AAPS News January 1998


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of American Physicians and Surgeons, Inc.
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Volume 54, No. 2 February 1998


A long-awaited ruling in the case of AAPS v.
was handed down by Judge Royce Lamberth on December
16, 1997. The federal government was ordered to pay AAPS the sum
of $285,864.78, as attorney’s fees, costs, and sanctions.

The motion for sanctions and contempt against Ira Magaziner,
who directed the Interdepartmental Working Group of the
President’s Task Force on Health Care Reform, was filed May 16,
1994, because of Magaziner’s sworn declaration that all members
of the Working Group were full-time employees of the federal
government. This patently false declaration thwarted early
attempts by AAPS to obtain discovery about the secretive

Congressman Bill Archer (R-TX) called upon the President to
fire Magaziner from his position as a senior presidential aide
and not to bill taxpayers for the penalty. Clinton has declared
that he will stand by Mr. Magaziner, who was “vindicated” by
then-U.S. attorney Eric Holder. (Holder was called on by Judge
Lamberth to investigate the possibility of prosecution for
perjury. Since then, Holder has been promoted to the second-
highest position in the Department of Justice. Magaziner’s
defense counsel Charles Ruff, a friend of Holder, has become
White House Counsel.)

Magaziner was not the only official excoriated in Judge
Lamberth’s opinion, which states: “It is clear that the
decisions here were made at the highest levels of the government,
and the government itself is-and should be-accountable when its
officials run amok. There were no rogue lawyers here misleading
this court. The court agrees with plaintiffs that these were not
reckless and inept errors taken by bewildered counsel. The
Executive Branch of the government, working in tandem, was
dishonest with this court….

“It is beyond a `strained interpretation,’ it is dishonest
to argue to this court that people are employees when there was
never a piece of paper created that said they were employees-with
or without pay.”

Conduct of the Executive Branch constituted clear evidence
of an attempted cover-up, the Judge concluded. “It seems that
some government officials never learn that the cover-up can be
worse than the underlying conduct. Most shocking to this court,
and deeply disappointing, is that the Department of Justice would
participate in such conduct.

Lamberth agreed with Holder’s determination that successful
prosecution for perjury would be difficult: “[T]here is not
proof beyond a reasonable doubt that Mr. Magaziner intended to
mislead the court when he signed his declaration on March 3,
1993.” Magaziner had relied upon the advice of White House
attorneys, including Vincent Foster, “who is deceased and could
not now testify as to any advice-and Associate Attorney General
Webster Hubbell-now a convicted felon, whose credibility could be

The Department of Justice continued its obstructionist
tactics late into the case. Even at the time that the White
House was trying to moot the case by turning over documents, “it
took weeks of prodding by plaintiffs’ new counsel [Thomas
Spencer], and inspections of produced material, to identify a
number of discrepancies that led to further court hearings and
orders before the court could finally declare the case was moot.”
Therefore, the Judge did not disallow attorney’s fees incurred
late in the case, after AAPS refused an Executive Branch attempt
to settle the case and release all officials from the threat of
sanctions for misconduct.

Vexing questions remain, and many expected documents never
turned up. Few travel vouchers, specifically mentioned by the
Judge as germane in his order granting a Motion to Compel were
ever produced. As early as April, 1993, Clinton’s second cousin
Catherine Cornelius was arranging Task Force members’ travel
through WorldWide Travel, a company owned by Clinton’s friends
Harry and Linda Thomason. Cornelius was installed as head of the
White House Travel Office when the entire staff was fired late in
May, 1993.

From documents that were released, it is clear that
Magaziner had to be aware of the factual and legal significance
of the “federal employee exemption” scam and of the red flags
being raised by the appointment of private-sector representatives
to leadership positions on the various committees. Still, the
groups pressed on in an attempt to meet their 100-day deadline to
draft legislation that would have put all of American medicine
under federal control. The pressure to stonewall the court came
from the top-as evidenced in the new book Friends in High
by former Clinton friend and confidant Webster

According to Hubbell, Hillary Rodham Clinton was infuriated
by the filing of the lawsuit in February, 1993, and shouted at
attorney Vince Foster: “Fix, it Vince! Handle it, Vince!”
Foster’s friendship with Hillary Rodham Clinton had become an
attorney-client relationship, and a very troubled one at that.
After Foster’s body was found in Fort Marcy Park on July 20,
1993, Hubbell’s days continued to be filled with issues such as
the AAPS lawsuit.

Attorney General Janet Reno twice refused Congressional
requests to appoint an independent counsel to investigate
misrepresentations about the Task Force, including testimony
before Congress that only $300,000 (rather than more than $11.9
million) had been spent. It’s time for Congress to act.

“Based on documentary evidence, the revelations of Webb
Hubbell, and the conclusions of Judge Lamberth, there is more
than enough basis to believe that a major `cover-up’ existed in
the highest levels of our government,” writes Thomas Spencer.
The issues of obstruction of justice need to be reviewed before
the Statute of Limitations expires, barring prosecutions.”

Barr Demands Special Counsel

On Dec. 24, Congressman Bob Barr (R-GA) demanded that
Attorney General Janet Reno appoint a special counsel outside the
Justice Department to investigate the “sordid case of unlawful
arrogance” that Judge Lamberth found at the “highest levels of
government.” Barr stated that “the taxpayers should not be made
to pay for the illegal and unprofessional conduct of those who
have done so much to impair…the lawful processes of
government.” If Reno chooses not to act, Barr stated that he
would ask for her removal as Attorney General.

Westmoreland Acquitted; Judge Shocked by Raid

In a rare procedure, U.S. District Judge Joseph R. Goodwin
threw out all the charges against Danny Westmoreland, D.O., of
West Virginia before sending the case to the jury, saying the
prosecution had failed to present a case and that all patients
had been treated correctly. The action ended a two-year ordeal
that included an armed raid in which agents pointed guns at
patients and the doctor’s nine-year-old son (see AAPS News July 1997). Judge Goodwin
called this episode “one of the most outrageous things I’ve ever
heard of.”

Commenting on the acquittal, U.S. attorney Rebecca Betts
said, “This is not the outcome we hoped for.”

“Everyone knew he was innocent,” stated one of Dr.
Westmoreland’s patients, who had supported him throughout his
tribulations. “Now the federal government knows it too.”

Restricted Access in Government Medicine

As pressures build for “universal access” under a government
system in the U.S., some reminders of the effects of such one-
tiered systems worldwide are timely:

In Britain, the goal of Tony Blair’s Waiting List Action
Team is to reduce waiting periods to no more than 18 months for
non-life-threatening ailments (IBD 12/23/97).

In France, physicians who exceed the designated growth
ceiling must forfeit fees collected beyond that point. A
centralized government computer system is under development to
assure that physicians do not perform “unnecessary” procedures or
prescribe “unnecessary” drugs. More than 70% of physicians
participated in a one-day strike.

Drastic German budget cuts are expected to result in long
waiting times. Tight central controls have been placed on
pharmaceutical sales. German and French ophthalmologists are
reportedly traveling to Italy to perform procedures (Ocular
Surgery News

In Canada, about 11% more were waiting for treatment than in
1996 and waiting longer. The most recent survey by Statistics
Canada found that more than 1 million Canadians felt they needed
but did not receive care in 1994, and that 30% of these patients
were in moderate or severe pain. Canadians purchase about $1
billion worth of medical services in the U.S. each year.
Nonetheless, 21 cents of every dollar earned by a Canadian worker
in 1995 was spent on health care, and the unfunded liabilities
are expected to increase from $1.1 trillion to $3.7 trillion
between 1995 and 2050 (NCPA).

AAPS Calendar

Jan. 17. Board of Directors meeting, Las Vegas, NV
Oct. 8-10. 55th Annual meeting, Raleigh, NC

Citizens Confront Bureaucracy

On Monday, November 24, about 70 citizens from as far away
as Bowling Green, Ohio, braved a blizzard to march to the IRS
office in Jamestown, NY, in support of Jacob Lapp and his family.
AAPS director Lawrence Huntoon, M.D., led the procession,
carrying an American flag. The Lapps want to meet with the IRS in
public to discuss their tax situation and explain why they cannot
in good conscience comply with IRS demands (such as filing forms
that are inherently dishonest).

Based on a simple hand-written document by Revenue Officer
Douglas Stelmach, with no court order, oath or affirmation, or
documentation, the IRS has been confiscating almost all of the
family’s income (see AAPS News Dec 1997).
The IRS claims that the assessment of $51,249 is an estimate of
payroll taxes due by the Lapps for the period 1991-1996 and that
an estimated assessment was necessitated by the Lapp’s
unwillingness to meet in private with officials to discuss and
disclose their financial records. The Lapps have declared that
the assessment is inordinately high and based on arbitrary and
erroneous calculations. An Open Letter from the Independent
Citizens Committee for the Fair Treatment of the Lapp Family,
signed by twelve citizens, states:

“We, as citizens of the United States, have a duty to strive
for justice for all fellow citizens. When our government, through
abuse of the power we vested in it, serves to create injustice
rather than protect the people from injustice, we must remind the
government of its proper duty.

“Therefore, we, the undersigned, as citizens, believe we
have standing to register complaint against our servant, the
government, and call upon our equals, the citizens, to act as
witnesses and, if necessary, arbiters of the controversy in
question….The IRS assessment has been reviewed by this
committee and we have reason to believe that it is, in fact,
incorrect and was either deliberately inflated to force the Lapps
to meet privately with the IRS, by depriving the family of its
livelihood, or is an egregious error and miscalculation.”

According to Dr. Huntoon, IRS officials said that they felt
“intimidated,” although the protestors behaved courteously and
offered carnations (declined because it is illegal for officers
to accept gifts). A few citizens were allowed to enter the
building. They were told that the IRS could not discuss the
issues; the public’s business cannot be conducted in public.

As quoted in the Buffalo News (11/25/97), Elwin H.
Powell, a sociology professor at the University of Buffalo,
called the protest an important first step in forcing the IRS to
break its secrecy.

“Government secrecy promotes deceit, corruption, and abuse
of power,” Powell said.

Thanks to help from many neighbors and friends, the Lapps
believe they may make it through the winter (though spring
planting will be very difficult). Local merchants have accepted
third-party checks, some from AAPS members, in exchange for
cattle feed and warm boots for the children. A local dentist
treated the children without charge, and radiologist Jay Salwen,
M.D., an AAPS member, provided a free MRI to complete a
hydrocephalus work-up on one of the children.

Some of the Committee members have suffered negative
repercussions. Journalist Frank Parlato, Jr., was viciously
attacked on page 1 of the Buffalo News. The Reverend
Gary Noyes was fired as pastor of the Gerry United Methodist
Church because his Christian behavior-standing up for a
neighbor-was judged “too political.”

Seniors Sue over Private Contracting

United Seniors Association and four Medicare-eligible
patients have filed suit in the U.S. District Court for the
District of Columbia, asking the court to enjoin the Department
of HHS from interfering, by threats or otherwise, with the
plaintiffs’ right to contract privately for medical goods and
services on a case-by-case basis.

Plaintiffs cite a 1923 Supreme Court case that found a
Nebraska state statute prohibiting foreign language instructions
in schools to be unconstitutional (Meyer v. Nebraska,
262 U.S. 390, 43 S. Ct 625, 67 L.Ed. 1042 (1923)):

While this court has not attempted to define with
exactness the liberty thus guaranteed [by the 14th
Amendment], the term has received much consideration
and some of the included things have been definitely
stated. Without doubt, it denotes not merely freedom
from bodily restraint but also the right of the
individual to contract, to engage in any of the common
occupations of life, to acquire useful knowledge, to
marry, establish a home and bring up children, to
worship God according to the dictates of his own
conscience, and generally to enjoy those privileges
long recognized…as essential to the orderly pursuit
of happiness by free men [citations omitted].
This case was relied upon later in striking down an Oregon
statute that required children to attend public schools (Kent
v. Dulles
, 1958).

Attached to the complaint are a number of affidavits from
the plaintiffs’ chosen physicians. One by orthopedist and AAPS
member Robert Nirschl, M.D., states that Medicare beneficiaries
have in the past requested him not to file claims because they
did not want to have their illnesses disclosed. (Some were under
psychiatric care, and some were cancer patients.) He also stated
that certain beneficial services were being denied to Medicare
beneficiaries because Medicare did not consider them to be “cost-
effective.” Moreover, the highest quality goods and services may
be withheld because of Medicare’s payment policies and
bureaucratic requirements.

Three physicians filed affidavits stating that they would
not be able to afford to privately contract with Medicare-
eligible patients as contemplated in Section 4507 of the Balanced
Budget Act and that their services would be unavailable if
plaintiffs should wish to engage them privately.

United Seniors spokesman Mike Korbey stated that they hoped
for court action soon.

AAPS Physicians Opting Out

A number of AAPS members have been calling upon the Limited
Legal Consultation Service to help them withdraw completely from
the Medicare program, despite the prospect of a significant loss
of income. One physician said she was prepared to lose the 30%
of her revenues that now comes from Medicare. However, she
believes that this loss will be offset by other patients who have
been unable to get an appointment because of her overly crowded

Physicians are notifying patients that any billing to
Medicare is prohibited and that Medigap insurance will probably
not be in effect for care outside the system. If patients wish to
seek care from a physician or facility who will accept Medicare,
physicians should make their records available and assist as
needed with continuity of care.

“Anti-Fraud” Activities Thriving

According to the annual report of the Office of Inspector
General (OIG) for the Dept. of HHS, $1.2 billion was recouped
from health care fraud investigations, an amount five times
greater than recovered in the previous fiscal year.
Additionally, 2,719 individuals and entities were excluded from
Medicare and Medicaid, a 93% increase. Success is attributed to
the “reliable funding source” made available by the Health
Insurance Portability and Accountability Act of 1996 (HIPAA).
The agency’s full report is available at

(BNA’s Health Care Policy

Enforcement tools include : a fraud hotline, which has
received 42,000 calls in 1.5 years; bounties of up to 30% paid to
insiders for tips leading to successful suits; advisory opinions,
for which the OIG demands $100/hour and reams of information, all
of which may be used against the entity; holding buyers
responsible for compliance violations in a practice they have
purchased; a compliance plan for laboratories, under which they
are to monitor the medical necessity of tests ordered by
physicians; and sting operations, such as a dummy home health
agency or an undercover agent posing as a job applicant. An
especially powerful tool added by HIPAA, carrying
disproportionately heavy prison terms, is adding a charge for
“money laundering,” on which the accused can be convicted without
being found guilty of any underlying fraud (BNA’s Health Care
Fraud Report

One Alaska hospital noted that an audit revealed $40,000 in
billing errors over a 4-year period versus $140,000,000 billed
correctly. For this error rate of 0.03%, the Dept. of Justice
demanded payment of more than $50,000 to avoid a lawsuit claiming
more than $1.42 million in damages. The hospital stated that the
HCFA/DOJ process provides no reasonable dispute resolution method
and ensures that money will be diverted from medical care to
mechanisms for defending against unjustified accusations of

Pitfalls are numerous. An anesthesiologist is in violation
of the regulations on billing for personally performed services
if he leaves the room briefly to use the restroom or obtain a
piece of equipment. New evaluation and management (E&M) codes,
developed by the AMA in collaboration with HCFA, are so fraught
with hazard that enforcement is being delayed. Required
documentation is so voluminous that doctors wonder how they can
possibly examine a patient and do all that recording. HCFA stated
that a scribe, who notes down every word the doctor says while
examining a patient, is acceptable as long as she documents that
she is writing in the presence of the physician (Part B

Trivial paperwork violations have become a “boom industry”
for federal prosecutors, writes James Bovard (The American
, Jan 1998), citing the example of Dr. George
Krizek (see AAPS News Oct 1996). The
government now exists, he says, “not to safeguard its citizens
but to expand the domain of its own power by destroying the lives
of those who fail to cross theirt‘s or dot their

The “post-hoc criminalization of medicine” will
neither eliminate fraud nor have an impact on inflated medical
bills, according to a special report by Citizens Against
Government Waste. “There are only two ways of holding men
accountable: prices and prisons. Enforcing price controls
requires throwing people in jail,” some of whom may have honestly
misunderstood a regulation. The alternative: allow prices to be
set by a free market that punishes overcharges by loss of market

Members’ Page

New Medicare Documentation Requirements. At the interim
AMA meeting in Georgia, a proposal submitted by the Georgia
delegation to rescind the new AMA/HCFA E&M guidelines failed by
only one vote. Instead, the AMA has “committed to educational
initiatives for physicians” to learn compliance, despite the fact
that, in the words of alternate delegate Thomas Price, the
guidelines “infringe on the most important asset of a physician,
which is his or her clinical judgment. This is not just the
criminalization of medicine, but the dumbing down or
mediocritization of care.”

“We strongly encourage physicians to begin using the new
guidelines as soon as possible so they will have become familiar
with them when they become the only standard in July,” stated AMA
President Percy Wooten.

There is, of course, an alternative to the “shoot yourself
or we’ll do it for you” approach. It is called fighting back.
How shameful that the AMA is participating in this bureaucratic
process to the detriment of the entire profession.
Lawrence R. Huntoon, M.D., Ph.D., Jamestown, NY

Briar Patch. Dear Fellow Burnout Candidates:
I’m sorry to tell you that I just posted some really awful
Medicare fee reductions that will knock your socks off if you
didn’t already know about them. Personally, I’m going to
exercise the new Medicare “opt-out” option and set up contracts
with all my Medicare patients at my fee levels, not
Medicare’s. Under this new rule we must receive all payments
directly from patients, and we are not permitted to bill Medicare
for any service for two years from the time we opt out. Oh,
pleeeeease don’t throw me in that briar patch!
AustinTxMD, http://home.earthlin

On ClintonCare 2. Clinton’s new proposals for “health
plan quality” are likely to contain several choice gifts to
special interest groups, including the right of trial lawyers to
sue employers for “malpractice,” while capping doctors’
liability. A bill that is a likely template for ClintonCare 2
was recently analyzed by Duke University Law Professor Clark
Havighurst: “I know of no other piece of health-care legislation
that would be as destructive of consumer choice, as protective of
provider economic interest, as antithetical to the antitrust
effort to break down the old medical cartel, or as beneficial to
plaintiffs’ lawyers as this bill would be. Even the Clinton
Health Security Act took a less prescriptive approach.”

Remember that every 1% increase in the cost of insurance
causes 200,000 Americans to lose their coverage and leads to a
2.6% drop in small-business coverage. Rep. Armey is right: If
enacted, ClintonCare 2 will drive up prices and increase the
pressure for a government-run health system, even as it creates
the regulatory apparatus needed to operate such a system.
Ernest J. White, Alexandria, VA

Thanks to the Committee. [In its public rally to support
us,] the Committee [see p. 2] created a strength and delivered a
powerful message (which I believe nobody ever dared to do before)
in exposing the corruption of the IRS. It may open a door and
shed a glimmer of hope for other troubled, oppressed citizens. I
believe the results are already evident. If it were not for the
outrage of friends like you and neighbors, my husband and I would
very likely be behind bars.

The tyrants don’t like the light shone on them. Have you
read the book or the article by Nathan Stoltzfus (Dissent in Nazi
Germany, Atlantic Monthly, Sept. 1992)? It’s an account
of the Aryan wives of Jewish men who went out on the streets in
groups to protest for the release of their husbands. The
officials finally released them because of fear that others might
learn of the protest against Hitler….
Barbara (Mrs. Jacob) Lapp, Cassadaga, NY

Be Wary of the Popular. Hitler himself wrote in Mein
that “mass popular support was the distinguishing
characteristic of the Nazi party.” He also said that “all roads
to power start with the people.” Hitler was not an overtly
bloody, nasty, feelingless character. He had his plan figured
out. Get the people’s support. Become a good person in their
eyes. Become their “helper.” Accomplish that, and you can get
away with murder. Sound familiar?

Yet three small protests, initiated by women, were
impressively successful, all being nonviolent and
widespread in an area, meaning they acted collectively
rather than singly. And this was a country where people were
executed for as minor an offense as telling an anti-Nazi joke,
when they acted singly….It is a sad thought that the Holocaust
may have been prevented if the German masses…had spoken

[In our work against the abuses of Child Protective
Services], we’ve been said to be supporters of low characters or
people of low intelligence. That is nothing to be ashamed of,
because the crushing of their rights will lead to the crushing of
ours…We learned that [certain government officials] will stop
at nothing….or at almost nothing. Truth, persistence, and
consistency still confound them. I’m convinced if more would
join us in passive noncooperation and resistance against bad
government practices, we could change our present system.
Rachel B. Lapp, Chautauqua County Jail December 1993

[A copy of Rachel Lapp’s article is available upon request. The article by Stoltzfus was summarized in AAPS
Jan 1993.]

Legislative Alert

Twenty-some Questions

The controversy and confusion over precisely what Section 4507 of the
Balanced Budget Act of 1997 does and does not permit deepens. The Health Care
Financing Administration (HCFA) has been circulating no less than 22 questions
and answers on the provision, and the United Seniors Association has published
29. The AARP, which opposes private agreements between doctors and their
Medicare patients, also has been weighing in with fact sheets, warning Members of
Congress that liberalized private contracting will make senior citizens vulnerable to
greedy and unscrupulous doctors.

The HCFA piece is the most interesting. Some “new perspectives” are

1. HCFA concedes that there are “some circumstances” in which a doctor
who has not opted out of the program for two years may still refrain from sending
a bill to Medicare (Question 21), if a patient does not want his illness
This would be a victory for confidentiality, but a new twist for
HCFA. It is not clear where this confidentiality exception is to be found-perhaps in
the “penumbra” of the statute.

2. If a doctor opts out of Medicare for two years, he can not enter into a
private agreement in an emergency situation. But if he finds himself
treating a patient in an emergency situation, he can file a claim (subject to all the
Medicare rules) and does not have to provide emergency care without charge
(Question 17). Again it is hard to tease this liberalized interpretation of the statute
from the raw language.

3. Physician assistants, clinical nurse specialists, certified registered nurse
anesthetists, certified nurse midwives (!), clinical psychologists, or clinical social
workers may set up private contracts with Medicare patients, pursuant to the
balanced Budget Act of 1997, but optometrists, chiropractors, podiatrists, dentists,
doctors of oral surgery, or physical or occupational therapists may not (Question
3). Just what Congress had in mind all along?

4. Physicians in group practice who decide to contract privately
and give up Medicare reimbursement for two years do not obligate their colleagues
in the group practice to do the same (Question 6). This is one of the key
“assurances” that Senator Jon Kyl (R-AZ) sought from HCFA Administrator
nominee Nancy Min DeParle just before the Congressional recess. (Incidentally, for
what it’s worth, either to Senator Kyl or anybody else in Congress, DeParle is
quoted in the December 15 BNA’s Health Care Policy Week as
saying that she did not make “any promises” to Senator Kyl to get him to “lift the
hold” on her nomination as Administrator of HCFA.)

5. Participating doctors who want to opt out of Medicare for
two years would have to do it at the beginning of the year, but HCFA is exploring
whether it would be “administratively possible” for doctors to opt out at “other
times” as well (Question 5). The key concern here is the administrative
convenience of HCFA, not that of doctors or patients.

Expect more questions than clear answers to be generated as this debate,
still in its early stages, matures. Both liberals and conservatives are unhappy with
Section 4507. It s the kind of thing that s bound to happen when Members of
Congress, coached by politically tone-deaf Congressional staff, are rushing to
compromise with clever Administration wonks in a budget bill the size of a
telephone book.


Not waiting for an answer to all the questions about Section 4507, United
Seniors Association and four of its members have challenged the constitutionality
of Section 4507 (see p. 3). In The Washington Post, syndicated
columnist James Glassman notes the irony of the litigation: the conservatives,
among other things, will use arguments hammered out by liberal judges in abortion
cases, namely the Constitutionally protected right of “privacy” discovered by the
Court in Griswold v. Connecticut (1962). Griswold
challenged a Connecticut law that forbade the use of contraceptives under pain of
fines or imprisonment. Justice William O Douglas, a champion of liberal
jurisprudence, cited the Ninth Amendment to the Constitution: “The enumeration in
the Constitution of certain rights shall not be construed to deny or disparage others
retained by the people.” In this case, Douglas argued that “specific guarantees in
the Bill of Rights have penumbras, formed by emanations from those guarantees
that help give them life and substance [T]he right of privacy which presses for
recognition here is a legitimate one. The present case, then, concerns a relationship
lying within the zone of privacy created by several constitutional guarantees . We
deal with a right of privacy older than the Bill of Rights.”

Given the reigning vitality of “penumbras” and “emanations” of Sixties liberal
jurisprudence, like them or not, it is hard to imagine what Nineties “liberals” will
argue. Anything is possible, including some weird proposition that one gives up his
Constitutional liberties when one enrolls in a federal entitlement program. In any
case, the privacy argument has been employed in several major cases since then,
including the big-time abortion litigation. For leftwing health policy analysts, the
challenge will be to argue that the privacy of the doctor- patient relationship is
narrowly confined only to assaults on traditional morality like physician-assisted
suicide or abortion on demand. [Federal judges have already ruled that one’s
privacy or one’s sovereignty over one’s own body-or that of one’s unborn child-
does not extend to hiring an assistant at cataract surgery (NY State
Ophthalmologic Society v. Bowen
854 F.2d 1379 (D.C. Cir. 1988).]

Medicare s Administrative Pricing 101

Recall that just four years ago the Clinton Administration proposed a giant
plan that would rely almost exclusively on managed care. Recall also that the
Clinton Administration s Medicare reform proposal was the expansion of consumer
choice of managed-care plans, a veritable copy in many respects of its own
discredited health care plan for the “private market.” And recall, as well, that the
Congressional Republicans, hardly fleet of foot in the health care arena, can hardly
separate their idea of Medicare “choice” from the choice of private plans with
government standardized benefits just like the traditional Medicare. So, choice
means that all seniors get plans with the same benefits, all governed by new
federal rules.

Well, while the Washington policy elites and their pals in academia were
singing the praises of managed care as the next best thing to five-cent beer,
managed care has been having a little public relations problem recently, and while
the Clinton Administration, without so much as a blush of embarrassment, is
milking the public sentiment for yet another round of extensive federal regulation of
the already heavily state- regulated private health insurance market, the
Congressional Republicans are flapping about trying to figure out how they can
somehow preserve employer-based health insurance and still escape the wrath of
doctors and patients alike.

Congressional health policy specialists may want to look at what s
happening to managed care under the Medicare program. Recall that managed care
did not catch fire with the elderly as quickly as it did with employers who were
desperate to have their employees sign up and get over their extravagant love affair
with fee-for-service medicine paid for with other people’s money. But Medicare has
another twist. Managed-care plans in Medicare are “private” in name only-the kind
of “private plans” the Clinton Administration and its allies on the newly formed
Medicare Commission are likely to promote: standardized benefits, HCFA
supervision, formal government “cost controls,” etc.

Medicare managed-care plans are starting to cut back on the generosity of
their benefits. Why? Congress has imposed a new payment mechanism. In the
past, Congress has approved generous payment increases to HMO s: 5.9% in
1997 and 10.1% in 1996. For 1998, the payment increases will be 2 to 3%. So,
what will the managed care providers do? They will act like any other set of firms
in any other sector of the economy faced with similar regulatory or administrative

Medicare s administrative pricing is, in effect, a form of price control. In the
general economy, when there is a price control, there are certain inevitable
consequences. Nobody expects to impose a price control on the widget industry
and seriously project the same number of widgets of identical quality. Right? But
medical care is different, you say?

According to Milt Freudenheim (NY Times 12/22/97),
managed-care companies are shifting costs to seniors and getting rid of some of
their “most popular” features-free drugs, eyeglasses, and dental care. Of course,
services are always “popular” when the persons getting them mistakenly think that
they are “free.” Of course, medical care is “different,” right?

One of the more disagreeable developments of this Medicare business has
been the practice of dropping covered benefits or medical services without notice.
Not surprisingly, Congressman Jerrold Nadler (D-NY), has introduced legislation
that would forbid managed-care plans to reduce or drop services except once a
year at the beginning of a contract. Expect strong bipartisan support for this one.

The Meaning of the Upcoming Quality Debate

Watch the State of the Union. Expect President Clinton to take a high profile
on the health care issue again. Unlike his Congressional counterparts on Capitol
Hill, Clinton knows how to play the issue to his advantage, and he has flawlessly
outmaneuvered Congressional Republicans ever since the demagogic 1995 debate
on Medicare.

The President s key objective is, as it has always been, to expand federal
control over medicine. Whatever one thinks of the President s policy and
performance, he can be credited with having the “vision thing.” The President
views health policy systemically. He concerns himself with specifics only as the
occasion to effect broader structural changes in the system. He says that the
system is “badly broken,” but, of course, beneath that “fixit” rhetoric is a far-
reaching program for radical overhaul and federal control.

The Congressional Republicans, with precious few exceptions, don t have
the vision thing. They see the issue in terms of specific problems, anomalies,
inequities, or inconveniences that have to be “fixed,” as with portability, or
guaranteed renewability of insurance, or 24-hour deliveries, or mastectomy
coverage, or gag clauses, or disclosure requirements. Clinton understands this
strategic weakness of Congressional Republicans perfectly, and exploits it joyfully.
So, it would not be surprising to hear Clinton formally endorse, to wild bipartisan
cheers in the House and Senate Chambers, The Patient Access to
Responsible Care Act, the highly regulatory bill introduced by Congressman Charlie
Norwood (R-GA)
. For the Republicans, the bill is an opportunity to “fix” the
problems of managed care. For the White House, it will be another step toward
federal control of medical financing and delivery.

Just follow the playbook for a replay of Kennedy-Kassebaum. Get a
Republican sponsor, engender a bipartisan spirit of cooperation and a need to “do
something,” bargain on the details into the night, threaten a veto, insert another
set of slightly rewritten provisions of the previously discredited Clinton Plan into
the text of a giant bill that nobody in Congress is likely to read closely, and then
drive the agenda right into the Rose garden.

Congress is on defense because of its unwillingness or simple inability to
tackle the central issue head on: the fundamental, persistent, politically contrived
distortions in the health insurance market. Congressional leaders should ask
themselves some serious questions. Why is quality a problem in health insurance,
but not in many other markets?

Free markets measure and reward the delivery of quality service in
often ruthless and mysterious ways
, and consumers, without the assistance
of anything that looks like HCFA in any other sector of the economy, do indeed
discriminate among various products or services precisely on the basis of their
reputation for quality. Real consumer choice and real competition can do wonders
in securing quality. Regulation does wonders in discouraging it. A government
standard, especially in a highly regulated market, will almost guarantee that the
lowest legally allowable common denominator will prevail, rather than the pressure
to meet or exceed the expectations of consumers by establishing a qualitative
competitive edge.

The Republican Congressional performance over the past four years has been
a rhetorical parade of speeches on the virtues and values of a free market in
medicine, accompanied by a regulatory reality that establishes a system utterly
opposed to what GOP leaders say they are for. The legislative process, beset by
the efforts of interest groups to micromanage their competitive position by statute,
has resulted in a hodge-podge of compromises and contradictions, with only one
theme emerging: a larger federal role in medicine. Congressional Republicans
appear to be satisfied with any health bill, no matter how misdirected or
bureaucratic, as long as they can add a tiny demonstration project for medical
savings accounts. Then, as in Kennedy-Kassebaum, they weigh their own MSA
demonstration project down with so many rules and qualifications that to hard-
working, time-pressed, paperwork-hating middle-class entrepreneurs, the effort
seems hardly worth it. While the official number of only 22,051 MSAs established
by June 30, 1997, may be misleading (other surveys show many more), at best
the number is far less than expected.

A New Year s Resolution for Congress: Think about a medical system based
on personal choice by a free people. Then act so as to make it happen.

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