreds of thousands of retirees and military associations.
Stephen Barchet, M.D., Issaquah, WA


History Repeats Itself. A Canadian physician told me that Medicare's treatment of U.S. doctors is similar to "how it started" in Canada. First, the patients are given an "entitlement" expectation. Then their government eliminated unassigned claims, and then promised to pay the "copay." Doctors were happy to sign on. Then payment denials unexpectedly increased, and after two or three years, decreases in payment got worse and worse.
Linda W. Wilson, M.D., Culver City, CA


Foreign "Trade." Under Tony Blair, the British government is importing foreign doctors and nurses, and exporting patients, as more than a million people remain on hospital waiting lists.
Anthony P. Maresca, M.D., Brookfield, WI


Recent History. After World War II, medical care consumed 4.6% of the GDP. Individuals purchased their own insurance with after-tax dollars and paid 100% of their own medical bills. For insurance benefits, there were tables of allowances that did not dictate fees but provided a defined benefit for each service. The cost of these plans was reasonable, and people could choose their own doctor without economic penalty. Since the government got involved, the cost of care has increased at four times the inflation rate, with no appreciable improvement in access to care by the poor.
Roger Beauchamp, D.D.S., Escanaba, MI


Fixed Overhead. As unconstitutional regulations grow daily in the U.S., 27,000,000 federal employees are now supported by only three times that many in the private sector!
Frank Rogers, M.D., Pinedale, CA


Getting the Right Answer. The headline "Majority of Employers Surveyed Support Universal Health Care; Blame HMOs, Insurance Companies for Problems in Current System" came about by asking (I'm paraphrasing): Do you support universal health insurance, OR do you think everything is just fine the way it is? And on the list of possible culprits, the surveyers plum' forgot to include the government.
Greg Scandlen, Alexandria, VA


The Harkin Proposal. In 1988, Senator Harkin (D-IA) proposed that neither House or Senate pass legislation that would increase the number of uninsured. Great idea.
Ernest J. White, Alexandria, VA

Legislative Alert

Health Policy at Mid-Stream

As summer approaches, Congress is wrestling with a variety of hot-button issues, including Medicare reform, Medicare prescription drugs, Medicare payments to doctors and other "providers," the uninsured, and the "Patients' Bill of Rights."

Issue: Medicare Reform. The future Medicare system should be based on personal freedom and a genuine diversity of options. In such a system, persons who had a good experience with a private plan in their working life should be able to carry it with them into retirement and use their Medicare benefit to help offset its costs.

Medical professionals, facilities, and insurers should not have to wrestle with literally tens of thousands of pages of incomprehensible rules, regulations, guidelines, and related paperwork governing virtually every aspect of their operations. They should also be paid on the basis of real market conditions- demand and supply-rather than on the current system of administrative pricing, which often bears little or no relationship to real conditions.

The Outlook: Expect some action this summer on Medicare reform. The House will take the initiative. If it passes something that looks very much like the original Breaux Thomas proposal, creating a new Medicare program modeled on the Federal Employees Health Benefits Program (FEHBP), rest assured that it will be blocked in the Senate, which, with the exception of the tax cut and the education bill, has become a veritable graveyard for Bush Administration proposals. Congressional Republicans are likely to go for a more modest bill, strengthening the Medicare+Choice program and adding a prescription drug program targeted to low-income persons at a cost of $350 billion over ten years. The Democrats will offer a more costly prescription drug expansion. Already, Democratic Senators Zell Miller of Georgia and Bob Graham of Florida have proposed a $425 billion drug program over ten years.

Issue: Medicare Payments to Doctors and Other "Providers." As Len Nichols, a top health policy analyst with the Center for Studying Health System Change (HSC), once remarked, the Medicare bureaucracy is charged with setting 10,000 prices in 3,000 counties throughout the United States- an impossible task. Costs are shifted, rather than controlled; volume expands or supply contracts; and the markets are routinely distorted.

Congress and the Administration should abolish the entire system of administrative pricing for physicians' services, hospital services, medical devices, and HMO payments. This is a system of price controls, which have the same effect as they have always had over the last 4,000 years: "providers" are paid too much, or too little, or too slowly, and without adequate analysis of the conditions that would otherwise obtain.

The best option is to abolish this entire complicated apparatus and adopt a premium-support system for the new Medicare program, based on a government contribution set by a formula just like the FEHBP-in other words, to enact comprehensive reform that would eliminate central planning and price regulation.

The Outlook: Congress will do no such thing. At least, the Senate will not go along with the House or the Bush Administration, if either has the fortitude to press the issue (a big if). So, the result will be a series of piecemeal adjustments to "provider" reimbursements. The ugly politics of sharply different special interests-all having a life-and-death stake in getting their slice of the Budget pie in that awful and confusing annual budget reconciliation process-will triumph again.

There will be temporary good news for doctors, who will see a reversal of the 5.4% Medicare payment cut. Congress will probably change or eliminate the physicians' payment formula, which calls for a 17% reduction in physicians' fees over the next three years, because of the dire warnings of the Medicare Payment Advisory Commission and others about the threat to patient care. If the Medicare physician payment update formula is eliminated, as suggested by the Advisory Commission, the Congressional Budget Office (CBO) projects an overall increase in Medicare spending by $126 billion over the next 10 years.

That's why the Bush administration will seek to offset the "give backs" to physicians with cuts to other "providers." Rest assured these "offsets" will be bitterly resisted by the what Washington wonks call the "stakeholders"-hospitals, nursing homes, HMOs, and others. The Administration will probably lose. So, we will see a general increase in Medicare spending, further aggravating financial condition of the program.

Also look for an increase in Medicare HMO payments. The Bush team wants to increase payments to plans in Medicare +Choice, despite their flaws. CBO projects that enrollment in such plans will continue to decline, going from 15% to 8% of seniors by 2012. Some think that a failure of Medicare+Choice undermines the case for the reliance upon private sector plans that is at the heart of the Bush team's vision of Medicare reform for the next generation of Medicare patients.

Issue: Medicare prescription drugs. This issue is heating up. The CBO estimates that Medicare beneficiaries make up about 15% of the population, but their consumption of prescription drugs amounts to roughly 40% of the $100 billion spent on outpatient prescription drugs. Like the rest of the American population, Medicare patients paid about 40% of their prescription drug bills out of pocket.

Also according to the CBO, 75% of Medicare patients had coverage for prescription drugs for at least part of the year. In 1999, roughly 30% of Medicare patients got their coverage through former employers; about 16%, through Medicaid programs; and 11%, through Medi-gap plans. If Medicare covered all prescription drug spending for seniors not covered under current law, between 2002 and 2011-the year the Baby Boomers start to retire-CBO projects an additional $1.6 trillion spent on Medicare prescription drugs.

The right answer: No prescription drug benefit outside comprehensive reform (see AAPS News, May 2002).

The issue is a paradox of public policy. The integration of prescription drug coverage into a competing system of private plans is relatively simple. It is administratively easier both in the structure of the benefit and the structure of the payment system. The payments, co-payments, deductibles, and premiums are all balanced within a common framework of benefits. The FEHBP is proof of this. Prescription drug coverage and its administration are routine-neither difficult nor controversial.

If Congress does not add prescription drugs within a common framework of overall Medicare reform, Congress could at least structure a limited drug benefit in accordance with a market- based proposal for reform. To do this, Congress could target the 25% of the senior population that needs coverage, and avoid displacing the existing private market for drugs. Perhaps the best proposal to do that is offered by the Galen Institute: a smart card for prescription drugs, tied to a prescription drug account, which low-income seniors could draw upon with a debit card.

The Outlook: House Republicans, as noted, will probably refrain from enacting a comprehensive Medicare reform proposal with a prescription drug coverage. If they do enact one, they will probably fail to overcome Senate opposition. They will then propose a limited prescription drug benefit, worth about $350 billion over ten years, and try to secure its delivery through private insurance; companies will be asked to set premiums just for a drug benefit. This will include a subsidy system for low-income persons, plus a catastrophic feature, which will probably force taxpayers shoulder catastrophic risk over some specified amount because insurance companies will not want to do so. This proposal will probably be supported by the pharmaceutical industry but will run into practical objections, both from insurance industry and left-wing groups.

Some senior Democrats in the Senate will argue that $300 billion or $350 billion over ten years is not a serious effort, thus repudiating everything they said about a $300-billion-plus package being an appropriate amount last year. Congressional Democrats will probably resurface a Medicare prescription drug package resembling the old Clinton plan, and will simply add a prescription drug benefit to the old Medicare program, with a new drug premium, held artificially low, and a set of coinsurance or co-payments requirements ranging from none to low. The benefit will be delivered through prescription benefit managers (PBMs) under the standard Medicare contracting rules, with heavy regulation of price and delivery.

For political reasons, it would be impossible to deliver drugs through the old Medicare program without price controls. And since 40% of all drug sales are to the elderly, this would vastly expand price regulation over the nation's most productive industry. The end result? Some sort of face-saving end-of-session compromise, targeting subsidies to low-income persons only.

Issue: The uninsured. The debate on covering the uninsured is really a debate on national health insurance in miniature. If one doesn't understand this, one doesn't really don't understand the true nature of the debate.

On the one side are prominent members of Congress and policy analysts from major foundations and universities, who firmly believe that private health insurance is an anachronism; that the provision of medical care should be a public utility; that the government should determine the price and availability of medical benefits and services. Knowing that a head-on proposal to create a "single-payer" system in one fell swoop is politically unpalatable, the major policy option of this group is the expansion of Medicaid up the income scale, or Medicare down the age scale. This is to be done in incremental steps toward the goal of total government control over the financing and delivery of medical. Meanwhile, private employment-based arrangements, such as COBRA coverage, are to be preserved to facilitate the application of greater federal regulation of private insurance, thus easing the transition to a single payer system.

On the other side are the President and his allies. In his April 30th speech in San Jose, California, President Bush repeated his call for reform based on private insurance and personal choice: "Our health care policies must help low income Americans to buy health insurance they choose, they own and control." The chief policy option of this group is to broaden access to private health insurance through tax credits or premium subsidies to the uninsured.

These positions are fundamentally irreconcilable.

The Outlook: The ideological hostility to tax relief or subsidies for private insurance is intense among Congressional leftists. Senate Majority Leader Daschle has twice blocked consideration of a House-passed relief package for the uninsured. The same pattern is now developing on Trade legislation, which has a medical insurance component for displaced workers.

Issue: Patients' Bill of Rights. The President has reaffirmed his support for enactment of PBOR. The Senate has acted. The House has acted. But the House-Senate conference seems permanently stalled. There are at least three reasons for this.

First, the differences between the House and Senate, particularly on the scope of litigation, are too wide to be bridged by compromise. A key difference is that the Senate bill would apply the terms and conditions of the PBOR to Medicare and Medicaid, as well as the FEHBP. The federal employees unions, fearing the cost and the disruption, oppose the application of legislation for everybody else to their own medical insurance. That's an old refrain.

Second, more members of Congress are recognizing that the PBOR is a vehicle for a vast expansion of federal regulation, and they are having second thoughts on its likely impact on the ability of employers and insurers to cope with it. A prominent Washington attorney, William Schiffbauer, concludes that it would impose more than 700 "legal requirements" on medical insurance plans.

Third, the public has genuinely lost interest in the issue. Organized medicine may still be in favor of the legislation; so, too are left-wing lobbies. It is simply no longer hot button issue. In a January 2002 national survey by Ayres and Associates, 34% of the respondents stated that holding down the cost of medical care was the most important issue, followed by 20% who identified covering the uninsured as the most important issue. Reforming HMOs came in third at 15%.

Robert Moffit is a prominent Washington health policy analyst and Director of Domestic Policy at the Heritage Foundation.