AAPS News – Aug 2003

Volume 59, No. 8 August 2003

PRESCRIPTION FOR DISASTER

“This is the beginning of the end of the Medicare program,”
declared Rep. Jerry Kleczka (D-WI), referring to H.R. 1, the
great 749-page bipartisan Medicare expansion which squeaked
through over opposition from both extremes of the political
spectrum (see pp. S1-S2).

While AAPS has been predicting an inevitable end for some
time, the day of bankruptcy (probably not what Rep. Kleczka
meant) can only be hastened by adding a prescription drug benefit
without major reform.

No one knows what will emerge from behind the closed doors
of the conference committee, which is likely to unveil its
product just before a holiday or at another time when newspapers
are not watching. Anyone who thinks that the proper alignment of
the stars is not a good rationale for major legislation should
speak up now.

First, what the prescription drug benefit is not:

It is not insurance. From Insurance 101, to
underwrite a risk i.e. to offer true insurance three conditions
must be present, as explained by Dick Matthews: (1) the potential
claim must be very substantial; (2) the potential claim must be
rare; (3) the claimant must not want the claim to occur.

Even if one insists on calling a third-party payment scheme
insurance, George Fisher, M.D., points out that the drug benefit
is more like a reinsurance scheme. “What is impossible
to administer to the public is very simple to administer if the
client is a primary health insurer. Blue Cross or whoever will
take all the heat for the price control and the quality
deterioration, the turn-downs and the pre-authorizations, the
anger and the anguish. The government will simply make it
overgenerous at first, and then squeeze it down later, letting
the primary carrier dangle in the wind” (message 9934,
HealthBenefitsReform Discussion Group).

The program is not a mere $400 billion commitment.
It is an open-ended entitlement, like Medicare which by 1990 cost
seven times as much as had been projected. The $400 billion is an
estimate by the Congressional Budget Office (CBO) of the cost of
the program over 10 years counting the three before it goes into
effect. The next 10 years would be more than twice as expensive
(USA Today 6/29/03).

The bill is not a “crucial reform” of Medicare,
though headlined as such on the AMA’s home page on July 6. “The
idea of using the drug benefit as a carrot for real reform was
dropped without a fight” (Wall St J 6/25/03). No real
reforms will be implemented until 2010 at the earliest.

The bill does not offer seniors a genuine choice.
As John Goodman of the National Center for Policy Analysis (NCPA)
explains, seniors may get many choices among inferior plans while
being denied the choice of one good plan and the bill could cause
more than a third to lose their employer-provided coverage
(Wall St J 6/27/03). A better plan would be to repeal
current congressional mandates: it is illegal to offer seniors
low-cost prescription drug coverage that is not bundled with
other costly benefits (Investor’s Business Daily
6/20/03).

What then is this program?

Some suggest (wishfully?) that it’s a politically savvy move
by conservatives to gain a filibuster-proof majority in 2004, and
to sneak in Medical Savings Accounts, and to come back with a fix
before the program takes effect.

Others say it’s a “giant roll of the dice” with taxpayer
money for a short-term political payoff (Wall St J
6/23/03).

For certain, it is a huge unfunded liability, on top of the
$38 trillion by which promised Medicare benefits already
exceed projected revenues over the next 75 years
(ibid.).

Most importantly, the essence of the plan is increased
government control even though the Senate defeated an amendment
by Sen. Hillary Clinton that would have created a government
bureaucracy to assess whether drugs were “cost effective” enough
to be permitted under the program.

“Government will play an even greater role in deciding what
drugs seniors get, how doctors and pharmacists are paid, how
private medical information is distributed, and what drug
companies benefit most. The plan moves America disastrously
toward a complete government takeover of medicine,” writes Rep.
Ron Paul, M.D. (R-TX), a life member of AAPS.

With this package, the Republican Congress enacts still
another piece of the Clinton Plan that it defeated in 1994,
following up on SCHIP and HIPAA.

Who benefits from the bill? According to the New York
Times, large employers will be able to shift some of their
burden of retirees’ drug costs onto the government [i.e. the next
generation]. Some segment of the pharmaceutical industry
apparently expects to benefit, as it reportedly spent $135
million lobbying for the bill, according to Rep. Paul.

Who will suffer? Small local pharmacies may be driven out of
business, leaving seniors in rural areas without immediate access
to drugs such as antibiotics (Post-Journal 6/19/03). All
will lose the benefits of innovation and true price competition
once the pharmaceutical industry becomes a virtual partner of the
federal government.

The massive nonparticipation dreaded by the government in
1965 may yet occur. In Seattle, only 44% of physicians accept new
Medicare patients, down from 71% four years ago. A 2003 survey by
the AMA and the American Academy of Neurology found that more
than 11% of neurologists no longer treat patients, and 33% have
withdrawn certain services.

Even patients may opt out. Senior enrollment in voluntary
Part B actually decreased from 33 million in 2001 to 32.7 million
in 2002, while Part A enrollment was steady.

The effort to save American medicine clearly must not await
action from Congress.

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A Drug Plan that Works

Medical Savings Accounts (MSAs) have been available in South
Africa for more than a decade. Unlike in the U.S., they have
developed in a relatively free insurance marketplace.

Average discretionary medical spending is 47% lower for
South Africans with MSAs. Properly designed MSAs appear to help
control prescription drug expenditures, without adverse effects
on patients’ health (
www.ncpa.org/pub/st/st254).

Information Technology and Public Health

The internet is a powerful tool for disseminating news about
public health threats. By Feb. 10, 2003, news of a “fatal flu in
Guangdong” had reached 120 million people through text messaging,
and untold numbers more through chat rooms and e-mail. The
Chinese authorities, who had tried to cover up the outbreak,
finally had little choice but to acknowledge it.

By the end of May, 2003, however, 117 people in 17 provinces
had been arrested and charged with disturbing the social order by
spreading SARS-related rumors. “SARS” is now a banned word. The
government has the ability to search the country’s entire volume
of e-mail for possibly subversive words. “Anyone snared in its
high-tech web can expect surveillance, intimidation, arrest, and
prison.” The cyber-police has tens of thousands of members and is
capable of arresting internet users anywhere in the country
(N.Z. Herald 6/17/03).

HIPAA Updates

Backup Your Finances. If you depend on third
parties for your cash flow, your practice should secure a credit
line sufficient to pay 90 days expenses, to replace revenue lost
as a result of the transaction code sets (TCS) rule, according to
Ellen Maltz of the Montgomery County Medical Society. Do it now;
if all practices show up with credit applications on Oct. 16,
many will be denied (HIPAA Compliance Alert 7/7/03).

OCR Receives 637 Privacy Complaints. The Office of
Civil Rights (OCR) is investigating 260 complaints, has dismissed
124 mainly because they came in before the April deadline, and
hasn’t decided on a disposition for 253. Most frequent subjects
are patients claiming they were denied access to their records,
lack of privacy notices, or inadequate privacy safeguards in
treatment settings. Several complaints originated with employees.
OCR is developing criteria for referring complaints for criminal
prosecution. See
www.hipaapro.com.

HHS Asked to Delay TCS Enforcement. The National
Committee on Vital and Health Statistics (NCVHS) has requested a
6-month period of “flexible” enforcement but not an extension of
the deadline during which imperfect claims can still be paid. HHS
has not said whether it will accept this recommendation. In a
June 25 letter, NCVHS Chairman John Lumpkin, M.D., M.P.H., stated
that “some providers are still in denial.” Also, there is a “vast
lack of knowledge” about how to implement the TCS provisions and
no rulemaking regarding the substance of enforcement. Additional
guidance is needed on how to handle claims that are submitted
before Oct. 16 but require several rounds of handling before
fully adjudicated. They could be denied because they are not in
standard format.

Small Practices Need No Waiver for Medicare Paper
Claims. A June 24 CMS memo reads “just continue to bill via
paper” if you believe you meet the small-provider exception (less
than 10 FTEs) to the electronic filing requirement.

HHS Plans to Track Medical Records

HHS Secretary Thompson has unveiled a plan to build a
nationwide electronic system to track patients’ medical records,
based on SNOMED (Systematized Nomenclature for Medicine), a
system developed by the College of American Pathologists (CAP) in
collaboration with the British National Health Service and
others. SNOMED has terms for more than 340,000 medical
concepts possibly not including the next SARS.

The CAP signed a $32.4 million 5-year sole-source contract
with the National Library of Medicine as part of the ongoing HHS
National Health Information Infrastructure project.

This system will “prove invaluable in facilitating the
automated exchange of clinical information needed to protect
public safety, detect emerging public health threats, better
coordinate patient care and compile research data for patients
participating in clinical trials,” Secretary Thompson said in a
July 1 press release.

“Imagine what it would be like if you only had to provide
your family and medical history once, and you were confident that
your medical records were being interpreted in the same way by
various health care practitioners,” said Diane J. Aschman, Chief
Operating Officer of SNOMED International.

HHS claims that the new system would cut medical errors and
save $100 billion annually.

Revenue to Cover the Drug Benefit?

Although not officially counted as revenue, the fraud
provisions in S. 1 “appear in part designed to secure revenue
that would help pay for the drug benefit” (Medicare
Compliance Alert 6/30/03). These will apply to all false
claims, not just those involving prescription drugs. Civil
monetary penalties would be increased from $5,500-$11,000 to
$7,500-$15,000 per infraction, and the maximum CMP increased by
25%. More funds would be added to the federal health care fraud
and abuse control account: $10 million in 2004, $15 million in
2005, and $25 million in 2006. If the federal government could
extract an average net $100,000 per year from each of 400,000
physicians for 10 years, it could raise $400 billion in this way.

AAPS Calendar

Sept. 17. Board of Directors mtg, Point Clear,
Alabama.

Sept. 17-20. 60th annual mtg, Point Clear, Alabama.

Oct. 13-16, 2004. 61st annual mtg, Portland, Oregon.

Lest we forget: “If what I tried before won’t work, maybe
we can do it another way. That’s what we’ve tried to do, a step
at a time, until we eventually finish this.”

William J. Clinton, Sept. 15, 1997

speech to the Service Employees International Union

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AAPS Calls for End to War on Lawful Drugs

In a June 26 press conference in Tucson, AZ, AAPS stated
that the War on Drugs has come to mean a war on lawful drugs
also and on the physicians who prescribe them and the patients
who take them.

“Throughout the U.S., physicians are being threatened,
impoverished, delicensed, and imprisoned for prescribing in good
faith with the intention of relieving pain,” stated AAPS
Executive Director Jane Orient, M.D.

The conference was held at the office of Jeri Hassman, M.D.,
who has been indicted on 67 counts of federal drug violations,
for 67 prescriptions to six patients. More than a dozen of her
patients attended to show support for Dr. Hassman; many spoke to
reporters. Several physicians also attended and explained how the
climate of fear resulting from indictments like Dr. Hassman’s is
affecting patient care.

Dr. Hassman spoke of the need to keep “powerful and
potentially dangerous prescription drugs out of the hands of the
drug abusers and those who illegally sell them” and called for
the DEA to “communicate and cooperate” with doctors. Doctors
should not be forced to treat any patient complaining of pain as
a criminal suspect.

AAPS suggestions for legal reforms are posted at
aapsonline.org.

Dr. Hassman’s trial is scheduled to begin July 29. On July
1, Judge David Bury denied a government motion for continuance.
The prosecutor stated that the government was not ready for trial
and was searching for an expert witness to replace the one relied
on to bring the indictment.

Supreme Court Limits Forced Drugging

In a 6-3 ruling in the case of Sell v. United
States (02-5664), the U.S. Supreme Court ruled that
defendants could be forcibly given antipsychotic drugs for the
purpose of rendering them competent to stand trial only in
certain instances that “may be rare.” Writing for the majority,
Justice Stephen Breyer said that a court must find that (1)
“important government interests are at stake”; (2) medication is
“substantially likely” to render the defendant competent to stand
trial and “substantially unlikely to have side effects that will
interfere significantly with the defendant’s ability to assist
counsel in conducting a defense”; and (3) “alternative, less
intrusive treatments are unlikely to achieve substantially the
same results.”

The fact that refusing drugs may mean continued lengthy
confinement [without the need to prove guilt] substantially
diminished the risk of freeing a guilty person without punishment
and thus government’s interest in drugging the prisoner, Breyer
stated.

Dr. Sell has already been incarcerated for more than four
years, with 20 months spent in solitary confinement and no other
treatment offered (St. Louis-Post Dispatch 6/17/03).

The Bush Administration stated that 59 prisoners had been
forcibly drugged in a recent year, with 45 eventually found fit
to stand trial, while more than 200 accepted the drugs
“willingly” (A Gearan, AP 6/16/03).

AAPS filed an amicus brief supporting Dr. Sell (AAPS
News Nov, Dec
2002). The Court adopted arguments from the brief, which is
posted at www.aapsonline.org.

“We are gratified that the Supreme Court sees no
justification in the record for forcibly drugging [Dr. Sell],”
stated AAPS General Counsel Andrew Schlafly. “We used to complain
when the Communists engaged in such tactics. This should not
occur in America.”

Texas Restricts Forced Vaccinations

After seven years of work by parent activists, the Texas
legislature passed a conscientious/philosophical exemption to
mandatory vaccinations and Rep. Capelo is trying to get it
repealed in special session. The bill also prohibits a health and
human services agency from taking punitive action against a
parent for declining immunization. This includes “the initiation
of an investigation of a person responsible for a child’s care
… for alleged or suspected abuse, or neglect of a child.”

See www.vaccineinfo.htm for
further information.

CMS Using Senior Spies, Consent Settlements

In Oct. 25 revisions to its program integrity manual, CMS
orders carriers and fiscal intermediaries to activate a data
tracking system for complaints from seniors alleging Medicare
fraud. The Senior Medicare Patrol, which has 52 branches, teaches
senior volunteers to train others to detect and report fraud.
Since 1999, the program has received $28 million in HHS funding
and has trained 31,173 senior trainers, who have educated 869,472
beneficiaries, who have generated 19,342 complaints. Claimed
savings amount to $3 million to Medicare and $76.6 million to all
payers. Informants are trained to report providers who offer to
waive copayments and deductibles or who advertise free testing or
screening, among other things (Medicare Compliance Alert
11/4/02).

AAPS has advised Congress that doing away with assignment of
benefits, paying beneficiaries with a dual payee check to prevent
them from pocketing the reimbursement, would reduce fraud to
virtually zero. “If we had alert, informed consumers included in
the financial equation, there would be no need for an army of
spies and informers,” stated AAPS Executive Director Jane Orient,
M.D.

The Oct. 25 revisions also spell out rules for consent
settlements, a “cheap and easy means for extracting payments from
providers” based on extrapolation from a sample too small to be
statistically valid. Providers have a grim choice of paying up or
risking larger damages (ibid.).

See
www.cms.gov.

Tip of the Month: Frequent demands are being made on
physicians by carriers, hospitals, and even answering services to
sign confidentiality or business associate agreements. The
Kennedy-Kassebaum Act, now popularly known as “HIPAA,” is the
reason. But be careful: these contracts can include requirements
that have nothing to do with HIPAA, such as promises to keep
hospital financial information secret. It is particularly
important not to admit to being a “covered entity” when you are
not. If you are a “noncovered” entity because you do not engage
in any electronic transactions, then you may want to write and
initial on these contracts: “I am a `non-covered’ entity under
HIPAA, notwithstanding any statements in this contract or
elsewhere to the contrary.”

“Noncovered Entities” May Teach

Noncovered physicians may continue to serve as
preceptors for residents and do not need to sign a HIPAA
Business Associate Agreement to do so, according to John Nylen,
COO of the Accreditation Council for Graduate Medical Education.

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Correspondence

More Privacy Protection. An article in the church
bulletin notified the congregation of a new policy: because of
HIPAA, hospitals would no longer release information to churches
so that clergy could visit the sick. The church now has to rely
on family and friends. If you’re old and have no family or
friends, you’re out of luck. The hospital has no form you can use
to permit the release of your information to the church.

Perhaps the mere act of praying for sick people violates
their privacy, as the prayor has failed to obtain a government-
approved, HIPAA-compliant form to release information to God.
Only the State, as Prime Healer, can have unfettered access to
the database of personal health information.

Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

Translating the “Privacy” Notification. The “Notice of
Information Practices” from my insurer states that my medical
information will be available to one and all, including those who
could harm or control me, without my consent. There is one
exception: those individuals or entities that have absolutely no
use for my information won’t be able to get it.

Robert P. Gervais, M.D., Mesa, AZ

Who Owns the Medical Record? Years ago, records on
patients were the property of the doctor. With the intrusion of
government into medicine, the records became the property of the
patient but were held by the doctor as required by law. The
patient had control over who could review those records. The
doctor could not forward them to anyone without the patient’s
knowledge and consent. In April, 2003, the property rights were
apparently transferred to the agency that pays for the care.
Government agencies, including law enforcement, and insurance
companies can look at records at will. Doctors have to hand over
the records even on the weakest allegations or suspicions of
mistreatment or missed diagnosis [or improper billing or privacy
violation].

Thomas R. Tibbels, M.D., West Point, NE

Payment and Information Flow. Years ago when HIV was
new I needed a routine HIV test before surgery. The local health
department had a three-month wait for an appointment. The local
hospital was willing to do the test; however, it would not
divulge the results without a counseling appointment. The wait
for counseling was several weeks, too late to make the surgery
date. My protests that I could handle a negative result were
unavailing as were appeals that necessary care would be denied if
I couldn’t have the results sooner. The nonprofit bureaucracy’s
specialty was “caring,” and it insisted on a professional being
present to explain the results.

At a private lab, they asked who was paying. I said I was,
in cash. I had the results in three days.

Linda Gorman, Englewood, CO

Physicians Do Not Need to Organize. They don’t have to
call their buddies to see what they are doing. They can do it
without consulting anyone, in the privacy of their own office, in
accordance with their own conscience. They can just say no to all
insurance contracts.

Just say no to HIPAAcratic medicine. Just say no to 40-page
contracts with lots of fine print. Just say no to hiring an army
of billers to settle patient accounts. Just say no to serving as
the fall guy for faceless insurers, informing patients that their
insurance won’t cover a needed procedure or test.

It is time to go on the offensive and not cower with every
new twist managed care throws at us. Physicians will be much
happier for breaking their addiction to managed-care contracts
and resuming their position of serving only the interests of
their patients.

Robert S. Berry, M.D., Greeneville, TN

Such a Deal! Not only did the doctors settle with Aetna
for $150 for all their unpaid claims; they have apparently agreed
to another AMA coup. From now on, doctors will not only have to
buy the AMA code book every year; they’re apparently going to
have to buy some sort of AMA “best practice manual” as well! As
The New York Times reports, “For doctors, one of the
most significant changes was Aetna’s acceptance of general
guidelines for treatment that have been developed by the American
Medical Association….” It looks as though the organization that
represents just 21% of practicing physicians has found an
additional source of revenue.

Stephen R. Katz, M.D., Fairfield, CT

Repeating the Error of 1965. The debate on prescription
drugs and Medicare is beyond sad. Congress will undoubtedly pass
a program, and in no more than 10 years people will look back and
be outraged at how stupid we were. I wish I knew how to start
moving back toward sanity…. All one can do is keep trying. If
we give up, we certainly know [the outcome].

Mark Litow, F.S.A., Milwaukee, WI

Seniors Want Choice. I have worked in the “senior
market” for more than 20 years and can say that the majority of
seniors rich and poor want choice but are forced to take
Medicare. We need a little consumer rebellion…. Maybe it’s time
for seniors to opt out of the Medicare program and demand that
Congress give their equivalent Medicare dollars so that they can
buy coverage or pay cash.

Joseph Lee Pugh, Diamondhead, MS

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Legislative Alert

Medicare and Prescription Drugs:
Reform or Ruin?

The biggest expansion ever in the Medicare entitlement just
passed the House (H.R. 1) and Senate (S. 1), with the approval of
the Bush Administration. In the aftermath of the House and Senate
votes, the President commended the Congress, and the giddy self-
congratulation is starting all around. The Honorable Gentleman
from This State extends his thanks to the Honorable Gentleman
from That State for his Cooperation. Cooperation, going along and
getting along. Thus Congress finished the first stage of its
short, but mammoth, debate on the future of the Medicare program.

Early in the morning of June 27, the Senate passed S. 1 by a
lopsided vote of 76 to 21. Republicans voting against the Senate
bill: Allard, Cornyn, Ensign, Graham of South Carolina, Lott,
McCain, Nickles, Santorum, and Sununu. Democrats voting no: Byrd,
Clinton, Edwards, Graham of Florida, Harkin, Hollings, Kohl,
Levin, Reed, Rockefeller, and Sarbanes. Neither Lieberman, nor
Kerry, two Democratic presidential contenders, voted on the bill.

The House of Representatives enacted H.R. 1 by a vote of 216
to 215. The squeaker says a lot about the debate. The House
Republican leadership did not have the votes for the measure
nailed down until late in the evening of June 26. Some of the key
no votes among House conservatives included Richard Burr (R-NC),
who favored a targeted benefit for low-income seniors; Jim De
Mint (R-SC), who is a champion of consumer-driven medical care;
Jeff Flake (R-AZ); and Charles Norwood (R-GA). Look beneath the
smiling faces of the victors; the razor-thin margin reflects
seething anger and the depth of the divisions that surfaced
during the debate.

Though the House bill was indeed a massive entitlement
expansion, Rep. Charles Rangel (D-NY) launched a tirade against
Republicans laced with over-the-top references to the Jews going
to gas chambers in Nazi Germany in the 40s; Joe McCarthy’s
investigations in the 50s; the dismantling of the New Deal, the
Fair Deal, and the Great Society; and the oncoming destruction of
Medicaid, Medicare and Social Security.

It is a debate nobody expected. The strongest Congressional
proponents of real Medicare reform for example, Rep. John Shadegg
(R-AZ) and Sen. Don Nickles (R-OK) emerged as the strongest
opponents of the legislation, and many Members who were voting
for the Congressional Medicare bills were doing so reluctantly,
hoping against hope that these flawed pieces of legislation will
somehow be “fixed” in a long and bitter summer House and Senate
conference.

The Senate Disaster

Forget the size of positive vote. The Senate bill is
profoundly bad policy. It was the product of negotiations between
Senator Charles Grassley (R-IA), chairman of the Senate Finance
Committee, and Sen. Max Baucus (D-MT), the ranking Democrat.
There were no hearings at all on the provisions of the bill.
Indeed, the very week before, the Senate Finance Committee called
a quickie hearing, showing some semblance of Senatorial
deliberation, at which they invited a panel to testify on general
themes: Marilyn Moon of the Urban Institute, who insists that
Medicare is an excellent model of “cost control” because the
government can impose price controls on doctors and hospitals and
the private sector can’t, and Walton Francis, an expert on the
functioning of the popular federal employees’ program, the only
consumer-driven medical insurance market that exists in the
Cosmos. The Moon testimony was as expected, but the Francis
testimony turned out to be irrelevant to the final Senate
product.

In the aftermath of that hearing, Committee staff unveiled a
70-page outline of the bill on June 10, then called for a June 12
mark-up of the “bill,” which turned out to consume 664 pages of
legislative language. Committee members, who had not seen any of
it, had 48 hours to absorb it all, and vote on it, and then the
full Senate scheduled the floor consideration the following
Monday, with a view toward voting on it by June 27, just in time
for the July 4 recess.

The Senate Process

The White House issued a statement of support for the
Senate bill, saying that though the Administration had some
reservations about certain provisions, it was in favor of The
Process going forward. But those who live by The Process can also
die by The Process.

The reaction of conservative and libertarian policy analysts
who actually took the time to read the Senate thing ranged from
disappointment to disbelief. First, there is denial, then
anger but acceptance is probably not in the cards here. The White
House, which had committed itself to genuine reform of the
Medicare program, found that this Senate product was bereft of
any support among conservative economists and health policy
analysts.

Massive Entitlement Expansion

Both the Senate and the House bill add a universal drug
entitlement to a program that is already facing huge financial
liabilities. This is terrible policy. Tom Saving, Professor of
Economics at Texas A&M University and a Medicare trustee, says
that the $400 billion Medicare drug benefit will add a
whopping $7.5 trillion to the long-term unfunded liabilities of
the Medicare program. Saving argues that if you limit the
calculation to only today’s Medicare beneficiaries and current
workers, the additional Medicare unfunded liability is still
huge $2.6 trillion. This is going to have a big impact on the
taxpayers, and they don’t know what is going to hit them.

For more than two years, conservative economists and policy
analysts have warned that the creation of a new entitlement, no
matter how politically popular it might be among the baby boomer
liberals who run the AARP, will crowd out private coverage. But
that, after all, is what the Left wants: the displacement of
private sector coverage in favor of government coverage. The
bigger the displacement, the better. Both House and Senate bills
will force millions of Americans out of private coverage, and
many, if not most, will be forced to pay higher out-of-pocket
expenses for drug coverage. Now this is supposed to be a
political slam dunk for the White House and its allies.

Then there is the chosen method of drug delivery. Both House
and Senate authors have decided not to build on anything that
exists in Nature, as Urban Institute President Robert Reischauer
said, but rather something that is projected into the future by
the congressional Imagination: a “drug only” insurance benefit.
Will such a thing work? Hard to say, never saw such a creation
before on Planet Earth. Most folks on Earth get their drug
coverage through existing institutions, not products of arcane
legislation. And regular insurance, whatever its faults, does do
a pretty good job in securing competitive discounts on
pharmaceuticals, and in coordinating with other benefits.

In the Senate bill, if there is an inadequate private
participation, there is a government Fallback, which will be risk
free. Private plans bear risk, the government doesn’t, yet
private plans are supposed to compete with the government?

The government drug plans are like other Medicare
contractors, rather than competitive independent entities. Since
roughly 50% of prescription drugs are purchased by Americans over
65, this provision is likely to help extend direct government
control over drugs, a crucial element of the medical sector of
the economy. Chalk up another point for Senator Ted Kennedy and
the “Single Payer” caucus on Capitol Hill.

There is now, and always was, a better way. Instead of a new
drug entitlement, the Congress should instead target monies to
the minority of low-income seniors who need help.

What About Competition?

In the House bill, there is a genuine shot at real Medicare
reform. Under Section 241, there would be a transition, beginning
in 2010, to a new competitive model based on the Federal
Employees Health Benefits Program (FEHBP). The system would be a
premium support system, under which the taxpayers would make a
contribution to the plan of a person’s choice. Traditional
Medicare would compete head to head with private plans. Moreover,
the House bill lifts the caps and restrictions on Medical Savings
Accounts (MSAs) in the Medicare program.

The Key Issue

The creation of a competitive system in 2010 is shaping
up to be a key issue in the House-Senate conference. Rep. John
Dingell (D-MI) is vigorously opposed to it, stating that younger
retirees would gravitate to private plans, and older retirees
would be left in traditional Medicare, unraveling the system.

The Congressional Left also makes the point that seniors
don’t care about choice of “plans”; they only really care about
choice of doctors. If choice of plans is not important, then
there is no reason to allow it. This worldview, however, is
contrary to the facts. Indeed, a recent Zogby Poll, sponsored by
the Galen Institute, found that 82% of all voters and 67% of
seniors agree that seniors should have a choice of plans.
Nonetheless, Sen. Ted Kennedy (D-MA) is calling the House’s
competition provision (Section 241) a “deal-breaker.” Worse, Tom
Scully, Bush’s administrator of the CMS, is apparently no big fan
of the House provision either. Said Scully, “Philosophically, you
could make a good argument for [the year 2010 provision]. But and
this is where we become concerned it could potentially impact
premiums, and we are very concerned about protecting premium to
make sure that they don’t go up.”

On June 24, Rep. J.D. Hayworth (R-AZ) and 42 other House
conservatives sent a letter to Speaker Dennis Hastert and told
him that they could not support any Medicare legislation if the
crucial House provision was either “weakened or removed.” In the
days leading up to the final vote, many House members, angry over
the entitlement expansion, made it clear that they wanted the
House Leadership and the White House to stand behind serious
reform.

In the Senate bill, the situation is very different. Senator
Ted Kennedy (D-MA) perhaps said it best: “In fact, if you think
Medicare should be privatized, then you should oppose this bill.”
Kennedy is right, of course; “private” plans will be private in
name only, and they will be fortunate to survive under the
stifling terms of the Senate legislation.

The Senate provisions governing the newly created “Medicare
Advantage” plans are clearly flawed. While proponents say that
they will introduce a system that looks like the FEHBP, this is
not the case. The program will look more like the old, heavily
damaged “Medicare+Choice” program, which has largely failed
because of inadequate government payment and over-regulation.

There are several reasons for this. The proposed payment
mechanism is based on Medicare’s administered pricing, not market
pricing. In the FEHBP, payment to plans is based on the weighted
average of all competing plans in the program, i.e. on a real
market price reflecting real conditions of consumer demand for
alternative plans. Moreover, the so-called PPO option in the
Senate bill is restricted to the three cheapest plans in a given
region. Instead of establishing a level playing field where many
plans and options can compete, the Senate bill sets up a
government-sponsored oligopoly. Additionally, the Senate bill
requires private plans to standardize their benefits; this
inhibits the flexibility of benefit design. While fewer than
100 pages in the code of federal regulations govern the
FEHBP, the Senate outlines a framework for a massive
regulation.

The Political Stakes

The conventional wisdom is that Medicare prescription drug
legislation takes the issue away from Democrats and solidifies
Congressional majorities for the Republicans. Not so fast. The
Zogby Poll cited earlier found that the Senate’s complex drug
benefit, once explained to seniors, is not so popular after all:
74% said that it was not as good as the coverage they have
already. And, as CBO noted, under both the Senate bill and
the House bill, millions of seniors with employer-based coverage
are likely to be dumped out of that coverage into the government
program, where many of them will have higher out-of-pocket costs.
This will take explaining back home.

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