Volume 56, No. 5 May 2000

WHO OWNS THE LAW?

Governments "deriv[e] their just Powers from the Consent of the Governed," wrote Thomas Jefferson in the Declaration of Independence-not from the Divine Right of Kings.

"The citizens are the authors of the law, and therefore its owners, regardless of who actually drafts the provisions, because the law derives its authority from the consent of the public, expressed through the democratic process," wrote the U.S. District Court in State of Georgia v. Harrison Co. (548 F. Supp. 110 (N.D. Ga 1982)).

Today, laws called "regulations" are often drafted by a "public-private partnership," which is aloof from the democratic process. The private partners are experts-their status is more like that of philosopher-kings than of mere citizens. Their ownership rights in the law are now being tested in the U.S. Circuit Court of Appeals for the Fifth Circuit in Peter Veeck v. Southern Building Code Congress Int'l (99-40632).

The lead party on an amicus brief supporting the SBCCI is the American Medical Association, although no reference to the brief is to be found on the AMA web site. The case is essential to the AMA's lucrative CPT code monopoly.

Mr. Veeck, doing business as Regional Web, purchased SBCCI's model building codes and posted them on the Internet, where they could then be accessed without charge. Mr. Veeck asserted that the model codes became law and thus entered the public domain when municipalities adopted them and required their enforcement.

The U.S. District Court for the Eastern District of Texas, Sherman Division (4:98CV63), granted defendant's motion for summary judgment and awarded $2,500 in damages plus attorney's fees to SBCCI. The Court found that copyright protection provided the necessary economic incentive to produce and maintain the codes, and that there is an increasing trend for government adoption of such codes.

The AMA and other amici write that "loss of copyright protection ... would drastically undermine the ability of standards developers to fund the ongoing creation and updating of these important works, and would therefore harm the governments and the public who benefit from [this work]."

Codes are readily available, amici assert: "Veeck can point to no reported case where a lack of notice has been raised as a defense to a failure to comply with a provision contained in a model code or standard." Moreover, in Practice Management Information Corp. v. AMA, the Ninth Circuit found that the AMA "ha[d] no incentive to limit or forego publication," so that the due process requirement of free access to the law did not require copyright invalidation.

"Competitors could develop better coding systems and lobby the federal government...to adopt them"; the AMA's copyright "does not stifle independent creative expression in the medical coding industry," write amici.

An historical analysis is presented in an amicus brief by Malla Pollack of the Florida Coastal School of Law (not admitted by the Court for unspecified reasons): "Payment through a monopoly in a government function ... was [a] version of taxation without representation." The British Crown lacked both the income and the number of civil servants required to run an adminis- trative state that minutely regulated social, moral, and economic activities. Therefore, the Crown paid its servants indirectly through monopoly entitlements that allowed them to collect fees from each subject who used their services. This financial bypass "undermined Parliament's ability to control the Crown's actions" [ regionalweb.texoma.net].

Although touted as "free," the codes produced by private agencies are actually more expensive than if the government entity had paid for them; the price is merely transferred to others. The cost is subject neither to market pressure nor to the public discussion that attends tax increases.

Cost, while important, is less so than the effect of private lawmaking on expanding the power and fundamentally altering the nature of government. Moreover, the very nature of medical practice itself is being deformed by CPT codes and the AMA/HCFA partnership (see, for example, physician comments on the AMA/HCFA 1997 E&M Documentation Guidelines, posted at www.aapsonline.org).

Although the CPT codes-initially a system of nomenclature for clinical services-were not designed for billing purposes, they provided the structure for implementing Medicare price controls. As a subcontractor of the Harvard School of Public Health, the AMA helped develop the Resource-Based Relative Value Scale (RB-RVS)-instead of fighting the price controls in Congress. Outsiders, such as the American Society of Dermatology, are excluded from the process. "Access" requires buying expensive, frequently revised books, and subscriptions to publications such as the Correct Coder for Edits, changed quarterly. The $499 annual subscription is the charge permitted for about 37 periorbital Dopplers before that was reduced to $0 (and practitioners notified before the fact only by such a publication).

A physician or office manager may be convicted of a felony and imprisoned because of a government witness's interpretation of a CPT code. Yet the AMA has no fiduciary duty to provide straightforward answers about interpretations. Coding director Celeste Kirschner advised a physician who is appealing such a conviction to engage a consulting service.

Billing and documentation standards are but the beginning of the legally enforceable "guidelines" for medicine that HCFA's private partner aspires to write.

AAPS plans to move to intervene in the Texas case. Privately owned law is not just a matter of selling rope, but of forcing citizens to pay for their own shackles.

CDC Refuses to Deny Conflict of Interest on Vaccine Policy Committee

On April 6, the U.S. House of Representatives Government Reform Committee, chaired by Dan Burton, held a full day of hearings titled "Autism: Present Challenges, Future Needs - Why the Increased Rates" to examine possible links between vaccines and autism. AAPS Public Relations Counsel, Kathryn Serkes, attended the hearings and filed this report.

Rep. Burton readily admitted his potential bias on the issue because of his personal experience: his grandson Christian, born healthy, suffered severe adverse effects within ten days of receiving his DTaP, OPV, Haemophilus, HepB and MMR inoculations. He began staring into space and shaking his head from side to side, and lost all language skills.

Government witnesses were not so forthcoming in admitting bias or conflict of interest. Dr. Paul A. Offit, a pediatrician who receives money from vaccine manufacturers to give pro- mandatory vaccine presentations across the country, is a member of the Advisory Committee on Immunization Practices (ACIP) of the CDC-the supposedly "independent" government group which makes recommendations on national vaccine policy. His official statement only acknowledged his "collaboration on the development of a rotavirus vaccine." When pushed by a question submitted to Rep. Burton by Ms. Serkes about his financial ties to Merck & Co., Dr. Offit would only admit an "apparent conflict- of-interest." [Dr. Offit pushed mandatory vaccines at a symposium underwritten by Merck at the August meeting of the American Legislative Exchange Council in Nashville, attended by Dr. Orient and Ms. Serkes; Dr. Orient was refused a place on the panel.]

Also speaking before the committee was Coleen Boyle, Ph.D., Chief of the Development Disabilities Branch of the CDC. When Rep. Burton questioned Ms. Boyle about ethical problems and subjectivity in allowing vaccine manufacturers and their agents, such as Dr. Offit, to sit on the ACIP and make recommendations for national vaccine policy, Ms. Boyle meekly responded, "That s a difficult question to answer."

When posed a direct question by Rep. Burton, "Is this a conflict of interest?" Ms. Boyle refused to answer. Her silent testimony reveals the truth.

Also speaking were parents with afflicted children and their representatives, researchers who believed their work suggests a possible connection between MMR vaccine and autism (and who have been denied NIH funding for continued research on this question), and Dr. Brent Taylor. Dr. Taylor is the lead author of a 1999 article entitled "Autism and measles, mumps, and rubella vaccine: no epidemiological evidence for a causal connection" (Lancet 1999;353:2026-2029).

Of the researchers, Dr. Taylor was the only one who demurred on releasing raw data for independent analysis. He said he "did not know" whether that would be possible.

The British Medical Journal touts the article in a headline "New research demolishes link between MMR vaccine and autism" (BMJ 1999;318:1643). Three days before the hearing, the AMA published a statement that "Vaccines do not cause autism," relying heavily on the Taylor article. The AMA asserts that "the incidence of autism was the same in children who received the MMR vaccine when compared to children who did not receive the vaccine." This would indeed be the pertinent comparison, but it is impossible to make with the data presented in the article: the authors focus on age at diagnosis in "cases vaccinated before or after 18 months of age and those never vaccinated." As the authors note, "MMR vaccine is given at around 12-15 months of age and the mean age at which parents of children with autism first report concern about their child's development is 18-19 months." Thus, "a close temporal association in some autistic children is expected by chance alone."

Of the 498 autistic children identified in the study, 389 (78%) were born after 1987. MMR vaccine was introduced in 1988. Thus, only 20% of the autistic children were born in pre-vaccine years even though the study's pre- and post-vaccine time periods were of approximately equal length. More than 86% of the children born after 1987 had received the vaccine before their second birthday; thus, only a very small contemporaneous control group of unvaccinated children is available.

Taylor et al conclude: "We hope our results will reassure parents...and help restore confidence in MMR vaccine."

"Data should be released data so that independent analysis can show whether the actual numbers vindicate the authors' hopes," states AAPS Executive Director Jane Orient, M.D.

National Medical Records...One Way or Another

At the end of three long days of meetings of the National Committee on Vital and Health Statistics, long after most reporters and spectators had bailed out, the bombshell was dropped. As summarized by Kathryn Serkes, "The federal government has decided to find a way to create a national database of patient medical records, and identify all the records, even though the public is against it and the funds for Patient Identifiers have been cut off by Congress. A rogue agency is trying to usurp the will of Congress and compromise our privacy, all in the name of `administrative simplification'."

Although the group has had extensive discussions about the need for unique patient identifier (UPI), several members now acknowledge that there are other ways to link the data.

From Vaccine Tracking to Complete Dossiers?

A bill introduced in the Colorado legislature, HB 1023, would have the state study the costs of purchasing free vaccines for practitioners who agree to provide immunizations at a price controlled by the state. It would also expand the board of health's information-gathering activities from infants to all children under 18. It would require that the state develop a comprehensive immunization and health-related information tracking system on individuals by July 1, 2001-and authorize the state to accept private funding to make this happen.

Colorado law already empowers the board of health to collect "epidemiologic" information, already very broadly defined to include almost any kind of personal information. School-based health clinics already collect and store information on "everything from a student's sexual habits, to his family's gun ownership, to whether his parents get along well and his friends obey the law," according to the Linda Gorman Independence Institute, Backgrounder 2000-E, 2/2/2000.

In the past, the All Kids Count program of the Robert Wood Johnson Foundation has paid the state $240,000 to develop the immunization program. Typically, the Foundation builds support by partial funding of staff positions. The more than $4.5 million in RWJF grants received by the state health bureaucracy has been "more than sufficient to populate it with people sympathetic to [RWJF's] radical view of health care reform."

Hearing Denied Dr. Huntoon

After 9 months of fierce battle with Upstate Medicare, AAPS President Lawrence Huntoon, M.D., Ph.D., who practices neurology in Jamestown, NY, finally received a Notice of Hearing for more than 100 periorbital Doppler claims that had been denied by Medicare. Before this time, all of the Medicare Hearing Officers reviewing his appeal have worked directly for Upstate Medicare. This time, an outside attorney was appointed.

Dr. Huntoon's hopes for a fair chance to present his case were dashed in the first few minutes of the "hearing." Officer James P. Kehoe, Jr., announced that as a nonparticipating physician, Dr. Huntoon had no right to appeal.

"Medicare has denied me the ability to charge for these services and I am entitled to an appeal; they've said so," stated Dr. Huntoon in a tape-recorded telephone conversation.

"Well, I don't know what Medicare has said; I'm just concerned with what I have to do," said Officer Kehoe.

"I'd have to ask why do they keep writing me and telling me that I'm entitled to a Fair Hearing."

Kehoe acknowledged having seen the letters but did not know the answer to the question.

"Are you saying that they are in error, that they are grossly negligent in sending me those letters?"

"I'm not commenting on what they say," replied Kehoe.

Kehoe referred to §§12005 and 12019 of the Medicare Carrier's Manual as denying the right to appeal to nonparticipating physicians unless they have specific authorization from each patient. These sections, however, provide for appeal for any assigned claim or for a "physician not taking assignment but held liable for indemnification under 1842(l)(1)(A)," or for services deemed "not reasonable and necessary." (The last applies only if the physician waives in writing any right to payment from the beneficiary!)

Dr. Huntoon contends that the broad authorization signed by his patients implicitly gives him the right to appeal denials. Additionally, because Medicare has recently reduced the allowed charge for a periorbital Doppler from $13.59 to $0 (the charge was $101 in 1991), denials have been converted to Limiting Charge Exception Violations, which are crimes.

Officer Kehoe informed Dr. Huntoon in writing that he was dismissing all except 9 claims, which were assigned. The amount at issue is $115.56, which meets the threshold of $100.

Dr. Huntoon has filed a formal complaint against Officer Kehoe for misstating the law and denying him due process.

Dr. Huntoon has also complained to Judith Berek, Regional HCFA Administrator, that Upstate Medicare routinely commits criminal fraud in claims denials and appeals. All three elements of fraud under the False Claims Act are alleged: (1) Existence of a claim: Upstate Medicare has a contract with HCFA to review claims, and it accepts government money for this service. (2) Falsity: While personnel are required to read materials sent by physicians in appealing denials, they routinely fail to do so, and may even falsely assert that requested medical documentation was not sent. Moreover, unqualified persons are routinely assigned to do medical necessity reviews. For example, the rationale given by Hearing Officer Sandra Shaw for allowing one case and not others was "totally ludicrous and lacked any scientific merit." (3) Actual knowledge, deliberate ignorance, or reckless disregard of the truth: Upstate Medicare, HCFA's private partner, is stated to be fully aware of the process. The claim review process is a total sham "because that is the way they have designed their system to work."

In response to the latest assertion by Linda Wytiaz, Team Leader, Program Inquiries, that no medical documentation to support the use of modifier 59 had been received, Dr. Huntoon sent Exhibit Q, 400 pages in length.

"I have been lied to repeatedly," states Dr. Huntoon. "I am absolutely outraged by this constant abuse from a tyrannical bureaucracy."

Fraud Prosecutions

DOJ/HHS Anti-Fraud Actions Up. The Fraud and Abuse Control Program established under the Health Insurance Portability and Accountability Act of 1996, run jointly by the Dept. of Justice and the Office of the Inspector General of HHS, won or negotiated more than $524 million in settlements in 1999 and collected more than $490 million. In 1999, federal prosecutors filed 371 criminal indictments in health fraud cases (16% more than 1998) and convicted 369 defendants.

While False Claims Act cases will continue to dominate in the short term, quality-of-care cases are expected to become more prominent as global payment systems expand (BNA's Health Care Fraud Report 2/9/2000).

Lab Owners Get Up to 180 Days. Two men charged with bilking Medicaid out of $1.1 million for "ghost patients" and lab services never performed got 180 and 40 days in the county jail, a two-year suspended prison sentence, and a $200 restitution fine (People of California v. United Diagnostics Laboratories, Cal. Mun. Ct. No. DJ99CF2300, 12/9/99-- ibid.).

Carrier Fined $144 Million; Managers Acquitted. Health Care Services Corporation, aka BCBS of Illinois, was charged with obstruction of federal audits and filing false information resulting in $1.3 million in unearned incentive payments. Four managers pleaded guilty, and four were acquitted, jurors recognizing that "cheating was not the company's policy and was not approved by management." Even the wrongdoers only did it to "help the company look better and save jobs" (ibid.).

Bankruptcy. In many settlements, the government is inserting a clause saying that if the provider files bankruptcy, the government still gets the full settlement. If the provider files Chapter 11, the government will reopen charges (Medicare Compliance Alert 2/28/2000). Total health care business failures are up 15.5% from 1996 to 1997.

Stealth Weapon. U.S. Attorneys are trying to motivate their peers to freeze the assets of providers they prosecute, even before an indictment is brought, to devastate the ability of the accused to hire an experienced attorney. Michael Runyon and David Reese Jennings argue that it is "prosecutorial malpractice" not to consider use of this tool in every case. It is easy to get an injunction from a judge. It is only necessary to show reasonable probability that fraud is ongoing: "you don't have to prove your case." The typical physician would be put out of business in this way (Medicare Compliance Alert 3/6/2000).

AAPS Calendar

June 24, 2000. Board of Directors meeting, Chicago.

Oct. 25-28, 2000. 57th annual meeting, St. Louis.

Members' Page

The Effect of Regulations on Medical Practice. The federal government is rapidly destroying my ability to practice medicine in a logical manner. (1) They have broken my Gestalt. I can no longer perform the Strub and Black formal mental status exam in one sitting, but must do it in four, if I am to be paid anything at all for it. It's like trying to recognize a person's portrait by looking at little pieces of it provided at weekly intervals. (2) I am severely distracted while performing carotid and periorbital Dopplers because I must stop so frequently to take Polaroids to satisfy HCFA's demand for "documentation." The "hard copy" for this physiologic test is of absolutely no clinical value. (3) I was nearly paralyzed by confusion while trying to hook up all the new government-mandated "safe" connectors and retrofits so that I could do an EMG/NCV in my office. It turns out that the leads coming out of the amplifier are now so much longer that you can't see the signal through all the electrical noise. This regulation is meant to protect me from plugging a pin electrode into the wall and electrocuting myself. When the "grace period" expires, I will probably either have to buy a new machine or stop doing the test. Because my "allowed" fees have been slashed so much, I can no longer afford to buy a new EMG machine.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

Fraud Rates in Government Programs. According to the Arizona Republic (11/22/99), in the program that covers the cost of babies born to undocumented workers, fraud was found in 62% of the cases investigated. In other programs, fraud was in the 35% range. If the state determines that the patient lied about eligibility, benefits are still paid for another month. It is suspected that state employees are telling people to lie about where they live or how much they make.
Craig Cantoni, Scottsdale, AZ

Fixing Costs. Anyone who's had Economics 101 can tell you that you can fix only one variable in economics. No one can control price and quantity simultaneously. Yet actuaries take a lowball estimate for providing medical care to a healthy 65-year- old, ... and then assume that everybody over the age of 65 can buy as much care as they want at those rates ... hence Medicare. But we actuaries don't care. Patients and physicians suffer for our amateurish stupidity and criminal negligence; we don't. We still get paid for the hours we bill, and more, because now we have to fix the mess we've made. And we get to blame the medical community to boot. The real problem, remember, is "greedy" physicians, not greedy or incompetent actuaries.
Gerry Smedinghoff, Wheaton, IL

Conscience in Pricing. Many facilities and physicians, when asked by a patient, will reduce a price. After I set up a Medical Savings Account plan with a $2,000 deductible insurance policy, I was often able to negotiate lower payments. For example, my covered son had a grand mal seizure, was taken to the hospital by ambulance, and subsequently had other evaluations. Knowing that the posted charges did not bear much relationship to reality, I typically sent a check for 70 to 80% of the balance due with a 2-sentence letter: "The balance due is not covered by insurance. Please accept the enclosed check as full payment." I was never re-billed for any of these balances. In fact, someone at the MRI facility sent me a nice handwritten thank-you note.
Robert J. Cihak, M.D., Aberdeen, WA

Tax Credits Nixed. The Medical Society of New Jersey adopted a resolution I authored asking AMA support for tax credits to physicians who provide pro bono services to the uninsured. The House of Delegates rejected the resolution, arguing that deserving patients could not be distinguished from those who just didn't pay their bills. Others felt that a request for tax credits would make doctors look like "money grubbers." I did not have personal aggrandizement in mind as I am more than 60 years old and will be long gone before this could come into effect. Physicians are often forced to treat the uninsured at no charge and no longer have the luxury of private indemnity patients to offset the loss. The gift of tangible assets for a tax credit is an acceptable standard-we physicians have only our time and skills to offer. I would be glad to elaborate on a mechanism for those who contact me.

AM News did not publish my letter about this, nor has AMA President Thomas Reardon replied to my letter to him.
Ian D. Samson, M.D., Lakewood, NJ

Servitude. Our forefathers detested the British government for billeting troops and using private property without permission or compensation. Today, the butcher, the baker, and the candlestick maker (lawyer, architect, and electrician) are allowed to charge a fair market value for their products. But physicians are forced to participate in federal- public care by EMTALA rules without being compensated for their services, and not necessarily for the indigent but for a cross- section of society. Every physician will reach a point where this price-setting will trigger fight or flight. I have reached that point.
George Siegfried, M.D., Anchorage, AK

Only Way Out. Only by ending all contractual relationships with third-party payers can physicians hope to regain the freedom enjoyed by other professionals.
Stephen W. London, M.D., Vineyard Haven, MA

Legislative Alert

Congressional leaders say they wanted to get the Patients' Bill of Rights legislation on a fast track. House and Senate conferees are engaged, but the staffers and members have been slogging through the mind-numbing details. The big stuff is supposed to be the scope of the legislation and the issue of litigation. But the supposedly easy part-regulatory stuff governing access to specialists, etc.-has not been so easy.

According to a new Heritage Foundation Backgrounder 1350, by Washington attorney John Hoff, both the House and Senate bills would put the federal government in the business of regulating virtually all of the operations of private health plans and "health care delivery." Under the House bill, the federal government would impose new rules on utilization reviews, internal and external appeals, and peer review standards; the conditions for judicial review (restricted to only one party in the dispute); the grievance processes for plans; point-of-service options; formularies for prescription drugs; participation of plan enrollees in clinical trials; patient information; and contracts with doctors. The House bill even establishes federal rules on fee-for-service medical contracts and imposes Medicare regulations on certain aspects of private physician compensation. The mind-numbing level of legal compliance on private plans is fraught with ambiguities governing private plans with words such as "appropriate," "sufficient," "fair," "qualified," and "valid." A lawyer s dream.

Medicare and Drugs

Bet the farm that Medicare prescription drugs is going to be a huge political issue this year. The President has delivered his detailed 123-page Medicare proposal to Capitol Hill.

On Capitol Hill, everything is in flux, but certain patterns are starting to emerge. First, it does not appear that Congress is willing to enact a comprehensive, Clinton-style Medicare drug benefit this year, if ever. The reason is not simply the opposition of conservative Republicans but also the growing opposition of moderate Democrats. Second, there appears to be a growing consensus for a limited drug benefit, targeted to seniors with low income or high annual drug costs.

Sen. John Breaux (D-LA) is developing a subsidized benefit to seniors with incomes up to 200% of poverty. From what is known of the Breaux plan, it would be substantial and reach about half of the Medicare population. Breaux s plan would also target government assistance to seniors with drug costs that exceed $4,000 per year. These two subsidies would be supplemented with a high-option drug plan, with no subsidies, for those who wanted to buy into it. Instead of HCFA running the program, Breaux would transfer authority over to a new Medicare board, which would replace HCFA as the central institution dealing with all private health plans. It would not only negotiate rates and benefits, but would also enforce fiscal solvency requirements and develop risk- adjustment mechanisms to deal with adverse selection in the proposed new markets for Medicare beneficiaries.

The growing hostility to HCFA is crossing partisan lines. The odd thing is that HCFA s managerial problems, and its inability to meet Congressional expectations in running the Medicare program is, at bottom, the fault of the Congress itself. Members of Congress insist, curiously, on adding provisions to strengthen central planning and price controls, and then they get angry when central planning and price controls result in stupid policies or wasteful consequences. It cannot be repeated enough: Medicare is governed by more than 110,000 pages of rules regulations and guidelines and related paperwork, and the mountain of paperwork keeps getting taller, not smaller. Congress in the Balanced Budget Act alone added 335 regulatory and administrative requirements on HCFA. Adding a Medicare Part D- a Clinton-style drug benefit-would, according to GAO Director William Scanlon, mean an additional 900 million claims per year.

While HCFA is rapidly losing the confidence of Congress, the problem remains that Congress itself has not yet lost confidence in its own ability to make a system of central planning and price regulation work well. It won t.

The House Budget Committee has recently agreed to set aside $40 billion over 5 years for a prescription-drug benefit and other Medicare reforms. So the stage is set for something-but what that something is now exists only in the embryonic stages.

The House Commerce Committee has a working group chaired by Congressman Jim Greenwood of Pennsylvania. Their plan, reportedly still in development, calls for a voluntary drug benefit offered through the Medigap market.

The problem with a voluntary benefit, of course, is adverse selection. The companies with the drug benefit will draw the sickest seniors, incur huge costs, and be driven from the market. One idea is to establish high-risk pools, so that the insurance companies would be protected against adverse selection. Another idea is to compensate for the excessive costs of prescription drugs by making the taxpayer pick up the costs of the benefit at a certain point, thus limiting the liability of insurance companies.

By providing a stop loss for companies, as well as for seniors, and having the government pick up the overage, Congress hopes to make a new Medicare prescription drug market attractive to private insurers. Congress is still smarting from the experiences of private companies saying thanks, but no thanks, to the Medicare Plus Choice program enacted in the Balanced Budget Act. They also fear that any failure to provide an effective private market will set the stage for the Clinton Administration or its allies to substitute HCFA as the chief dispenser of prescription drugs. Not a pleasant thought.

The adverse selection problem is stimulating some creative thought. A new kind of reinsurance is one of them reportedly being explored by Congressman Bill Thomas (R-CA), Chairman of the House Ways and Means Committee. In a reinsurance scheme, the plans would all pay a surplus risk premium into a common reinsurance fund, and whichever plan got stuck with the highest cost would be reimbursed from the common fund. Private insurers are also looking at reinsurance mechanisms, not only for prescription drugs, but also as a way to mitigate adverse selection problems in a system more strongly driven by consumer choice.

While the details of the House Commerce Committee task force plans are being worked out, it appears that the drug plan would be available to moderately low-income seniors, and the government would subsidize the deductibles and copayments of very low-income seniors. According to media reports, the House proposal would also include a stop-loss or catastrophic protection.

Like the Breaux proposal in the Senate, the administration of the private insurance market would be done through a Medicare drug board. The idea of a Medicare Board is central to the Breaux-Thomas recommendations, which won the support of 10 out 17 members of the national Bipartisan Commission on the Future of Medicare, the now defunct commission appointed by Congress and the White House to examine options for Medicare reform. The Board would not be a regulatory body; it would be an intermediary to negotiate rates and benefits with private health plans marketing to senior citizens in the Medicare program. The board would negotiate with private plans on behalf of senior citizens, or certify plans for senior citizens, just as the Office of Personnel Management (OPM), the central personnel agency, now negotiates with private plans in the Federal Employees Health benefits Program (FEHBP).

The Right Thing To Do

Congress should follow the advice of Senator Bill Frist (R- TN) and many others: refrain from adding an expensive drug benefit onto a Medicare program that is financially troubled and structurally unsound. To add a drug benefit, outside of Medicare reform, will accelerate the program's insolvency, while leaving other big holes in coverage and undercutting the pressure for serious reform.

The current Medicare system is irrational, and it is terrible value for money. As John Goodman of the National Center for Policy Analysis has said, it "violates all the principles of sound insurance, and it would probably be illegal for insurers to try to sell such a program in most states of the union." According to Milliman and Robertson's actuarial calculations, the money going for senior medical care today is more than sufficient for seniors to buy a health insurance coverage similar to what federal employees get today. That would be big-time Medicare reform. As Len Nichols, a policy analyst at the Urban Institute, hardly a bastion of conservatism, has written recently, we ought to start "this afternoon."

An Interim Solution

Conservatives have little or no confidence that Members of Congress will think big or bold and enact a comprehensive Medicare reform this year, especially in the face of a likely Clinton veto. So, the slim Congressional margins in the House and related politics militate against action this year.

If Congress felt compelled to broaden coverage beyond low- income categories, a reasonable way to do it would be through a tax credit. The design of tax credits is always a tricky business. But the tax credit should be structured in such a way as to encourage low-income seniors to participate effectively in a private market for prescription drug coverage, and encourage individual choice in a competitive market of private plans. It should also avoid displacing current employment-based coverage, and should not place seniors under government purchasing (supply control) or some sort of price control system. Not an easy task.

Another option is to reform the Medigap market. Today, there are several plans. Only a few of them provide prescription drug coverage. Congress should allow for higher and more flexible deductibles. The higher costs, reflecting higher risks, could be offset by higher government contributions. This would permit greater risk adjustments in premiums, while adjusting the subsidies for seniors to help them afford the higher premiums.

None of these proposals is ideal. Most of the problems of the current Medicare system would be maintained. If Congress feels compelled to act, it should make sure that any plan is broadly understood as an interim step. That means that whatever provisions are enacted should sunset with the enactment of comprehensive-and real-Medicare reform. With that crucial proviso, Members of Congress could provide a limited drug benefit.

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

Medicare Trustees Annual Report

According to HHS News, March 30, 2000, the Hospital Insurance (HI) trust fund will remain solvent until 2023 under intermediate assumptions: the bankruptcy date has been extended eight years from the 2015 date projected in the last trustees' report. Income exceeded expenditures by $21 billion.

"Income increased significantly as a result of robust economic growth, and expenditures actually declined, due to the continuing implementation of the Balanced Budget Act [BBA] of 1997, low increases in health costs generally, continuing efforts to combat fraud and abuse in the Medicare program, and a substantial decline in the utilization of home health services," states the report's overview.

Vice President Al Gore credits the Clinton-Gore Administration. The AMA and 16 other medical societies give partial credit to $3.2 billion in underpayments to physicians resulting from errors in calculating sustainable growth rates in 1998 and 1999. The errors will be carried forward, compounding underpayments in future years. The AMA claims that HHS Secretary Donna Shalala reneged on a 1997 commitment to make corrections, in a lawsuit filed in U.S. District Court for the Northern District of Illinois in December, 1999. HHS has asked that the lawsuit be dismissed, arguing that the BBA forces HCFA to rely on estimates and gives it no authority to correct errors (AM News, 3/20/00).

The trustees acknowledge that future operations are highly sensitive to future economic, demographic, and health-cost trends. Moreover, under intermediate assumptions, expenditures will exceed income by 2016. After that, payments can be made only by "drawing down on trust fund assets," which consist solely of government debt, which can be redeemed only by taking from other parts of the budget, increasing taxes, or borrowing. After 2010, the ratio of workers to retirees will decrease swiftly from 3.6:1 to 2.3:1 in 2030, when the last of the baby boomers retire, and decline slowly after that as life expectancy increases. (The ratio was 50:1 in 1945.)

Social Security trustees also report a 3-year reprieve from insolvency. The National Center for Policy Analysis (NCPA) warns against complacency: "Unfortunately, optimistic reports like this help those who would hold the needed reforms hostage to politics," writes Senior Scholar Dorman Cordell. To help illustrate how much grief true reform (privatization) would spare future generations, NCPA has an online Social Security benefits calculator at www.ncpa.org. This shows, for example, that a 25-year-old waitress can expect to pay in $300,000 in Social Security taxes, but to realize a little more than half that amount in lifetime benefits.

For young people, the payroll tax is a ripoff.