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Association of American Physicians and Surgeons, Inc.
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Omnia pro aegroto

Volume 59, No. 6 June 2003


Long American tradition has held that it is better to let 100 guilty men go free than to hang one innocent man: Thus, the protections of the Constitution and due process of law.

A criminal investigation is supposed to find the truth not just convict someone. Witnesses, and even the prosecutor himself, are supposed to tell only the truth. All testimony is to be given voluntarily, not under duress.

The Fifth Amendment to the U.S. Constitution protects the accused against self-incrimination not just against the "third degree," but even routine interrogation or trial testimony. Before he says a word, the suspect is supposed to be informed of his right to remain silent the Miranda warning.

To be admissible in court, evidence must be obtained with a proper court order or search warrant issued by a magistrate upon a sworn statement of probable cause. Random searches or massive fishing expeditions violate the Fourth Amendment.

The prosecution's burden of proof is a heavy one: proof beyond a reasonable doubt. Moreover, the crime must be intentional. A mens rea (criminal intent) must be proved.

Mistakes are not a crime; neither are accidents or actions taken under duress. A person who cannot distinguish right from wrong say because of psychosis, mental retardation, drugging, hypnosis, deception, or seizure cannot commit a crime. By persuading juries of mental incompetence, clever defense attorneys have won acquittals of perpetrators of the most heinous criminal acts.

Although ignorance of the law is no excuse, criminal statutes are supposed to be so clear that any normal citizen can tell what actions are proscribed.

Because of these protections, it is difficult for Americans to believe that innocent people are routinely convicted, much less that physicians could be imprisoned for relieving pain.

War, of course, is very different from law enforcement. In modern warfare, innocent casualties usually outnumber military deaths. Being in the wrong place at the wrong time, or association with suspicious people, can mean instant death. No guilt is required: It's just collateral damage.

Rules of war exist enforced retroactively by the victor.

The purpose of war is not individual justice, but forcing the enemy to surrender. Spies, informants, misinformation, propaganda, threats, ambushes, blockades, economic sanctions, and preemptive strikes are all usual and customary tools of war.

And so is pain.

Pain has been used throughout recorded history, as to induce people to betray their comrades or to extort confessions even to witchcraft or other purely imaginary crimes.

Some have even argued for the use of torture, if needed to overcome a U.S. military disadvantage.

A scenario in which children are torn from their parents, presumably innocent civilians are left homeless and impoverished, and homes and businesses are ransacked on flimsy suspicions looks like a war, not an investigation.

A wired agent provocateur or spy bears more resemblance to a military operative than to a detective.

War has, of course, been declared on Drugs.

It is supposed to be a war only on illegal, nonprescribed drugs, or drugs prescribed by physicians outside the "usual course of medical practice" for purposes other than "legitimate medical needs." According to former DEA Director Asa Hutchinson, in an address to the American Pain Society on March 14, 2002, "the DEA does not intend to play the role of doctor." Physicians are often reassured by organized medicine that they have nothing to fear if they practice good medicine.

From cases that continue to come to the attention of AAPS, however, it appears that physicians who prescribe opiates to chronic pain patients are in grave danger.

Once a U.S. attorney decides that a physician falls outside the range of "usual," it's war, and the resources of the Department of Justice are mobilized to force surrender.

The doctor who does not plead guilty will probably be indicted under "drug kingpin" statutes carrying draconian mandatory minimum sentences harsher than meted out to many murderers, as well as for money laundering, conspiracy, mail fraud, and false claims. He faces the loss of all assets not already paid to his attorney, along with his liberty and his livelihood. State medical boards may be pressured to revoke his license even before the trial.

A trial will eventually occur. Prior to that, the accused may be hauled off in handcuffs in front of his patients, see his mugshot on the evening news, and be delisted by all insurers.

Patients and staff will be interrogated by the police and possibly threatened with prosecution themselves. Allegedly, chronic pain patients have even been detained and deprived of their needed medications until they agree to swear that they lied to the doctor about having pain in return for a promise of lifetime ready access to drugs. (How could this allegation either be proved or refuted?)

The proceedings will be under tight control. Exculpatory evidence may be excluded, while potentially incriminating items culled from a truckload of "confidential" medical records may be presented out of context. Jury instructions may be so narrowly framed with the team of judge and prosecutor defining what constitutes a crime that the jury has no choice but to convict or defy the court through jury nullification.

The defendant's intention to abide by the law, or even the concurrence of state licensure boards that he did follow the law, may be completely irrelevant.

It is war indeed: against the medical profession, the Oath of Hippocrates, the U.S. Constitution, the authority of States, and basic human decency.

Targets in the War on Doctors

Donald W. Kreutzer, M.D., a general practitioner from Clarksville, MO, was indicted in September, 1999, on 19 counts of "unlawful delivery of a controlled substance" and 12 counts of Illinois Public Aid "vendor fraud." In April, 2003, he was convicted on 15 of the former counts and one of the latter. The only cases prosecuted involved 3 undercover agents; 13 of the 15 involved a single agent. Two of the agents had been discharged after Dr. Kreutzer began to doubt their stories. Dr. Kreutzer did not take the stand because his court-appointed lawyer told him he would not be allowed to present the rebuttal that he had prepared. He is to be sentenced in July.

Jeri Hassman, M.D., a physiatrist in Tucson, AZ, was indicted on March 26 on 108 criminal charges of illegally distributing painkillers. If convicted, she could be incarcerated for 28 years, after which her youngest child would be 38 years old. About 200 patients had to find a new doctor; most are now receiving the same or higher doses of narcotics. See www.drhassmandefensefund.com . Steve Nash, Executive Director of the Pima County Medical Society, wrote to U.S. Attorney Paul Charlton that PCMS had started to make inroads in the reluctance of primary care physicians to provide pain control. "We fear we are back to square one with the [Friday] March 28 perp walk staged here."

Deborah Bordeaux, M.D., a family physician, faces 20 years to life, or 128 days in prison for each of the 57 days she worked in a Smyrna Beach, SC, clinic. The DEA arrested three patients, more than a year after she had seen them, and got them to say they had sold drugs after lying to obtain prescriptions. It didn't matter that she had terminated patients she thought were faking. Collateral damage includes a young son and ailing husband. The American Health Legal Foundation will fund an amicus brief in her appeal. (See AAPS News March 2003 and www.cpmission.com.)

Benjamin Moore, M.D., succumbed to DEA pressures to plead guilty (AAPS News Sept. 2002). He committed suicide before being sentenced, when he realized he would be made to testify against other innocent physicians. (See www.cpmission.com.)

In correspondence to John B. Brown, III, DEA Acting Administrator, AAPS outlines the need for basic procedural changes such as severe sanctions against agents who intimidate vulnerable patients or knowingly make use of false testimony. The letter and additional information and links are posted under "pain management" on www.aapsonline.org.


Is It Torture?

Withdrawal from high-dose narcotics causes intensification of the pain for which they were prescribed, in addition to the usual withdrawal symptoms, making patients extremely vulnerable to pressure. According to AMA Policy E-2.067, "physicians should not treat individuals to verify their health so that torture can begin or continue." What is the ethical course for physicians who see detainees who are on treatment for chronic pain? And should patients with a criminal record, say for diverting part of their prescriptions to help pay for expensive drugs, be denied treatment for the rest of their lives?


Are Pain Patients Criminal Suspects?

The DEA was a no-show, breaking a five-month commitment at the last minute, at a March 22 seminar on pain management sponsored by the Pima County Medical Society. Perhaps it wanted to duck questions from Dr. Jeri Hassman and her lawyer, who did attend.

Experts recommended enhanced patient screening procedures, arousing fears that doctors will be retroactively held to standards that were not even discussed a year ago.

David Greenberg, M.D., a chronic pain specialist who is contracted with the Arizona Medical Board's physician monitoring program, suggested urine screens for all common street drugs and commonly prescribed narcotics and sedative/ hypnotics, employing a forensic chain of custody, to check that patients are taking the prescribed, and only the prescribed drugs. He also stated that a physician could not legally destroy a patient's medications and should not even touch them; he advised watching the patient count them.

(AAPS just learned that a member faces summary suspension of his license for confiscating medication from a patient who was misusing OxyContin. "Now we've seen everything!" writes AAPS General Counsel Andrew Schlafly.)

Neil Irick, M.D., a pain specialist from Indiana, uses surveillance cameras to watch patients in the parking lot, frisks patients before they give a urine specimen, and requires picture ID on the first visit. He never replaces lost or stolen drugs, saying "nobody ever dies from opiate withdrawal."

Physicians in attendance complained that law enforcement never acts on their reports of suspected diversion.


Should Police Do the Policing?

Should physicians be the ones to deny needed pain relief based on suspicion or a past history of diversion or addiction? William Hurwitz, M.D., of Virginia (see www.drhurwitz.com), who is threatened with indictment despite the fact that his practice has been closely monitored by the licensure board, notes that in Australia, police "approvers" issue "authorities" to patients treated with "drugs of dependence." About 13,000 patients are authorized to receive such drugs, including amphetamines for Attention Deficit Hyperactivity Disorder. The police notify doctors of "active circulating drug seekers" and recommend action to be taken. Police also inform a doctor instead of arresting him when he has written a prescription for a known drug seeker. The purpose appears to be cooperation in order to stop drug abuse rather than entrapment to produce convictions.

Jury Nullification

This concept dates back to 1670 when William Penn, founder of Pennsylvania, was placed on trial in the Old Bailey for the crime of "tumultuous assembly." He had preached a sermon, violating the law against religious assemblies other than the Church of England. The Court ordered the jury to find Penn guilty, for if the Quakers had met at all, the meeting was illegal. When the jury refused, it was locked up for two days without food, water, or heat, but declined to change its verdict. The precedent thus set was used to establish freedom of the press in the Peter Zenger trial in 1735 in New York.

After the Dred Scott decision, northern juries refused to convict for violations of the Fugitive Slave Law.

In 1895, the U.S. Supreme Court handed down the startling decision that juries did have the right to nullify the judge's instructions on the law, but only if they didn't know about this right! (Sparf v U.S. 156 U.S. 51, 1895).


Delicensing by Reciprocity Overturned

Having a license revoked in one state is sufficient cause for revocation, suspension, or denial of a license in another. In today's climate, it is nearly impossible for a physician to overcome the stigma of such a sanction. Nonetheless, in April the Commonwealth of Pennsylvania stayed the suspension of the license of Dan Alexander, M.D., and placed him on probation for three years.

The New York Board for Professional Medical Conduct had revoked Dr. Alexander's license indefinitely in 2000 (AAPS News July 2001). AAPS and the Medical Society for the State of New York filed amicus curiae briefs in his appeal to the New York Appellate Division, which failed.

AAPS General Counsel Andrew Schlafly testified in Dr. Alexander's behalf before the Pennsylvania Board's hearing examiner, stating that the allegations against Dr. Alexander were unsupported and the penalty was too harsh.

"While Pennsylvania is not the forum in which to challenge another state's decision, in this case the Board is satisfied that Respondent does not present a significant risk of harm to Pennsylvania citizens," ruled the Board.

New York boasts of "leading the nation in taking the licenses of disciplined doctors." The Federation of State Medical Boards, a nonprofit organization with no governmental authority, uses a complex formula to rank state boards. "As [its] report shows, New York is setting a standard for physician discipline," stated Acting State Health Commissioner Dennis Whalen (DOH News, 4/28/99).

The formula is a numbers game, with no criteria for justice of the actions taken. "Discipline" here means retribution, destruction, and ruin, not correction or self-control.


Wisconsin Plans to Loot Compensation Fund

As a condition of licensure in Wisconsin, physicians are forced to "contribute" to the Patient Compensation Fund (PCF), which is intended to provide unlimited coverage for malpractice awards exceeding the limits of private liability policies. Family physicians had to pay $1,518 in 2001-2002, obstetricians $9,110, and most surgeons $6,302.

With the state facing a $3.2 billion budget shortfall through June 30, 2005, Governor Jim Doyle proposes to take $200 million from the PCF to help protect Medicaid from budget cuts. Although he implied that the PCF has money to spare, the Wisconsin Medical Society states that actuarially the fund has a $255,000 deficit.

Al Fisher, M.D., of Oshkosh reports one suggestion heard at the House of Delegates meeting: give the governor all $600 million in return for ending the PCF altogether.


Any-Willing-Provider Laws Upheld

In a unanimous April decision, the U.S. Supreme Court held that the Employee Retirement Income Security Act of 1974 (ERISA) does not automatically shield "health plans" from state insurance regulations. Specifically, ERISA does not preempt a Kentucky law that requires plans to include doctors, pharmacists, and other medical professionals in their networks if they meet the plans' criteria [Kentucky Ass'n of Health Plans v Miller, 2003 U.S. LEXIS 2710 (U.S. 2003)].

The industry reaction: "By increasing the number of providers that must be included, AWP requirements make it more difficult for insurers, HMOs and similar entities to negotiate discounts and thus control medical costs" (EBIA Weekly 4/03/03). The situation has been murky because "under any test, different laws, written in different ways, can produce different preemption results." With this clarification, writes Tom Miller of the Cato Institute, "most states should be able to get past [the ERISA] hurdle and regulate until they run out of insurance carriers."

The decision may prove harmful to HMOs. On the other hand, HMOs still exist only because physicians are willing to collaborate with arrangements harmful to patients.


Families Win MMR Lawsuit in Japan

The government and a research center affiliated with Osaka University were ordered to pay 155 million yen to the families of two children who died or suffered severe brain damage attributed to a measles, mumps, rubella (MMR) vaccine. The institute produced the vaccine by a method different from that submitted to the health ministry; it has since been banned because of frequent adverse effects (Japan Times 3/14/03).


AAPS Opposes Mandatory Chickenpox Vaccine

Testifying at a public hearing in Trenton, NJ, on May 12, AAPS General Counsel Andrew Schlafly stated that the chickenpox vaccine is "still relatively new and unproven, both in safety and efficacy." Therefore, "forcing millions to receive this vaccine, at substantial expense, would constitute an experiment on the public." Parents also cited an article in the British journal Vaccine predicting that eliminating chickenpox in a nation the size of the U.S. would cause as many deaths as it would prevent (Newark Star-Ledger 5/13/03).

AAPS also testified against mandates for chickenpox and pneumococcal vaccine before an administrative law judge in February. In April the ALJ handed down her decision not to overturn the proposed Minnesota Department of Health rule.

Testimony is posted in state issues at www.aapsonline.org.

AAPS Calendar

May 30, 31. Board of Directors meeting, seminar, Seattle, WA.
Sept. 17-20. 60th annual mtg, Point Clear, Alabama.
Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.


Government-Inflicted Economic Pain. So as to reduce the window of opportunity for physicians to correct wrongfully denied Medicare claims, CMS quietly cut the appeals submission period by one-third, from 6 to 4 months. Those who file paper claims may wait 30 to 40 days just to find out that the claim has been denied. CMS has also increased the coding edits that are specifically designed to deny claims such as edit #996 in FY 2000, in which 82.3% of initial denials were reversed on appeal. The government knows the percentage of physicians who do not challenge denials simply because it is too costly. Fraudulent claims denial is a profit center for both government and private insurers. The government can extract significant cost savings from physicians who do not appeal or appeal too slowly, while claiming that full due process has been provided.

The Big Squeeze will help physicians recognize Medicare as a pernicious, oppressive beast rather than a golden goose. We'll see how many will continue to participate or to accept Medicare patients. Who says the government produces nothing of value? In this case, the economic pain it causes may lead to a gain in ethical behavior (nonparticipation) and in the perception of socialism's continuing miserable failures.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


No Need to Worry About Strikes. If Medicare fees decrease further, or liability premiums continue to rise, anesthesiologists will simply move to more lucrative practices or become locum tenens. As hospitals end up paying for locum tenens, Medicare costs would be shifted from Part B to Part A. Patients won't get angry with inner city or rural anesthesiologists, as there won't be any. CMS, however, will continue to testify before Congress that the overwhelming majority of physicians are perfectly happy with payment arrangements as long as most (85%) continue to participate with Medicare.
Lee Balaklaw, M.D., Louisa, KY


What Is the Law? To frame a white-collar victim, a prosecutor need only interpret an arcane regulation differently or with a new slant, as Paul Craig Roberts describes (Independent Review 2003;VII:568). I was wrongfully convicted under an utterly capricious policy intended to apply to doctors. The prosecutor called Medicare/Medicaid manual policies "regulations" even though they never had been formally promulgated. The prosecutor called Blue Cross/Blue Shield of Michigan policies "regulations" even though BCBSM is not even a government body. Then the prosecutor concealed the Medicare/Medicaid audit/review guidelines from the jury, because they are not regulations, and also concealed regulations based on OBRA of 1989, which were published in the 1991 Federal Register, and the evaluation and management guidelines published in the 1992 AMA CPT code manual.
Edgardo Perez-DeLeon, Detroit, MI


Government Can Do No Wrong. Consider the antitrust laws. If you charge the same price as everyone else, you are guilty of collusion. If you charge a higher price than the competition, you are price gouging. If you charge less, you are guilty of cut-throat competition. Government price-fixing, in contrast, is always just right.
Linda Gorman, Englewood, CO


The Real Reason for EMTALA. Like most federal insurance-related legislation, EMTALA sets up a medical Gulag in which doctors and hospitals must perform under threat of criminal penalty, while creating all kinds of loopholes through which Medicare, Medicaid, and managed-care plans can skip out on payment for services rendered.
Stephen Katz, M.D., Fairfield, CT


To Steal or Not to Steal: That Is the Question. The more I read of economics and political philosophy, the more clearly I see that there are only two world views. One expresses theft as its compass (some live at the expense of others), and the other rejects theft (only mutually beneficial exchanges are permitted).
Robert P. Gervais, M.D., Mesa, AZ


Comparable Data. I have an idea for universal car insurance. Everybody gets a yellow Hyundai (the color actuaries determined least likely to be stolen or hit). You have to use a mechanic who's on the list, and there's a six-month wait for an appointment. You're covered no matter what speed you drive, for everything except headlights.... And oh, the National Car Data Bank will keep track of where and when you drive, and of each and every time you open each door or the trunk. Somewhere, someone wants the statistics. And why not universal food coverage, while we're at it? Safeway already has the cards to keep track of your purchases....
Vern Cherewatenko, M.D., Renton, WA


A Rapidly Progressive Disease. Since my ordeal began in 1999, I can see that other professions, such as accounting, are also being saddled with government rules that will stifle or strangle them. What some other physicians and I are now experiencing will become more and more common, as Roberts and Stratton point out in The Tyranny of Good Intentions, until 1984 and Brave New World come to complete fruition. Then it will collapse and begin again from a Remnant. The cycle continues as a new Tower of Babel is always constructed.
Don Kreutzer, M.D., Clarksville, MO

Legislative Alert

The Doctor-Medicare Relationship

Robert Pear, veteran health reporter, observes that the Medicare Payment Advisory Commission (MEDPAC), which advises Congress on Medicare payment, has come to a big conclusion: Private health plans pay doctors' fees that are about 15% higher than Medicare fees (NY Times 5/5/03). In a price- controlled sector of the economy, there are likely to be lower prices than in a sector of the economy that is not governed by price controls. Yep, there really is something to that. It's akin to the proposition that the sun is remarkably hot.

But, as Pear reminds his readers, this gem of a factoid will be used as ammunition against the President and his allies who want to rely on private plans in Medicare reform. The Congressional Left will say that the nation just can't afford a system that would pay doctors that much more than Medicare.

This will be a new argument for Fiscal Responsibility! And we can have more "fiscal responsibility" if we cut doctors' fees even more. Meanwhile, Rep. Charles Rangel (D-NY) et al. are proposing right this very minute to add a $900 billion drug benefit to the current Medicare program. Fiscal Responsibility is going to have tortuous career in this upcoming debate. And congressional candidates for the national awards for sheer chutzpah could fill the Los Angeles Coliseum.

It gets worse. Some on the Left may be shameless in broad daylight, proposing wild spending one moment, and posing as hand- wringing, penny-pinching, perspiring guardians of fiscal responsibility the very next. But don't ever count out some Congressional Republicans for sheer entertainment value. Now, as Pear further reports, some "unnamed" Senate Republicans are saying that they would consider imposing Medicare's price controls and fee schedules on private plans: "The maximum prices paid by private health plans would be determined not by market forces but by federal rules, at least for several years."

OK, let's see. You say you are going to reform Medicare, and then, as part of the reform, you impose the same system of price regulation that Medicare reform was supposed to supplant. And then, you announce that the Medicare price control on private plans will only be temporary, "at least for several years." And then, after those "several years," you will become a statesman and, amid the wild cheers of your brave and hearty colleagues in Congress and the free marketers over at AARP, lift those congressionally imposed "Medicare reform" price controls on plans serving senior citizens. Is there something wrong with the political calculations in this picture?

The Left's latest "Talking Point" against serious Medicare reform is the fact that there is little empirical data that private plans in a competitive market can effectively control costs. But as conservatives and libertarians have been saying for 20 years, there is no normal competitive market in medical insurance.

The only major model of a competitive system is, ironically, the Federal Employees Health Benefits Program (FEHBP). Fortunately, it provides solid empirical evidence.

According to Walton Francis, in recent testimony before the Senate Special Committee on Aging, an analysis of data over a period of 28 years shows that FEHBP has tied Medicare over that period without Medicare's price regulations even though FEHBP has a much richer benefits package, including prescription drug coverage, preventive care, and catastrophic coverage. If those unnamed Republicans looked at the evidence before caving, they might even learn something.

Now, back to the doctors. There is a tipping point. We don't know what it is, or when it will come. But members of Congress are not dealing with a full deck if they think that they can continue to deliver high quality care (particularly to the 77 million Boomers) under the kind of government run regime that the Left thinks all Americans should be coerced into "for their own good." Recall that last January 48% of physicians in a survey conducted for the AMA said that they would limit the number of Medicare patients because of proposed reimbursement cuts. But what has not gotten the same play is the message coming from some big players. For example, the Mayo Clinic in Jacksonville, Florida, which has a staff of 312 physicians, has told its Medicare patients more than half of its 71,000 patients that its physicians will no longer accept "assignment" for Part B coverage. The reason: the Jacksonville Florida Mayo Clinic is sick of Medicare reimbursement, the stupid formula updates, and paperwork.

National Medicare Debate Gets Closer

Right after the tax bill, expect the House of Representatives to get on with the big Medicare reform bill. House leaders want a bill written by Memorial Day, but this may not be a smooth process. Conservatives are nervous about adding any drug benefit to Medicare without fundamental reform, and the question is whether the House has the intestinal fortitude to really do something beyond minor cosmetic changes.

Senate Majority Leader Bill Frist says that he is committed to comprehensive Medicare reform, and that the Senate Finance Committee should report a big Medicare bill, and that bill should be on the floor of the Senate by the July 4th recess. Frist thinks the timing is right and the stars are aligned: a President committed to reform, a willing House that has already enacted major Medicare legislation, and a Senate that will be behind a Medicare reform package, rather than reflexively opposed to change, as it was when Senator Tom Daschle (D-SD) was Senate Majority leader.

The one person in Washington who wants serious change in Medicare is President George Bush. Recall that the President has proposed that all Medicare beneficiaries who want to stay in the current system can do so, but he wants to create a parallel system of private plans, and is proposing a more generous drug benefit in the new system, "Enhanced Medicare": a system that would broadly resemble the popular Federal Employees health benefits program (FEHBP), a consumer-based system where drug coverage is fully integrated into competing private plans.

The Drug Problem

This is not going to be easy. The focus of the draftsmanship is the transition to a new system. For example, while Members of Congress routinely talk about making sure that all seniors have access to prescription drug coverage, part of the problem is that most seniors already do have access to such coverage. It is one of those issues where the congressional rhetoric and the reality on the ground are often out of sync.

Proof? Look at the findings of a recent report by the Joint Economic Committee: 78% of Medicare beneficiaries already have drug coverage, though there is scarcely any reliable data on the generosity of these benefits. Some are generous; some are not. But, based on 2000 data, 34% of seniors get additional drug coverage from former employers; 24%, from Medi-gap plans; 18%, from Medicare+Choice Plans; 18%, from Medicaid. Some 90% of Medicare beneficiaries with Medicare+Choice, employer coverage, or other insurance had some type of drug coverage in 2000. The very old 85 and older are less likely to have coverage than younger Medicare beneficiaries.

Re-Targeting the Drug Benefit?

The Joint Economic Committee researchers concluded that Congress should learn from what other organizations are already doing, and get "better information" as on the value of existing coverage. Most important: "Be careful not to overly disrupt the existing market and the current means for delivering prescription drugs, and thereby threaten the drug coverage many seniors currently enjoy." Amen.

Curiously, this is roughly the same conclusion offered by David Walker, Comptroller General of the United States, the chief of the General Accounting Office (GAO). Testifying before the Joint Economic Committee on April 10, Walker called attention to the impending cost explosion in Medicare, and cautioned about the need to be very careful in designing a prescription drug benefit. Said Walker: " the addition of a benefit that has the potential to be extremely expensive such as prescription drug cover- age should be focused on meeting the needs deemed to be of highest priority. This would entail targeting financial help to beneficiaries most in need those with catastrophic drug costs or low incomes and, to the extent possible, avoiding the substitution of public for private insurance coverage. As I continue to maintain, acting prudently means making any benefit expansions in the context of overall program reforms that are designed to make the program more sustainable over the long term instead of worsening the program's financial future."

The option that would meet these criteria is the creation of a prescription drug discount card for seniors without access to coverage, and the establishment of a means-tested medical savings account mechanism for drug purchases. This is, in effect, the proposal developed by scholars at the American Enterprise Institute and the Galen Institute. It targets the needy, and doesn't disrupt those coverage of those who have it; it permits tax-free contributions to a drug account program for those who want it; but all of the transactions would be taking place within a free-market framework, without the rationing and price controls that are the bane of Medicaid.

Crazy Incentives and Catastrophic Costs

Next year Medicare beneficiary premiums, even without any drug benefit, are going to go up by more than 12%. Hospitalization, not prescription drugs (which account for only 10 cents out of every medical dollar), is the largest expense. But, for most normal human beings, a hospital admission is not a matter of choice. And here is where Medicare's incentives get positively weird. There is what GAO calls a "relatively high deductible" of $840 for admission to a hospital. But for more routine medical services provided by doctors, which are generally more open to discretionary patient decision-making, the deductible is set by Congress at artificially low levels. Walker notes that Medicare has not increased the Medicare deductible since 1991: "For the last 12 years, the deductible has remained constant at $100 and has thus steadily declined as a portion of beneficiaries' real incomes. Adjusted for inflation, the deductible has fallen to $74.39 in 1991 dollars."

Another serious problem, of course, is catastrophic coverage. As the GAO has reported, based on 1999 data, about 1 million seniors were liable for medical costs exceeding $5,000, and about 260,000 were liable for more than $10,000 in out-of- pocket costs. Private employer-based plans typically have catastrophic limits of about $2,000 per year for an individual. Thus, Medicare beneficiaries have to buy supplements in order to obtain coverage for high-end costs, and most do.

But the politically engineered structure of the Medi-gap market basically establishes first-dollar coverage for Medicare services, thus increasing overall Medicare spending. It would be hard to design a program with worse incentives.

Boomers Only?

The transition issues are stimulating the search for alternatives. One idea is the creation of an entirely new system just for the Baby Boomers. Congressman Charles Norwood (R-GA) is arguing that Medicare debate should go down two distinct but inseparable tracks. First, simply keep all of the current and near retirees in the current Medicare program. Give them some sort of a drug benefit and end that political debate once and for all. Second, create a new system based on private options for the Baby Boomers and let them enroll in the new system in 2011 or some other future date. Skeptics fear that Norwood would get the drug benefit for the current senior population, but the major Medicare reform for the next generation of seniors would be scuttled by Congressional delaying actions, and with guaranteed long-term misery.

Long-term Financial Misery?

GAO has reminded Congress again that spending for federal entitlements plus net interest on the federal debt accounted for 63% of the budget in 2002, compared with 32% in 1962. This time, there is a detectable urgency in the tone of the GAO presentation. Walker stated: "From the perspectives of the program, the federal budget and the economy, Medicare in its present form is not sustainable. Acting sooner rather than later would allow changes to be phased in so that the individuals who are most likely to be affected, namely the younger and the future workers, will have time to adjust their retirement planning while helping to avoid related "expectation gaps."

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