AAPS News – July 2004


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Volume 60, No. 7 July 2004


Most Americans know that politicians lie, even though they
live as though certain fictions were true: the value of the
dollar, the sacredness of entitlements, and the integrity of
public health officials and regulatory authorities.

Most Americans assume that criminal defendants and defense
attorneys will lie. Some are willing to accept such perjury, even
in the Oval Office, at least on some subjects by politicians who
give them what they want.

Lies may be acceptable if necessary for the greater good:
the defeat of the Nazis, the detection of a terrorist plot, or
the apprehension of serial killers.

Some feel that lies may be tolerable if the intentions are
good enough: protecting the public against bad doctors, winning
compensation for victims of malpractice, stopping drug dealers,
or perhaps even maintaining public confidence in vaccines. That
is apparently why the AMA and its Federation support absolute
immunity even for bad-faith peer review, and why the public isn’t
outraged if a plaintiff’s expert witness invents a convenient
“standard of care.”

Most Americans, however, still believe in the integrity of
the criminal justice system. They also think that prosecutors are
hamstrung by the exclusionary rule and other legal
technicalities. With respect to certain unambiguous crimes that
involve a body or damaged property, this may be true.

The idea being reinforced by numerous “law and order”
television dramas, people believe that 95% of federal defendants
end up pleading guilty or being convicted because, as The New
York Times
stated, “only the cases with the most compelling
evidence ever make it to the indictment phase.” Even in the
scientific literature, the fact of a jury conviction or a
confession is taken to confirm, for example, the pretrial
diagnosis of “shaken baby syndrome” in the absence of any direct
evidence that the only person on the scene actually abused the

If a defendant decides to plead, as Dr. Jeri Hassman did
(see AAPS News, June 2003), she
must assert her guilt in public after the judge instructs her in
all the rights she is giving up, as well as the standard of proof
(“beyond a reasonable doubt”). Such “acceptance of
responsibility” can shave years or decades off prison time under
the 1988 federal sentencing guidelines that drastically limit
judges’ discretion. If the defendant takes the stand to state her
innocence, as Marla DeVore did, and the jury convicts, she can
expect a sentencing enhancement because she is then presumed
guilty of perjury.

Marla DeVore and her husband, Robert Mitrione, M.D.,
(AAPS News, May 2003 and March 2004) are now both incarcerated in
federal prisons, serving terms of 15 and 23 months, respectively,
for fraud proved at trial amounting to $75.25. Ms. DeVore must
live in a 12 ft x 14 ft cell, into which 10 women are crammed
owing to prison overcrowding. Meanwhile, Malcolm “Tadd” McVay,
the former chief financial officer of HealthSouth, accused of
$2.7 billion in accounting fraud, was sentenced to six months of
home detention, a $10,000 fine, and forfeiture of $50,000. U.S.
District Judge U.W. Clemon took into account McVay’s admission of
guilt and cooperation with the investigation (Wall St J

Defendants are held to a very high standard. Dr. Sergius
Rinaldi was accused of misrepresentation for saying he
was a Medicaid provider,” meaning he “had
,” whereas he now treats Medicaid recipients without
charge (Telegraph 1/24/04).

Prosecutors, however, frequently use witnesses with a
history of fabricating testimony. Three key witnesses in an
allegation of conspiracy to commit murder against Charles Thomas
Sell, D.D.S., (AAPS News, June 2004) have such a record
(St. Louis Post-Dispatch 3/21/04). They haven’t been
cross-examined yet, as Dr. Sell has been imprisoned without trial
for nearly 7 years.

Lying by wired undercover investigators is a favorite tactic
for entrapping physicians. Some recommend that physicians
purchase a radio-frequency (RF) detector and wear it while seeing
even long-standing patients, especially if they prescribe
controlled substances. (An RF detector responds to cellular
telephones, but that signal is intermittent rather than

Prosecutors conceal or distort the truth with impunity, as
extensively documented by investigative reporter Bill Moushey
(“Win at All Costs,” available at www.post-gazette.com ).
And under a new Court standard, defendants who prove perjury also
have to prove that a jury would have acquitted in the
absence of perjured testimony (Mitrione v. U.S.A.),
contravening 75 years of precedents in the Seventh Circuit, the
law in at least four other Circuits, and Supreme Court teachings.
Evidence for criminal intent by the Mitriones depended on the
false testimony of a member of the prosecutorial team.

As Andrew Schlafly writes in a petition for Writ of
Certiorari, “the implications of the new standard…would be
catastrophic for the integrity of the criminal justice system,
sacrificing rights of due process and fair trial.” He notes that

had the Mitriones been convicted in the Fourth Circuit, they
would have obtained a new trial. If the Seventh Circuit’s
decision stands, “the fate of defendants victimized at trial by
lying witnesses thereby becomes subject to the happenstance of
where the trial occurred.” The scourge of conviction by lies,
already rampant, will be worsened by the inconsistent standard.

With a jury tainted by false testimony on counts later
dismissed, the Mitriones were convicted of “substitute billing,”
which is legal under a formally promulgated federal regulation
but not allowed under an informal state handbook, and of “mail
fraud” on a disputed $25 claim a “derivative crime.”

“Show me the man, and I will find his crime,” said the KGB.
Shall American jurisprudence say: Show me the man, and I will
create his crime, and manufacture the evidence?

The Value of a Dollar

A dollar is now worth about the same as a dime in the 1930s.
Multipliers to convert old dollars to 2002 dollars are:

  • 1920    8.98
  • 1930   10.77
  • 1940   12.82
  • 1950    7.47
  • 1960    6.08
  • 1970     4.63
  • 1980     2.18
  • 1990     1.38
  • 2000     1.04

    Source: American Institute for Economic

The Value of Social Security “Contributions”

Assuming no change in the current structure of Social
Security, workers under the age of 26 will reach full retirement
age after the Social Security trust fund is exhausted. In 2042,
beneficiaries will receive no more than 73% of their promised
benefits. By 2078, benefits will be cut by 32%.

Source: Republican Study Committee

ArMA Calls for Scientific Integrity

On June 5, the Arizona Medical Association passed the
following Resolutions:

No. 8-04, Scientific Integrity

Resolved: that the Arizona delegation to the American
Medical Association urge AMA to urge the federal government to use
only sound medical science to formulate public health decisions to
safeguard scientific integrity in federal policymaking.

No. 10-04, Autism Commission

Whereas: Autism grew at an alarming rate in the last 15

Whereas: The cause of this increase is unknown;

Whereas: Vaccines are increasingly being blamed and
supporters of this hypothesis do not trust authorities;

Whereas: Authorities often have conflicts of interest
making them appear suspect;

Whereas: The bottom line is vaccination rates may be
affected and authorities tainted in all pronouncements, not just
those speaking to autism;

Whereas: A neutral body can objectively look at the
information, as did the Rogers Commission after the Challenger
accident, and make recommendations; be it therefore

Resolved: That the Arizona Medical Association support a
call to the American Medical Association to support the convening
of a neutral national commission to look at autism (its rise and
causes) modeled on the Rogers Commission that looked at the
Challenger incident; be it further

Resolved: That the Arizona delegation to the American
Medical Association take and advocate this resolution at the next
AMA meeting.

“The practice of having people admit to what did not
happen in order to avoid charges for what did happen creates a
legal culture that elevates fiction over truth. By making the facts
of the case malleable, plea bargains enable prosecutors to
supplement weak evidence with psychological pressure…. Confession
and self-incrimination have replaced the jury trial. Just as
Bentham wanted, torture has been resurrected as a principal method
of conviction. As this legal culture now operates, it allows
prosecutors to bring charges in the absence of crimes.”

Paul Craig Roberts, Independent Review, Spring

Pentagon Auditors Alter Files

The Inspector General of the Defense Department found that the
Defense Contract Audit Agency, the watchdog for defense
contractors, spent more than 1,000 hours altering its own files to
pass an internal review. The manager who directed the alterations
resigned before discipline could be imposed.

In 2001, the IG’s office itself reportedly destroyed documents
and replaced them with fakes to avoid embarrassment (Margasak L,
Associated Press, 1/11/04).

Independent Vaccine Investigation Called For

Arizona pediatricians voted against the ArMA resolution on the
autism commission, citing a retraction of a Lancet article
by 10 of 13 authors to support their contention that the question
of a vaccine/autism connection has been thoroughly researched and
disproved. The 1998 article reported an inflammatory intestinal
condition in autistic children, with isolation of measles virus
from tissue specimens. This fueled concerns of parents, many of
whom had reported onset of autistic symptoms in their children
subsequent to the MMR vaccine. The factual content of the article
was not retracted, only the suggestion that a possible connection
between MMR and autism warranted further investigation. The
Lancet’s main concern was lack of disclosure of “aspects
of funding for parallel and related work and the existence of
ongoing litigation” (Lancet 2004;363:820-824). Author
Andrew Wakefield explained that a few of the children described in
the Lancet report were also included in a second study
funded in part by the Legal Aid Board (ibid.; Lancet

British journalist Melanie Phillips calls attention to the
isolation of measles virus in CSF of three autistic children,
reported to the Institute of Medicine (and published in the summer
2004 issue of the Journal of American Physicians and
). She writes: “The government insists that research
overwhelmingly shows the vaccine is safe. But this is not so. The
research in question investigates patterns of disease based on
medical records. But this is unlikely to get to the bottom of the
issue, since countless parents have said doctors not only failed to
diagnose autism or bowel disease in their children but dismissed
out of hand the parents’ reports that the problems seemed to start
with the triple jab.”

Ms. Phillips observes that the stakes are high for “drug
companies, the government, and the medical establishment.” Quite
independently of ArMA, she urges the government to commission an
independent clinical investigation of affected children. “Only then
will we be able to judge who in this wretched story is actually
right, and only then will all children get the vaccinations they
need” (Daily Mail 2/23/04).

AAPS Calendar

Oct. 13-16. 61st annual meeting, Portland, Oregon.

Sept. 21-24, 2005. 62nd annual meeting, Arlington, VA.

Green Light for Perjury

In appealing their conviction, Robert Mitrione, M.D., and his
wife Marla DeVore argued that the 75-year-old standard of
Larrison v. United States, 24 F.2d 82 (7th Cir. 1928),
required a new trial because the jury outcome on Counts 12 and 14
“could have” been different in the absence of the perjury of the
prosecution’s star witness. (See www.aapsonline.org/judicial/
for the history of this case, and p. 1.)

The prosecutor told the jury: “If you look at all the records
as this Public aid auditor [Ms. Statler] did, and you come up with
three times more billed than not billed, accident? Be kind of
weighted a little more evenly if it were an accident, wouldn’t it?”
Ms. Statler had even testified that she “would have allowed [only] 14%” of defendants’ claims, conveying to the jury that 86% of the
defendants’ bills were fraudulent. But her testimony was entirely
false and the jury had been completely misled. Truthful testimony
would have been that her audit of the records did not indicate any
scheme to defraud.

Yet, the government insisted that the penalty for this highly
prejudicial and material perjury should be essentially nothing and
that defendants should be sentenced as though the perjury had not
been uncovered. Agreeing, the court held:

Today, we overrule Larrison and adopt the
reasonable probability test. In order to win a new trial
based on a claim that a government witness committed
perjury,…defendants will have to prove the same things
they are required to prove when moving for a new trial
for other reasons. Defendants will have to show that the
existence of the perjured testimony (1) came to their
knowledge only after trial; (2) could not have been
discovered sooner with due diligence; (3) was material;
and (4) would probably have led to an acquittal
had it not been heard by the jury [emphasis

The acceptance of perjury is in glaring contrast to the
inadmissibility of evidence obtained as the fruit of improperly
seized evidence the so-called poisonous tree. Other improprieties
do not shift the burden of proof to the defendant.

The Mitriones were deprived of their Sixth Amendment
Constitutional right to an impartial jury, Andrew Schlafly argues.
Additional constitutional issues are the failure to apply the
Supremacy Clause to conflicting State and federal regulations and
improper delegation of authority to agencies. “Courts should not
defer to an agency’s informal interpretation of an ambiguous
statute or regulation in a criminal case.” Supreme Court review is
necessary, Mr. Schlafly writes, to “resolve widespread uncertainty
and conflicts for prosecutions that exploit ambiguities in Medicare

The Court denied a Petition for Rehearing and a motion to
allow the Mitriones to remain free pending appeal to the U.S.
Supreme Court. The Petition
for Writ of Certiorari
is posted at www.aapsonline.org.

Derivative Crimes

Under the Constitution, States are responsible for prosecuting
common-law crimes such as robbery or murder. The U.S. Supreme
Court, however, has created a category of statutory crimes called
“public welfare offenses,” with criminal penalties for acts or
omissions that technically violate a regulatory statute. These
encompass an increasingly broader range of ordinary business
activities. Additionally, to circumvent federalism, Congress and
the Supreme Court have created what William L. Anderson and Candice
Jackson have termed “derivative crimes,” covering activities with
some connection, however remote, to interstate commerce.

The first derivative crime, created more than a century ago,
was mail fraud. In 1970, the Racketeer Influenced and Corrupt
Organizations (RICO) law bundled any discernible “pattern” of
crimes into a new, federal crime. In 1984, the “money
laundering” statute depositing money allegedly garnered from
criminal activity was greatly expanded.

In their drive to convict people, federal investigators often
target individuals by stretching already dubious laws beyond
recognition. “Obstruction of justice,” for example, may mean
nothing more than refusing to incriminate oneself.

Lying is permissible, according to a syllabus for an FBI
course on ethics for new recruits, because subjects of investi-

gations have “forfeited their right to the truth.”

We now have, according to defense attorney Harvey Silvergate,
three categories of prisoners: those who are guilty of a crime;
those who are wrongly convicted of a crime; and those who are
convicted under vague statutes for conduct that a reasonable person
would not have assumed to be criminal.

Judge Edith Jones of the Fifth Circuit stated that “the
integrity of the law, its religious roots, its transcendent quality
are disappearing….” The American legal system, she states, has
been “corrupted almost beyond recognition.” As our legal philosophy
has descended into nihilism, “zealous prosecutors are increasingly
willing to sacrifice what is morally right for political

In 1981, there were 1,500 U.S. attorneys. Today, there are
more than 7,000, all of whom need high conviction rates to gain
promotions and pay raises. The federal prison population stood at
about 20,000 in early 1981 and is now more than 170,000. The human
wreckage of devastated families and ruined businesses continues to
grow, and entrepreneurial activity must eventually be chilled
because of uncertainty about the law.

What remains of America when its law becomes a weapon the
state uses against whomever it chooses, for the political benefit
of those in power?

[See Anderson WL, Jackson CE. Losing the law: from shield to
weapon, Freeman 2004;54(May):20-23, www.fee.org.]

Doctors in Service of the State

The case of Charles Thomas Sell (see AAPS News, June 2004), on forced drugging of prisoners,
raises questions about the potential institutional bias of state-
employed physicians. As Justice John Paul Stevens wrote in a
dissent to Washington v. Harper [494 U.S. 210 (1990)],
“the mere fact that a decision is made by a doctor does not make it
certain that professional judgment was in fact exercised.” George
Annas, J.D., M.P.H., cautions that prison psychiatrists, because of
their own identification with their employer, may be able to
persuade themselves too easily that the interests of the government
and the prisoner are not really in conflict (N Engl J Med
2004;350: 2297-2301).

From farther down the slippery slope, the newly released video
Remembering Saddam shows surgeons amputating the right
hands of Iraqi merchants convicted of the crime of dealing in
American dollars. They also had tattoos etched on their foreheads.
American benefactors have provided prosthetic hands and plastic
surgery. Pending suitable arrangements, the video will be screened
at the AAPS annual meeting.


Doctors Worse Than Terrorists. In April, President Bush
gave a speech in Buffalo touting the first successful convictions
under the USA PATRIOT Act, which he hopes Congress will extend past
its slated expiration date at the end of the year. The Lackawanna
Six pleaded guilty to aiding terrorism. They trained at Osama bin
Laden’s al-Farooq terrorist training camp. The longest prison
sentence was 10 years.

When prosecutors promise to treat doctors like the Taliban,
don’t believe it. They plan to treat doctors worse. Dr. James
Graves got 63 years because four of his patients died while abusing
their pain medicine without his knowledge.
Lawrence R. Huntoon, M.D., Ph.D., Lake View, NY

A Query to Organized Medicine. From a letter to the
American Academy of Dermatology: After nearly 20 years as a member
in good standing, I am debating whether to renew my membership. Our
academy actively lobbied for the recent monumental expansion of
Medicare. The cost will be astronomical, and the legislation may
prove crippling to our innovative pharmaceutical industry. The real
price will be loss of freedom: as prices go through the ceiling,
we’ll see restrictions on what drugs seniors can buy. Perhaps the
most malignant consequence of all will be the requisite tax burden
on our children and grandchildren.

Terry W. Marsh, M.D., Muncie, IN

Doctors’ Opinions on Government. Physicians should not be
consulted about what form of government should rule the land.
Medical people may be the first to lick the boots of those in
power, those with the promises, because it seems that they cannot
afford to do otherwise. Moreover, they may think that the
government would not, one by one, take away their ability to serve
patients. They would be mistaken. Having physicians in its pocket
greatly amplifies the power of government; hence, the reason for
its blandishments.

Jack Tidwell, M.D., Columbus, GA

Where Does It End? In the beginning, powers of government
were limited in the U.S. But now the government has no stopping
place as to what it can or will do. Can you suggest some functions
that the government should be denied?

Joseph Lee Pugh, Diamondhead, MS

A Losing Game. The etiology of medicine’s problems lies
with the aggressive, avaricious, dishonest “Liberals,” who have
never been liberal but have always been radical. Medicine has
bought into the game, is playing on their field, and is losing both
for physicians and patients. Physicians must stop caving into
politicians and third parties and must not let themselves be
compromised for a buck.

Milt Kamsler, M.D., St. Augustine, FL

Never Underestimate the Left. These are the people who
can hold two perfectly contradictory philosophical positions in
their head at the same time and not have their brain explode.
Remember the Grand Unifying Principle: No matter what the issue or
contemplated actions, government is always good, and the private
sector is always bad.

Linda Gorman, Independence Institute

Government Solutions. When astronauts first went into
space, NASA discovered that ballpoint pens would not work in zero
gravity. To combat this problem, NASA spent a decade and $12
billion to develop a ballpoint pen that writes in zero gravity,
upside down, under water, on almost any surface including glass,
and at temperatures ranging from below freezing to more than 300øC.
The Russians used a pencil.

Vern L. Goltry, M.D., Boise, ID

Neighbors, or Villagers? Auschwitz, once a village,
should dispel Sen. Clinton’s quaint ideas about villages. Had more
Germans taken to heart what it really means to be a neighbor, there
might have been the critical mass of resistance to prevent the
genocide carried out by the “village.”

As medicine is a very personal endeavor one doctor and one
patient at a time you can’t squeeze the village into it. Instead,
I am trying to answer the age-old question: “Who is my neighbor?”
Can American physicians rise to meet challenges from our own
Village, by helping our neighbor?

An inscription on Union Station, across from the Capitol,
reads: “Be noble and the nobleness that lies in other men, sleeping
yet never dead, will rise in majest to meet thine own.”

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

Freedom. I’m making people better and making a living as
a free man. No DRGs, ICD-10, CPT, HMO, PPO, IPA, OIG, insurance
clerks, etc. The proof that I’m a good doctor is the happiness of
my patients in paying me with their own money. They are free agents
too. If they are unhappy, they leave. I am not the one to solve
everyone’s medical problems. My Oath of Hippocrates only requires
me to worry about my own patients’ problems, as I freely and
happily do.

Herbert Rubin, M.D., Los Angeles, CA

A Corollary. As Orwellian scholars know all too well, “no
child left behind” means, by definition, that no child will be
allowed to advance.

Gerry Smedinghoff, Phoenix, AZ

Legislative Alert

The Memorial Day Medicare Recess

Remember that the Medicare prescription drug bill was
supposed to be the political bonanza for the Republicans. One thing
is certain: the hot-shot, K-street, megabucks political consultants
who sold this turkey (stuffed with massive debt and taxation) are
guilty of gross political consulting malpractice. It goes without
saying that they don’t know anything about the real dynamics of
health policy and its painful, political trade offs. (Senator
Hillary Clinton can explain that in some detail.) What was supposed
to be a massive net plus, is turning out to be a politically
dangerous net minus.

And the evidence is trickling in. Nationally syndicated
columnist Robert Novak reports that Republicans fear losses in
November. The anxiety over Iraq is compounded by fear, confusion,
and hostility toward the prescription drug benefit. The danger is
compounded by the fact that the strongest hostility is to be found
in the Congressional Republicans’ conservative base. Says Novak:
“What acutely torments these voters is the prescription drug bill.
Republicans are fearful that the plan will take away benefits they
have and replace them with something they don’t want”
(Washington Post 6/3/04). The late House Speaker Tip
O’Neill, author of the famous aphorism “All politics is local,”
understood that you never, ever, come Hell or High Water, alienate
your political base.

Novak reports that the growing anxiety on Capitol Hill
surfaced on May 20, when the President delivered a pep talk to
about 200 assembled Members of Congress: “He encountered dead
silence in going on to the prescription drug program. ‘I guess your
eyes just glazed over,’ an unamused Bush told his congressional
audience. Defiantly, he said, ‘Other presidents have promised help
for prescription drugs, but I have actually done it.’ That
generated a little applause. Only when Bush mentioned health
savings accounts, the token conservative element in the
prescription drug bill, did he again get an enthusiastic reception
from the legislators.” Surprise.

The New Medicare Discount Cards

Since June 1, the new Medicare drug discount card program has
been in effect. Like most government programs, this one was not
market tested, and CMS has had only four months to get the program
up and running. It is unique in one key respect, however: unlike
most of Medicare, this program relies on the provision of
comparative pricing information, consumer choice, and free market
competition. That’s what’s really wrong with it; it might work.
Already, leftists in Congress and elsewhere are calling the new
program a mess, a failure, and something so beneath serious health
policy that it is even undeserving of seniors’ participation.
Families USA is, predictably, against it; so is Senator Kennedy,
Senator Daschle and Senator Clinton. While Rep. Pete Fortney “Pete”
Stark (D-CA) said the program was a mass of confusion that promised
only minimal savings, House Minority Leader Nancy Pelosi reportedly
urged seniors not even to sign up to get the discounts. Stay away
from these drug discounts, if you know what good for you and us,
by the way.

True, there have been glitches. This is a big government
computerized information program, and some of the prices listed on
the new CMS website are wrong. But the facts are undeniable. The
cards cost no more than $30 a year, poor seniors get a $600 subsidy
on the card of their choice, and there are no “asset tests” to
qualify for the subsidy. Any remaining money in the subsidized
accounts can be rolled over to the next year tax free, just like a
health savings account. And the program can deliver serious
discounts, especially for low-income seniors. Joseph Antos, a top
health policy analyst at the American Enterprise Institute (AEI)
and a former Assistant Director of the Congressional Budget Office
(CBO), estimates that a low-income senior, eligible for the
subsidy, could get a savings of 62% annually on drug purchases. An
excellent summary of the impact of the discount card is posted at


This weird controversy has prompted Jeff Lemieux, a yellow dog
Democrat, recently a senior economist with the Progressive Policy
Institute, and now health policy guru for Centrists.Org, to remark:
” The average Martian would be justifiably perplexed about why the
Democratic Leadership wants to repeal a program that does no harm,
might actually help quite a few people, and offers a significant
benefit to low income seniors.” No, they are not crazy, Jeff. The
Martian might not get it, perhaps. But, It’s the Structure

Medical Costs Again

This year medical costs are expected to increase by 10%,
reports The New York Times, a slowdown from previous
double-digit increases. In 2003, medical insurance premiums rose
14%; in 2002, 23%; in 2001, 11%. A decline in hospital and
physician costs and an increase in competitive pressures this year
are cited as reasons for the slowdown. But the increases are still
more than double the rate of inflation.

Yet even as we complain, we really do want expenditures to
rise. We demand more medical services for the aging, as well as for
the young, and politicians listen. Moreover, we nurture and protect
unhealthy behavior by insisting on community rating, meaning that
we will have everybody pay the same insurance rates, regardless of
personal risk-taking behavior.

Curiously, while Families USA and AARP are complaining that
drug costs about 10% of medical dollars are outpacing general
inflation, they are not outpacing other medical costs. From January
2003 to February 2004, the compound annual growth rate for the cost
of drugs was 2.8%, compared to 4.8% for all medical services.
Nonetheless, we like drugs and we like modern technology, and we
are in the process of making sure that drug coverage is universal
in public programs.

Back in the early ’90s, Professor Bob Blendon at Harvard
University did a survey contrasting the views of the general public
and the health policy wonks. He found a big gap. The wonks always
worried about rapid increases in spending. The general public is
likely to say that we meaning somebody else or “the government”
should be spending more on medical care. The only costs
the public cares about are out-of-pocket payments, coinsurance, and
deductibles. That’s the problem. Politicians obviously take this to
heart, and offer what they believe to be popular proposals. If
President Bush wants to spend a little more than $100 billion over
the next ten years on the uninsured, Senator Kerry is prepared to
spend an additional $900 billion, or $650 billion, depending on
which analysis of the Kerry Plan you think is right.

Value for Money?

There is an even more important question about spending than
its sheer size, and that is whether we are getting good value for
our dollar. This is a more complicated question. In actual services
and products, the answer is yes. Consider newer and more effective
biologics and pharmaceuticals and the rapid and continuing advances
in diagnostic technologies and surgical techniques. But in
financing, the answer is probably not. While there are some
efficient health insurance arrangements out there, we are still
spending a lot of money in ways we would not choose if we were
actually forced to make the economic tradeoffs. For example, while
too many Americans are uninsured, it is also true that far too many
are overinsured and have no idea how much the coverage actually

Policy Options to Control Costs

What can we do or should we do about medical costs? We
cannot make people younger. We could reduce or slow advances in
medical technology, biologics, or pharmaceuticals with price
regulations or other regulatory obstacles. (The Europeans are
generally very good at this. We already do this to a limited extent
in Medicare, and there are some serious Washington policy analysts
who will tell you that we have a “lot to learn” from these public
programs on this score.) But if we want to pursue something sane
and humane, we can adopt several policy changes that will moderate

Promote price transparency in all public and private
. Health care is notorious for lack of clear
information on prices, and, for most Americans there is little or
no comparative shopping on the price of insurance or medical
services. They are in a black box. In the field of medical
insurance, the one major exception is the FEHBP. In the private
sector, there are small but growing insurance brokerage websites on
the internet, such as
, which covers only the individual market. In the field of
medical services, there is little or no comparative information
that individuals as consumers can actually act on with their own
dollars. Ironically, the big exception may turn out to be
prescription drugs. The new Medicare drug discount card program is
posting prices on the internet for 73 different discount cards.
According to the Lewin Group, seniors could save more than 20% on
the most common prescriptions. If we are serious about controlling
costs, we need to accelerate the trend toward price disclosure,
along with readily available information on quality of care and
performance. That is what is routine in other, market driven
sectors of an economy.

Change the tax treatment of medical insurance.
Federal and state tax breaks for employer-based insurance amount to
nearly $210 billion in 2004. The current tax policy distorts the
health insurance market and drives costs up. A 1994 CBO analysis of
the tax treatment of medical insurance concluded that it hides the
true cost of medical services as well as the identity of the person
paying for the care. It creates the impression that medical care is
a free fringe benefit, not a service purchased with money that
would otherwise be spent on wages or other compensation. The Lewin
Group has estimated that 88% of the cost of medical benefits is
actually paid for by lower employee wages or other compensation.
CBO also concluded that current tax policy fuels higher medical
costs by encouraging workers to seek more comprehensive and
expensive benefits the bigger the benefit package, the higher the
tax-free income. While HSA policies are a first step in this
direction, they do not, of themselves, repeal the current tax laws
governing medical insurance. If we are serious about insurance
reform, we must be serious about tax reform.

Reduce or eliminate third party payment for routine
medical services in both private and public programs
the Joint Economic Committee reports, only one in seven health-care
dollars is spent directly out of consumers’ pockets. This
guarantees high and unnecessary administrative costs in the system.
Every dollar that is passed through the bureaucratic apparatus of
a insurance bureaucracy is more expensive than the dollar paid
directly to the doctor. For routine medical services, we should
promote direct payment wherever possible, and health savings
accounts and debit cards will expand this option. This would
progressively move medical insurance to true insurance financial
protection for catastrophic events.

Review and reduce regulation. Medical care is
the most highly regulated sector of the American economy. A recent
cost-benefit analysis presented to the Joint Economic Committee of
Congress by professor Christopher Conover of Duke University found
that the net cost of health-care regulation that’s dead weight
loss amounts to $128 billion annually. If one excludes, just for
the sake of statistical analysis, federal ERISA rules, the net cost
rises to $175 billion. ERISA, whatever its merits, does indeed
secure lower levels of state-based regulation. Conover details the
impact of health regulation over several sectors. For example, in
medical facilities regulation, of 16 areas of regulation studied by
Conover and his team, only two produced benefits that exceeded
costs. Three of eight areas in the regulation of medical
professionals produced benefits over costs, and seven of 19 in the
area of medical insurance regulation. The message is simple and
clear. Both federal and state authorities need to get to work and
start doing cost-benefit analyses of their own.

Single Payer Update

Sweden’s tax rates are among the highest in the world, and
the waiting lists and costs of the Swedish government medical
system are both growing. Goran Persson, the Prime Minister of
Sweden, needs a hip replacement operation. He says he’s in pain,
that his health is a private matter, but he has publicly
pledged that he will not seek private-sector treatment; he will
rely on the public sector, and will remain faithful to the Swedish
Social Democratic Party’s motto: “People Before Markets.” According
to a May 25, 2004, report from Reuters News Agency: The Prime
Minister says, “Right now I’m in quite a lot of pain, but that’s
not the fault of the health system.” The Prime Minister says that
the 1.5-hour hip operation will be carried out sometime before
. This is a public matter. Who says
socialists are sissies?

Robert Moffit is Director, the Center for Health Policy
Studies at the Heritage Foundation, Washington, D.C.

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