AAPS News April 2013 – Medicaid Trap


Volume 69, no. 4 April 2013

As of Mar 13, 25 states were said to be participating in the Medicaid expansion provided for in the Affordable Care Act (ACA or ObamaCare), according to the Advisory Board Company. This includes eight with Republican governors: Jan Brewer (Arizona), Rick Scott (Florida), Rick Snyder (Michigan), Brian Sandoval (Nevada), Chris Christie (New Jersey), Susana Martinez (New Mexico), Jack Dalrymple (North Dakota), and John Kasich (Ohio). There is some resistance from state legislators. For example, Arizona Republicans are arguing that the hospital assessment required in the proposed bill is a tax increase, and thus, by state constitutional amendment, requires a two-thirds majority to pass.

The Medicaid “Roach Motel”
The bait for the expansion is the “free” federal money. It is claimed that new Medicaid recipients will bring “billions” of dollars into their state that would otherwise go to other states, and create “thousands” of jobs. Welfare is an economic stimulus!

This “gift” has been compared to the gift of a baby elephant and several years’ worth of hay. What happens when the state becomes responsible for much of the hay? Can it shoot the elephant? Some governors believe they can protect themselves, at least if the bankrupt federal government reneges on its promise on the early subsidies, by reverting to the current structure. Gov. Brewer calls for a “circuit breaker,” noting that “at any whim they could just pull the money” (NEJM 2/7/13). Gov. Kasich promotes a “sunset clause,” citing a memorandum from a law firm that refers to informal “guidance” from HHS.

A Wall Street Journal editorialist, however, calls the expansion a “roach motel”: once you check in, you can’t check out. ACA mandates the conversion of Medicaid into a new, larger, and far more expensive product, in perpetuity. There is no opt-out clause. Chief Justice Roberts et al. “did not stipulate a right to leave Medicaid at any time when they rewrote ObamaCare,” opines WSJ. “They merely ruled that the threat to take away all federal funding if states did not join new Medicaid violated the Constitution’s separation of powers”.

In other words, the federal government can attach conditions to taking federal money, as in a contract. It can’t force the states to sign it, but that doesn’t give them to right to abrogate it later.

Why 133%?
The federal poverty level (FPL), the number used for calculating thresholds for federal aid, was invented by the Dept. of Agriculture in 1955. It is set at three times the cost of a minimum food diet in 1963, updated for deterioration of the dollar by the consumer price index (http://tinyurl.com/cpvhev5).

Definitions, as for “income,” can change, and the 133% threshold is now taken to mean 138%. So, a person or family at 138% of FPL is deemed worthy of having medical care at taxpayer expense, and a person who betters his income to 138.1% falls off his own personal fiscal cliff. Thus, it is contrary to self-interest for a Medicaid recipient who thinks he might need medical care to contribute to the economy by getting a job. Medicaid is a roach motel for beneficiaries as well as the state.

The cost of medical care being so high, the same hard-luck stories can be told for persons at 200% FPL. Why not extend Medicaid to them also? By adding to the number of “covered lives” in the Medicaid program, they too can serve as an economic stimulus, at least to Medicaid bureaucrats and to program contractors, such as the managed-care plans that “save” money by diverting funds from doctors and hospitals to managers.

Why not raise the threshold to 250% of FPL? Why not 500%? 600%? Why not have Medicaid-for-all single payer?

One problem is that up to 41% of physicians have a “no vacancy” sign for new Medicaid patients. Another is that hospitals will find the bait inadequate as they lose private customers paying rack rates. The $2.5 billion in “uncompensated care” about which Ohio hospitals complain includes $1.3 billion attributed to Medicaid underpayments—although Ohio already spends 32% of state tax revenue on “healthcare.” Incidentally, ObamaCare slashes DSH payments by 75%—the disproportionate share hospital payments meant to help compensate for the EMTALA mandate to care for the uninsured (Avik Roy, Forbes 2/8/13). The cut is deeper if Medicaid expands.

Accommodations at the roach motel are widely believed to be shabby, especially if a private sector exists for comparison. Yet proponents of the addition assert that a Medicaid expansion in the past saved lives, citing a study (NEJM 9/12/12) that claimed a reduction in all-cause mortality of 19 per 100,000 (relative reduction, 6.2%) when expansions increased Medicaid coverage by 2.2 percentage points. The study compared adult populations in three “expansion” states (New York, Maine, and Arizona) with “control” states (Pennsylvania, New Hampshire, and Nevada and New Mexico, respectively). Results were statistically significant only for New York. Authors admit that the study cannot show causality.

Looking at outcomes of actual care, a study of 900,000 patients undergoing major surgery showed that post-op death rates for Medicaid patients were 13% higher than for uninsured patients, and 97% higher than for privately insured (NRO 2/22/13).

What is the purpose of a roach motel?

Medicaid Facts and Questions

Which Jobs? The real beneficiaries of TennCare expansion will be hospitals, writes Ralph Weber. New hospitals crop up everywhere, and only profitable industries expand. Unemployment in the healthcare industry has never been above 3% throughout the recession. Nationally, Medicaid is a job killer; every added $1 in federal taxes shrinks the economy by at least $0.44, perhaps by as much as $3. Every Medicaid-related job may cost up to 4 jobs elsewhere. Some states, however, might have a net job gain (http://tinyurl.com/d668yra).

Mandatory Medicaid for the Vulnerable: Any child whose parents’ income is between 100% and 138% of FPL is automatically dumped into Medicaid, even if he already has better coverage under CHIP. And seniors who qualify for Medicaid (“dual eligibles”) may involuntarily lose their Medicare (Scott Gottlieb, NY Post 2/20/13).

Who Will Do the Work? The percentage of pediatricians who limit their participation in Medicaid increased from 26% in 1978 to 35% in 1983 (West J Med 1986 Oct;145:546-550) and from 32% in 2000 to 53% in 2011. The percentage who see no Medicaid patients at all increased from 4% in 2000 to 18% in 2011 (AAP, http://tinyurl.com/ccsxagp). While Medicaid and CHIP enrollment increased from 32% of the population in 2000 to 54% in 2011, pediatricians’ Medicaid caseload increased only 3% (ibid.).

Medicaid Estate Recovery: The only certainty about the death tax on the poor (http://tinyurl.com/cedcqtt) is controversy, writes Georgia attorney David McGuffey (http://tinyurl.com/brh2dbm). The Arizona Medicaid program explains that it could recover the capitation fee paid to program contractors, and that this could exceed the cost of any services provided (http://tinyurl.com/cn6uj58).

What’s in Banks?

Willie Sutton may need to look elsewhere for the money. “What’s Inside America’s Banks” includes huge Level-3 risks, about which there are “no observable data to inform the assumptions one might use to generate prices” (Atlantic, January/February 2013). The esoteric contracts, which expose banks to trillions of dollars in risks, are what Richard Maybury calls “vapor money.”

In Cyprus, banks are closed until 5.3 billion euros can be raised for a bailout. A combination of proposed measures includes seizing up to 10% of depositors’ money, pension nationalization, and Russian money. “A modern functioning Western economy has been transformed into a cash economy, if not quite a barter one yet. Coinage is being hoarded, stores are refusing credit cards, commercial credit has ceased (http://tinyurl.com/bnuy96n).

Maybury writes that the 1930s banking crisis began in Europe. After Creditanstalt in Vienna, once one of the strongest banks in the world, went on a lending binge, weak borrowers defaulted and frightened depositors began withdrawing their money. Creditanstalt could not pay its debts, and panic spread to foreign banks to which it owed money. Dominos fell in Amsterdam, Warsaw, Germany, Latvia, Turkey, Egypt, and eventually the U.S., where 10,000 banks went under, most taking some or all of their depositors’ money with them (Early Warning Report 1/12).

Is There Any Demand for Medical Care?

A former evangelist for free-market reform has decided to direct his energy elsewhere, observing that: By any economic measure, there is very little demand for medical care. On Black Friday, people will form anxious mobs to purchase frivolous consumer goods that will soon be broken, abandoned, or discarded. Many will go to extreme measures to purchase hard drugs: These customers are generally at the bottom of the income scale. They have no “insurance,” yet they show up on time for their “appointments,” and they never forget to bring money with them for the “copays.” Nearly half a million people in a day will spend $250 to take their family to a major league baseball game that they can watch on their television at home for free. These are the same people who are “unable to afford” medical care and conveniently “forget” to bring money with them when they see the doctor.

If people refuse to spend any of their own money on their own health, why should anyone else?

Patient demand for health care starts at the zero price point and is falling. So government now designs health plans with negative prices. Medicare already has some, and ObamaCare creates more. Patients are now paid (bribed) to show up for check-ups, lose weight, take their prescribed medicines, stop smoking, etc.

His optimistic conclusion: If there is an economic collapse, and the government delivery of health care and pensions fails, people will be forced to return to negotiating for and purchasing medical care. They will also start to treat doctors with more respect than TSA airport screeners. Once the health care demand the government created evaporates, we’ll find out how many doctors we need and what medical services are really worth.

Can States Depend on Federal Promise?

While some doctors have said that grabbing the “free” federal money is a “no brainer,” Medicare trustee Charles Blahous writes that from a purely fiscal viewpoint, it is a complex calculation. States must consider “the likelihood that federal financing support may ultimately be reduced.” Full Medicaid expansion as contemplated in ACA would add 17 million enrollees to Medicaid, at a federal cost of about $931 billion between 2014 and 2022. The debt growth is “unsustainable” (http://tinyurl.com/c7kdulw).

Patients Not Allowed to Self-Pay

Long-time patients of UPMC who signed up for Community Blue “select network” plan were scrubbed from patient lists with 2 months notice. They cannot keep their doctor even if they pay out of pocket (Pittsburgh Post-Gazette 3/5/13).

AAPS Calendar

May 17-18. Workshop, board meeting, Columbus, OH.

Sept 25-28, 2013. 70th annual meeting, Denver, CO.


Maintenance of Certification and Maintenance of Licensure affects all physicians. Invite your colleagues to our May 17 meeting in Columbus. We need your help to stop this!

HIPAA Mega-Rule

Breach Notification: Previously, HIPAA-covered entities needed to notify patients of a security breach only if there was proof of harm. Now, harm is presumed unless a risk analysis has shown a “low probability” of compromise. “Once lost, electronic PHI [protected health information] can be replicated in an infinite number of places, and the damage each party can suffer is greater [than with paper],” states attorney Jim Pyles (MPCA 3/18/13). Some recommend buying cyber insurance soon, before multi-million-dollar settlements ratchet up the price.

Leases Need to Protect PHI: If you are a HIPAA-covered entity, you may need a business associate agreement with your landlord (ibid.).

Cash-for-Care Privacy: The new rule requires doctors to hide from payers the fact that they treated a patient if the patient requests it and paid in full for the treatment. It is not clear what to do if submitting a claim for a “bundled” service. If a patient is in an HMO and can’t pay out of pocket, “you must tell the patient to go out of network” (MPCA 2/18/13). Twila Brase writes: “If state law forbids doctors from taking cash from insured patients, the doctor must inform the insurance company even if the patient asks him not to [emphasis added].” She advises patients: “If you want privacy, go to a new clinic, do not disclose the name of your insurer, and pay cash” (http://tinyurl.com/d6d65hb).

Read the Rule: http://tinyurl.com/bfyzgdy.

Sunshine Rule

On Aug 1, drug, medical device, or biological manufacturers will have to disclose payments or gifts worth $10 or more to CMS, and this will appear on a searchable public website. A limited time is available to submit corrections (Part B News, Special Issue).

Medicare Denials for Referred Services

As of May 1, Medicare patients may find their claims denied for services such as laboratory or imaging if the ordering provider is not approved by PECOS (Provider Enrollment, Chain and Ownership System). AAPS has filed an emergency motion for injunctive relief.

Physicians who didn’t sign up because they were awaiting their “revalidation” letter—as CMS had instructed them to do so as not to create a “bottleneck”—can probably not meet this deadline even if they submit an application immediately. It takes 45 to 60 days to process (in one case, more than 6 months), and there is already a backlog of 20,000.

According to a CMS national provider conference call on Mar 20, claims will be denied unless: 1) the ordering/referring practitioner is enrolled in Medicare, at least for ordering and referring purposes (form CMS 855O), or is opted out of Medicare; 2) an NPI for an individual, not an organization, is supplied; and 3) the practitioner is of a specialty that is eligible to order or refer (chiropractors, for example, are not). On p 5 of the handout that was supplied (http://tinyurl.com/c9pym4u), it is stated that “the rule does not apply to prescription drugs, or services of a physician specialist.”

One might think that radiologists and clinical pathologists are specialists; however, only hospital-employed radiologists will be paid for reading films ordered by nonenrolled physicians. (Hospitalists cannot enroll in PECOS.) One example was given of the same person being both the ordering and the providing practitioner: an optometrist fitting glasses post cataract surgery.

Home health agencies fear that they will take huge losses because of certifying physicians not being timely enrolled. CMS officials were unsympathetic, claiming to have been engaged in education about this for 2 years. They said it was a “business decision” to serve patients who don’t have a proper referral, and it is the responsibility of the agency to verify PECOS status.

Patients, however, may be billed, with or without an advance beneficiary notice (ABN) in the event of a denial for this reason.

Despite the exemption for prescription drugs, CVS pharmacies have been refusing to fill prescriptions without the prescribers’ NPI. Health plans may require it for reimbursement. However, the NPI rule (77 FR 54664, *54681, http://tinyurl.com/dyckffr) states: “Very limited exceptions may include, by way of example, a self-employed physician who does not bill insurance plans and does not have a member, employee or contractual relationship with an organization covered health care provider (or has one [*54682] with a noncovered organization health care provider), such as a psychiatrist or plastic surgeon who only accepts cash-paying patients.”

Sequestration Pain for Cancer Patients

At least one email from the Administration has surfaced that tells an agency to make sequestration as painful as possible (http://tinyurl.com/cnqna72). Perhaps unrelated is a CMS announcement that as of Apr 1, the allowable charge for chemotherapy drugs will be reduced by 1.7%, meaning that many independent oncologists will not be able to charge enough to cover the cost of many drugs. The Gramm-Rudman sequestration 20 years ago cut the Medicare payment but not the allowable charge, so that supplemental insurance or patients themselves could pick up the difference. That not being an option this time, the care of thousands of patients will be disrupted. This therapy will largely be forced out of independent centers and into hospitals, which can negotiate lower prices, hastening the end of private medicine.

UPMC’s Non-profit Status Challenged

Pittsburgh mayor Luke Ravenstahl is challenging the nonprofit status of healthcare giant UPMC, citing among other things its $1 billion surplus over 2 years and its lavish executive benefits, including the $5.9 million salary to its CEO Jeffrey Romoff (Pittsburgh Post-Gazette 3/22/13).

Are the 45.8% Guilty?

In their reply brief in the appeal of Dr. John Natale, his attorneys point out that the trial court refused to allow introduction of an HHS report showing that the overall error rate in Medicare claims submitted by vascular surgeons in 2004 was 45.8%. Judge Pallmeyer stated in her ruling: “Maybe 45% of them are guilty of Medicare fraud.” None of the alleged “false statements” were material to Medicare billing. Oral argument in the appeal will be held in Chicago on April 18.


Medicaid Fraud. To help plug a $500 million hole in New York’s budget resulting from loss of the proceeds from its overbilling of Medicaid some $15 billion over 20 years, Gov. Cuomo is looking for new sources of federal taxpayers’ money. Having been caught taking money from Peter’s left pocket, the state now has its hand deep in Peter’s right pocket looking for more money.

New York’s per-resident Medicaid spending is nearly twice as high as Pennsylvania’s and more than double that of California and the rest of the country, and it pays its nonprofit executives accordingly. Twelve executives at NY nonprofits financed primarily with Medicaid money made more than $500,000 each in 2011, and another 100 earned “excessive” salaries of more than $200,000, according to the U.S. House Oversight and Government Reform Committee.

Calling the investigation of the overbilling a politically motivated “witch hunt,” the Albany Times Union argues that “it would be unfair to hold the state liable for mistakes the federal government was entirely complicit in.” No one went to prison, and the overbilling came to light only because a small-town newspaper, the Poughkeepsie Journal, exposed it.

New York State did recoup $535 million in Medicaid funds, including $146 million from GlaxoSmithKline for drug marketing and pricing. While government has many sharp tools to recoup money from physicians and private entities, it claims to lack the tools to get the money back, or that it might be prohibitively expensive, if the fraud involves $120 million illegally paid to care for prison inmates or illegal immigrants.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

Pouring Gasoline on a Crisis. Steven Brill’s lengthy article “Bitter Pill: Why Medical Costs are Killing Us” in the Mar 4 issue of Time is a data gold mine that outs “not-for-profit” hospitals for what they are—medical mercenaries. It does not, however, mention the uncompensated care scam, PPO cartels, and repricing schemes—or the role of the federal government and crony capitalism in creating the whole disaster. It even touts Medicare as a model of efficiency! None of the facts are new, and I am convinced that the reason the piece appeared now is to fuel the movement toward single payer. Even Karl Denninger (http://networkedblogs.com/IQUub), who does a masterful job of demolishing the Wall Street Journal’s reaction to Brill, leaves out the Hill-Burton Act and its devastating effects. We need a free market, not the final solution that would massively benefit big hospitals.
G. Keith Smith, M.D., Oklahoma City, OK – http://SurgeryCenterOK.com

“Free” Money. Federal money is borrowed money, and the debts will be piled on the backs of the 30% who own businesses that generate revenue and pay positive taxes. ObamaCare money is not a windfall from the sky. Some of it comes from physician specialty cuts that have occurred since 2010.
Michael Riesberg, M.D., Pensacola, FL

Core Principles. The difference between a job and a profession is ownership. Professionals own their own jobs, but they are charged with stewardship of the profession and its core principles. When they allowed the camel’s nose of third-party payment under their tent, physicians invited an assault on their time-honored ethics. The AMA House of Delegates now focuses far more on finances, politics, and social engineering efforts than on preserving and improving the art, science, and ethics of medicine. The AMA’s new code of ethics runs contrary to the Oath of Hippocrates, which does not allow physicians to participate in accountable care organizations, pay for performance, gain sharing, resource stewardship, cost versus value, end-of-life care, and similar euphemisms that mean rationed care orchestrated by physicians.
Robert Sewell, M.D., San Antonio, TX – http://SpiritofHealthcare.com/

Our Response to the New Ethics. Principled resistance must be our stand as we are presented with choices that suggest we compromise our core beliefs. We cannot be made into government agents, ready to do the bidding of would-be social engineers.
Alieta Eck, M.D., Somerset, NJ

IRS Heist of Medical Records. According to a report in Courthousenews.com, an unnamed HIPAA-covered entity in California is suing the IRS, alleging that 15 agents stole 60 million medical records involving 10 million patients, including psychological counseling and sexual/drug treatment. These had no relevance to a search warrant authorizing seizure of financial records pertaining to a former employee. Mass theft must be figured into the risk: benefit ratio for electronic records. It is inarguably much harder for 15 people to haul away 60 million paper charts than a couple of hard drives (HCR 3/15/13).
Scot Silverstein, M.D., Lansdale, PA

Déjà vu. Haven’t we been here before? When I was in training in the 1990s, HMOs came to town, and hospitals were buying up physicians’ practices. By the end of the decade, they were all hemorrhaging money. Hospitals disgorged the practices, which again became independent. Now we’re back to hospitals buying practices to become ACOs, an untested government concept.
Craig Wax, D.O., Mullica Hill, NJ – http://ip4pi.wordpress.com/

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