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Volume 59, No. 3 March 2003


In grade school, we called it "Indian giving."

In Europe, the U.K., and outposts of the erstwhile British Empire, it is called a "clawback." When government promises more than it can deliver, or makes an error in calculation, it simply takes the largesse back from the beneficiaries, be they retirees, provincial taxpayers, recipients of the Australian Baby Bonus, or Atlantic fishermen. If there is excessive demand for their services, Canadian physicians are expected to work without pay. Ontario physicians can have thousands of dollars in fees clawed back for "not doing enough paperwork to justify billing"; if they appeal and lose, they must pay the cost of the audit and the appeal (Saturday Sun 11/16/02).

In the U.S., attempts to delay the bankruptcy of Medicare involve fee cuts for physicians' future services. But the retroactive "recovery" of payments made for services rendered years previously is far more vicious than the dreaded clawback.

The limit on shifting costs to private payers has been reached. However, as columnist Debra Saunders has pointed out, "when you get to the point where you can't pass on costs, you can still pass on the blame" (Az Daily Star 12/20/02).

The penalties in the False Claims Act (FCA) treble damages plus up to $11,000 per "false claim" offer large cash infusions without the political hurdle of a benefit cut or tax increase. Doctors can be targeted one at a time and they can expect little support from organized medicine, and usually less-than-competent help from their attorneys.

The best targets are highly productive physicians over the age of 50, who practiced during the golden years of open-ended payments from both Medicare and commercial insurers. They have assets to pay huge settlements and are terrified of spending years in prison with racketeers and thugs under such criminal statutes as mail fraud or money laundering.

From FCA suits, the Dept. of Justice claims to have collected $10 billion since 1986, including $1.2 billion in 2002 of which almost $1.1 billion resulted from qui tam actions. The Office of Inspector General (IG) in the Dept. of Health and Human Services (HHS) claims to have saved $21 billion in 2002 through audit disallowances, monetary penalties, and IG cost-saving recommendations (BNA's HCFR 1/8/03).

If a "pattern of overpayments" extends a single month past the 6-year statute of limitations, the government can demand repayment for the entire period in which overpayments occurred, a tactic that has been upheld in both criminal and civil law. Moreover, if a provider discovers overpayments that stopped before the six-year mark, failure to disclose could lead to a charge of fraudulent concealment. A creative prosecutor could parley that into a conspiracy charge under the FCA. Since the criminal statute of limitations runs 5 years, a provider would be vulnerable until 2007 for not disclosing overpayments made from 1992-1996 (Medicare Compliance Alert 5/20/02).

The District of Columbia and 13 states now have FCA-like statutes, including Arkansas, California, Delaware, Florida, Hawaii, Illinois, Louisiana, Massachusetts, Nevada, Tennessee, Texas, Utah, and Virginia. Pennsylvania and Connecticut could pass such laws in 2003. Prosecutors in California have collected hundreds of millions of dollars through the State FCA. The "best" statutes allow recoveries for fraud against private insurers as well as Medicaid (Medicare Compliance Alert 12/9/02).

It is impossible to say what percentage of recoveries is for true fraud, and what for inadvertent violations of rules.

Watch for Stark II (see p. 3), which creates crimes of "referral," to be an additional trigger for FCA penalties.

While the clawback of physicians' lifetime accumulation of assets could devastate the profession, it could not possibly save the Medicare program. Using government figures, Tom Miller of the Cato Institute states that "the net present value of negative cash flow (the funds needed to cover projected shortfalls) over the next 75 years for Medicare under current law is $12.8 trillion. That's $12,800,000,000,000 if you paid off the intergeneration balloon note today" ( www.cato.org/dailys/01-28-03-2.html). If an average net of $1 million could be extracted from each of the 841,298 physicians who bill Medicare, it would cover only about 6% of that note.

Price controls and the mere threat of prosecutions and fines are resulting in a different type of clawback: withdrawal of services. Others are now reporting what AAPS biannual Medicare surveys have shown for years (www.aapsonline.org, search for "Medicare survey"). The ACP/ASIM, for example, states that fewer than two-thirds of participating physicians plan to renew their Medicare contracts for 2003, and only one in five physicians who now accept new Medicare patients will continue to do so (White House Bull 1/21/03). In the Portland, OR, metropolitan area, 60% of internists and family physicians are not accepting new Medicare patients (Neurol Today 10/02). An AMA study showed that nearly half the surveyed physicians will begin to limit, or limit further, the number of Medicare beneficiaries they treat. By 2005, Medicare patients may have access to little more than half of American physicians (NCPA Brief Analysis 421, 10/22/02).

As independent physicians retire early, and younger physicians are saddled with student debt and increasingly costly regulations, more medical care will be under centralized control, facilitating acceptance of "practice guidelines" and explicit rationing.

As financial pressures build, the only way to offer, or to maintain access to optimal care, is by escaping government dependence, HIPAA rules, and third-party overhead: that is, by implementing the Non-Participation Policy that AAPS has advocated since its founding, and by remaining, becoming, or seeking care from HIPAA non-covered entities.

HIPAA Countdown

As the April 14 deadline for Privacy Rule enforcement draws near, both noncovered and covered entities are asking:

Is HIPAA here to stay? Many authorities, lawyers, and the expanding compliance industry assert that it is. However, a PricewaterhouseCoopers spokesman said at the Sixth Annual National Congress on Health Care Compliance that "it's an open issue whether the HIPAA [transaction] rule will fail or not.... I become more of a pessimist as the weeks go by."

What does "reasonable" mean? Tom Hanks of Price- waterhouseCoopers states that "no entity will be `compliant,' mostly because we don't know what compliance really means until we can define the 200+ uses of the word `reasonable' in the privacy rule" (HIPAA Compliance Alert 1/03).

Will most practices be ready? Massive noncompliance by physicians is expected (ibid.) The most important statistic from a Health Care Compliance Association (HCAA) readiness survey is that only 8.5% responded (Eli Research Health Information Compliance Alert 12/02). Testimony before the NCVHS suggested that HIPAA compliance was so costly and time- consuming that many entities would exhibit a "catch me if you can" disposition (ibid.) or become noncovered.

What is an employee? When a practice approaches a threshold for application of federal employment rules or the Administrative Simplification Compliance Act (ASCA), definitions are crucial. Circuit Courts disagree on whether physician shareholders count. In Clackamas Gastroenterology Associates, P.C., v. Wells, the Supreme Court will answer that question and possibly tell whether there are ways to structure a practice group so as to attain the desired result (M.D. News Phoenix Metro Valley 12/02).

Do covered entities become noncovered if they stop filing electronic claims, even after April 14? According to e-mail received from [email protected] and copied electronically: "Yes, this is true. If you do not conduct electronic trasactions, you would become exempt from complying with HIPAA requirements. However, this goes against HIPAA's intent of transitioning the the health care industry from a paper-based industry to one that is electronic. Also, consider the cost savings that could possibly be incurred by moving to an electronic platform. But again, the decisionn is your's to make [sic.]."

How will the Privacy Rule be enforced? According to John Parmigiani of CTG Healthcare solutions, OCR is obligated to go through the entire investigative process once an allegation is made. "It's not quite Napoleonic Law (guilty until proven innocent)." Because OCR only has two enforcement people, there will not be any sweeps, but they will be looking for a poster child to set an example. "Document, document, document document everything about accessing, collecting, manipulating, disseminating, transmitting, storing, disposing of, and protecting patient data." When there's a dispute about policy, rulings will always come down in favor of the patient.

Alan Goldberg, Esq. (www.hipaalawyer.com) advises buying stock in paper companies: all 283 million patients will get a privacy notification [unless their doctor is noncov- ered]. The FTC will prosecute those who make false statements in the privacy notices, and State Attorneys General could invoke unfair and deceptive trade laws. If the patient refuses to sign an acknowledgement of receiving the notification, document that. If the patient disagrees with the policy, some attorneys may advise the physician to decline to accept the patient.

What can patients do to keep their records confidential? They might pay out of pocket for services; consult only physicians who are noncovered entities; use a pseudonym; ask to keep all copies of their record in their own possession (State law permitting); request a copy of all old records (so that information can be made available as needed) and send a notice to physicians explicitly denying permission to release information for any purpose without specific written consent (recognizing that this request might have no legal standing).

Can Medicare carriers refuse to pay paper claims? No. According to a telephone conversation with Pamela Davis of Cigna, the carrier has no way of finding out the size of a physician's staff. It is up to CMS to enforce the ASCA. She advised that physicians who have an EDI number terminate it if they revert to paper claims. (This would also assure that a billing service could not accidentally submit electronic claims on a physician's behalf.)

Can other insurers refuse paper claims? Physicians need to review their contracts and strike clauses requiring electronic claims submissions. It is advisable to involve patients in this, as paper claims protect their privacy.

Does having a contract with a "business associate" such as your liability insurer make you a covered entity? Not if you don't sign a statement saying that you are covered. If presented with a contract containing such a provision, try lining it out. So far, this has been accepted.

What should covered entities do? Beware. One can spend a large sum for error-filled materials; CMS does not certify the reliability of vendors. OCR may produce model documents. Download "HIPAA 101" from http://[email protected]. Consider restructuring your practice to be noncovered.

What about doctors who practice in Texas? Texas passed a law in 2001 defining all medical professionals as "covered entities." A State cannot apply federal penalties to physicians who are otherwise noncovered; however, State law provides for delicensure for noncompliance. AAPS will work with Texas physicians toward repeal or legal challenge.

HIPAA is... "the largest unfunded mandate in federal history" (Alan Goldberg, Esq.); High Income Potential for Aggressive Attorneys (a North Carolina physician).


Thrive Not JUST Survive Site Nominations Open

It was standing room only again in San Antonio on Feb. 1 for Thrive not JUST Survive 2 Sharkproof your Practice. Physicians and staff from Texas and across the country heard how to avoid prosecutions (see p. 3) and sham peer review, to opt out of Medicare, to eliminate third party contracts, and to market their practices ethically. Our next workshop will be in May or June, in a location to be determined. This is an excellent opportunity to promote AAPS to colleagues in your area, but we do need local co-sponsorship for CME credits. If your city fits the bill, please contact AAPS Public Affairs Counsel, Kathryn Serkes at 202.333.3855 or [email protected].

Stark Time

The lack of final regulations will not stay enforcement, according to Robert G. Homchick, Esq., of Davis Wright Tremaine, speaking at the Sixth Annual Congress on Health Care Compliance held in Washington, D.C., Feb. 6-7. The Office of Inspector General (OIG) likes Stark II because it's a big target a testament to American ingenuity in use of the law, and its unintended consequences.

Stark I applies only to clinical laboratory services. Stark II, for which proposed regulations were issued in 1998, applies to referring patients for certain other designated services to facilities in which the physician or an immediate family member has a financial interest. The services include physical and occupational therapy, home health, radiation therapy, and durable medical equipment. Though a "tainted" referral is the crime, the penalty attaches to billing.

"The breadth of the statute and its many ambiguities ...have made it a labyrinth of complex definitions and picayune exceptions. The law invades the most basic financial relationships involving physicians and attempts to impose static rules on an dynamically evolving delivery system."

For married couples, the law is a nightmare. It may mean that husband and wife can't practice in the same city.

Despite the complexity of the rules, only two advisory opinions have been issued since January, 2001.

To date, most Stark enforcements have involved the False Claims Act (FCA), which authorizes private "whistleblowers" to sue on behalf of the government and recover part of the damages. "Under the FCA, the government has abdicated its prosecutorial discretion to bounty hunters." If the violation involves a physician and a hospital to which he regularly refers patients, the potential liability is staggering, Homchick said.

"If anyone expected a `kinder and gentler' environment under a Republican administration accused of being in the pocket of big business, forget it," commented AAPS Public Relations Counsel Kathryn Serkes. "In previous years, the OIG always prefaced speeches about enforcement with assurances that the OIG was not out to get honest doctors, and that most doctors are honest. The new Inspector General, Janet Rehnquist, daughter of the Chief Justice of the Supreme Court, says `we're going to get you.'

"Health care fraud enforcement is one of the biggest money- making schemes in government, and the agencies know it. As the economy keeps tanking, expect more enforcement at both federal and state levels," Ms. Serkes concluded.

Many of the presentations, including Mr. Homchick's, can be downloaded from www.compliancecongress.com.


Fighting Back: Prosecutions and Audits

At the AAPS meeting in San Antonio, attorney William Sutton of Greenberg Traurig in Orlando, FL, provided a self-defense primer for physicians targeted in fraud investigations.

"Coding and documentation errors are commonly used as the basis for criminal prosecutions and civil fraud actions," he warned. The government has a scorekeeper mentality and does not hesitate to use intimidation tactics derived from the war on organized crime.

All too often, defense attorneys are too "clubby" with the prosecutors, or simply inadequate. They engage in repeated "preliminary" meetings and ongoing "settlement" discussions, and submit "thought pieces" about why the agent is wrong.

"All initial attacks on the government's case should be in the form of a motion to dismiss," he stated. This should argue the failure of the government to plead allegations of fraud with the requisite particularity (who, what, when, where, and how in specific detail).

He advised retaining professional investigators, rather than law firm associates, to undertake aggressive discovery to identify the specific claims that were improperly billed and the exact law that indicates that the claims were wrong.

"Prepare with a view toward trial," he said.

Mr. Sutton's written remarks, along with other presentations from the meeting, are available in the "Members Only" section.


Tip of the Month: Mr. Andrew Schlafly's top 12 questions for jury selection in alleged medical fraud cases: 1. Do you spend much time on the internet? 2. Do you like to argue? 3. Would it bother you a great deal if an innocent man were imprisoned? 4. Do you know anyone who was unfairly accused of a crime? 5. Have you ever unfairly been given a traffic ticket? 6. Do you dislike taking orders? 7. Do you often disagree with authority? 8. Do you prefer individual to group activities? 9. Do you think we have too many rules in society? 10. Do you think the government is often unfair? 11. Do you consider yourself disorganized? 12. Do you rely heavily on your doctor?


Pain Doctors Convicted as Drug Kingpins

The rules of medical licensure boards on prescribing narcotics to chronic pain patients apparently don't matter. The federal Drug Enforcement Administration (DEA) and federal prosecutors have the final say on whether to prosecute doctors as drug dealers for illegally distributing drugs, particularly OxyContin, "outside the usual course of medical practice."

On Feb. 11, in Myrtle Beach, South Carolina, prosecutors got a jury verdict against three physicians formerly employed by a pain clinic for "conspiracy to unlawfully distribute and dispense controlled substances and conspiracy to launder money." Federal mandatory minimum sentences apply to these charges, so each physician faces at least 20 years in prison. Since the jury spared them conviction on the charge of "conspiracy to distribute controlled substances resulting in seriously bodily harm," they were not eligible for a life sentence (Sun News 2/11/03). Thus, the federal Bureau of Prisons will probably not be burdened with responsibility for their medical care in their old age.

Drs. Michael Jackson, Deborah Bordeaux, and Richard Alerre stated that they had no intention of violating the law but prescribed painkillers in good faith to patients who lied about their pain. The prosecutors alleged that they performed "little or no medical exams" at the same time that they were doing "unnecessary tests." Testifying against them was their former employer, Dr. D. Michael Woodward, who pleaded guilty and agreed to help convict the doctors he hired in order to get his own sentence reduced.

The prosecutors hope to "send a message," although Eldon Wedlock, a law professor at the University of South Carolina doesn't think the verdict will affect pain management.


AAPS Calendar

Sept. 17-20, 2003. 60th annual mtg, Point Clear, AL.
Oct. 13-16, 2004. 61st annual mtg, Portland, OR.


Prescription Writing in New York. Remember when it took only 10 seconds to write a prescription? The DOH Medicaid Update for October 2002 has 20 pages of instructions on the New York State Medicaid Mandatory Generic Drug Program. A determined physician could still order a brand-name drug if he spends about 45 minutes filling out the worksheet, begging for prior authorization by phone, and filing the worksheets in the patient's chart. Although "brand provides a superior outcome/result over available generic agents" is an "approved reason" for seeking a general exemption for a drug (only nine have achieved this distinction), it is not an "approved reason" for ordering the drug for a specific patient.

Soon there will be no need for physicians in New York. The State appears to want to take over the practice of medicine and use physicians only for filling out forms. Why not let the State do the forms also? Doctors should not participate in the process of being used and abused by the State by continuing to see Medicaid beneficiaries.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY


Congressional Bypass. There is not enough money in the universe to fund the Medicare monster. National bankruptcy is the inevitable result. Congress is powerless to resist the seniors. Mass opting out is the only way to bypass Congress.
Thomas LaGrelius, M.D., Torrance, CA


Physicians Have Two Choices: They can remain "insurance doctors" and become burned out and bitter. Or they can stop contracting with insurance carriers and go back to a rewarding profession of being a patient advocate, teacher, and healer. It can be done, but you have to have the courage to work for your patients and not for the insurance carriers.
Kristine L. Soly, M.D., Yarmouthport, MA


The Only Answer. Fee-for-service insurance worked fine until the federal government brought us Medicare, Medicaid, and other entitlement programs that enabled the federal bureaucracy to become deeply entrenched in the market, opening the way to massive fraud, artificial price controls, waste, heavy-handed administration, and cost-shifting. What we have is essentially a federally mandated social insurance program disguised as private commercial insurance.

Want to fix the system? Get the federal government out of the equation. Things will return to normal.
Danny M. O'Grady, CLU, Midland, TX


Gatekeeper Model Backfires. When physicians found out that the HMO kept the withhold regardless of how restrictively they practiced, they simply referred every patient to a specialist. Board-certified primary care physicians send diabetics to endocrinologists, and sick patients to hospitalists. They don't want to be bothered or to spend time with patients. After all, time is money. The gate is now always open. Social engineers forgot that every system can be gamed.
Arthur H. Gale, M.D., St. Louis, MO


Sell! That's the only advice to give about the medical insurance industry. Physicians should be dropping all insurance contracts. The fraud they perpetrate dwarfs Enron's. Humana and Prudential paid cash bonuses of $1,500 to reviewers every time a hospital admission was denied. In addition, professional liability insurers are forcing doctors to stop doing procedures they were trained for. Third-party payment is a public health hazard. The most efficient care is through Medical Savings Accounts. If your insurance agent doesn't know about MSAs, get another agent; demand that your employer offer them.
Samuel A. Nigro, M.D., Guilford, OH


Avoid Triangulation. The only way to survive in today's complex, insurance-based medical world is to go private in every way. Eliminate all third parties, at least those in a triangular relationship with patients and physicians. The patient-physician relationship has no third party in the room.

We must re-learn quickly about direct patient payment for medical care if we are going to salvage something of value from medicine. If one generation of doctors quits before the next is adequately trained, it will be a sad situation for all.

The concept of old-fashioned medical care as in Doctor at Your Door, Inc. was not easy to set in motion. But we can now say unequivocally that it works just fine. Drop by and see us there's even time for a cup of coffee!
N. Bryan Smith, M.D., Knoxville, TN


Employees Prefer Benefits, but... because of moral hazard, a dollar in after-tax benefits will only buy 70 cents worth of medical care, about what one would have gotten from a dollar of before-tax salary. Employees are no better off for the arrangement, but those who can't share in the tax dodge are 30% worse off. The worker with employer-provided insurance, in Iago's words, "takes that which not enriches him, but makes me poor, indeed" (Othello III,iii).
George Fisher, M.D., Philadelphia, PA


Conflict of Interest. The loss of ethical standards results not from commerce but from doctors willingly signing third-party contracts that make them de facto advocates of the insurer. Rhetorical grandstanding cannot make them patient advocates.
Robert P. Gervais, M.D., Mesa, AZ

Legislative Alert

A New Health Care Agenda

In his January 28th State of the Union address, President Bush focused on the intractability of the brutal dictatorship in Iraq. But he also made his domestic priorities crystal clear: economic growth, tax policy, and health care reform. This is no surprise. Anyone who has been following the debate closely over the past two years realizes that Bush, perhaps more so than any other President, with the conspicuous exception of Bill Clinton, has developed an extraordinarily ambitious and detailed health policy agenda.

He has also outlined, with spare language, the general direction of the agenda: consumer choice and free-market competition. Bush repeated a common refrain: the American medical system is highly productive, reflecting the skill and resourcefulness of physicians and medical scientists, particularly their capacity for innovation.

But then, the President said, Americans are facing serious problems: Medical costs are going up, and too many Americans cannot afford medical insurance.

The key policy agenda was contained in one neat paragraph of the President's speech: "These problems will not be solved by a nationalized health care system that dictates coverage and rations care. Instead, we must work toward a system in which all Americans have a good insurance policy, choose their own doctors, and seniors and low income Americans receive the help they need. Instead of bureaucrats, and trial lawyers, and HMOs, we must put doctors, and nurses and patients in charge of American medicine."

Proposed reforms will focus on three areas:

Medicare: "Seniors happy with the current Medicare system should be able to keep their coverage just the way it is. And just like you, the members of Congress, members of your staffs, and other federal employees, all seniors should have the choice of a health care plan that provides prescription drugs. My budget will commit an additional $400 billion over the next decade to reform and strengthen Medicare. Leaders of both political parties have talked for years about strengthening Medicare I urge the members of this new Congress to act this year." In other words, the model for Medicare reform is the Federal Employees Health Benefits Program (FEHBP).

Medical Tort Law: "To improve our health care system, we must address one of the prime causes of higher costs the constant threat that physicians and hospitals will be unfairly sued. Because of excessive litigation, everybody pays more for health care and many parts of America are losing fine doctors. No one has ever been healed by a frivolous lawsuit and I urge Congress to pass medical liability reform."

Expansion of Private Insurance Coverage: The President, in his budget, has proposed, again, to provide $89 billion in tax credits over the next ten years to cover those Americans who do not get medical insurance through their job. The Left desperately wants these folks enrolled in Medicaid. The policy significance of the President's proposal is that it would radically change federal tax policy and establish the principle of individual tax relief for the purchase of private coverage.

Mediscare Part 1: Twisting and Shouting on Drug Coverage

Literally within minutes of the President's address, Governor Gary Locke (D-WA), in presenting the official Democratic Response to the State of the Union, outlined the now well-worn vector of attack on the President's Medicare reform agenda, even though no specifics of the Medicare plan had been presented in any detail to Congress. The crucial line of attack was this one: "Our parents shouldn't be forced to give up their doctor or join an HMO to get the medicine they need." Senator Debbie Stabenow (D-MI), within 24 hours of the President's address, said roughly the same thing.

This is a baseless accusation. The sheer boldness of it was that Locke made the charge, without any evidence, before millions of Americans on national television. Since then, it has been repeated like a mantra by Stabenow and many others.

Neither Governor Locke nor Senator Stabenow had seen the President's Medicare plan. The New York Times reports on the internal documents on the President's plan did not bear out any exclusive enrollment in a Health Maintenance Organization (HMO) as the basis for securing a prescription drug coverage; indeed, according to the Times, while internal administration documents did list HMOs, they also listed fee-for- service plans and Preferred Provider Organizations (PPOs). What the President explicitly said is that his Medicare reform program would be modeled on the FEHBP, which offers a variety of plans. If there was the slightest doubt, the January 28 White House summary points on the State of the Union clarified the issue neatly: "All seniors will be given choices of a variety of health plans similar to those enjoyed by Members of Congress."

The facts, then, are exactly the opposite of what Governor Locke and Senator Stabenow clumsily imply. By law, the Office of Personnel Management (OPM), the agency that runs the FEHBP, is authorized to contract with fee-for-service plans, including government-wide service plans such as Blue Cross and Blue Shield, as well as employee organization plans, such as the mail handlers union plan and the American Postal Workers Union plan. OPM is also authorized to contract with "comprehensive" health plans, which are state-based HMOs. All offer prescription drug coverage, and that coverage is generous. According to the General Accounting Office (see GAO, The Federal Employees Health Plans: Premium Growth and OPM's Role in Negotiating Benefits, December 2002), about 70% of all FEHBP enrollees, both active employees and retirees, are enrolled in fee-for- service plans. The GAO states: "Enrollees in these plans can choose their own physicians and hospitals and the plan reimburses the provider or the enrollee for the cost of each covered service provided up to a stated limit." GAO also notes that plans often offer two levels of benefits, increasing the variety of choice available to federal employees and retirees, and 11 of the 13 national fee-for-service plans had PPO networks. What about the dreadful HMOs? Only 30% of all FEHBP enrollees choose HMOs. OPM has recently specified that among all federal retirees, only 15.6% have chosen to enroll in HMOs. Yes, they have drug coverage, but so do the others. The point is simple: Federal employees are allowed to choose HMOs, just as they can choose the APWU Health Reimbursement Account option. But no one is forced into an HMO to get drug coverage.

Mediscare Part II: The "Privatization" Angle

Perhaps Congress should "privatize" Medicare: just flat out "voucherize" the current benefits, and otherwise take the federal government out of the program entirely. OK. Americans may want to have a serious debate about that. And that is fine. And when a senior member of Congress puts that on the table, that debate can begin in earnest. But, excuse us, Governor Locke's nationally televised charges notwithstanding, that is not what the President proposed.

This is where Locke and his leftist allies in Congress have decided to break diplomatic relations with reality. The model for the President's Medicare program is not conventional private employer-based medical insurance, which routinely restricts choice and blocks competition. Nor is it that truly Clintonesque model of top-heavy central planning and administrative pricing known as the "Medicare+Choice" program, the Congressionally created mess, in which CMS controls every blessed aspect of private plans' operations and then adds insult to injury by routinely holding down reimbursement increases to 2% a year when costs are rising at double-digit paces.

To repeat, the model for the President's plan is the FEHBP. Maybe the FEHBP should be a private or "privatized entity," and that, too, would be worth a real debate. Maybe the OPM functions could be contracted out to a private firm. But, once again, that proposal is decidedly not on the table. FEHBP is a government program. It is run by the OPM, which is a government agency. The OPM civil servants would be surprised to learn that they are running a "private" system. Its funding, roughly $25 billion a year for federal employees, retirees, and the other 9 million dependents, is each year appropriated by Congress. Curious, isn't it, how Members of Congress do not want to have a national discussion about the key features of their own medical program?

So, what is the point of even making the "privatization" charge? Private hospitals get Medicare funds. So do hospitals and clinics with religious affiliations, and physicians in private practice. Whether the Medicare reimbursements are too high, too low, or just right, is quite beside the point. Perhaps there is something somehow just not right about insurers getting Medicare funds. And that may be the key leftwing point. Third-party payment is okay, as long as the federal government is the third- party payer or controls every business decision of that third- party payer. In another words, once again, it's the structure, stupid! So, chalk it up to an attempt to terrify senior citizens, coupled with a reflexive leftist hostility to private insurance.

Medicare: Why Reform Can't Wait

The President's crucial point is that Congress has been dithering around with this issue for years, and the delays are going to prove very costly both to Medicare patients and the taxpayer when 77 million baby boomers start to retire in just eight years. If Congress does not get serious about this issue, every one of us will face exploding costs, crushing taxation, or savage benefit cuts, and certainly a lowering of quality care in retirement. The President knows this; too many in Congress do not.

Medicare's "financial condition" may look fine on paper by Congressionally ordained government accounting standards. The CBO says that on paper, Medicare is running a "surplus" of $820 billion between now and 2012. But the Medicare program is being keep afloat, as CBO continually reminds us, not by Medicare payroll taxes or premiums, but by larger and larger drawdowns from the general revenues. Without these infusions, CBO acknowledges that Medicare would have a $1.1 trillion deficit. Nevertheless, House Democrats offered a Medicare drug benefit last year that would have cost taxpayers $800 billion over ten years and thought nothing of it.

Responsible adults in Washington policy experts at the GAO and CBO have warned Congress, repeatedly, that they should not repeat, not add prescription drug coverage to a program that is already in deep financial trouble, without serious structural reform. The Medicare trustees have also repeatedly said that the program should be structurally reformed and made ready to absorb the demographic challenge that is inescapable.

Medicare lacks any serious market competition to help control costs. However, under its bizarre system of administrative pricing, doctors are facing an 18% pay cut over the next three years. Small wonder that more and more doctors are refusing to take new Medicare patients. The American Academy of Family Physicians said last year that 17% of its doctors are not taking new Medicare patients.

Moreover, Medicare's managerial mess deepens with every passing hour. Based on complex price controls and central planning, it is governed by literally tens of thousands of pages of rules, regulations, guidelines, and paperwork. Doctors and hospitals are literally drowning in Medicare paperwork. There is no flexibility in the system and no rational economic incentives to provide the highest quality of care, including coordinated care of very sick Medicare patients.

Medicare imposes enormous administrative burdens on doctors and hospitals. In 2001, the American Hospital Association estimated that for every hour of care given to a Medicare patient, hospital officials spend at least one half hour complying with Medicare rules and Medicare paperwork. It is anyone's guess how much Medicare costs are being shifted onto the 700,000 doctors that participate in the program. No one has ever done any serious econometric analysis of the costs on physicians. This much is certain: Every dollar spent complying with bureaucratic red tape is a dollar less spent on patient care.

The President seems to know that. Is Congress listening?

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