AAPS News – Dec 2000


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of American Physicians and Surgeons, Inc.
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Volume 56, No. 12 December 2000


If the federal prosecutor gets his way on December 1, Dr.
Allan (“Luke”) Belden will be sentenced to 33 months in federal
prison and ordered to pay a fine of $377,000: the total amount
paid for visits between 1990 and 1996-much of which already went
to the government in taxes.

Dr. Belden is a 62-year-old psychiatrist practicing in
Appleton, WI. For 20 years, he served as a senior examiner on the
American Board of Psychiatry and Neurology.

His “crime”: using an arguably incorrect code in billing
private insurers. As a result of this billing practice,
insurers lost at most $5,000 that otherwise would have been paid
by patients in copayments. Dr. Belden’s gain: $0.0. (Actually, he
could have been paid much more if he had used another code.)

Dr. Belden testified at trial that “we’ve always had good
relationships with insurance companies and with Medicare and
Medicaid. We’ve always asked them to take the lead and to tell us
what to do.” When a search warrant was executed in April, 1996,
Dr. Belden repeatedly asked what he was doing wrong.

“We’re not saying that you’re doing anything wrong. Just
keep on doing what you’re doing,” was the response. Three years
later, Dr. Belden was indicted.

The questionable code was 90844, which is supposed to denote
40-50 minutes of psychotherapy. Dr. Belden testified that the
code was inappropriate for visits with nurses, who were not
qualified to perform psychotherapy. His office made a coding
error, he said. “Around 1987 to 1989 codes were changed and
things got really confused in the front office.”

Dr. Belden declined to use the suggested code 90862 because
he thought it was an “unethical” code, used by large Medicaid
mills to collect huge sums for very little work.

Another error is that patients were billed on three
occasions when the doctor was out of town, without his knowledge.
His instructions were to see patients only in emergencies, to
call him, and not to charge them.

Not allowed to testify until six weeks later-the Judge
demanded written testimony-was Dr. Chester Schmidt, Jr., a
representative from the American Psychiatric Association to the
AMA’s Relative Value Update Committee and author of several books
on coding. Dr. Schmidt stated that the use of the codes varies
substantially from one insurer to another, and that they are
merely a “convention” that has “no real legal or regulatory
authority.” Insurers “have very idiosyncratic approaches to the
use of these codes.”

Dr. Schmidt testified that Dr. Belden’s charges were “well
within the ballpark for the services provided.” His employment of
ancillary personnel was quite conventional and acceptable: “The
Medicare system will pay physicians, nurses, social workers, and
psychologists.” Moreover, there is “no specific requirement for
the physician to inform the insurance company about the mode of

Although Dr. Belden’s attorney advised him that he would
probably be acquitted, the Judge sat on the decision for a year
and then handed down a stunning verdict of guilty on all counts.
(Dr. Belden had opted for a bench trial on legal advice that a
jury wouldn’t understand complex coding issues.) Judge Randa held
that Dr. Belden did know that codes were being used
inappropriately and that, despite lack of financial gain, he was
intentionally using the U.S. mails to carry out a scheme to
defraud. Judge Randa’s statement that “Belden must rely upon
evidence other than that provided by Dr. Schmidt to allow the
Court to conclude that there was an absence of fraudulent intent”
suggests a mindset that the accused has the burden to prove
himself innocent.

The government clearly has an enormous stake in this guilty
verdict and stopped at nothing to make a case. Insurers released
9,800 names and Social Security numbers of patients to the
Appleton Police Department without a court order. The Judge
squashed the introduction of evidence concerning the illegality
of this action. The court transcript read that the records were
sent to the detective’s home, whereas at trial, the oral
testimony was that the records went to the APD. The Judge sealed
the record that FBI agents entered the substance abuse clinic
without subpoena or court order in violation of strict federal
laws regarding patient confidentiality.

Nearly 400 psychiatric patients were interviewed to find
five to testify against the doctor. The interviews reportedly
began with “Did you know your doctor was a criminal?” and were
perceived by patients to be intimidating. Patients were not
allowed to testify in the doctor’s favor.

“The feeling that I get from the court is that I’m like a
fish under a shotgun in a bucket,” Dr. Belden writes. “Whatever I
said, did, or didn’t do, it was a done deal from the start, …
revolving around directives from on high to get doctors in
federal prison for `fraud,’ to point to something the incumbents
had done to fight fraud.”

The sentencing hearing will occur at 10:30 a.m. on Friday,
Dec. 1, at the federal court building in Milwaukee. A press
conference is planned. Doctors are invited to attend.

AAPS will file an amicus brief in Dr. Belden’s appeal,
though such appeals are not often successful. Additionally, the
American Health Legal Foundation has initiated a comprehensive
review of statutes being used to jail physicians for billing
offenses, seeking grounds for a constitutional challenge.

Cases like Dr. Belden’s (and Dr. Ordoubadi’s-see p. 3) will
be used as precedents for expanded prosecutions. AAPS recommends
withdrawing from participation agreements and filing all claims
unassigned; opting out of Medicare as soon as possible; refusing
Medicaid payments; warning your colleagues; and calling the AAPS
Limited Legal Consultation Service immediately, at the first sign
of an audit.

Excerpts from Dr. Belden’s Hearing

AAPS Resolutions

Two Resolutions were passed by the General Assembly at the
57th Annual Meeting, with no nays heard:

RESOLVED: that AAPS (1) alert its members and other
professional organizations to the hazards in [the Model Medical
Practice Act] and (2) draft its own model Medical Practice Act.

RESOLVED: that AAPS call for a moratorium on vaccine
mandates and for physicians to insist upon truly informed consent
for the use of vaccines.

Officers Elected

The following officers were elected:

President Robert J. Cihak, M.D., of Aberdeen, WA; President
Elect Robert R. Urban, M.D., of Belle Vernon, PA; Secretary Claud
A. Boyd, Jr., M.D., of Augusta, GA; and Treasurer R. Lowell
Campbell, M.D., of Corsicana, TX. Lawrence R. Huntoon, M.D.,
Ph.D., of Jamestown, NY, is Immediate Past President.

Elected to a three-year term on the Board of Directors:
Kenneth D. Christman, M.D., of Dayton, OH; Robert P. Gervais,
M.D., of Mesa, AZ; Holly Fritch Kirby, M.D., of Lee’s Summit, MO;
and James L. Pendleton, M.D., of Bryn Athyn, PA. To fill Dr.
Urban’s one-year term, the Assembly elected Melissa Kline
Clements, M.D., of Oklahoma City, OK.

Massachusetts Rejects “Universal Coverage”

Despite polls showing 77% popular support for this concept,
Question 5 (the Universal Health Care Ballot Initiative),
supported by Senator Edward Kennedy, went down to defeat 52% to
48%. The legislation would have mandated universal coverage by
July, 2001, and restricted insurance companies to spending no
more than 10% for “non-health purposes” such as administration.

Prosecutions Without Lies?

In October, 1998, Congress passed the McDade law, named for
its sponsor Joseph McDade (R-PA). After 8 years of being
investigated by the Department of Justice for racketeering,
Congressman McDade was acquitted by a jury in 1996, his health
broken. His law (most of which was gutted by the DoJ) simply
requires federal prosecutors to comply with state ethics laws
(see AAPS News April 1999).

In August, the Oregon Supreme Court forbade all lawyers in
the state to lie or to encourage others to lie, cheat, or
misrepresent themselves. Under McDade, the ruling also applies to
federal prosecutors. U.S. Attorney Kristine Olson has informed
the FBI that she cannot approve false identities or body wires.
“We’ve handcuffed the agents, not the criminals,” complains
senior FBI official David Knowlton. On the other hand, “Why
should prosecutors be exempt from rules that apply to all other
lawyers in that state?” asks Mark Holscher, lawyer for former Los
Alamos scientist Wen Ho Lee.

So far, no court has dismissed a case or excluded evidence
on the basis of McDade. Prosecutors are crying “crocodile tears,”
states defense lawyer Irv Nathan.

The biggest headache for prosecutors now is Model Rule 4.2
of the American Bar Association, adopted by many states. It
prohibits prosecutors from contacting people represented by
lawyers without first talking to the attorneys. Prosecutors got
away with ignoring Monica Lewinsky’s tearful inquiries to call
her lawyer because DoJ has, since 1989, simply defied Rule 4.2.

Prosecutors now say that adhering to 4.2 has hurt white-
collar probes, where securing the cooperation of informants is
often vital. In an investigation of Alaska Airlines last year,
company lawyers barred federal agents from questioning employees.
Sen. Patrick Leahy (D-VT) wants to repeal the law.

Watching the fight from the sidelines is Joe McDade, who
experienced prosecutorial zealotry first-hand. “The effort is not
justice. The effort is to break a citizen” (US News,

[Also see
. J.A.I.L. is the acronym for
Judicial Accountability Initiative Law.]

Life After Loss of Insurance

Samuel A. Nigro, M.D., a psychiatrist in Cleveland Heights,
OH, writes to the Atlanta Journal editorial board:

In 1985, I lost my health insurance. Actually, I lost a job
that paid it for me. No way was I going to pay $600 monthly out
of pocket. So with five kids and a wife in law school, I became
one of the uninsured. I put $500 per month into a tax-free bond
fund for health and paid $700 yearly for a $20,000 deductible, $2
million per person catastrophic plan. In three years, I had my
deductible. Fifteen years later, I won’t tell you what is in my
bond fund, but I no longer need to contribute. Now I just buy the
least expensive catastrophic plan I can find. I have also asked
Social Security and Medicare to return the $190,000 I have paid
them over the years because I would not need them if they would
give my money back. They refused.

Today, I got what is called an MSA-a Medical Savings
Account-which is partially tax deductible, whereas mine was not.
Even without the tax advantage, it is worth doing. The money is
yours; you pick your own doctor and can even negotiate fees if
you tell them up front that you will pay at the time of service
and save wasteful secretarial costs….

This is a real change from the megabureaucracy model. MSAs
are sources of real freedom of choice and independence for
citizens. “Liberals” do not like MSAs because they feel
victimized themselves if they can’t pretend to be rescuing
somebody. MSAs defeat the “how great we are controlling you poor
victims” tyranny and help citizens stand on their own feet. MSAs
are kind of scary because one is jumping out of the big
government/big business slave house where master does all for
you. But once you do the MSA, you will wonder why you waited so
long, and you will never be more free.

AAPS Calendar

Dec. 1. Belden hearing and press conference, Milwaukee.

Oct. 24-27, 2001. 58th annual meeting, Cincinnati, OH.

Three Years in Prison for Dr. Ordoubadi

On October 27, Dr. Nass Ordoubadi of Seattle was sentenced
to 35 months in federal prison labor camp, “restitution” of
$400,000, and three years of supervised release.

Dr. Ordoubadi must report to prison on February 1. On
January 25, he has a hearing before the medical licensure board.
The Medical Commission of the Department of Health has recom-

mended revoking his license for ten years. Never before
has a medical license been revoked in Washington for a matter
related solely to billing.

A Seattle Times reporter said that he had never
seen a courtroom so packed in 8 years as a court reporter.
Although they had only two days notice, 110 loyal patients came
to the hearing. More than 200 patients wrote letters of support
to Judge Barbara Rothstein before the hearing. None of this
mattered. After all, Dr. Ordoubadi had not been accused of
harming a patient. The Judge said that his medical
abilities were not at issue, but rather his performance as
billing supervisor.

In a shocking statement to the Court, Judge Rothstein
declared that the health industry is based on trust between
doctors and health insurance companies
. “Society
pays” when that trust is broken. If insurance companies are
fleeing the State, it is apparently Dr. Ordoubadi’s fault.

In a show of solidarity, insurance companies cancelled his
homeowner’s, automobile, and life insurance after the hearing.

The outcome could have been far worse, Dr. Ordoubadi said,
had he not taken a plea bargain. Initially, he had hoped to show
a jury the difficulty of using the correct codes with 300
different insurance companies and 50,000 patient visits per year.

Dr. Ordoubadi was one of seven shareholders in a network of
ten clinics with a total payroll of about 150. None of the other
shareholders has been charged. (It is thought that they made a
deal to testify against Dr. Ordoubadi to avoid indictment
themselves.) Clinics were located in underserved areas and had
the reputation of providing affordable and convenient care, also
giving hundreds of thousands of dollars worth of free care to the

The saga began with an audit by Regence in 1996. The clinic
was not provided with a summary of deficiencies, and none of the
contractual guidelines for appeal and dispute resolution were
followed. Instead, Regence stopped payment on the $464,000 owed
for services already provided (about 5,500 patient visits). Three
months later, all provider contracts were summarily terminated,
disrupting the care of 17,000 patients.

Two weeks after the audit, the public arm of the public-
private partnership ratified in the Kassebaum-Kennedy Act (HIPAA)
swung into action. Two FBI agents knocked on the door of Dr.
Ordoubadi’s home at 10:00 p.m., May 13, 1997, and delivered a
subpoena to a grand jury hearing. At the same time, 18 other
agents were knocking on employees’ doors. Over the ensuing
months, 70 employees were interrogated. All were warned that if
they did not cooperate, they could lose their medical or nursing

A detailed account of the saga may be found at

After the ruin of his business and hundreds of thousands of
dollars in legal fees, Dr. Ordoubadi was bankrupt and had to rely
on the public defender. In retrospect, he thinks he never had a
chance: “Getting involved in a legal battle against the feds is a
complete waste of time and money. Our $10 million practice went
up in smoke on May 13, 1997…. I would advise my colleagues to
turn in the keys to home and practice the day the feds show up
and walk away from the federal greed and madness. It is a Taoist
strategy, the one Mahatma Gandhi would have advised. By
cooperating with their ways, we simply get sucked into the legal
entrapments and games with a preestablished outcome. Don’t expect
support from your colleagues. They are afraid of being targeted

In Dr. Ordoubadi’s view, every CPT manual should have a
warning on the cover in big red letters: “Noncompliance with any
one of the coding guidelines in this manual is punishable with 5
years in prison and a $250,000 fine.”

Dr. Ordoubadi did ask the AMA for assistance; it would not
even publish a line about his case.

A precedent was set. Within one week of the Ordoubadi
indictment, investigations were started on the billing practices
of 1,000 physicians associated with the University of Washington.
UW will pay hundreds of millions of dollars.

Are You Being Audited?

If a provider has a contract to provide services to the
government, “it is likely that the provider has been audited, is
currently being audited, or will soon be audited,” writes Stephen
Shepherd of Geo. F. Brown and Sons (Peoria Med Sept/Oct
2000). An audit may be in progress for up to 24 months before any
communication is made.

One cannot escape scrutiny by undercharging; you may be
charged with failure to meet the minimum standard of care,
resulting in a demand for repayment of all sums paid for
rendering “substandard care,” states Mr. Shepherd.

“Clustering”-coding all visits at one or two middle levels,
with the expectation that overcharges and undercharges will
average out-is a trap (Health Care Fraud and Abuse, Oct
2000). The physician violates the law with only one or two
overcharges, no matter how many undercharges there are.

Also watch out for “free” compliance training by your
hospital. If there is an intent to induce referrals, the
antikickback statute may be violated.

U.S. Leads in Prisoners

In 2000, the U.S. gained the distinction of the highest per
capita incarceration rate in the world. With 5% of the
population, we have 25% of the prisoners. On any given day, we
have more than 2 million persons behind bars, more than China and
Russia, and the number is growing. To hold this many prisoners,
more than 10 million people have to be processed through the
penal system each year.

Rightly or wrongly, many of those people believe they were
treated unjustly. When released, they will be tax slaves to a
government they see as a tyranny, without full civil rights.

Twenty years hence, with millions imprisoned and 10 times as
many angry, disenfranchised ex-convicts outside, America could be
a virtual powder keg, writes federal prison inmate David Nichols
(Az Daily Star 9/4/00).

* * *

“[We] have made a useful attack on a number of
professions. The two easiest of them naturally are the teaching
profession and the Church; the two most difficult are law and
medicine…. If we infiltrate the professional and social
activities of…people, I think we must imitate the Totalitarians
and organize … fifth column activity”
(James Rawlings
Rees, quoted in B.K. Eakman, “Scientific Coercion and the
Engineering of Consent,” The Cloning of the American
, 1998).

Members’ Page

Body Language. A patient of mine, who is a former
Communist and now an anti-Communist, brought in an article
entitled “Clenched Fist: A History of the Communist Salute” from
American Opinion. According to this article and my
patient, the raised clenched fist is the internationally
recognized Communist salute. The photographs show it being given
by Senator Joseph Lieberman at the Democratic National
Convention, as well as by Francisco Caamano Deno, Lee Harvey
Oswald, Ricky Eisenberg, Jesse Jackson, Nelson Mandela,
Congressman Adam Clayton Powell, Congresswoman Shirley Chisholm,
the Vietcong army, and officers of the Red International Brigade,
among others.

Lawrence Huntoon, M.D., Ph.D., Jamestown, NY

Challenge to Medicare: Tell the Truth. From a letter to
former HCFA director Nancy Ann Min DeParle, in response to her
request for suggestions on documentation requirements:

I can understand you would like to have documentation in
order to pay doctors what you think they deserve. Yet you ring
false. Never mind that the requirements are burdensome, clutter
up the chart, and are useless for patient care. For two years I
have typed all my notes-up to 3 pages per visit-and followed E&M
guidelines to perfection. On prepayment audits, the result of all
this compliance is the same as if I had sent 3 lines in
indecipherable handwriting. My “pending” file since 1998
is stuffed with claims that have never been acted upon. When, on
occasion, I follow up on an audit I receive reams of paper with
jumbled-up paragraphs that make no medical or documentation
sense. My claims are always reviewed by non-medical personnel and
always result in nonpayment. HCFA allows clerks to make denials
based on “lack of complexity and medical necessity.” HMOs have
been sued for this, and lost. My carrier, Transamerica, is
“suddenly” not renewing its Medicare contract. I guess this means
that HCFA will not audit them, and they will get away with the
money they took.

My recommendations: Be truthful to your Medicare patients.
Tell them that you want to pay less for their care. Tell them
that Medicare is an entitlement, not a right, and that you have
legal authority to pay or not pay. Tell them they have signed
approval for their medical records to be sent to insurers and
that they are not kept private…. Don’t hide behind doctors,
accusing them of fraud.

Put the patient into the payment loop. Encourage doctors to
bill “unassigned” instead of vilifying the procedure and
penalizing doctors who bill in this most honest way. Patients
will not pay for a service or level of care they did not receive.
HCFA thus gets a free audit.

Linda W. Wilson, M.D., Culver City, CA

Opted Out and Happy. Since opting out of Medicare on
October 1, 1998, I am successfully rebuilding my practice (which
was about 50% Medicare) and am far happier. This is the first
step to restoring true Hippocratic medicine.

Medicare recipients have no idea of the straits into which
medicine has been crushed. Quality has declined dramatically. By
refusing to participate in Medicare, the physician will be
joining his patients on the battlefield. Paradoxically, staying
in Medicare is a form of patient abandonment.

John Kasch, M.D., Sacramento, CA

Prescription Drugs. The annual ownership and operating
costs for the average car run about $7,000-and no one buys
insurance for this. With the exception of a few prohibitively
expensive drugs, annual drug costs (ownership and operating costs
for one’s health) run less than this. No one needs prescription
drug coverage per se, but financial loss coverage.

Gerry Smedinghoff, Actuary, Wheaton, IL

Business Endorses Socialism. On a PBS NewsHour segment
on KidsCare in Indiana, all the big guns including Republican
legislators and the Indiana Manufacturers’ Association came out
for socialized medicine. No need to increase wages so employees
can afford to insure their kids! Record numbers of families at
140% of poverty are signing up, thanks to aggressive marketing
that looks suspiciously like racial profiling. PBS showed a
vignette of a solicitor approaching young black women with kids
at the mall. Human benefits managers will figure out the smart
thing to do: hire single parents at 139.99% of poverty, provide a
lousy employee-only policy, and hand out forms to sign up for the
government program. Everybody’s a winner except the doofus
working to support his family without the government aid. Even
the welfare stigma has been removed. Wouldn’t want them to feel
bad about taking other people’s money. Hey, let’s keep them on
the plantation.

Craig Cantoni, Scottsdale, AZ

“Healthy Families.” California plans to expand KidCare
to include parents of eligible children. By raising income level,
the entire student body can gradually be included, then employers
can restrict coverage to plans supplementary to the coverage
provided through schools. Later, laws could be enacted to
criminalize contracting outside the regular channels, ensuring
state control of access to treatment. Note that AB 1098, signed
by Governor Davis, adds Medi-Cal fraud to the definition of
organized crime, empowering the state to seize all the assets of
anyone accused of Medi-Cal fraud and thereby prevent him from
hiring an attorney. It seems the gloves have come off. I’m not
sure how this will play out. Physicians need to stay alert.

Cecil Folmar, M.D. Westminster, CA

Legislative Alert

The Election Year End Rush

Halloween in Washington has been really scary. It is
possible that the impasse between the White House and Congress on
spending priorities will be resolved. But there is a bitterness
in the air that is sulphuric. So, again, it might not. Taxpayers
might be treated to the spectacle of a Lame Duck Congress
wrestling with a Lame Duck President. Lame Duck sessions are not
good for taxpayers or other living things.

Here s the Halloween Budget Battle chain of events. On
October 30th, Clinton vetoed an appropriations bill covering the
requirements for Congress and legislative branch agencies:
noncontroversial, routine stuff that he had previously promised
to sign. Instead, he charged that Congress was thinking about its
own priorities rather than the needs of working families and
“children.” Enraged Congressional leaders charged a breach of
faith amounting to a “declaration of war” against Congress.
Meanwhile, in all-night negotiations on the big year-end spending
bill-another one of those monsters that include tax, pension,
minimum wage, and Medicaid provisions-the Congressional
negotiating team tried to work out a deal with the
Administration. But Congressional leaders rejected the proposed
agreement, arguing that Clinton was getting too much in both
policy and spending. Speaker Dennis Hastert said that Congress
was not going to be forced into a bad deal, reflecting, no doubt,
his bad experience with previous year-end agreements in which the
Administration secured programmatic changes and higher spending
through last-minute pressure. So, amidst frazzled nerves and
flared tempers, budget negotiations broke down over last-minute
disagreements. Medicare issues, as always, were a central source
of contention.

This time, the big issue is the size and scope of the so-
called Medicare “give-backs” to Medicare “providers,” the
continuing effort to super-refine the Balanced Budget Act of 1997
(BBA), which added 335 provisions governing Medicare, and in
which “providers”-notably hospitals, nursing homes, and managed-
care companies-got another set of fee cuts, which led to the
standard screaming and gnashing of teeth that accompanies the
politics of Medicare. So, in 1999, Congress attempted to undo
what it had done in 1997, sort of, and passed something called
the Balanced Budget Refinement Act of 1999, with only 133 new
provisions. But, it seems, that was not enough.

So, this year Congress is still trying to rectify the
problem-in a way that will probably have the effect of making
Medicare s longer-term financial problems worse-by adding another
$30 billion for Medicare “providers” in the program over the next
five years. In an alternative version of the bill that failed on
a procedural vote in the House, Democrats wanted to add two-year
inflation adjustments for hospitals and require Medicare managed-
care plans to sign three-year contracts. Under the Medicare
provisions finally adopted by the House, managed-care plans in
the damaged Medicare + Choice program would get $11 billion in
new payments over 5 years; hospitals would get more than $11
billion; nursing homes and home health agencies would get $3.2
billion. Clinton said he would veto the Medicare provisions
because he considers the payments to managed-care plans excessive
and Congress excluded the Administration s desired funding for
children with disabilities and pregnant legal aliens.

Stemming The Plague of Good Intentions

What is not being widely debated on Capitol Hill is why,
precisely, we are in this mess. The reason, once again, is in the
structure of the Medicare program, with its old-fashioned central
planning and inflexible administrative pricing. They do not-we
would say they cannot-get it right. They either overpay or
underpay, or they overshoot or undershoot their budget targets.
But of course, central planning and government pricing-these
relics of old left economic theory always have unintended,
sometimes quite berserk, consequences.

Kate Sullivan, Director of Health Policy for the U.S.
Chamber of Commerce, documented these consequences last July at
the annual meeting of American Legislative Exchange Council. It
is worth recalling the intended and actual effects of the BBA.
With hospital payments, intended cuts amounted to $53 billion
over five years; the actual result was a cut of $75 billion, 42%
deeper than intended. From health plans, the intended cut was $22
billion over 5 years; the actual cut was $30 billion, 36% more
than intended. From nursing homes, Congress and the
Administration intended to cut $9.5 billion over 5 years; the
actual reduction was $16.6 billion, or 75% more than they
intended. From home health care, the intended cut of $16 billion
over 5 years ended up being $69 billion, or 331% more than
intended. Home health care agencies have, of course, been
decimated by this process.

There s a lesson here. Markets are good at setting
prices; legislatures and bureaucracies are not.

And so the debate on Capitol Hill continues. This is not
simply a clash of personalities, or latent hostilities from the
Gingrich era or the lingering hangover from the wrenching
Presidential impeachment process. It is a reflection of deep-
seated philosophical and policy differences that are natural to
divided government. The best summation was made by the editors of
The Washington Post on Nov. 1: “The disputes exist
because, thanks to past decisions by the voters, the country now
has a government in which power is narrowly divided between two
parties that fundamentally disagree. The disagreements cover a
range of issues; they are not pretty, do not derive in the main
from personality and are unlikely to yield to it. This was a
Congress in which the agenda was mainly set by the minority
party, led by the president.”

Medicare, Medical Technology, and Prescription Drugs

For Members of Congress who insist that a Medicare
prescription drug benefit run by HCFA or a HCFA contractor would
be just peachy keen, here s a big question to answer: Why would
the Medicare bureaucracy be any better at paying for and
delivering prescription drugs than it is at the financing and
delivery of medical technology?

According to studies conducted by the General Accounting
Office, benefit setting in Medicare can be an arduous process
that takes months and even years. The result: Medicare patients
are often denied medical treatments available to millions of
Americans in private-sector health plans. In deepening
frustration, medical professionals try to get around HCFA -though
the restrictions on Medicare private contracting make it
difficult-or they go directly to Congress, seeking to override
the Medicare bureaucracy or jump start coverage. It has literally
taken an act of Congress to get seniors coverage for things like
breast, prostate, cervical, and colon cancer screenings. But as
Senator John Breaux (D-LA) has argued, Members of Congress don t
know, for example, whether they should pay gastroenterologists
for colonoscopies or radiologists for barium enemas in detecting
colon cancer. Which is better? As Senator Breaux points out,
politicians have no competence to make these decisions, but that
is what Congress does, even when it has no clue about what the
consequences of its actions.

We now have some solid evidence on how Medicare deals with
medical technology through a detailed analysis by the Lewin
Group, arguably the nation s foremost econometrics firm modeling
health care policy initiatives. A major 2000 study conducted for
the Advanced Medical Technology Association found that Medicare s
bureaucratic processes take at least 15 months and perhaps more
than 5 years to add new medical technologies to the Medicare
program. This process impedes patient access and discourages
innovation in breakthrough medical technologies. Consider just
two examples:

Cochlear implants restore hearing in
severely deaf patients. HCFA payment schedules never reflected
market costs, and the cost of the implants exceeds Medicare
payment. A hospital’s loss for a cochlear implant provided to a
Medicare patient is $9,000 in an inpatient, and $5,500 in an
outpatient setting. While 54% of all eligible implant patients
are Medicare age, only 12 to 15% of them have gotten these

Bone density scanning, developed in the
1980s, languished in the regulatory system for seven years.
Congress intervened with the Bone Mass Measurement Act of 1997.
If you don t like Medicare s sluggishness, just write your

Drug costs are high because the costs of technology are
high. A pill is like a computer chip. When one buys a computer
chip, one doesn t buy just the few cents worth of silicon in the
chip; one buys the technology in the chip. Likewise, when one
buys a pill, one buys the research and development that went into
its production.

Andrew Sullivan, an AIDS sufferer, makes the essential point
(see NY Times, 10/29/00): “You can bash the big
pharmaceutical companies all you want, but their products are
among the most popular around. We can now treat arthritis,
balding, impotence, and depression-not to speak of cancer, heart
disease, and diabetes-in ways that were, only recently, a matter
of science fiction. In the last ten years, with the possible
exception of the information technology, no industry has more
thoroughly transformed our lives. Calculating the economic
benefits of this is impossible, but think of the anti-depressants
alone. If you know a person whose life has been overhauled by a
more stable supply of serotonin, the happy chemical in our
brain, then imagine the impact multiplied by millions.” As
Sullivan observes, of the more than 5,000 compounds tested in the
lab, only 3 get into clinical trials and only 1 is approved by
the FDA, after 15 years and $500 million worth of work, for
market and patient use. As Sullivan further observes, only 30% of
the drugs make enough money to recoup the research and regulatory
costs. But some politicians would turn the pricing and delivery
of prescription drugs over to the same folks who adjust the RB-
RVS and run the cumbersome process for approving medical
technology in the Medicare program. They are serious. Ponder that
long and hard.

Medicare Reform and Congressional Oversight

If Members of Congress are going to play a positive role
in Medicare reform next year, then they should pay attention to
the crying need to call attention to programmatic failures. In
the past year, Congress overlooked or refused to act against
bureaucratic excesses and passed up terrific opportunities to
show how a reform based on patient choice could rescue Medicare
patients from bureaucratic abuses such as these:

Example: Violations of Medicare Patient
. In the Winter of 1999, the Clinton
Administration issued a regulation to force 10,000 home health
care agencies to start collecting detailed, sensitive personal
information on Medicare and non-Medicare patients alike
for transmission to a government data base, without their
consent. HCFA s mandatory inquiries touched on such items as
whether a person suffered from “depression” or made “sexual
references.” In the face of stinging criticism, from
conservatives and liberals alike, ranging from the American Civil
Liberties Union to the United Seniors Association, the Clinton
Administration pulled its initial draft and revised its
regulations, but still forced home health agencies to collect the
information, and still blocked Medicare patients from exercising
their right to refuse to consent to its collection. While the
Senate Finance Committee Chairman William Roth scolded then HCFA
Administrator Nancy Ann Min DeParle for the offensive inquiries,
Congress took no action to block them, and the major provisions
of this data collection system are still in place. Remarkably
enough, the Clinton Administration has positioned itself as a
champion of privacy.

Example: Dumping Patients Out of Hospice
. In 2000, the inflexibility of the Medicare s
administrative pricing and benefit setting became glaringly
evident when Medicare contractors, following Medicare guidelines
drafted in the 1980s limiting hospice coverage to six months,
pressured agencies to discontinue coverage for several patients
whose longevity had exceeded the guidelines. By pushing these
frightened patients out the doors, this callous policy, designed
to save money, resulted in having them end up in nursing homes at
substantially higher costs to the taxpayer. Dr. Robert Berenson,
a top HCFA official, emphasized that physicians should know the
Medicare rules and do their best to make sound prognoses of
patients fates based on the six-month rule: “We try to emphasize
that not everyone has to die within six months; it is a judgment”
(Wall St J 6/5/00). Not only did Congress take no
legislative action to prevent this abusive practice, the relevant
Committees did not even hold hearings. If such a policy had been
executed under the Reagan or Bush Administrations, Congressional
reaction would have been explosive.

Example: Medicare Patients’ Loss of Private Health
. The “Medicare + Choice” program, enacted as part
of the BBA, was supposed to give Medicare patients a broad range
of choice and encourage competition. Instead, hundreds of
thousands of senior citizens are losing this coverage because of
Medicare s inflexible system of administrative pricing, along
with the onerous level of regulation. In June, 2000, Aetna US
Health Care told HCFA that it was withdrawing from Medicare in 11
states. Congress dilly dallied on the issue and decided not to
act until the very end of this Congressional session, running
into a buzz saw of opposition from the White House. Remarkably,
the Clinton Administration was able to frame the issue as another
case of HMOs versus senior citizens. This is a result of an
inability or unwillingness to seize an issue and deal with it
effectively. The relevant Congressional committees failed to hold
tough hearings on the Administration s management of the Medicare
+ Choice program.

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

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