Tucson Blvd. Suite 9
Tucson, AZ 85716-3450
Phone: (800) 635-1196
Hotline: (800) 419-4777
of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto
Volume 59, No. 6 June 2003
LAW ENFORCEMENT, OR WAR
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
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
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
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
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
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
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.
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
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
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
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
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
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.
May 30, 31. Board of Directors meeting, seminar,
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
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
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
Don Kreutzer, M.D., Clarksville, MO
Legislative AlertThe 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
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
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
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.
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 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
Robert Moffit is a prominent Washington health policy
analyst and Director of Domestic Policy at the Heritage