AAPS News, April 1998


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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 54, No. 4 April 1998


The private contracting debate shows that Medicare is an
entitlement turned upside down by HCFA policy.

Government benefits are not supposed to be automatic: one
must apply for them. One jumps through hoops to get the
benefits. Why should one have to run an obstacle course to
escape from a “benefit” (and its attached strings)?

The default option should logically be that a person is
not eligible to receive taxpayer largesse, rather than
the opposite.

The Kyl-Archer bill (S. 1194, H.R. 2497) itself shows how
backward our perceptions have become. It’s supposed to have a
liberating effect. However, to take advantage of the bill a
person would have to enter a written contract, detailing services
to be received, and have the services reported to HCFA. Citizens
not eligible for Medicare need not have such legalistic formal
arrangements in order to receive private medical care. Moreover,
the bill does not apply to “emergency” services, unless a
contract was signed prior to the emergency. An analogous
provision would invalidate agreements made with a lawyer after a
person was arrested or sued.

The Kyl-Archer bill was heard before the Senate Finance
Committee on Feb. 26 (see enclosed summaries of testimony). In
the view of AAPS observers, the witness list was stacked against
private contracting, and the focus was directed to inaccuracies
in the United Seniors Association lawsuit and direct-mail
campaign. One of their key arguments is that under §4507 of the
Balanced Budget Act, seniors will not be able to obtain
“screening” (as opposed to “diagnostic”) tests for prostate
cancer, or other desired but “unnecessary” services, because
their doctors have not opted out of Medicare.

Not so, asserted HCFA. “If Medicare doesn’t cover a
service, no private contract is needed.”
For services
that might or might not be covered, Administrator
DeParle said physicians should file an “Advance Beneficiary
Notice” or ABN.

Physicians may fear to order such tests or to file ABNs
because a “pattern” of ordering “unnecessary” services could lead
to severe punishment, argued United Seniors representative Kent
Masterson Brown. This point seemed to be lost in the Senate
hearings, and the outcome in court is not yet known.

Testimony by the various witnesses showed persistent
confusion about the legal status of private contracting both
before and after the Balanced Budget Act was passed. And Medicare
carriers continue to issue statements that are inconsistent with
each other or with the plain language of the statute. AAPS has
sent certified letters to DeParle concerning the question of
whether Medicare HMO patients may freely purchase services
outside their HMO. Additionally, we have inquired about carrier
instructions for letters to patients, which assert that opted-out
physicians are bound by Medicare price controls. These
instructions are in direct conflict with §4507. Replies have not
yet been received.

HCFA has issued a number of statements to the effect that
certain services (routine physicals, cosmetic surgery, etc.) are
either “not covered” or that HCFA will not interpret the law so
as to apply to them. Contemplated lawsuits, such as a challenge
by one of the 1.5 million Americans who choose not to enroll in
Medicare Part B, will probably not be brought because of such
assurances: a court could determine that a challenge is not ripe
or that a plaintiff does not have standing.

Administrative, legislative, and judicial remedies all
appear dubious at present. Reliance on the pronouncements of HCFA
officials is dangerous as they do not have the force of law. The
Kyl-Archer bill is unacceptable as currently written;
modifications later in the legislative process could make it
still worse. It is unlikely to pass with a veto-proof majority in
any form. Litigation is a consideration, but the shifting
legislative situation makes it difficult to formulate

In our assessment, this battle will only be won in the
field, by patients and physicians exercising their rights. Until
Congress passes a law repealing Sections §1801-1803 of the Social
Security Act and stating that Americans, if eligible for
Medicare, lose their right to purchase private medical services,
there is no clear statutory prohibition against receiving or
providing private (non-government funded) medical care.
Congress probably will not enact such a clear prohibition,
especially now that it has seen the outrage caused by §4507. If
it did so, the law would be clearly unconstitutional.

It is the eagerness of physicians and patients to collect
“their piece of the pie” (or cake) that makes it so easy for HCFA
to win by intimidation. As the late Dr. R.S. Jaggard said, “When
you hold out your hand to take the money, that’s when they snap
the handcuffs on your wrist.” It is the doctor’s
on the HCFA 1500 (or worse, the Medicare
Participation Agreement) that gives HCFA its power, and by which
he arguably waives all his rights. If HCFA starts requiring
physicians to apply for the status of Medicare provider and pay a
user fee, those who do so will voluntarily place themselves under
HCFA’s jurisdiction.

If Congress really wanted to rein in HCFA’s abuse of power,
the first step would be a simple law that stated “services may be
eligible for Medicare coverage only if a claim for
reimbursement is filed.” Then those who cared about
patients not being able to collect their
benefits should repeal the requirement that physicians
file the claims (patients could do so until 1990). The person
filing the claim is the one subject to the rules concerning
reimbursement. (For Medicare to set fees is illegal
under §1801.) If that is too stingy, the beneficiary’s complaint
is with HCFA and the taxpayers, not his physician.

Unless a few principled men and women exercise their rights
and turn down the loot from legal plunder, the march toward
socialism will continue to its inevitable conclusion.

Self-Managed Doctors

California, long the state most heavily infested with
managed care, may be coming full circle. With the active support
of the California chapter of AAPS, traditional practice
associations are springing up around the state, modeled on the
Independent Doctors Traditional Practice Association of the South
Bay (INDOC), founded by Thomas LaGrelius, M.D., a family
physician in Torrance, CA. Dr. LaGrelius reports:

For years, physicians have left traditional private practice
and joined HMOs and PPOs because they were unable to compete with
the networks of physicians and hospitals vigorously marketed by
managed-care plans. Independent doctors and patients seeking non-
managed care had great difficulty finding each other.

Californians are fed up with managed care. The perceived
quality of care in hospitals involved in managed care has been
falling. Additionally, many HMO patients now have “point of
service” options and are seeking affordable alternatives to the
care foisted on them by their employers. They too do not know
where to go. INDOC was created to fill this need.

INDOC is a nonprofit, mutual benefit corporation. Still
growing, the organization has about 80 members representing most
medical fields. All efforts and funds are directed to promoting
the private, unmanaged practices of our members. The public media
has received us favorably, and the local cable TV outlets
broadcast interview segments for us without charge. Member lists
and biographical information are available at our web site (www.indoc.com). Funding sources
include pharmaceutical companies (such as Glaxo and Astra-Merck)
and Medical Savings Insurance (telephone 888-MY-OWN-MD).

Four classes of membership are available, representing
greater or lesser levels of involvement with managed care. Those
few members who belong to an HMO are committed to exiting
entirely from this arrangement by January 1, 2000. All members
must be board certified, have a good malpractice history, and
provide direct patient care. They must have a private,
independent practice.

An exciting development is the impact that this small
organization is having on our local 1000-physician community. We
are on our way to gaining control of a small but excellent
hospital which will have very limited or no HMO involvement.
Doctors are avoiding HMOs or resigning from them in order to join
INDOC. The incentives are shifting in favor of private medicine.
If the idea spreads, the red tide of managed care, once
considered unstoppable, could be rolled back.

To start such an organization, you need one or two doctors
who know the local community and can identify excellent private
physicians to form the nucleus of the group. These doctors will
have a lot of work to do initially, but their own practices will
benefit rapidly due to improved marketing.

For additional information, contact CAAPS at (415)759-7695,
or INDOC at (310)214-9921.

Arizona and Others Reject AMAP

On March 3, AMA officials William Jessee, M.D., and Randolph
Smoak, M.D., met with representatives of the state and county
medical societies in Arizona to “discuss implementation of the
American Medical Accreditation Program (AMAP) in Arizona.” The
message conveyed forcefully by James Angiulo, M.D., Past
President of the Pima County Medical Society, was that Arizona
was not interested in implementing AMAP. He felt that
resolutions introduced by the Arizona Medical Association were
abundantly clear:

“Resolved: that the AMA Board of Trustees strictly limit
AMAP to providing only credentialing services and only in those
states which specifically request those services;…and that the
AMA Board of Trustees not allow AMAP to include involvement in
local medical issues including but not limited to environment of
medical care, physician office site visits, physician compliance
with practice parameters, and evaluation and/or verification of
physician competence.”

Another resolution stated: “Resolved: that further
development, marketing, and implementation of the AMAP program be
ceased [sic.] until a report is issued and reviewed by
the House of Delegates.”

Nationwide FAX alerts may have given physicians the idea
that Arizona had changed its position.

Jane Orient, M.D., Vice President of PCMS, asked the
rhetorical question of how the American Bar Association would
expect to be received in a room full of lawyers if it suggested
that lawyers had to periodically open their files to reviewers,
who would pass judgment on such issues as whether they settled or
appealed too many cases.

A survey of all state medical societies and about 200 county
and specialty societies has yielded few responses to date. So
far, four are in favor, five opposed, and four have no opinion.
If you would like a copy of the survey to bring to your society,
call (800)635-1196; or it may be downloaded from our web site.

A Message from the Grassroot Grannies

To the tobacco factories: Shut your doors! If the government can
shut down, so can you. Then everyone will be on your side too.
You can’t fight bureaucracy, so don’t try. Let them come to you,
asking for the things you provide: tax money, jobs, and something
that a lot of people want.

Of course, everybody knows, or should know, that
tobacco use may shorten your life. So do many other things; but
with them it’s a matter of choice. Your product is being
used as the pretext to limit our freedom and our private property
The only way to stop that is for you to take it away from them.
When there’s a big hullaballoo, you have the perfect answer for
them. And it’s not “the devil made me do it.” The government says
it wants everyone to quit smoking, and “we’re only trying to

Arizona AAPS Files FOIA Requests on Kid Care

Arizona is rushing to grab its share of federal dollars to
add to tobacco tax funds for KidCare at a mere four times the
cost of private insurance. The state has been “chosen” to
demonstrate the “reinvention” of public health, with the aid of a
grants from the Kellogg and the Robert Wood Johnson Foundations.
The chapter has filed FOIA requests to research a possible

“State Freedom of Information Acts are a little-used but
very powerful tool,” stated AAPS Counsel Andrew Schlafly. For
sample letters and general
, visit our web site.

AAPS Calendar

May 30. Board of Directors, Hyatt-Regency at DFW Airport
Oct. 9-11. 55th annual meeting, Raleigh, NC

AAPS Litigation

AAPS v. Clinton. As expected, the defendants
have filed a notice of appeal from Judge Lamberth’s order to pay
AAPS attorney’s fees under the Equal Access to Justice Act, as
sanctions against misconduct by defendants and their represen-

tatives. Interestingly, Ira Magaziner has filed a separate

E&M Documentation Guidelines. The AAPS Board of Directors
has decided to file a lawsuit challenging the new Evaluation and
Management (E&M) documentation guidelines on both statutory and
constitutional grounds. Members will receive a letter concerning
this issue; in fact, some will receive more than one copy because
there is no way to delete current members from mailing lists
obtained elsewhere. If you receive a copy of a recruitment letter
from us, please pass it along to a colleague and urge him to join

Memorandum of Law
on this subject, prepared by Andrew Schlafly, may be downloaded
from our web site.

The American Health Legal Foundation has voted to fund the
litigation. Your tax-deductible contributions will be greatly

Criminal Fraud Case Dismissed

Criminal charges of mail fraud and CHAMPUS fraud based on
alleged miscoding by a busy family physician were recently
dismissed, and the case referred to the civil enforcement
division. This case was described in the August, 1997, issue of AAPS News. It is
quite unusual for a prosecutor to drop a case that had already
proceeded this far. The active support of the physicians’ local
colleagues and the national attention focused on the case
probably helped.

Retroactive Fee Determinations Upheld

On Feb. 24, the U.S. Supreme Court upheld the decision of
the Eighth Circuit in the case of Regions Hospital v.
(96-1375), ruling that a 1990 reaudit of Graduate
Medical Education reimbursements for 1984 did not constitute an
impermissible “retroactive rule.” This reaudit computed an
average per-resident amount of $49,805 in contrast to the
original $70,662, and a new total of $4.9 million compared with
an original $9.9 million. The new basis was used to compute
reimbursements for future years was well as past years within a
three-year window.

A prescription “is not made retroactive merely because it
draws upon antecedent facts for its operation,” ruled the

The Secretary, after missing a congressional deadline by
three years, realized “tardily” that the hospital’s reimbursement
for 1984 was “inconsistent with reasonableness standards.”

In a dissenting opinion joined by Justices O’Connor and
Thomas, Justice Scalia wrote that the Secretary’s assertion that
Congress gave her authority to make a whole new baseline
assessment made no sense according to usual guidelines of
statutory construction.

“We are not governed by legislators’ `overriding purposes,’
however, but by the laws that Congress enacts. If one of them is
improvident or ill conceived, it is not the province of this
Court to distort its fair meaning (or to sanction the Executive’s
distortion) so that a better law will result. The
immediate benefit achieved by such a practice in a particular
case is far outweighed by the disruption of legal expectations in
all cases-disruption of the rule of law-that government
by ex post facto legislative psychoanalysis produces.”

The Midnight Knock on the Door

“Once they start going to people’s houses at night, that’s
serious,” stated attorney Mike Mustokoff of Philadelphia, in an
article on how to prepare your employees for an investigators’
visit to discuss upcoding (Medicare Compliance Alert

Other compliance notes:

The Inspector General has released guidelines for a
“voluntarily developed and implemented” compliance program for
hospitals. The guidance imposes a duty on plans to disclose to
enforcement authorities, within 60 days, any conduct that it has
reason to believe “may violate criminal and/or admini-

strative law.” There is no de minimus standard. The text
of the guidelines and analysis are published in BNA’s Health
Care Fraud Report

The AMA has released a compliance plan for physicians’
offices. Federal sentencing guidelines give a substantial break
to “providers” who have such a plan. However, if you have one and
fail to follow it, you could be nailed for that (Medicare
Compliance Alert
, 12/1/97, (888)287-2223).

What Should Doctors Do?

Physicians should face facts: It is impossible to
comply with Medicare regulations. Not even HCFA knows what they
are. Bureaucrats can make them up retroactively, without regard
to the actual statute. What physicians should concentrate on is
doing the right thing. Is it possible to do the right
thing while taking the government money? If you think not, here
is a Twelve Step program for withdrawal:

1. Don’t sign any new agreements with HCFA (such as the EDI
contract), especially without reading the fine print.

2. If you have signed a participation agreement, withdraw
from it at the earliest possible date.

3. If you are not contractually bound to do otherwise, file
only unassigned claims. If the carrier sends you money
by mistake, send it back and demand to have the error

4. Educate your patients about the Medicare Cake Walk
(probably impossible if you are taking Medicare money).

5. Educate your patients about the specific effects that
Medicare has on their ability to obtain the best care. Never,
ever cover for HCFA!

6. Calculate the overhead and the unfunded liabilities
incurred every time you file a Medicare claim (and the savings
and peace of mind from not filing claims).

7. Educate your partners, your family, and colleagues.

8. Specialize in non-covered services. Keep the costs
reasonable. (You’re under patient-guided price

9. Wean yourself from dependence on government or third-
party money: cut overhead, don’t buy that expensive computer
system, and pay off your debts.

10. Try new things, like evening or weekend hours.

11. Consult our LLCS if you want advice about officially
opting out of Medicare.

12. Ask yourself: “What if I just do it?” Could
there possibly be a law that forbids you to refuse government
money while continuing to serve those who ask for your help?
Could such a law be either constitutional or enforceable?

If a doctor is punished by Medicare, will it because of the
money that he didn’t take?

Members’ Page

Dear Medicare Program Education and Training Unit: I would
address this letter to a real live person, but as is typical of
bureaucratic unaccountability in the Medicare program, no person
bothered to sign the letter written to me.

Thank you for reminding me that I am a Non-Participating
Physician. I am particularly proud of that status and most
certainly intend to continue it. Since you have been so kind as
to send an “educational” letter to me, I will reciprocate in

Did you realize that the Medicare program steals from the
poor (minimum-wage workers, who may not even be able to pay their
own medical bills) and gives to the rich? In any event, there is
no provision in the U.S. Constitution that authorizes legalized
plunder by the government. Those physicians who participate in
Medicare and take these funds are accepting stolen money.
Medicare is nothing but a Ponzi scheme. If the government is
truly seeking to crack down on health care fraud, might I suggest
that you consult a mirror? Medicare is the biggest healthcare
fraud in this nation.

I appreciate the sample fee calculation that you supplied. I
am well aware of the fact that physicians who choose not to
participate in the legal plunder are suffering financial loss. In
the example provided, the patient’s reimbursement for a
nonparticipating physician’s services is 51 cents less than the
government payment to a participating physician for the same
service. I consider 51 cents to be a small price to pay for
freedom and integrity. I would not participate even if
participating physicians were paid $51,000 more than those who
choose not to be enslaved by the government. My freedom and
integrity are not for sale at any price.

I hope you will not consider me impudent when I think that
I, after all my years of training, am much better qualified to
practice medicine than one of your medically untrained
bureaucrats-the ones who dictate medical care in the Medicare
program. I have seen many examples of harm done to patients via
the clinically imprudent and sometimes nonsensical “policies”
dictated by HCFA/Medicare. Not only are Medicare bureaucrats
incompetent to practice medicine, it is illegal for them to do so
(see §1801 of the Social Security Act). Were I to participate in
Medicare, I would be condoning this wanton law-breaking by
government bureaucrats.

I would like to remind you of a document called the U.S.
Constitution. Despite HCFA’s presumptions to the contrary, it
also applies to citizens over the age of 65. Americans do not
lose their right to provide for their own medical care simply by
becoming eligible for the Medicare program. This has to do with a
concept called freedom. Freedom is so highly valued in
this country that there are those who have actually given their
very lives in defense of it. To squander the sacrifice of these
brave men and women by surrending our freedom, via participation
in this evil program, would be unconscionable.

It is my understanding that pursuant to the U.S.
Constitution any physician may privately contract with any
Citizen for any medical service at a mutually agreed upon price
without filing any document with any bureaucracy. Such services
are not covered by Medicare. In coming to this conclusion, I note
that any law or regulation which conflicts with the U.S.
Constitution is not valid.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

Are Private Contracts Private? Some of the language in
the proposed Kyl-Archer bill (H.R. 1194) was taken directly from
the British law governing their socialized system. However, H.R.
1194 contains a provision that could be interpreted as requiring
physicians to report to the federal government everything that
the bureaucrats want to know about “private” contracts.

Great Britain has had a socialized medical system for almost
50 years. Today, many doctors spend part time in the socialized
system and part time in private practice, without the British
government snooping into private medical records. If that’s
socialism, what do the U.S. Congress, President, and Medicare
bureaucrats have in mind?
Robert J. Cihak, M.D., Aberdeen, WA

On Compliance with the Law. When serving as a senior
executive for the National Cancer Institute, a government bureau,
I was given instruction by a government attorney on how to avoid
compliance with the Freedom of Information Act (FOIA). He
explained how to organize files so that people looking for
information from their own files could not get that information
if we knew how to file it differently so that it was not easily
available under FOIA.
Robert K. Oldham, M.D., Franklin, TN

It’s Not Insurance. We must stop referring to unfunded
“entitlement” programs as “insurance,” a deception that has
misled the public for decades. As Ed Annis thundered when
Medicare was hatched, “they prostitute the name insurance…It is
not insurance. It is a government dole!”

I for one am continuing to pay premiums (only about $600 per
annum) to the U.S. Life catastrophic policy formerly with AAPS,
with a substantial deductible ($15K) which could be raised from
securities held. Ever since the insurance industry was told by
LBJ in 1965 to quit competing with Medicare, or be taken to the
woodshed, they have remained intimidated and only recently some
have been emboldened to test the waters.
Thayer Smith, M.D., Downey, CA
[AAPS-sponsored insurance can continue past retirement–Ed.]

Playing Defense in an Era of Balanced-Budget Liberalism

Congress, after counting scheduled recesses and the August
break, will have less than 70 legislative days to complete
business this year. Members of Congress, anxious about job
security, want to get home to campaign for re-election. The
projected end of the session is October 9.

This does not leave much time for solid legislative
deliberations on the tough issues, but it does mean that there is
always an opening for truly bad stuff, pet projects, and goofy
mandates, jammed willy nilly into the fine and impenetrable print
of the big year-end spending bills that nobody either can or
cares to read. That s how the medical profession and America s
patients got saddled with Section 4507 of the Balanced Budget Act
of 1997. It is also how the silly Resource-Based Relative Value
Scale (RBRVS) for Medicare physician reimbursement got enacted
back in 1989. Stick this stuff in telephone books, wait three or
four weeks for it to come to the surface, and then declare that
Congressional Intent-an increasingly precious commodity-was
whatever is politically expedient at the moment for the folks
back home.

The majority s spirit is troubled. Remarkably, Republican
Congressional leaders are still at a political disadvantage in
dealing with a scandal-plagued White House on the Big Issues.
This is, in itself, an incredible development; and if you made it
the subplot of a hot political thriller, a President bogged down
by charges of illicit sex and various other machinations, it
would be dismissed by the fiction publishers as simply too
implausible. But there it is. The implausible is reality.

There is an intellectual and political price for arguing
incessantly about the need for a balanced budget without making
an even stronger case for smaller government. And conservatives
on Capitol Hill are paying that price. For years, Congressional
conservatives have been deploring big deficits and higher taxes,
arguing that the Country can t afford more liberal programs. Now
that the federal budget is supposed to be going into balance,
they can t oppose liberal initiatives with the old argument
pulled out of an accountant’s handbook: we can t afford it. Now,
the Congressional Budget Office (CBO) says that the surpluses are
coming and could be big. With a deficit of $22 billion for 1997,
according to a report in the March 3 National Journal, the
federal government is already running about a $9 billion surplus.
Using CBO baselines for current law, that could mean a surplus of
between $25 and $50 billion in 1998, and as much as $100 billion
in 1999. If this scenario holds, it changes the big picture
considerably. It means that the United States is heading into the
new and uncharted fiscal territory. This has profound
consequences for policy.

What to do with the Budget Surplus? The Clinton
Administration has outlined its programmatic and spending
priorities. Use the funds to buck up the Social Security Trust
Funds-“Save Social Security First”-and pump up federal spending
on new programs. Therefore, liberals in Congress, working with
the Clinton Administration, will be pushing hard the remainder of
the year for initiatives on child care, education, and Medicare
expansion for early retirees.

A lot of Congressional Republicans would like to channel
surpluses into debt reduction or tax cuts or a combination of
both. It is reported that Congressman Bill Thomas (R-CA), who
chairs the House Ways and Means Health Subcommittee, is examining
ways to change the tax treatment of medical insurance. Thomas
realizes that much of the debate today is skewed and wrongheaded
because the problem is in the genetic structure of a market
driven by a perverse tax policy, not in lack of regulations.
Thomas, along with Congressman Jim McCrery (R-LA), is looking at
tax credit options. The idea is picking up steam among a lot of
Members who are uncomfortable with the Patient Access to
Responsible Care Act (HR 1415), sponsored by Congressman Charles
Norwood (R-GA). The growth of a pool for tax relief for
individually purchased insurance, or group insurance outside of
the place of work, holds out opportunities for real reform.

Keeping the Cap on Federal Spending

Conservatives in Congress will be fighting to keep in place
the “spending caps,” so central to the Balanced Budget Agreement
they thought they had last year, and will look for ways to cut
taxes. The spending-cap issue is crucial. If the cap is broken,
the liberals in Congress will be able to break out of the current
fiscal strictures and it s back to bellying up to the same old
bar for the same old sauce, luring the otherwise sober
Republicans over for just one more spending binge.

The menu of conservative tax cut proposals is virtually
endless, ranging from killing the Death Tax, otherwise known as
the inheritance tax, to ending the so-called “marriage penalty”
and initiating some sort of tax credit or increased tax exemption
for young children as a way to counter the Administration s new
“day care” proposals.

The funds available for tax reduction or spending
initiatives could be even richer. There is, of course, the so-
called Tobacco Agreement, which could mean more Big Bucks.
Liberals in Congress will try to tap into any such money vein as
a way to fund social spending initiatives, and conservatives
could see it as a way to finance expanded tax relief for private
health insurance for non-employer based plans or even a new base
of funding for expanded Medical Savings accounts in the Medicare
program for the next generation of retirees.

Are We Sure About That Surplus?

Before Congress manages to spend the hypothetical surplus,
somebody needs to check the accounting. According to the Concord
Coalition, Clinton’s proposed “balanced budget” borrows $101
billion from the Social Security Trust Fund in order to produce a
$9.5 billion surplus.

Moreover, instead of simply booking the Treasury’s debts in
the trust fund, the government also credits the fund with
interest on those IOUs. Over the next five years, some $325
billion in fictitious interest will be included in federal
revenue projections-roughly half of the $660 billion in budget
surpluses projected for the next five years (Jeff Taylor,
Investor’s Business Daily 2/27/98).

Next Step in Medicare Contracting Debate

On Friday, March 6, the federal District Court of
Washington, D.C., heard oral arguments in the case of United
Seniors Association v. Shalala
(1998). The United Seniors,
represented by Kent Masterson Brown, are seeking an injunction
against the imposition of Section 4507 of the Balanced Budget Act
of 1997.

The plaintiffs argue that restrictions on private
contracting are an affront to personal liberty and privacy. The
government s response is that personal liberty and privacy, as
ordinary Americans would understand it, don t really exist for
seniors anyway. It s great reading for anyone interested in
learning how the Clinton Administration really thinks about such
things. The court, Judge Thomas Hogan presiding, is expected to
rule on the case within the month.

On February 26, the Senate Finance Committee, chaired by
Senator William Roth (R-DE), held a hearing on the Medicare
private contracting issue. Testimony is summarized on pp. S3-4.
One thing is certain, whatever lame excuse Congress offers or
however the federal court case is decided: the issue is, and will
remain, politically explosive for the rest of the year.

Medicare Commission Underway

Also on Friday, March 6, Chairman John Breaux (D-LA) called
to order the first meeting of the vaunted Medicare Commission,
created by the Balanced Budget Act of 1997. Breaux has shot a big
shell across the Clinton Administration bow on the extension of
Medicare to early retirees. He thinks that any such expansion
should only be considered within the context of the Commission s
recommendations, due a year from now. Needless to say, liberal
Democrats in the House and Senate, itching for a vote on the
proposal, are unhappy, and so is the Clinton Administration. But
from the vantage point of those who want serious Medicare reform,
a restructuring of the system based on consumer choice and
competition, his signal was a welcome beam of light. Moreover,
Senator William Roth chimed in supporting Breaux s delaying
maneuver, thus toughening up the majority position at least in
the Senate.

The sparring over the Clinton Medicare expansion is starting
to bring other alternatives out into the open. The Progressive
Policy Institute, the think tank identified with the “moderate”
Democratic Leadership Council, has released a report calling for
the opening up of the FEHBP for individuals aged 62 to 64 who are
uninsured, rather than enrolling them in the Medicare program.
Senate Minority Leader Thomas Daschle (D-SD) is also pushing this

Republican Senators are also playing with tax changes to
give this class of early retirees health insurance options.
Senator Phil Gramm of Texas makes the valid point that indeed,
86% of the folks in this age category already have insurance.
Much like the liberal KidCare proposals, however, there does not
have to be a crisis in any real sense to create the political
momentum to “do something.” In any case, a likely proposal to
emerge from Congressional Republicans as this debate matures is
to give all individuals, including early retirees, full
deductibility for their health insurance premiums. For most folks
this would result in a sharp reduction in the cost of insurance
and would increase access to coverage.

In either case, the original Clinton proposal of simply
expanding Medicare appears to be in serious trouble on Capitol
Hill, and the problem is not just coming from Republicans.

What is not out of trouble is, of course, the Medicare
system itself. The size of the problem that Senator Breaux and
his colleagues have to deal with looms like the proverbial
Iceberg on the Titanic s horizon. It is bigger and more dangerous
than it looks. As Watson Wyatt Worldwide, a benefits
consulting group, notes in a recent report on health and
retirement trends, America s oldest baby boomers started turning
age 50 at the rate of eight per minute as of January 1, 1996, a
trend that will continue for the next decade. Moreover, the
share of the population over age 65 will grow as much between
2010 and 2030 as between 1930 and 2010. Today, the proportion of
Americans over age 65 is one in eight; by 2030, it will grow to
one in five. At the same time, the number of working Americans to
support retirees will trend downward. In 1950, 46% of the men
over the age of 65 were still in the workforce, compared with
only 16% in 1996. Interestingly, the number of women in the
workforce over age 65 has held constant at 10% of that age

The problem now is not confined to the growth of the over-65
population. It is more complex. Worse, at least from the
standpoint of the productivity of the economy, the proportion of
men of age 55 to 64 who work, the very group to which Clinton
wants to extend Medicare coverage, has been declining
dramatically. Today, only 65% of that group is in the workforce,
compared with 87% in 1950.

As The Washington Post editorialized on March 6:
“By making Medicare available, the government may induce more
people to retire earlier even as many think it is in society s
interest to induce them instead to work longer, thereby adding to
revenues while reducing costs when the baby boomers reach
retirement age.” The Post goes on to note that the
Senate, last year, tried and failed-thanks to the liberals and
their allies among “senior citizens groups”-to do the right thing
and raise Medicare s age of eligibility from 65 to 67 over the
next thirty years. This aborted proposal was designed to track
changes already adopted in the Social Security program.

Per capita medical expenditures in the United States are
about $3500 today, but the aging of the population will push up
that number significantly, as will an increased demand for higher
levels of medical technology. The specific impact of age, as
factored out by Watson Wyatt Worldwide, will be to
increase per capita medical costs to $4,300 by 2030.

Update on PARCA

More cosponsors are withdrawing from Norwood’s mega-
regulatory bill: Matt Salmon (R-AZ), Jim Bunning (R-KY), Larry
Combest (R-TX), and Jay Dickey (R-AR).

Meanwhile, the American Chiropractic Association is weighing
in heavily on the side of the bill. Its description is right on
target: it’s a “comprehensive” package which would establish
“national standards” for health plans, including managed-care
plans. It would ensure access to an “adequate mix and range of
providers” and would not permit discrimination against providers
because of language or lack of affiliation with a
. Nor could plans discriminate in participation or
reimbursement against any health professional solely on the basis
of licensure. The plans would have to have a quality improvement
program that “systematically and continually” reviews patients’
health status and access to preventative care.

The Coalition for Patient Choice, opposing the bill,
includes the Small Business Survival Committee, the Council for
Affordable Health Insurance, and Eagle Forum. Their press release
quotes Clark Havinghurst of Duke Law School: “I know of no other
piece of health care legislation that would be as destructive of
consumer choice, as protective of provider economic interests, as
antithetical to the antitrust effort to break down the old
medical cartel, or as beneficial to plaintiff’s lawyers as this
bill would be. Even the Clinton Health Security Act took a less
prescriptive approach.

Summary of Testimony on Kyl-Archer Bill: Medicare Beneficiaries Freedom to Contract Act, S. 1194,
H.R. 2497

Hearing before the Senate Finance Committee
Feb. 26, 1998

Nancy-Ann Min DeParle, Administrator, HCFA: Physicians who choose to provide covered
to Medicare beneficiaries under private contracts must `opt out’ of the Medicare program for two
years….Requiring a physician who chooses private contracting to opt out for a finite period of time has two key
policy implications. First, it diminishes the opportunities for fraud and abuse….Second, [it] allows a beneficiary to
make an informed choice of physician. In this way, the beneficiary could choose a physician, before seeking care,
based on knowledge of whether the physician would accept Medicare payment or require private contracts for all
services….” [italics and underlining in original; boldface added]

“There has been substantial misunderstanding about what section 4507 of the Balanced Budget Act does, so I
would like to clarify several major points….

“Medicare rules apply only to individuals enrolled in Medicare….Therefore, a private contract is not
necessary for a physician to provide services to an individual who is Medicare-eligible, but who is not enrolled in
Part B….

“Medicare rules apply only to services covered by Medicare….If Medicare doesn’t cover a service, no
private contract is needed, and physicians are not limited in what they can charge….a physician does not have to opt
out of Medicare for two years in order to provide a non-covered service to a Medicare beneficiary. That was the law
a year ago; it’s still the law today….[For example,] Medicare currently covers diagnostic PSA tests only….Therefore,
a private contract is not needed when a beneficiary wants a PSA test for screening purposes because it is not now a
covered service….

“An Advanced Beneficiary Notice (ABN)…is used by a physician who believes that a service, which
Medicare covers under some circumstances, may not be paid for by Medicare in a particular case….An ABN is not a
private contract….Therefore, a physician using an ABN remains in Medicare, while a physician using a private
contract for services covered by Medicare would voluntarily opt out.

“I understand that some physicians have expressed concern that widespread use of ABNs is not an acceptable
practice. We are concerned that ABNs may be misunderstood by beneficiaries and the medical profession. We will
be working with these groups to improve ABNs to make them easier to use….

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