In opposing the AAPS motion for sanctions against the conduct of the Dept. of Justice in the case of AAPS v. Clinton, a brief filed October 5 asserts that it was the U.S. Court of Appeals that erred in stating that ``the government claims that all of the members of the [Clinton Health Care Task Force] working groups are full-time officers or employees.'' The DoJ only agreed with this claim on one subsequent occasion, when lead counsel was out of the country. DoJ did not correct the error, though they now wish they had. ``If defendant's litigation posture displayed any ambiguity here, it was the result of a natural reluctance to abandon prematurely a potentially viable defense'' [which it says it never made, at least not affirmatively, because proof would be too onerous, even if the proposition were true, and they are not conceding that it isn't, and anyway the concept ``member'' has no meaning].

DoJ denies that their attempt to settle the case, followed by the release of documents, means that AAPS prevailed.

AAPS has asked to recover a portion of its attorneys' fees under the Equal Access to Justice Act. Additional briefings will occur this month.

Members' Page

A HCFA Fantasy (an imaginary response to the Aug. 4 letter from HCFA to Mr. Pyles on forgoing Medicare benefits, see AAPS News, Oct 1995)

Dear Mr. Ault:

....I remain confused. You write: ``...the benefi- ciary...entirely free of any pressure from the physician....'' How can I possibly meet this criterion? Would a sworn and witnessed statement, or even a complete videotape of every single meeting be adequate? Can only HCFA be the judge?

You also write that a ``beneficiary...may, of course, change his mind....'' I do not understand how it can be a matter ``of course'' that an agreement can be broken or modified unilaterally....Of course, once the patient has contracted with me for treatment outside the purview of an army of bureaucrats, I might suffer a windfall privacy profit. My expenses for filling out your forms, my anti-ulcer medications, and my personal psychiatric therapy would decrease significantly. I would be bound by my conscience to offer my service at a lower fee-but only if the contract was a contract, i.e. not subject to unilateral revocation. The possibility of lower expenses and of experiencing the joy of freedom would be destroyed if such a sword of Damocles were to be hanging over my neck, held up only by the thin thread of the mood of my psychically unstable patients.
Robert Cihak, M.D., Aberdeen, WA

To a Patient Who Misunderstood. I must not have made myself clear at the time of performing your injection. I can no longer accept money from the federal government in the form of Medicare payments....The money that you have paid in the system is long since gone. The money that is sent to physicians to care for today's elderly represents IOUs for which my children will be responsible. By accepting a Medicare check, I become the recipient of stolen property, property that youngsters of today have yet to earn. I cannot in good conscience mortgage the future of my children. I prefer to provide services to Medicare patients gratis....I am prepared to accept donations, but not those collected under duress or coercive circumstances.

Please take no offense at my returning the checks to you. I am honored to have been selected to care for you, and I hope you are feeling well. Should you need further care, I would be happy to see you again.
G. Keith Smith, M.D., Edmond, OK

MSAs Will Not Make Medicare Patients ``Run Wild.'' The October Legislative Supplement stated that Medicare spending might increase with Medical Savings Accounts if the deductible is set too low, providing a ``powerful incentive'' for seniors to reach it and ``run wild'' in utilizing medical services. Today, almost every nonindigent Medicare patient has zero-deductible Medigap insurance. About 42% purchase it directly, and another 33% receive it from past or present employers. Thus, almost no cost sharing at the time of consumption exists. MSAs can only help this situation.
Gerald Musgrave, Ph.D., Economics America

UNITED STATES POSTAL SERVICE, Statement of Ownership, Management, and Circulation (Required by 39 U.S.C. 3685).

1. Publication Title: AAPS News. 2. Publication No.: 658-470. 3. Filing date: 9/25/95. 4. Issue Frequency: monthly. 5. No. of Issues Published Annually: 12. 6. Annual subscription Price: $35. 7. Complete Mailing Address of Known Office of Publication (Not Printer): Association of American Physicians and Surgeons, Inc., 1601 N. Tucson Blvd. Suite 9, Tucson, AZ 85716-3450. 8. Complete Mailing Address of Headquarters or General Business Office of Publisher (Not Printer): same. 9. Full Names and Complete Mailing Addresses of Publisher, Editor, and Managing Editor: Publisher: Association of American Physicians and Surgeons, Inc., 1601 N. Tucson Blvd. Suite 9, Tucson, AZ 85716-3450. Editor: Jane M. Orient, M.D., 1601 N. Tucson Blvd. Suite 9, Tucson, AZ 85716- 3450. Managing Editor: Jane M. Orient, M.D., same address. 10. Owner (if owned by a corporation, its name and address must be stated and also immediately thereafter the names and addresses of stockholders owning or holding 1 percent or more of the total amount of stock. If not owned by a corporation, the names and addresses of the individual owners must be given. If owned by a partnership or other unincorporated firm, its name and address as well as that of each individual must be given. If the publication is published by a nonprofit organization, its name and address must be stated.): Association of American Physicians and Surgeons, Inc., (a not-for-profit corporation), 1601 N. Tucson Blvd. Suite 9, Tucson, AZ 85716. 11. Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or More of Total Amount of Bonds, Mortgages, or Other Securities: none. 12. For completion by nonprofit organizations authorized to mail at special rates. The purpose, funtion, and nonprofit status of this organization and the exempt status for federal income purposes: Has Not Changed During the Preceding 12 Months. 13. Publication Name: AAPS News. 14. Issue Date for Circulation Data Below: October, 1995.

AAPS Calendar

Oct 10-12, 1996. 53rd annual meeting, La Jolla, CA.

Legislative Alert

The House Congressional leadership has unveiled the outlines of ``The Medicare Preservation Act of 1995.'' From the standpoint of physicians in private practice, it is a ``fair'' start, but only ``fair.'' From the standpoint of serious market-based reform, the result is disappointing. Some observers say it shows the influence of the corporate insurance groupies well entrenched on K Street who, like their left wing counterparts, are skeptical of any health insurance market reform that would guarantee real consumer choice and competition. As many economists have long ago realized, the biggest opponent of the free market is often the business interests who wish the government to regulate it to their profit.

There are four key elements:

1. Preservation of Traditional Medicare. Average per capita spending will grow from $4,800 in 1996 to $6,700 in 2002. There will be no change in copayments or deductibles; in other words, virtually all of the perverse incentives that stimulate unlimited demand for medical services in Part B are being left in place. As the House Republicans say, there is not much difference between their proposal and that of the President on the issue of payment: about $7 per month.

2. The Medicare Plus Program-Private Choice. Senior citizens would also be able to choose government-certified private sector plans. All plans must agree to take all Medicare beneficiaries, regardless of health status. This is a guaranteed issue requirement. Many conservatives on Capitol Hill agree with limited underwriting rules for insurance. And even if they don't like guaranteed issue or modified community rating in principle, this is still a government program; it is not a reform of private sector insurance. The problem is the mandated benefits. Beneficiaries will be able to choose only plans that have Medicare's politically defined set of standardized benefits as they have evolved through the Congressional and bureaucratic process over the past 30 years.

The result: Medicare consumers will probably have the choice of a dozen kinds of vanilla. This is, in principle, a surrender to the concept of the comprehensive, standardized government benefit package that characterized the Clinton Plan last year. There is no other way they can color it.

The basic options are coordinated care, medical savings accounts, and provider networks.

``Coordinated care'' (the new term for managed care) allows seniors to choose more benefits (such as prescription drugs and eyeglasses) than traditional Medicare in return for limiting their choice of doctor.

Alternately, seniors could choose high-deductible insurance along with cash deposit to cover ``a significant portion'' of the deductible. Under the Republican rules, a high-deductible policy could have no copayments. This is designed to assure the elderly they would have a limit on their out-of-pocket costs. Whatever its political attractiveness, this is, of course, yet another restriction on the market.

Seniors could use funds in their MSA for medical care or long-term care insurance. They could also use the funds for ``non-health related purposes,'' as long as they maintain a ``minimum balance of 60% of their catastrophic insurance deductible.'' Such funds would be taxed as income. All interest earnings on the fund would be considered taxable income.

A third option is ``Provider Service Networks,'' which would permit doctors and hospitals to offer Medicare benefits, without an insurance or managed-care company serving as middle man. The networks would have to meet fiscal solvency and ``marketing'' requirements. From the outline of the bill, it is not clear what these requirements might be.

3. Anti-Fraud Provisions. GAO reports rampant fraud and abuse, which have been plaguing the program for years. The Congressional GOP plan gives HHS the power to financially reward beneficiaries who uncover waste, fraud, and abuse. The bill would also require posting of fees and billing up front, so beneficiaries will know what the true costs are.

The Chairman's Mark from the Senate Finance Committee adds ``incorrect coding'' and ``medically unnecessary services'' to the ``prohibited practices'' for which civil monetary penalties can be assessed. These penalties are increased from $2,000- $5,000 to $10,000 for a number of infractions.

4. Standby Global Budgets and Price Controls. The Congressional Republican bill includes a ``fail-safe'' fiscal solvency or budget mechanism. Within traditional Medicare, the HHS will set spending growth targets for providers. The Secretary will have the authority to determine whether the level of services exceeds the growth targets. If so, the Secretary can change, or reduce, payment updates to doctors and hospitals. This in effect means that the Secretary can tighten up on the complex DRG and RBRVS formulas-using the same methods that have failed for the past thirty years.

The Democratic Response

But which Democrats? Before entering office, Bill Clinton wrote in the New England Journal of Medicine that the dramatic increases in Medicare were unacceptable, and that spending had to be controlled. In an October 3, 1993, speech to AARP, Clinton said that Medicare was going up at three times the rate of inflation, and that he was proposing that it go up by only twice the rate of inflation. In defense of this position he uttered a memorable line: ``That is not a Medicare cut. So only in Washington do people believe that no one can get by on twice the rate of inflation. So when you hear all this business about cuts, let me caution you that is not what is going on.'' The early 1995 White House position (from the State of the Union message) was that Medicare was untouchable. But as Rep. Dave Obey (D-WI) remarks, if you don't like the White House position, just stick around, it'll change. If you want details of the White House Plan, there are none.

Please note: The Congressional Budget Office (CBO) estimate of the GOP Plan is that Medicare will go up by 6.4%, and inflation would average 3.26% over the same period.

As for Minority Leader Gephardt and Congressional liberals, their plan for Medicare is simple: Scare senior citizens and criticize the Republican plan. A June 22 memo stated: ``We must make sure that senior citizens and their families understand that the Medicare cuts will result in an increase in copayments, deductibles, and premiums and will jeopardize their right to choose their own doctors. Furthermore, the Republican Medicaid cuts could force some families to remove elderly family members from nursing homes and care for them at home.'' (The last sentence is worth pondering.)

This is too much even for the Washington Post: ``There's a legitimate debate to be had about what ought to be the future of Medicare and federal aid to the elderly in general. But that's not what the Democrats are engaged in. They're engaged in demagoguery, big time'' (9/15/95).

Moderate and conservative Democrats are singing a different tune. Senators Lieberman (D-CT) and Breaux (D-LA) are criticizing the Republican plans for Medicare as not being market-oriented enough. And they plan to introduce a reform plan based on the proposals of the Progressive Policy Institute (PPI), the think tank associated with the Democratic Leadership Council.

In a September 22 policy report, David Kendall, chief health policy analyst for PPI, says: ``If anything, Republican proposals would actually increase Medicare's reliance on bureaucratic fiat to manage costs. Their effort to wring huge savings from providers and beneficiaries under the current inefficient system, instead of reforming it, is a high risk strategy that will either fail or lead to genuinely drastic cuts in provider payments or benefits in the future.''

PPI spokesmen are clearly trying to run to the ``right'' of Gingrich and company on their adherence to ``free market'' purity. You really need a playbook to follow this contact sport.

Thermonuclear Reactions

While the politics of the Medicare debate are explosive, the economics are even more so. Medicare cannot be separated from the drive to balance the federal budget. And a failure to balance the federal budget is a guarantee of higher interest payments on the federal debt and a reduction of everybody's standard of living.

If Congress should get cold feet and fail to restructure the Medicare program in a significant way, the tax burden on working families will dwarf anything that Americans have seen in memory. The Washington-based Heritage Foundation, using the official Medicare trustees' assessments of an intermediate solution, with a 3.5% hike in the payroll tax to bail out the Hospitalization Trust Fund, estimates that the first-year tax increase would amount to $123 billion. This would mount to $711 billion over five years, or almost triple the Clinton Administration's 1993 tax hike ($263 billion over five years), the largest single tax increase in American history.

But this is only the beginning. The problem is not simply Part A, the Hospitalization Trust Fund. The costs in Part B are exploding. Taxpayers pick up 75% of this cost. According to the CBO, projected taxpayer obligations over the next five years, assuming no change in the law, will reach $370 billion. That CBO number is probably an underestimate.

Using both the Medicare Trustees' intermediate Trust Fund payroll assumptions and the current CBO projections, the taxpayers could be hit with a Medicare-related tax increase of over $1 trillion in five years. This is insanity. And most Americans, unless they are following the debate very closely, are oblivious to what is in store for them.

Members of Congress are worried about the reactions of the elderly to Medicare reform. They had better start thinking, and fast, about the reactions of middle-income wage earners, the 77 million Baby Boomers in particular, when they get the bill for a Medicare program run on Washington's ``business as usual'' principles of deception, delay, and delusion. With the huge tax hikes coming down the pike, official Washington will be lucky if its escapes a twenty-first century version of the French Revolution. Forget old-fashioned class warfare. Intergenerational warfare, fighting over the inevitably diminishing spoils of a bankrupt welfare state, could be even more ugly. We are talking thermonuclear politics.

Bug Spray?

On both sides of the aisle, the Congressional leadership really understands this. This explains, in part, the hysteria that appears to have gripped Liberals in Congress over the Republican plans to revamp Medicare. There is also another reason why Congressional liberals are really losing it, jumping around like bugs that just got a whiff of insecticide. If the Congressional leadership succeeds in establishing a consumer choice system in Medicare, relying on the competition of private plans to deliver higher quality care with better benefits, the long-term goal of a government-run national health insurance is dead. For years, with untrammeled majorities in the House of Representatives, Congressmen Henry Waxman and John Dingell and liberals on the House Ways and Means Committee have been constructing piece by piece the components of federal control, with Medicare as the model.

Witness the RBRVS nonsense. On the face of it, it is a silly proposition to argue that a class of professionals should be reimbursed on the basis of a social science measurement of their labor value; even Communists gave up on that idea before the Communists themselves gave up on Communism. Liberals in Congress always favored price controls, but the Harvard hatched RBRVS scheme was something far more than a Medicare price control; it was the theoretical and practical model of a federal physician fee schedule for a future system of national health insurance, along the Canadian or British model. Liberals in Congress always understood this, even if less perceptive Republicans, barely understanding the stuff in the first place, went along for the regulatory ride.

But if the elderly get the option of taking a government contribution and spending it on their own insurance and medical care options, they henceforth have a stake, a private and personal stake in how they obtain care, and nobody will ever be able to take it away. That, in effect, is precisely what happened with the establishment of private medical plan options in the Federal Employees Health Benefits Program. Members of Congress can't even begin to interfere with the private plan choice of federal employees and retirees, as the Clinton Administration discovered to their continuing embarrassment.

An even better example is the public housing policy of former British Prime Minister Margaret Thatcher. Lower income Britons were often consigned to public housing. Thatcher privatized public housing, and the British Laborites were reduced to pathetic appeals to their working class constituencies to resist the British Conservative initiatives, with the less-than- convincing argument that private ownership for low-income people is somehow an undesirable thing. It's hard to keep the folks down on the Collective Farm after they've spent some time on the old private homestead. The real argument is that privatization brings with it the loss of central control; that, in the end, is always the real issue. It is a political, not an economic, issue. So it is with Medicare. If the Congressional leadership succeeds in reforming Medicare, there's more at stake than Medicare. Moreover, if the elderly actually come to like the new system, which they undoubtedly will, and the federal budget is balanced to boot, Gingrich and Company will have pulled off the equivalent of a political miracle. Liberals in Congress understand this very well. Hence, the scaremongering, the apocalyptic rhetoric, the hysteria surrounding Medicare. It is not unfair to say the future of the country is riding on this big fight.