AAPS News – Aug 1992

Volume 48, No. 8 August 1992

HEALTH CARE CRISIS: MADE IN
WASHINGTON

As federal lawmakers try to understand the nation’s medical
insurance (“health care”) crisis, they are looking in all the
wrong places, according to a recent study by the National Center
for Policy Analysis (NCPA). (See Policy Backgrounders #118-119,
June 10 and 22, 1992.)

“The crisis was created in Washington,” stated NCPA
President John Goodman, PhD.

The main culprits responsible for rising costs and insurance
failure, according to Goodman, are Medicare, Medicaid, and
federal income tax law.

The explosion in medical costs began after the enactment of
Medicare and Medicaid in 1965. Between 1940 and 1960, medical
spending rose modestly, from 4% of GNP to 5.2%. Since 1960, the
percentage of gross domestic product (GDP) spent on medical
services has almost tripled, reaching about 13.4% in 1992. The
Medicare and Medicaid share skyrocketed from 5.9% of total
medical spending in 1967 to 28% in 1990. When tax subsidies for
medical insurance are included, the government’s share of medical
spending has increased from 25% in 1960 to 53% today.

State budgets have similarly exploded due to Medicaid. In
Arizona, the percentage of the state budget spent for medical
services increased from around 4.8% in the years prior to 1982,
when the state’s Medicaid substitute (the Arizona Health Care
Cost Containment System) was started, to 17.3% in 1992. This was
despite the enormous infusion of federal dollars, which were
supposed to relieve pressures on the state.

Many believe that Medicare and Medicaid provide services
that people would otherwise be denied. In that case, the
expansion of the programs might be justified. However, the main
effect of government spending has been to increase prices rather
than services. According to the Health Care Financing
Administration (HCFA), every extra dollar spent on health
care buys 65 cents in increased prices and only 35 cents in real
services.

Nevertheless, the federal government continues to expand
Medicare and Medicaid benefits. “Cost containment” efforts
consist mainly in restricting payments to physicians and
hospitals, with the result that an increasing share of the cost
is shifted to the private sector. The cost-shift burden on
private payers is expected to rise from 25% in 1989 to about 38%
in 1992, according to a study by Healthcare Financial Management
Assn (AM News 6/1/92).

Private medical spending has also exploded over the past
three decades, and the increase parallels the rapid expansion of
third-party payment. The patient’s share of the bill has
declined from 52% in 1965 to 23% today.

Like public policies, most private medical insurance
policies feature low deductibles, which fuel spending in several
ways: (1) Some persons abuse the system and consume services
they do not really need; (2) People tend to be less careful
shoppers when spending what appears to be other people’s money;
and (3) Using third parties to pay small bills leads to wasteful
administrative expenses. (A fee of $25 can easily result in $50
in costs by the time the claim is processed and monitored.)

Most people would be much better off if they purchased a
high-deductible policy and deposited the premium savings in a
bank account to use for small medical bills. However, the federal
government punishes people for this prudent behavior with heavy
taxes.

Low-deductible insurance paid for by employers is bought
with pre-tax dollars, escaping a 28% income tax, a 15.3% Social
Security tax, and a 4-7% state and local income tax, so that the
government is effectively paying half the premiums. The
uninsured, on the other hand, have to pay for their medical care
with after-tax dollars. (The need to pay for insurance with
after-tax dollars is the reason many employees of small
businesses are uninsured in the first place.)

“Our health care system has been shaped and molded by the
tax system,” Goodman stated. “If we want substantial
change, we have to start by changing the tax laws.”

Goodman notes that federal tax policy is unjust as well as
economically unsound. Based on the average tax subsidy given to
those with employer-provided insurance, the uninsured pay about
$6 billion to $7 billion in extra taxes each year. (This is
roughly equal to their unpaid hospital bills.) High-income
families receive six times as much benefit as low-income families
from the tax subsidy for medical insurance. Thus, federal tax
policies undermine the social safety net.

The safety net is also weakened by federal spending
programs. Low-income workers pay 2.9% of their income each year
to support Medicare, i.e. to benefit those who have a higher
average income and more assets than the workers do. For the most
part, NCPA states, federal medical dollars go for the benefit of
the nonpoor and in the process drive up prices for the poor.

Changing the federal policies that have caused and
exacerbated the problem is the first step toward reform.
Additionally, Goodman recommends that medical insurance, like
life insurance, should be personal, portable, and guaranteed
renewable. Direct subsidies for low-income, uninsurable people
are far preferable to the bad ideas currently advocated:
guaranteed issue and community rating.

For a copy of NCPA reports, write NCPA at 12655 N. Central
Expy, Suite 720, Dallas, TX 75243.

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Efficiency and Equity:
Socialized Medicine is Not the Model

Foreigners travel to the US to learn about hospital
efficiency, not the other way around, observed John Goodman, PhD,
speaking to the American Farm Bureau Federation in Chicago on
June 22. The only way our medical system can be called
inefficient in comparison with that of Britain or Canada is to
confuse efficiency with lower spending.

In England, one in four hospital beds is empty and one in
four serves as an expensive nursing-home bed, Goodman said, while
at the same time one million people are on waiting lists. The
politicians now pledge that no one in Britain should have to wait
longer than two years for surgery (as 50,000 people did). In
Canada and New Zealand, one fifth of the hospital beds are empty
and one fourth are used as nursing home beds.

Although socialist rhetoric emphasizes “equality,” rural
populations and ethnic minorities suffer far worse discrimination
(in terms of access to specialized medical care) in Canada than
in the US. Considering only the Native American (Indian)
populations north and south of the border, life expectancy for
men is 5 years longer in the US, and infant mortality is twice as
high in Canada.

Baucus Addresses AAPS at Montana Meeting

“No more scotch tape and baling wire,” said Senator Max
Baucus, a member of the Senate Finance Committee, who spoke at
the AAPS regional meeting in Great Falls, Montana, on June 20.
“It’s time for fundamental reform, not tinkering.”

Although he does not believe that significant changes will
occur in this session of Congress, he thinks they will not be
long delayed.

The Senator believes that everyone has the right to access
to health care, but that rationing is essential for containing
costs. (Dr. Pamela Benson pointed out the contradiction.) He
thinks that rationing is like industrial policy-we have it now.

Medical insurance as an employment benefit was an “accident
of history,” the Senator said, a side effect of the Nixon wage-
and-price controls. Increases in health benefits were not
counted as a wage increase.

In response to Kent Masterson Brown’s comment that increased
costs resulted from the infusion of federal dollars, the Senator
said that Medicare should be subjected to a means test. He was
not willing to commit himself to a position on MediSave accounts,
but mentioned that pushing on a balloon in one place made it
bulge somewhere else.

After several physicians had explained why they do not think
health care is a right, Sen. Baucus asked: “If you think that,
how many of you would be in favor of abolishing Medicare?”
Almost every hand in the room was raised.

“The country would collapse,” the Senator remarked.

William Goodman, MD, of Toronto, explained how Baucus’s
proposal to “use the states as laboratories” had worked out in
Canada.

“This is the most interesting meeting I have ever at-

tended,” Sen. Baucus concluded.

AAPS thanks Dr. Paul Gorsuch, Jr., and Dr. Lea Gorsuch for
arranging the meeting and the Cascade County Medical Society for
their sponsorship.

For information on audiotapes, call 1-800-635-1196.

New Taxes in Canada

Ontario Treasury Secretary Floyd Laughren is “proud to be
fighting the recession.” One year ago, he raised taxes by more
than $500 million while tripling the deficit to $9.7 billion.

The result: Government revenues plunged and the deficit
soared to $11 billion (Sunday Sun).

Needed: an original idea for extracting more tax revenue
while at the same time constraining demand for government
services. Herbert Grubel, Professor of Economics at Simon Fraser
University, proposes adding the total value of consumed medical
care to an individual’s income tax return at the end of every
year. The imputed income could then be taxed at the filer’s
marginal tax rate on ordinary income (Fraser Forum June, 1992).
This form of a sickness tax would be more efficient than the US
version of taxing providers (which taxes the consumers only
indirectly), now adopted by Tennessee, Minnesota, Maryland, and
Kentucky.

Citizens’ Property Seized

Alleging that Cincinnati physician Dr. Clyde D. Brown had
billed for unnecessary medical services, the Southern District of
Ohio Health Care Task Force filed a civil complaint against him.
Additionally, the task force received civil seizure warrants
against the defendant’s bank accounts and real estate.

This is the second case in which the Health Care Task Force,
formed in September, 1991, requested a temporary restraining
order to freeze assets allegedly obtained by defrauding
government health insurance.

The physician is accused of fraudulent billings totalling
$400,000 over three and a half years. Some of these were
allegedly concealed by double billing for laboratory tests in
“fragmentation” and “unbundling” schemes.

US Attorney D. Michael Crites stated, “The seizure of
assets is a common tactic in the war on drugs. It will now
become one of our major weapons in the war on health care fraud”
(BNA’s Medicare Report 6/19/92).

In a nationwide action, about 100 persons, mostly pharm-

acists, were arrested and property worth tens of millions of
dollars was seized on June 30. The property, including homes and
financial accounts, was allegedly acquired by fraudulent
billings. The seized drugs included AZT and medicines for
hypertension, heart conditions, arthritis, and asthma. About 65%
of the inquiry was in New York, but more than 1,000 FBI agents
from 16 field offices executed 110 search warrants in Atlanta,
Chicago, Detroit, and other cities (AZ Daily Star 7/1/92 and Wall
St J 7/1/92).

In Orlando, FL, a sheriff’s department drug squad has used
asset forfeiture laws to take nearly $8 million from motorists.
One woman lost part of an emergency loan to fix a hurricane-
damaged home, and grandparents lost part of their retirement nest
egg. In 199 of 262 cases reviewed, no charges were filed against
the motorist. In only four cases was all the money ever
returned. No higher agency reviews the seizures (Tucson Citizen
6/15/92). The FBI considers forfeiture to be a necessary
“tool” to elicit local law enforcers’ participation in the war
on drugs.

Rep. Jim Kolbe (R-AZ), who favors wider use of this tool
(see AAPS News June, 1992), said the FBI has a good track
record but he will look into potential abuse.

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Pennsylvania Supreme Court Finds Board of Medicine
Procedures Unconstitutional

In a recently published March 18, 1992 decision, the Supreme
Court of Pennsylvania held that the Pennsylvania State Board of
Medicine violated a physician’s due process rights by commingling
the prosecutorial and adjudicatory functions. The case
illustrates the procedural flaws that plague many state medical
licensure laws as well as the increasing willingness of some
state courts to provide protections to the individual under state
constitutions. (Federal courts, in contrast, have decreased or
eliminated such protections in the guise of interpreting the
Federal Constitution.)

The case, entitled Lyness v. Commonwealth, State Board of
Medicine 605 A.2d 1204 (Pa. 1992), arose as follows. In January,
1985, an emergency meeting of the State Board of Medical
Education and Licensure was called by telephone conference. The
purpose of the meeting was to consider whether the Board’s
prosecuting attorney would be authorized to cite physician Samuel
S. Lyness, MD, for a formal hearing based upon a complaint of
sexual molestation of a female patient. Following the
prosecuting attorney’s ex parte representation to the Board,
seven out of the eight members in attendance voted to cite Dr.
Lyness, essentially determining that sufficient evidence existed
to initiate disciplinary action against him.

The Board appointed a hearing examiner to preside over the
disciplinary proceedings and began to hear testimony in February
of 1985. However, criminal charges were filed against Dr. Lyness
in several county courts, and the Commonwealth Court stayed the
administrative proceedings before the Board in order to avoid
tainting the pending criminal proceedings.

Importantly, Dr. Lyness was acquitted of all charges by
juries in Montgomery and Delaware Counties in Pennsylvania.
Nonetheless, the Board hearing resumed, and the Board amended the
original administrative complaint to include seven additional
counts, involving six additional female patients who had come
forward to allege sexual improprieties on the part of Dr. Lyness
over a period of eight years between 1976 and 1984.

At the conclusion of the hearing, the hearing examiner
issued his Adjudication and Order, finding that the allegations
of six out of the seven complainants were “overwhelmingly
credible.” His formal Order directed that Dr. Lyness’ license
be suspended for a period of five years and that Dr. Lyness
submit himself for psychiatric treatment.

Both Dr. Lyness and the Board’s prosecuting attorney filed
an appeal to the Board itself, the same body that had initially
found probable cause for an administrative complaint to issue.
The Board voted to affirm the factual findings of the hearing
examiner but found that the sanction was inconsistent with the
gravity of the misconduct. Instead, it ordered the permanent
revocation of Dr. Lyness’ license to practice in Pennsylvania.
Of the original members of the Board who had voted to initiate
the proceedings in 1985, three participated in the meeting of
March, 1988, at which Dr. Lyness’ license was revoked.

Dr. Lyness filed suit, alleging among other things that
there existed an improper commingling of prosecutorial and
adjudicatory functions by the Board in violation of the
Pennsylvania State Constitutional guarantee of due process. The
trial court rejected the contention, and Dr. Lyness appealed.
The Supreme Court granted Dr. Lynness’s Petition for Review
limited to the due process issue.

The Court held that property rights include the right of an
individual to pursue a livelihood or profession, which in turn
triggers the protective mechanism of procedural due process. The
Court stated that under Pennsylvania law, even an
appearance of bias and partiality must be viewed with
deep skepticism in a system that guarantees due process to each
citizen. In so holding, Court quoted the Bruteyn appeal, 380
A.2d 497 (1977):

The decision to prosecute is the fundamental
prosecutorial decision and necessitates the
determination that there is probable cause to
believe that a defendant is guilty. Such a
predetermination of guilt cannot be forgotten
by an individual when he in effect puts on
new robes and hears the case as judge.

The Court made it clear that “actual bias” need not be
present. Due process was violated because the Board that
initially determined the existence of probable cause to issue a
complaint was the same body that made the final decision, and had
a number of identical members. The Court held that under the
Pennsylvania Constitution, if more than one function is reposed
in a single administrative entity, “walls of division must be
constructed which eliminate the threat or appearance of bias.”
The mere potential for bias and the appearance of nonobjectivity
was sufficient to create a fatal procedural defect.

The Court remanded the case to the Board for further
proceedings, although one concurring justice stated that this
would not adequately protect the due process rights of Dr. Lyness
unless the entire Board had been replaced.

The Lyness decision illustrates that state courts may
increasingly be called upon to protect the rights of physicians
and other professionals who are subject to prosecutorial abuses
and the whims of administrative agencies that are empowered to
determine the fate of their livelihood. In recent years, the
federal courts have so eroded the guarantees of due process under
the Federal Constitution as to virtually eliminate any real
judicial scrutiny of administrative action. The curious result
may be that individual states will be come the perceived
protectors of liberty, despite the fact that the Reconstruction
Amendments to the Federal Constitution (the Thirteenth,
Fourteenth, and Fifteenth Amendments) were based on the
presumption that the federal government should play this role.

Unfortunately, the rights of individuals, and physicians
especially, may come to depend upon the state in which they live,
instead of being uniformly protected through a consistently
applied federal guarantee of procedural fairness and
impartiality.

In democracies the Welfare State is the beginning and the
Police State the end. The two merge sooner or later, in all
experience, and for obvious reasons…All modern dictators have
at least one thing in common. They all believe in Social
Security, especially in coercing people into governmentalized
medicine.

Melchior Palyi, 1949

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New Members

AAPS welcomes Drs. Harvey Arbesman of Williamsville, NY;
Robert Arbon of Provo, UT; Hormoz Ashtyani of Hackensack, NJ;
Nachman Brautbar of Los Angeles, CA; Leigh R. Cornelius of
Missoula, MT; Harold P. Crissinger of Menominee, MI; Leszek J.
Fiutowski of College Park, MD; Sutton L. Graham of Greenville,
SC; Robert A. Harman of Belle Mead, NJ; Paul A. Haupt of
Menominee, MI; Anne Kegley of Clayton, NM; Charles Lepley of
Mount Kisko, NY; Furey A. Lerro of Red Bank, NJ; Seymour C. Nash
of Miami Beach, FL; John O’Connor of Great Falls, MT; William
Rask of Las Vegas, NV; Cheryl Reichert of Great Falls, MT; David
N. Reifsnyder of Clearwater, FL; Michael R. Stefan of Los
Angeles, CA; John H. Stone of Great Falls, MT; and James E.
Travis of Plano, TX.

Joseph Wagner of Daytona Beach, FL, is a new student member.

AAPS also welcomes members of the American Academy of
Environmental Medicine, who joined as an association.

Medifraud Part II: Endtimes

On Sept. 12, 1991, in the Honolulu, HI, First Circuit Court,
Judge Virginia Crandall rendered her verdict in the landmark case
Carol A. Brown, MD, v. State of Hawaii Dept. of Human Services.
Precedent was set for law to be made by administrators,
prosecutors, and investigators rather than by the legislative
branch of government. Doctors now may be systematically
annihilated without having ever broken any law or committed any
crime.

This decision was the culmination of a battle begun in
August, 1985, when I learned I was under investigation for
Medicaid fraud. In September, 1986, I was indicted for 134
counts of Medicaid fraud (see AAPS News Nov. 1990)….The
prosecutor reasoned that I should have provided 50 minutes of
“continuous face to face” therapy every time I billed Medicaid
for a 50 minute visit, that I was not allowed to include as part
of that visit time spent talking with hospital staff, family
members, and others….Yet there was, and is to this date,
nothing in the Hawaii Medicaid Providers Manual that specified
what portion of a visit had to be personal contact with a
patient….

Finally, after ten harrowing days in Court and after having
proved I had spent 50 minutes or more in the care of each patient
witness, I was acquitted of all charges in April, 1987.

Because I had been persecuted and prosecuted for a crime the
definition of which did not exist, I decided to file suit. [The
complaints included] negligent administration of the

Medicaid program …[due to] failure to comply with …proce-

dures as outlined in the Medicaid Provider Manual….; invasion
of privacy…and of physician-patient privilege;…[and] tortious
interference with contracts.

Between the filing of the suit and the September, 1991,
numerous costly, time consuming legal proceedings occurred. …
The Respondents called no witnesses and instead asked for a 401b
ruling, i.e. a Judge’s determination of the case prior to their
presenting any additional evidence. Judge Crandall decided in
favor of the State, ruling that since the Medicaid fraud unit is
authorized to act independently of the Dept. of Human Services,
the protocol set forth in the Medicaid Provider’s Manual does not
need to be followed, and the provider may be…prosecuted without
notification or any attempt at resolution of the dispute short of
criminal charges….

The fact that the [prosecutors’ and investigators’] defini-

tion of psychotherapy was not written and was far more
restrictive than that found in the Medicaid Provider Manual and
in RVS (the forerunner of CPT) did not matter….This is the
equivalent of never defining the speed limit so that it can
change at the whim of those in authority.

What has happened to me as a result of all of this: I am
out $55,000 in legal fees for my criminal defense/acquittal. I
am out more than $125,000 in legal fees for this suit against the
State. I am a whole lot wiser….

It is my understanding that we will soon be assigned an
electronic beeper which…will allow our Masters to keep track of
us (note the new 1992 CPT code book which assigns “face-to-
face” times to routine office and hospital visits, thus limiting
reimbursement for actual total time spent in patient care). As
physicians, we are fast losing our civil and contract rights. We
are becoming numbered robots whose work is being reduced to
service code numbers, which at the whim of administrators,
prosecutors, and investigators can be defined by mutual agreement
never reduced to writing. Our contracts with these bureaucrats
are meaningless. The government has the upper hand. Bureaucrats
do not have to abide by the basic rule of contracts concerning
good faith and fair dealing. They represent the King, who lives
by the Golden Rule: “He who has the gold, rules.”

Carol A. Brown, MD, Honolulu, HI

AAPS Calendar

August 16-20. 9th Int’l Congress of IATROS, Helsinki,
Finland. Call IATROS, (319)283-3491.

October 15-17, 1992. Annual meeting, Seattle, WA.

October 24, 1992. Freedom in Medicine seminar, Columbus, OH.
(Note change from Sept. 12.)

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Legislative Alert

Legislative Alert: AAPS Report from Washington

The congressional leadership is bogged down on national
health care reform. Liberals in Congress are torn over whether to
push for national health insurance along the Canadian model,
“play-or-pay” mandatory employer-based insurance or an
expansion of Medicare to cover the entire population. These are
the only three alternatives that command the interest or
attention of the liberal majority of Congressional Democrats in
the House or Senate.

Rank-and-File at Odds with House Leadership. While the
Democratic leadership (along with probable Democratic
presidential candidate Bill Clinton) has been supporting a
“play-or-pay” mandatory insurance package, House Democrats are
far less enthusiastic. According to a survey conducted by the
Democratic Study Group (DSG), a liberal caucus of House
Democrats, only 27% of the 98 Democrats who responded picked
“play-or-play” as their first choice. More significantly, a
total of 36% said that they would vote against a bill
based on this model. DSG analysts think that opposition by small
businesses is having its effect.

In contrast, 73% said that they would not vote against a
“single payer” plan, while 15% said that they would vote
against such a system. House Democrats, particularly liberals,
are still wedded to a national health insurance plan.

House Democratic respondents favor requiring individuals to
pay for their share of health care costs on the basis of an
“ability to pay” and show strong opposition to a new system
that is not self-financing or likely to add to the budget
deficit. The top candidate for financing is a new payroll tax,
with both employers and employees equally sharing the burden.
This option, according to the DSG, was ranked either first or
second from a list of financing options by 45% of the responding
Democrats. No matter how the pie is cut, this will be a big tax
increase.

Stark and Comprehensive Price Controls. In an attempt
to break the political deadlock and move a bill, Congressman
“Pete” Stark, California Democrat and Chairman of the House
Ways and Means Subcommittee on Health, is circulating a draft
solution. House Majority Leader Richard Gephardt (D-MO) has been
busily engaged in “shuttle diplomacy” among House Democratic
factions in trying to bring a bill to the floor.

The theme is not universal access or even quality care for
all, but “cost containment,” i.e. price controls. While the
measure has not even been introduced in the House and is yet
unnumbered, the details of the new legislative proposal have been
dribbling out.

Capitol Hill sources describe the latest draft as a national
health insurance program without the financing of the Canadian or
the British system.

The key features are as follows:

• A global budget for all medical spending in the
  United States, the same type of national budgeting that
  is found in the Canadian and other national health insurance
  systems.

  Under the proposal, the annual budget would be set for
  1994 at the current trend, minus 1 percentage point.

  The legislative mandate would phase in the level of spending
  to equal the annual increase in the nominal gross domestic
  product. The legislative proposal looks toward health care costs
  stabilizing at 15%.

• Medicare payment rates. DRGs for hospitals
  and the RVS for physicians’ services would be extended to the
  entire medical economy.

  The draft proposal sets up a mechanism whereby the
  Prospective Payment Commission for Hospitals and the
  Physicians Payment Review Commission would study and
  “recommend” to Congress the payment policies, including
  the distribution of payment to doctors, hospitals, suppliers
  of equipment, and others. Capitol Hill sources indicate that
  balance billing, under this proposal, would be eliminated
  altogether.

• Fixing prices for prescription drugs.
  Under the draft proposal, HHS would set maximum prices for
  prescription drugs. HHS would also establish a national
  prescription drug formulary.
• Opting out by states and HMOs. Under the
  draft, states could set up their own payment systems for doctors
  and hospitals, as long as the state systems were approved by the
  federal government and did not compromise the annually budgeted
  national costs. HMOs would not be required to pay doctors under
  the Medicare rates, and the expansion of federally approved HMOs
  would be encouraged. HMO participation in employer-based plans
  would be mandatory.

  It does not appear from the draft that doctors,
  individually, would be able to “opt out” of the system.
  Thus, in many respects, the draft proposal appears to set up
  a system far less liberal than the British National Health
  Service, which at least allows doctors the option of private
  practice.

• Federal health insurance regulations.
  Under the terms of the draft, the federal government would set up
  new regulations for employer-based insurance. Health insurance
  companies could no longer discriminate against a group or even a
  member of a group because of their medical conditions, and
  premiums could not be adjusted solely on a person’s medical
  status. Beneficiaries would have the right to sue insurance
  companies for legal fees and damages if benefits were to be
  denied.
• Required administrative
  “simplification”. The draft proposal would legislate a
  uniform system of electronic billing for all insurance claims.
  The draft specifies that there would be a single coding system
  for all diagnoses and procedures, a new uniform system for
  utilization review and audits, a new federally approved software
  system for hospitals and doctors to be used in claims processing,
  a new national “on-line” system for physician verification of
  eligibility and benefits, plus a universal health insurance card.
  Under the new system, every enrolled person would be assigned an
  identification number.
• A new federal program to combat fraud and
  abuse. Medicare’s current policies would be the model
  of the new program. Targeted practices would include “dumping”
  patients out of hospitals, kickbacks, and the submission of
  fraudulent claims.

  New federal penalties would be imposed for the
  submission of false claims to the national “electronic
  claims network.” These would include : fines; triple
  damages; suspension from the Medicare, Medicaid, and other
  public health programs; and loss of the right to bill
  private insurers through the “regional clearinghouses”
  (subsets apparently of a national clearinghouse for claims
  processing). Criminal penalties for doctors convicted of
  fraud involving more than $25,000 would be jail terms of up
  to 10 years, fines or community service in public health
  service clinics or in medically “underserved areas” or
  wherever there is a “manpower shortage” of physicians.

  To bolster the enforcement provisions, the draft
  proposal creates a national identification system for
  doctors and patients. The doctors would be assigned their
  “universal provider identification numbers,” and patients
  would be required to use their Social Security numbers.
  Enforcement would be in the hands of the HHS Inspector
  General’s Office, which would be increased in size and
  financed by fines to “ meet the operating costs of the
  national health care fraud control program.”

• Expansion of Medicaid and change in Medicaid
  payment rates. Medicaid eligibility would be expanded to
  all Americans with incomes below 200% of the official poverty
  level, as defined by the US Bureau of the Census. According to
  the authors of the draft, this expansion would provide health
  insurance to approximately two-thirds of America’s uninsured
  population.

  The national “floor” hospital payments would be 80%
  of the Medicare DRG levels in 1996, 85% in 1997, and 90%
  thereafter. For doctors, the floor would be based on
  payments set by Medicare’s RB RVS.

• Medicare expansions. All women over age
  65 would be entitled to annual mammograms. All Medicare
  beneficiaries would get colorectal cancer screening, and
  influenza and tetanus vaccinations. Most importantly, there would
  be a new Medicare prescription drug benefit under Part B. For
  dispensing prescription drugs, the draft proposal resurrects the
  provisions similar to those of the defunct Medicare Catastrophic
  Coverage Act of 1988 and establishes a national pharmacy
  participation program, with a “point of sale” electronic
  billing system, to process claims for Medicare’s prescription
  drugs. Beyond that, the draft calls for the establishment of a
  national Prescription Drug Payment Review Commission, much like
  the Physician Payment Review Commission that now advises Congress
  on doctors’ reimbursement.

With the onset of the National Democratic National
Convention, Stark wants to move a bill out of his House Ways and
Means Subcommittee. But intense internal opposition to this
approach from moderate and conservative House Democrats is still
blocking any consensus among the ranks of the Congressional
majority.

Conservative Democrats and “Managed Competition”.
Making matters even more difficult for Gephardt and Congressional
liberals is the utter refusal of House conservative Democrats to
buy into national health insurance, play or pay, or the Ways and
Means Subcommittee draft on cost containment. Led by
Congressmen Charles Stenholm and Mike Andrews of Texas and Jim
Copper of Kentucky, members of the Conservative Democratic Forum
(CDF), a House caucus of conservative and largely Southern
Democrats, propose yet another alternative plan: “managed
competition.” Recently endorsed by the New York Times,
the idea is grounded in the work of Alain Enthoven, a health care
economist at Stanford University in California.

The key elements of the CDF proposal are as follows:

• Health Plan Purchasing Cooperatives.
  These are basically a pooling of businesses for the purchase of
  insurance. As members of the cooperative, small businesses will
  be required to make a choice of insurance plans available to
  their employees, but they will not be required to buy the health
  insurance. Employees can buy insurance directly and deduct 100%
  of basic insurance costs.
• Accountable Health Partnerships. Doctors,
  hospitals, and insurance companies will form new, “improved”
  versions of HMOs, PPOs, and other group practices. Public
  disclosure of costs and medical outcomes in these partnerships
  will be required by law. These new partnerships would have to
  offer at least a standard health care plan; there would be no
  “experience rating”; premiums would be based on age and
  geographic location; individuals would not be disqualified from
  coverage because of pre-existing medical conditions; copayments
  would be required; uniform claims processing and forms will be
  required; preventive health will be strongly emphasized; and all
  plans would be exempted from state mandated benefits.

  The reduction in paperwork effected by uniformity in
  administrative and claims processing reforms is expected to
  save $5 billion a year.

• Tax changes. Under the CDF plan, employers
  will be allowed to deduct basic insurance costs for employees,
  but not costs of benefits that go beyond those embodied in a
  basic benefits package. Under the CDF proposal, employers will
  only get tax relief for purchasing the least costly health plan
  that meets federal standards. Employees will be allowed to deduct
  100 percent of all basic insurance costs in any case, but not the
  costs of any extra benefits. Limiting the employer deduction to
  basic insurance is expected to save $5 to $10 billion annually.
• Abolition of Medicaid with universal access through
  a voucher program.
• Medical liability reform. The CDF proposal
  adopts the Kyl-Stenholm language of HR 3516.
• The establishment of a National Health
  Board. This board would play a role similar to that of
  the Securities and Exchange Commission (SEC) on Wall Street. It
  would define the basic benefits to be offered by Health Care
  Partnerships and establish uniform standards for reporting
  pricing and medical outcomes.