AAPS News – June 2002


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of American Physicians and Surgeons, Inc.
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Omnia pro aegroto

Volume 58, No. 6 June 2002


The team of Edward Kennedy and Hillary Clinton is determined
to “progress” toward “the day when all Americans will have the
health insurance coverage that should be their birthright,”
instead of “drifting backward” (Boston Globe 4/28/02).
“The time is long overdue for America to join the rest of the
industrialized world….” [and embrace socialism].

The next incremental step would be to force all employers of
more than 100 employees to provide health benefits. This proposal
will be introduced soon but won’t pass-yet.

Kennedy/Clinton undoubtedly ask why a country that can
[could-it no longer can, having drifted backward] put a
man on the moon can’t provide medical insurance for all-or
abolish poverty, pain, and sickness.

Rabbi Daniel Lapin posed an analogous question: why can’t
the most advanced industrial nation in history make an airplane
that can fly without wings or jet fuel? The answer: natural law,
such as gravity (America’s Real War).

Just as water doesn’t run uphill (Bill Orient’s First Law of
Contracting), the “trickle-up theory of medical care” doesn’t
work. The core argument for Canadian socialized medicine is:
“Force the affluent to experience the same level of consumption
as the poor, and the affluent will raise the poor’s standard of
living to their own” (Globe & Mail 2/21/02). One might
as well try to warm up the swimming pool by shivering in it.

A nation that has photographed the dark side of the moon
seems incapable of seeing the other side of entitlements:
Cantoni’s “invisible man”-the taxpayer, under- or uncompensated
“providers,” and those who bear the opportunity costs of
diverting resources. Nor does it discern the force and deception
involved in the unnatural, involuntary redistribution of wealth.

The effects of entitlement, as to government subsidies, free
emergency care, or pain-and-suffering judgments, include :

Debt: Workers have been deceived into thinking that
payroll taxes are funding their retirement needs, just as
Pinocchio was persuaded by the blind cat and the lame fox that if
he planted his gold coins in the Field of Wonders and went away,
a money tree would grow. So-called trust funds are stuffed with
debt. Unlike privately held debt, this debt is really, as Richard
Relph points out, a liability contingent upon continuing the
program-it could be wiped out at a stroke of the President’s pen
without affecting the nation’s credit rating. Because the
government uses cash accounting, the long-term liabilities are
largely hidden from view.

Skyrocketing costs: As the Henry J. Kaiser Family
Foundation noted, “no approach our nation has tried, over the
past thirty-five years, to control health costs has had a lasting
impact.” That’s because none addressed the cause: third-party
payment. Nobel laureate Milton Friedman estimates that we are
paying twice what we would with direct payment, and getting
little in return except for bureaucratization and dissatisfaction
(Senate Republican Policy Committee,


Authoritarian controls and scapegoating: Having
renounced the peaceful way to allocate scarce goods-prices- we
are left with the only alternative-brute force-as in the “anti-
fraud initiative” (Wall St J 4/1/02). Compliance
training is “like the hamster in the little cage-it never ends,”
stated consultant Ben Frosch (Medicare Compliance Alert

Decline in services: While AAPS has chronicled
restriction of services to Medicare beneficiaries for years,
others are now confirming the accelerating trend. A Washington
State Medical Association membership poll found that 57% of
respondents were either taking no new Medicare patients (45%) or
dropping all Medicare patients (12%). Physicians are going on
strike in an insidious manner, as by early retirement. There is a
30% decrease in applications for general surgery residencies
(Arch Surg 2002;137:255-256). Medical school
applications are down 26% over the past five years, according to
the Association of American Medical Colleges (Wall St J
1/19/02). It could get worse: to reach the resource-allocation
level of Canada, the U.S. would have to fire 171,000 physicians.
The next step is lower standards, which are probably being masked
by grade inflation. The endpoint was reached with total socialism
in the USSR. William Summers, M.D., on touring the former Soviet
Union in 1992, concluded that the average physician had about as
much knowledge as an American licensed practical nurse.

Overall government impoverishment: The projected
quadrupling of Medicaid long-term care costs by 2030 will crowd
out all other state expenditures. (State Factor 4/02).

“New Code of Professionalism”: The AMA pressured
members of the Federation to sign onto the Declaration of
Professional Responsibility, originating in the World Medical
Association. This enshrines the “obligation for promotion of
social justice” as one of three fundamental principles.

The need for a “new” ethics (see AAPS News Nov 2000) shows that entitlements are not
just part of a Marxist economic system or political program. If
they were, the disastrous results would have discredited the
concept long ago. But what Marx did was to found a new religion,
with the omnipotent state as its god. “This idol appealed to men
more than any other in history, because it made all morality
relative…. [I]t indulged all of men’s basest instincts while
ever appealing to his noblest motives” (R Martin, “May Day,”

Entitlements are a mess of pottage. They bear bad fruit:
deceit, improvidence, waste, coercion, envy, poverty, sliding-
scale ethics, and the impending death of private medicine. Our
birthright is our unalienable right to life, liberty, and
property. Only from this mainspring of human progress can flow
virtue and enterprise, bringing us prosperity, excellent medical
care, and other good fruits of a peaceful civil society.

Physician Shortage

In 1976, the Graduate Medical Education National Advisory
Committee (GMENAC) confidently predicted a 22% excess of
physicians by 2000 (Chest 2001;120:327-328). In 1997,
HCFA decided to pay 41 hospitals in New York $400 million over
next six years to teach 2,000 fewer doctors (AAPS News 4/97). The Health Professionals Review
Group, an audit group directly responsible to Ira Magaziner on
the Clinton Task Force on Health Care Reform, called for
government quotas on the number of specialists (AAPS News

The expert central planners failed to account for two
factors: demand, as from the demographic time bomb called the
Baby Boom, and supply, as in the response of current and would-be
physicians to working conditions. They expect to get it right
next time: “our professional societies must embark on strategies
of physician workforce planning” (Chest, op cit.).

Intelligent persons are generally not attracted to a field
in which they are routinely expected to spin straw into gold, or
to incur personal debt for the dubious privilege of working.

“Buried in the insurance changeover [Medicare and Medicaid] in 1965 was the provision that all fees would henceforth be the
same, and that particular absurdity of equal pay for equal work
has been carried over, by law of Congress, to include nurse
practitioners, chiropractors, and similar people….,” writes
George Fisher, M.D. “Why go $100,000 in debt to be paid the same
as someone who went to a diploma mill? Why take complicated cases
with a high risk of liability suits if you are paid the same as
for easy cases, whether you have any special skill or not? I am
proud of my profession for resisting these obscene incentives as
well as they do, but the public need not suppose that the
resistance will last forever.”

Reports from a few states:

Arizona: A report prepared for the Goldwater
Institute by Jeffrey Singer, M.D., and Craig Cantoni finds that
Arizona had a physician:patient ratio of 185 per 100,000 in 2000
(172 if adjusted for number of retired physicians), compared with
a ratio of 194.6 per 100,000 recommended by GMENAC, and an
unadjusted ratio of 198 per 100,000 in 1990. The authors blame
federal regulations and price controls, stating that “all
physicians in all states are treated to some extent like
indentured servants.” In Arizona, the hidden tax on physicians is
higher because of the large population of illegal aliens who must
be treated without compensation, by federal law (Arizona Issue
Analysis 165, Oct 2001,

California: A 2001 survey by the California Medical
Association (CMA), entitled “…And Then There Were None,” showed
that more than half the physicians in California are so
dissatisfied that they plan to retire or move out of state in the
next three years. While acknowledging the need for better data,
the CMA warns that “if these trends continue, California will be
left with a non-functioning health care system unable to provide
for patients.” In Sacramento and El Dorado counties, the number
of active physicians declined by 13.4% between 1995 and 2000,
while population increased by 9.6%. The physician:patient ratio
decreased from 205 to 165 per 100,000.

Utah: The Medical Education Council of the State of
Utah concludes that the state is on “the verge of a crisis.”
There is growing evidence that physicians are beginning to retire
as much as 10 years before the traditional age of 65. This would
mean that Utah would have to replace 1,600 physicians, or 42% of
the current work force in the next 10 years, and as much as 95%
in the next 20 years.

Giving Is Not the Same As Being Robbed

In answer to the insistence that those who do not plan for
their own care must be cared for by the rest of us, Tom
LaGrelius, M.D., explains: Faulty logic-holding that
irresponsible people are entitled to care, and that it
is therefore okay to rob responsible people-is what has gotten us
into our current dilemma. Insurance mandates would just
perpetuate it.

“As a decent human being, I have a responsibility to help
the helpless,” Dr. LaGrelius writes. However, recipients of such
help should know that they are receiving charity, not an
entitlement. Moreover, all charity must be local, never federal.

An imperfect emergency call system that worked fairly well
was destroyed by EMTALA, which made charitable doctors resentful
about being robbed, Dr. LaGrelius states.

Manya Helman, M.D., wrote that when a patient lamented about
how the Oregon physician shortage was affecting her, “I mulled
aloud in a thoughtful voice, to her surprise and mine: `Well, I
could work longer hours, get home at 7:00, have to move the kids
from one neighbor’s house to another. What if I refused? I guess
you could have the government declare emergency powers and
enslave physicians. What if we refused then? I guess you could
hold our families hostage and threaten us. Or, we could
simply correct the problem. If we paid physicians fairly, we
could recruit them to come to our state’.”

Entitlements Mean Prohibitions

Criticisms of Canadian medicare can no longer be dismissed
as the distant grumblings of Fraser Institute types after the
report of Michael Kirby and other Canadian Senators from the
Standing Committee on Social Affairs, Science, and Technology.
The system is “not fiscally sustainable,” technology gaps widen,
and waiting lists are cruel and long (National Post
4/29/02). Yet virulent opposition to private care continues. A CT
scan clinic offering services that are deemed medically
unnecessary is called “another example of the erosion of Canada’s
public health-care system.” Christine Burdett, chairman of
Alberta-based Friends of Medicine, states that the clinic
“appears to allow people to pay to avoid waits in the public
system.” And even if that’s not the case, “there’s reason to
question why people should be allowed to have an unnecessary
service performed at all” (Toronto Star 2/22/02).

AAPS Calendar

Sept. 18-21. 59th annual meeting, Tucson, AZ.

Sept. 24-27, 2003. 60th annual mtg, Point Clear, AL.

* * *

The question of legal plunder must be settled once and for
all, and there are only three ways to settle it: (1) The few
plunder the many; (2) Everybody plunders everybody; (3) Nobody
plunders anybody.

Frederick Bastiat, The Law

Paying Physicians Could Be a Crime

Some hospitals are finding that they cannot meet their
obligations under the Emergency Medical Treatment and Active
Labor Act (EMTALA) without paying specialists to take emergency
call. Irony of ironies: if they pay, they could be vulnerable to
investigation under the Anti-Kickback and Stark rules. CMS will
be looking for large numbers of referrals from physicians to the
hospital (Medicare Compliance Report 5/8/02).

Policy Is Not Law

The convictions of two HCA executives for making false
statements to Medicare and CHAMPUS were overturned by the U.S.
Court of Appeals (United States v. Whiteside, 11th Cir.,
Nos. 99-15197, 00-12759, 3/22/02) on the basis that no Medicare
regulation, administrative ruling, or judicial decision existed
to support the prosecution’s theory. Robert Whiteside and Jay
Jarrell had been sentenced to two to three years in prison and up
to $1.7 million in restitution for reporting debt interest as
being capital related, according to the current use of funds
underlying the debt rather than their original use. Contradictory
expert testimony lent credence to the defendants’ argument that
their interpretation was not unreasonable, the Court found
(BNA’s Health Care Fraud Report 4/3/02).

The Medicaid fraud conviction of optometrist David Vainio,
who had been sentenced to five years in prison, was overturned by
the Montana Supreme Court because it was based on violation of an
administrative policy that had not been adopted in compliance
with Montana’s Administrative Procedure Act (MAPA) (State of
Montana v. David G. Vainio
, No. 00-469, 2001 MT 220). The
prosecution argued that the Medicaid statute criminalizes
violations of “statutes, regulations, rules, or
policies.” The defendant noted that the Court had twice
held that an agency’s failure to comply with MAPA invalidates a
purportedly adopted rule.

“The Medicaid statute cannot, through the mere insertion of
the word `policies,’ implicitly override MAPA’s protection of the
public’s constitutional right to participate in administrative
government.” The Court agreed with the defendant that “an
informal policy which has been the source of confusion and
administrative appeals cannot be the basis of a criminal charge
if due process is to have any meaning.” The defendant also
pointed out that while he was being held criminally liable for
violating an informal policy, the Montana Department of Health
and Human Services has been excused from violating rules which it
had formally adopted.

Numerous other convictions are being reversed on similar
grounds, for example, the conviction of IRL “Chip” Ward for
violations of the Occupational Safety and Health Act (OSHA) in
the Eastern District of Pennsylvania (U.S.A. v. IRL “Chip”
, criminal no. 00-681, 2001 U.S. Dist. LEXIS 15897). The
Court found that the regulation itself was so ambiguous that a
reasonable person could not have determined whether it applied to
the defendant’s activities. Moreover, the Administrative
Procedure Act (APA) prohibits application of OSHA’s informal
interpretation in a criminal case.

Dr. Mitrione Moves for New Trial

On July 8, Dr. Robert Mitrione’s Motion for a New Trial
Based on Newly Discovered Evidence will be heard in federal
district court in Springfield, IL. Dr. Robert Mitrione and his
wife Marla Devore were convicted of Medicaid fraud (see AAPS
, Legal Supplement,
Jan. 2002).

A memorandum by the Peoria Medical Society in support of the
Motion argues that “the indictment and convictions here fail to
cite violation of any binding federal rule. Accordingly, the
convictions directly contravene the recent Supreme Court teaching
in Christensen v. Harris County, 529 U.S. 576 (2000),
and over 150 decisions that have recently relied on it.” As the
Court reiterated in the Ward case, “no one may be
required at peril of life, liberty, or property to speculate as
to the meaning of criminal statutes.” Convictions cannot “rely on
testimony by government witnesses about their interpretation of
the law.”

The Peoria Medical Society also notes that the Exhibit
sprung on defendants near the end of the trial, purporting to
show that defendants had billed for services never rendered in an
incredible 28% of cases, lacked any basis in fact. An independent
auditor, who reviewed the patient files utilizing the audit
procedures described by the government witness in her trial
testimony, found that the government’s results were “not
reasonably accurate,” having an error rate of more than 50%. The
Exhibit that strongly influenced the jury to convict “contains
mathematical errors in the government’s favor and evidences a
lack of due care in its preparation.” Moreover, “it is misleading
in the way the chart is constructed.” The auditor failed to
conform to the generally accepted auditing standards that require
the preparation and retention of working papers. The government
witness could provide no verifiable evidence for the totals used
in the Exhibit. The Recoupment Spreadsheet that claimed $16,84-

8.79 in overpayments to Dr. Mitrione should be corrected to show
less than $4,400 in overpayments.

AAPS also filed a memorandum in support of the Motion,
arguing that “Defendants’ convictions are unprecedented because
they are based on compliance with federal law, rather than
violation of it
.” Because of the Supremacy Clause,
federal law overrides conflicting state law. Moreover, “it is
axiomatic that a criminal conviction is unjustified if it relies
on a vague, ambiguous, or conflicting legal requirement.”

Motions are posted in their entirety at www.aapsonline.
; click on “prosecutions.” AAPS thanks
the American Health Legal Foundation for its support.

Tip of the Month: Sham peer reviews often ruin a good
doctor’s reputation. In defense, many doctors have sued for
antitrust, or medical staff bylaws, or due process violations.
But those lawsuits often take years, and are even blocked in
states that require exhaustion of ineffective administrative
remedies first. A better option may be to sue for simple
defamation. Specific damages need not be proven if a false
statement imputes (1) a serious crime to the doctor (such as
violating EMTALA or Medicare laws) or (2) unfitness for a
professional role. Pollard v. Lyon, 91 U.S. 225, 226

Not-Quite-Ex-Post-Facto Law

New Jersey nurse Susan Malady challenged her 10-year
exclusion from Medicare under HIPAA on the basis that her crime,
to which she had pleaded guilty, preceded the passage of the Act
in 1996. The Administrative Law Judge and an Appeals Panel
affirmed the exclusion because the period of her indictment
extended to September 3, 1996, one week after the passage of
HIPAA. “If even one criminal act occurs after the statute goes
into effect, it will make the exclusion fully applicable”
(Civil Money Penalties Reporter Spring 2002).


“As Sick As It Gets.” In his book by this title,
Rudolph Mueller, M.D., member of Physicians for a National Health
Plan, asserts that “it pays not to participate.” Apparently, Dr.
Mueller doesn’t read the Medicare Bulletin; every year, Medicare
emphasizes that “your Medicare fee schedule amounts are 5% higher
if you participate.” Federal law limits the amount that
nonparticipating physicians can balance bill, and in 1994 the New
York State Balance Billing law reduced the permitted amount
billed to 105% of the Medicare-approved fee. Thus, the maximum
that a nonparticipating physician can collect is 99.75% of the
Medicare fee-and the minimum is $0, if the patient pockets the
reimbursement check and refuses to pay.

So who is being driven by the money?

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

BaitNSwitch Lottery. According to a Jan. 15 article in
The Wall Street Journal, six major California insurers
are planning to pay bonuses to doctor groups that earn high marks
on “quality measures” that will probably include compliance with
recommended childhood immunizations and a “patient satisfaction”
score. Michael Rothman, senior program officer at the Robert Wood
Johnson Foundation, stated: “What is exciting about this is that
the plans are lining up signals about performance … and all
saying they will tie money to it.”

It’s sort of a medical lottery. Health plans won’t pay
adequately to provide these services on an ongoing basis, but if
you give enough service away, you might hit the jackpot. It costs
them almost nothing-compared with actually paying for services
rendered-but gives them great PR.

Capitation means: “We pretend to pay you, and you pretend to

James G. Knight, M.D., San Diego, CA

Why Fight? There’s an old Madison Avenue adage: “Nobody
really knows what happens when you advertise. But everybody knows
what happens when you don’t.” Take out “advertise” and insert
“fight,” and you’ve got it. Fighting for free-market reforms
would allow us to spend less time and treasure fighting each
other and more on the battles that need to be fought for the
benefit of all. For example, most patients use one of the two
heavily subsidized, hideously inefficient systems: government or
employer-provided insurance. Time to open up a variety of other
arrangements, such as tax-exempt medical savings accounts, co-
ops, barter, and cash for service.

Michael Glueck, M.D., Newport Beach, CA

Patience. How in-kind taxpayer-provided comprehensive
medical benefits for 1.5 million dual-eligible military/Medicare
beneficiaries (TriCare) was achieved is a useful lesson: 25 years
of grassroots, unrelenting, same-message efforts made by hundreds
of thousands of retirees and military associations.

Stephen Barchet, M.D., Issaquah, WA

History Repeats Itself. A Canadian physician told me
that Medicare’s treatment of U.S. doctors is similar to “how it
started” in Canada. First, the patients are given an
“entitlement” expectation. Then their government eliminated
unassigned claims, and then promised to pay the “copay.” Doctors
were happy to sign on. Then payment denials unexpectedly
increased, and after two or three years, decreases in payment got
worse and worse.

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

Foreign “Trade.” Under Tony Blair, the British
government is importing foreign doctors and nurses, and exporting
patients, as more than a million people remain on hospital
waiting lists.

Anthony P. Maresca, M.D., Brookfield, WI

Recent History. After World War II, medical care
consumed 4.6% of the GDP. Individuals purchased their own
insurance with after-tax dollars and paid 100% of their own
medical bills. For insurance benefits, there were tables of
allowances that did not dictate fees but provided a defined
benefit for each service. The cost of these plans was reasonable,
and people could choose their own doctor without economic
penalty. Since the government got involved, the cost of care has
increased at four times the inflation rate, with no appreciable
improvement in access to care by the poor.

Roger Beauchamp, D.D.S., Escanaba, MI

Fixed Overhead. As unconstitutional regulations grow
daily in the U.S., 27,000,000 federal employees are now supported
by only three times that many in the private sector!

Frank Rogers, M.D., Pinedale, CA

Getting the Right Answer. The headline “Majority of
Employers Surveyed Support Universal Health Care; Blame HMOs,
Insurance Companies for Problems in Current System” came about by
asking (I’m paraphrasing): Do you support universal health
insurance, OR do you think everything is just fine the way it is?
And on the list of possible culprits, the surveyers plum’ forgot
to include the government.

Greg Scandlen, Alexandria, VA

The Harkin Proposal. In 1988, Senator Harkin (D-IA)
proposed that neither House or Senate pass legislation that would
increase the number of uninsured. Great idea.

Ernest J. White, Alexandria, VA

Legislative Alert

Health Policy at Mid-Stream

As summer approaches, Congress is wrestling with a variety
of hot-button issues, including Medicare reform, Medicare
prescription drugs, Medicare payments to doctors and other
“providers,” the uninsured, and the “Patients’ Bill of Rights.”

Issue: Medicare Reform. The future Medicare system
should be based on personal freedom and a genuine diversity of
options. In such a system, persons who had a good experience with
a private plan in their working life should be able to carry it
with them into retirement and use their Medicare benefit to help
offset its costs.

Medical professionals, facilities, and insurers should not
have to wrestle with literally tens of thousands of pages of
incomprehensible rules, regulations, guidelines, and related
paperwork governing virtually every aspect of their operations.
They should also be paid on the basis of real market conditions-
demand and supply-rather than on the current system of
administrative pricing, which often bears little or no
relationship to real conditions.

The Outlook: Expect some action this summer on
Medicare reform. The House will take the initiative. If it passes
something that looks very much like the original Breaux Thomas
proposal, creating a new Medicare program modeled on the Federal
Employees Health Benefits Program (FEHBP), rest assured that it
will be blocked in the Senate, which, with the exception of the
tax cut and the education bill, has become a veritable graveyard
for Bush Administration proposals. Congressional Republicans are
likely to go for a more modest bill, strengthening the
Medicare+Choice program and adding a prescription drug program
targeted to low-income persons at a cost of $350 billion over ten
years. The Democrats will offer a more costly prescription drug
expansion. Already, Democratic Senators Zell Miller of Georgia
and Bob Graham of Florida have proposed a $425 billion drug
program over ten years.

Issue: Medicare Payments to Doctors and Other
As Len Nichols, a top health policy analyst with
the Center for Studying Health System Change (HSC), once
remarked, the Medicare bureaucracy is charged with setting
10,000 prices in 3,000 counties
throughout the United States-
an impossible task. Costs are shifted, rather than controlled;
volume expands or supply contracts; and the markets are routinely

Congress and the Administration should abolish the entire
system of administrative pricing for physicians’ services,
hospital services, medical devices, and HMO payments. This is a
system of price controls, which have the same effect as they have
always had over the last 4,000 years: “providers” are paid too
much, or too little, or too slowly, and without adequate analysis
of the conditions that would otherwise obtain.

The best option is to abolish this entire complicated
apparatus and adopt a premium-support system for the new Medicare
program, based on a government contribution set by a formula just
like the FEHBP-in other words, to enact comprehensive reform that
would eliminate central planning and price regulation.

The Outlook: Congress will do no such thing.
At least, the Senate will not go along with the House or the Bush
Administration, if either has the fortitude to press the issue (a
big if). So, the result will be a series of piecemeal adjustments
to “provider” reimbursements. The ugly politics of sharply
different special interests-all having a life-and-death stake in
getting their slice of the Budget pie in that awful and confusing
annual budget reconciliation process-will triumph again.

There will be temporary good news for doctors, who will see
a reversal of the 5.4% Medicare payment cut. Congress will
probably change or eliminate the physicians’ payment formula,
which calls for a 17% reduction in physicians’ fees over the next
three years, because of the dire warnings of the Medicare Payment
Advisory Commission and others about the threat to patient care.
If the Medicare physician payment update formula is eliminated,
as suggested by the Advisory Commission, the Congressional Budget
Office (CBO) projects an overall increase in Medicare spending by
$126 billion over the next 10 years.

That’s why the Bush administration will seek to offset the
“give backs” to physicians with cuts to other “providers.” Rest
assured these “offsets” will be bitterly resisted by the what
Washington wonks call the “stakeholders”-hospitals, nursing
homes, HMOs, and others. The Administration will probably lose.
So, we will see a general increase in Medicare spending, further
aggravating financial condition of the program.

Also look for an increase in Medicare HMO payments. The Bush
team wants to increase payments to plans in Medicare +Choice,
despite their flaws. CBO projects that enrollment in such plans
will continue to decline, going from 15% to 8% of seniors by
2012. Some think that a failure of Medicare+Choice undermines the
case for the reliance upon private sector plans that is at the
heart of the Bush team’s vision of Medicare reform for the next
generation of Medicare patients.

Issue: Medicare prescription drugs. This issue is
heating up. The CBO estimates that Medicare beneficiaries make up
about 15% of the population, but their consumption of
prescription drugs amounts to roughly 40% of the $100 billion
spent on outpatient prescription drugs. Like the rest of the
American population, Medicare patients paid about 40% of their
prescription drug bills out of pocket.

Also according to the CBO, 75% of Medicare patients had
coverage for prescription drugs for at least part of the year. In
1999, roughly 30% of Medicare patients got their coverage through
former employers; about 16%, through Medicaid programs; and 11%,
through Medi-gap plans. If Medicare covered all prescription drug
spending for seniors not covered under current law, between 2002
and 2011-the year the Baby Boomers start to retire-CBO
projects an additional $1.6 trillion spent on Medicare
prescription drugs

The right answer: No prescription drug benefit outside
comprehensive reform (see AAPS News, May 2002).

The issue is a paradox of public policy. The integration of
prescription drug coverage into a competing system of private
plans is relatively simple. It is administratively easier both in
the structure of the benefit and the structure of the payment
system. The payments, co-payments, deductibles, and premiums are
all balanced within a common framework of benefits. The FEHBP is
proof of this. Prescription drug coverage and its administration
are routine-neither difficult nor controversial.

If Congress does not add prescription drugs within a common
framework of overall Medicare reform, Congress could at least
structure a limited drug benefit in accordance with a market-
based proposal for reform. To do this, Congress could target the
25% of the senior population that needs coverage, and avoid
displacing the existing private market for drugs. Perhaps the
best proposal to do that is offered by the Galen Institute: a
smart card for prescription drugs, tied to a prescription drug
account, which low-income seniors could draw upon with a debit

The Outlook:House Republicans, as
noted, will probably refrain from enacting a comprehensive
Medicare reform proposal with a prescription drug coverage. If
they do enact one, they will probably fail to overcome Senate
opposition. They will then propose a limited prescription drug
benefit, worth about $350 billion over ten years, and try to
secure its delivery through private insurance; companies will be
asked to set premiums just for a drug benefit. This will include
a subsidy system for low-income persons, plus a catastrophic
feature, which will probably force taxpayers shoulder
catastrophic risk over some specified amount because insurance
companies will not want to do so. This proposal will probably be
supported by the pharmaceutical industry but will run into
practical objections, both from insurance industry and left-wing

Some senior Democrats in the Senate will argue that $300
billion or $350 billion over ten years is not a serious effort,
thus repudiating everything they said about a $300-billion-plus
package being an appropriate amount last year. Congressional
Democrats will probably resurface a Medicare prescription drug
package resembling the old Clinton plan, and will simply add a
prescription drug benefit to the old Medicare program, with a new
drug premium, held artificially low, and a set of coinsurance or
co-payments requirements ranging from none to low. The benefit
will be delivered through prescription benefit managers (PBMs)
under the standard Medicare contracting rules, with heavy
regulation of price and delivery.

For political reasons, it would be impossible to deliver
drugs through the old Medicare program without price controls.
And since 40% of all drug sales are to the elderly, this would
vastly expand price regulation over the nation’s most productive
industry. The end result? Some sort of face-saving end-of-session
compromise, targeting subsidies to low-income persons only.

Issue: The uninsured. The debate on covering the
uninsured is really a debate on national health insurance in
miniature. If one doesn’t understand this, one doesn’t really
don’t understand the true nature of the debate.

On the one side are prominent members of Congress and policy
analysts from major foundations and universities, who firmly
believe that private health insurance is an anachronism; that the
provision of medical care should be a public utility; that the
government should determine the price and availability of medical
benefits and services. Knowing that a head-on proposal to create
a “single-payer” system in one fell swoop is politically
unpalatable, the major policy option of this group is the
expansion of Medicaid up the income scale, or Medicare down the
age scale. This is to be done in incremental steps toward the
goal of total government control over the financing and delivery
of medical. Meanwhile, private employment-based arrangements,
such as COBRA coverage, are to be preserved to facilitate the
application of greater federal regulation of private insurance,
thus easing the transition to a single payer system.

On the other side are the President and his allies. In his
April 30th speech in San Jose, California, President Bush
repeated his call for reform based on private insurance and
personal choice: “Our health care policies must help low income
Americans to buy health insurance they choose, they own and
control.” The chief policy option of this group is to broaden
access to private health insurance through tax credits or premium
subsidies to the uninsured.

These positions are fundamentally irreconcilable.

The Outlook: The ideological hostility to tax
relief or subsidies for private insurance is intense among
Congressional leftists. Senate Majority Leader Daschle has twice
blocked consideration of a House-passed relief package for the
uninsured. The same pattern is now developing on Trade
legislation, which has a medical insurance component for
displaced workers.

Issue: Patients’ Bill of Rights. The President has
reaffirmed his support for enactment of PBOR. The Senate has
acted. The House has acted. But the House-Senate conference seems
permanently stalled. There are at least three reasons for this.

First, the differences between the House and Senate,
particularly on the scope of litigation, are too wide to be
bridged by compromise. A key difference is that the Senate bill
would apply the terms and conditions of the PBOR to Medicare and
Medicaid, as well as the FEHBP. The federal employees unions,
fearing the cost and the disruption, oppose the application of
legislation for everybody else to their own medical insurance.
That’s an old refrain.

Second, more members of Congress are recognizing that the
PBOR is a vehicle for a vast expansion of federal regulation, and
they are having second thoughts on its likely impact on the
ability of employers and insurers to cope with it. A prominent
Washington attorney, William Schiffbauer, concludes that it
would impose more than 700 “legal requirements” on medical
insurance plans

Third, the public has genuinely lost interest in the issue.
Organized medicine may still be in favor of the legislation; so,
too are left-wing lobbies. It is simply no longer hot button
issue. In a January 2002 national survey by Ayres and Associates,
34% of the respondents stated that holding down the cost of
medical care was the most important issue, followed by 20% who
identified covering the uninsured as the most important issue.
Reforming HMOs came in third at 15%.

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

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