AAPS News – May 2004

Volume 60, No. 5 May 2004

THE COVERAGE TRAP

The second “Cover the Uninsured Week” is coming to a town
near you May 10-16, sponsored once again by the Robert Wood
Johnson Foundation. The National Spokesperson is a star who plays
a doctor on TV, Noah Wyle of ER. The stories of
uninsured persons coming to a Chicago emergency room “have had a
profound effect on me,” he said.

RWJF claims that 44 million Americans have to “live without
health coverage,” and 1,000 events are planned to dramatize their
plight. Medical students will organize “teaching events”;
thousands of clergymen (“faith leaders”) will tell their
congregations that “health care for all is a moral imperative”;
and a major paid advertising campaign will bolster the events.

While 43-44 million sounds like a crisis number, the actual
number of uninsured could range from around 10-12 million (about
3-4% of the population) to 290 million “at risk” of losing
insurance and already uninsured for something.

About 14 million are eligible for Medicaid but not enrolled.
Since coverage is retroactive to the start of a problem as soon
as they do enroll, they are really covered. About 18 million earn
more than $50,000 per year and pay for care in cash, so they are
self-insured. No matter what is done, some will be uninsured.
Just as there is, according to Milton Friedman, a natural level
of unemployment, there may be a natural number of uninsured. Even
with mandatory auto insurance in 47 states, 13% of drivers are
uninsured, according to the Council for Affordable Health
Insurance.

No one can possibly be insured against every risk, and
everyone who gets insurance through employment will become
uninsured if he becomes unemployed (no one can afford COBRA).
Medicare and Medicaid recipients are dependent on programs doomed
to bankruptcy. Thus, the natural state is of Universal
Uninsurance. If one demands the unachievable endpoint, the
chimera of Universal Insurance, then mandatory government
coverage must be the ultimate agenda.

As Harris Wofford asked during his winning 1991 senatorial
campaign: “Prisoners receive free medical care. Shouldn’t
Pennsylvanians and all Americans expect the same thing?” His
opponent, U.S. Attorney General Richard Thornburg, couldn’t
really respond, “Do we really want to force all Americans to have
the same deplorable healthcare as prisoners?” without condemning
himself as head of federal prisons (William L. Anderson, 2/3/04,
www.Mises.org).

The RWJF show will claim to feature ideologically diverse
groups and will offer bipartisan celebrities such as former
Surgeon General C. Everett Koop. All “sensible systemic reforms”
are supposed to be discussed. These have in the past included pay
or play and the Canadian model, and Tennessee has been touted as
a success, states Linda Gorman.

“They and their acolytes spend lots of money…sending slick
presenters around…to do the socialized medicine dog and pony
show. It is effective and a major pain to combat. Kind of like a
virus that keeps coming back because you can’t ever kill it
completely the organizations supporting it keep mutating and
changing form.”

As Robert Berry, M.D., described the 2003 Cover the
Uninsured public relations campaign, “[RWJF] appealed to one of
the most base of human appetites the urge to feel charitable and
just without actually doing charity and justice. Issuing
invitations to indulge in town meetings and other photo ops, it
offered participants the chance to change the world in a single
sound bite, “Health Coverage for All.”

The approach to consumer-directed health plans which are
starting to take off and are projected to reach nearly 25% market
share by 2010 should be revealing. Ron Pollock of Families USA
claims that consumer-directed care is an “incredible misnomer.”
Self-described ethics experts are calling it “intellectually and
emotionally complex” and a “blunt instrument” (Managed Care
Magazine, Sept 2003).

RWJF tries to portray the discussion as one of reform (more
incremental socialism) versus the status quo, but consumer-
directed plans are the radical reform. Attempting to control
utilization from the demand side, rather than the supply side of
insurance companies and providers, is “a 180-degree shift from a
traditional managed care program,” stated Robert Booz of Conning
Research and Consulting (ibid.).

“`Ration’ is the only part of `rationality’ these people are
familiar with,” explains Linda Gorman.

AAPS will participate in a joint event in Chicago with the
Heartland Institute during Cover the Uninsured Week, which
coincides with a Board of Directors meeting. The objective is to
bring the patient power concept into the debate.

Dependence on third parties is a recent phenomenon.
“Insurance was rare and unimportant when I went into practice,”
writes Milt Kamsler, M.D. That was in the pre-1965 days when a
day in the hospital cost $39 in New Jersey. Instead of feeling
insured and entitled, people felt responsible. And physicians and
the community felt impelled to help those in need. A sense of
community and true charity are the only real insurance, writes
Alieta Eck, M.D. (Courier News 3/28/04).

Only a system founded on individual freedom and responsi-

bility can permit excellent medical care to flourish. The
alternative is the siren song of utopian “fairness” receiving
equally miserable medical care whether you want it or not.

Can armies of consumers, fighting for the right to be in
charge of their own medical care, turn back the intensified
effort to trap them into “coverage” and dependency? Were not
bourgeois “Armies of Consumers” an essential element in the War
for American Independence? (Breen TH, The Marketplace of
Revolution, see NY Times 2/28/04). The secret
weapon of 1776 needs to be deployed again.

---

Charity v. Altruism

Charity is not altruism that requires one to
sacrifice self for others. Charity is free-market compassion. It
cannot be demanded. It cannot be extracted. It cannot be
centrally controlled. Charity results from volitional self
interest. Whoever gives charity obtains a reward. The giver feels
good and receives the gratitude of the receiver. Religious people
store up good works for reward in Heaven.

Remarkably, charity resembles Adam Smith’s reminder that we
do not get our dinner from the benevolence of the butcher, the
baker, and the brewer, but rather from their self interest. Each
exchanges value for value and in so doing expands the good. In
free exchange, each has a vested interest in peace, basic
fairness, and ethics.

Just as the achievements of a free market are close to
infinite, so are the fruits of true charity. Just as markets work
best when uncoerced and unregulated, so does charity.

Free-market medicine cannot provide 100% coverage because it
allows some to elect not to be treated and recognizes that some
are beyond help. Charity inherently has some of the same
limitations but can approach 100% coverage. Charity stimulates
ingenuity. Charity initiates innovation. Because charity is
rewarded, unlike altruism, charity grows and inspires.

  Madeleine Pelner Cosman, Ph.D., J.D.

TennCare Not Viable

Launched in 1994, TennCare was an effort to expand coverage
to the state’s uninsured and uninsurable by implementing managed
care for the entire Medicaid population. It will consume 36% of
total state appropriations by 2008, and is not financially viable
over the 5-year horizon (Health Care News, Feb 2004). It
costs about $5,500 per recipient or $22,500 for a family of four.
It has almost no limits on scope of coverage. Yet many of its
beneficiaries attend Dr. Robert Berry’s cash-only clinic because
they can’t get a timely appointment with a TennCare provider. To
survive, physicians stack their schedules with patients with
simple chronic problems, explains Dr. Berry. “So much is wasted
in the petty political game of `you pretend to pay us and we
pretend to care’ that there is little left for the truly sick.”

How Much Does Uninsurance Cost You?

In stating the uninsured cost “us” a lot of money, the
Institute of Medicine imply that “we” would be better off forcing
people to buy insurance or forcing taxpayers to buy it for them.
In fact, the uninsured pay for about one-third of the services
they use (IOM). Some hospitals collect 95% of the charges they
bill to the uninsured (IBD 2/5/04). Explicit programs
such as disproportionate share pay about one-third of costs
incurred by the uninsured. Only about one-third of uninsured
charges, or 3.5% of total medical spending, is shifted to
payers less than the average department store loses to
shoplifting, states Greg Scandlen of the Galen Institute.

“Liberalism is really piecemeal socialism, and
socialism always attacks three basic social
institutions:…Religion, because it offers a rival authority to
the state; the family, because it means a rival loyalty to the
state; and property, because it means material independence from
the state.”

Joseph Sobran

Medicare Debt Coming Due

Even in restrained actuarial language, the conclusions to
the 2004 Medicare Trustees Report are ominous: “The HI
[Hospitalization Insurance] Trust Fund fails the Trustees’ test
of short-range financial adequacy….A general revenue transfer
to cover expenditures this year is only the tip of the iceberg of
the additional demands that the Medicare and Social Security
trust funds soon will be placing on Federal general revenues….”

(See
www.ssa.gov/OACT/TRSUM/trsummary.html).

The nation long ago repudiated Thomas Jefferson’s view that
“no generation can contract debts greater than may be paid during
the course of its own existence.” James Madison disagreed, saying
that “The improvements made by the dead form a charge against the
living who take benefit from them.” He, however, opposed “unjust
or unnecessary burdens.”

The national debt now stands at $7 trillion (see

www.publicdebt.treas.gov/opd/opd.htm for the exact
amount) plus other obligations of much greater magnitude. Much of
it is in the hands of our competitors and enemies.

Beneficiaries of government coverage have no
enforceable contract to guarantee that those benefits will ever
be paid.

Consumers, HSAs at the Gates

Insurers and agents in every state are poised to take
advantage of the tax-advantaged Health Savings Accounts included
in the Medicare bill. For a list in your state, see www.americanhealthvalue.com
or call (800) 914-3248.

For an analysis of whether an HSA, HRA, or FSA would be
right for you, and for questions and answers about HSAs, visit www.cahi.org.

Five good reasons for an HSA, states American Health Value
are: tax savings, earned interest, reduced insurance premiums,
portability, and long-term savings.

HIPAA Transactions Still Non-Compliant

For physician practices, especially small ones, compliance
with the transaction code sets is hovering below 15%. CMS states
that it will now pay HIPAA-noncompliant claims no earlier than 27
days after receipt, a delay that is in line with paper claims.
The “contingency plan” to accept these legacy claims will come to
a stop at some still unspecified date.

A full 20% of covered entities still report being noncom-

pliant with the privacy rule 9 months after the deadline.

AAPS Calendar

May 13 or 15. Town hall on consumer-directed medical care,
with Heartland Institute, Chicago

May 15. Board of Directors meeting, Chicago.

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

---

Liability Uninsurance

Almost all American physicians are one lawsuit or perhaps
one more premium increase away from being uninsured for
professional liability. And if they do not have a “tail” on a
claims-made policy, they also lose coverage for incidents that
occurred while they were still “insured.”

More physicians are deciding not to pay the protection
money, which they view as a magnet for lawsuits in addition to
being unaffordable. An estimated 3,000 to 5,000 of Florida’s
physicians have gone bare, including 33% of its obstetricians.

States that require malpractice insurance for licensure are:
Colorado, Connecticut, Georgia (for optometrists who use drugs),
Kansas, Massachusetts, Pennsylvania, Rhode Island, and Wisconsin.
Florida requires physicians to prove that they can pay a $250,000
award. New Jersey has no statutory requirement, but the Board of
Medical Examiners insists on coverage of $1 million per case and
$3 million per year. States that require insurance in order to
benefit from awards caps are: Indiana, Nebraska, Nevada, New
Mexico, and New York.

A number of physicians ask their patients to sign waivers of
liability, believing that the occasional patient who declines is
likely to be especially litigious. Some AAPS members have asked
our General Counsel to help draft a form (see enclosure).

Tip of the Month: Whistleblowing can be “disruptive” to
a hospital. But it is essential to promoting quality medical
care, and physicians should not be punished for it. Yet hospitals
are calling whistleblowers “disruptive physicians,” and summarily
suspending their privileges. Even when there is no threat of harm
to a patient, hospitals are bypassing due process with this
draconian action. “Be creative,” one hospital attorney exhorted
administrators. Here’s an actual example, used more than once: an
administrator interrupts a surgeon’s operation in order to demand
that his assistant immediately leave the operating room. When,
predictably, the surgeon complains, the hospital cites him as
disruptive!

OIG Work Plan for “Fraud Recoveries”

The Health Care Fraud and Abuse Control (HCFAC) budget of
CMS, OIG, the Dept. of Justice, and the FBI has leveled off at an
all-time high of $1.075 billion, after 6 years of mandatory
increases under HIPAA. The government will bring back much more
than that in settlements and fines, says Attorney Kathleen
McDermott, but “just because there will be huge settlements with
drug companies, that shouldn’t lead government to do the same to
nonprofit hospitals, nursing homes and other providers”
(Medicare Compliance Alert 2/9/04).

The program can also be viewed as working on the supply side
to control utilization and thus costs.

Areas targeted in the 2004 OIG work plan include providers’
failure to track payers properly and return overpayments
resulting from secondary payer errors. There is a maze of rules
determining whether Medicare or a private insurer should be
billed first (MCA 3/29/04).

Quality of care and medical necessity will also be
scrutinized, despite the lack of published standards. Attorney
Alice Gosfield urges physicians to “standardize” their care
because “studies show that there is a six-fold increase in the
chances of getting sued for malpractice or medical necessity for
not following established clinical standards of care.”

Other target areas include : consultations, coding of
evaluation and management services, use of modifier -25, place-
of-service errors, care plan oversight, the medical necessity of
diagnostic tests, and services and supplies incident to a
physician’s service.

The OIG has identified a significant number of services
ordered by physicians who have been excluded from Medicare. Such
physicians are precluded from ordering, as well as performing
services for Medicare beneficiaries. OIG will attempt to quantify
amounts paid by Part B for such services.

Note that a physician who has opted out cannot be excluded,
as was noted in the case of a physician that Medicare tried to
exclude on the sole basis of failure to repay student loans of 10
to 20 years ago, despite going through bankruptcy since that
time. (Be aware that the world’s major debtor does not forgive
debts.)

Medicare has issued proposed regulations governing its
permissive authority to exclude individuals from Medicare/
Medicaid programs for submitting claims “in excess” of “usual
charges.” According to a Davis Wright Tremaine analysis, this has
the effect of redefining “charges” by equating them with
“payments.” DWT advises providers to review contractual
agreements to accept less than Medicare charges.

At the same time, HHS Secretary Tommy Thompson scolded
hospitals for saying that Medicare rules prevented them from
cutting prices for the uninsured (Wall St J 2/20/04).
HHS guidance says that hospitals do not need permission of a
fiscal intermediary to offer discounts to patients “who cannot
afford their hospital bills.” Further guidance is needed on
whether this includes all uninsured patients regardless of
income. HHS instructions do not require hospitals to seize the
homes of low-income patients (BNA’s HCFR 3/3/04).

Fear persists, not only because of the new proposed rule but
because of the Antikickback Statute and its prohibitions on
patient inducements (MCA 3/22/04).

Opting out remains the only way to assure a physician’s
continued ability to serve Medicare-eligible patients, but only
those willing to forgo their benefits when receiving privately
contracted services.

Whistleblower Awarded Nearly $1 Million

Psychiatrist David Springer, M.D., who lost his job after
speaking out about patient-care problems at the state-run
Delaware Psychiatric Center, was awarded $973,895 in compensatory
damages by a federal jury. The jury also awarded $25,000 in
punitive damages against Renata Henry, director of the agency
that oversaw the center, for acting “recklessly, intentionally,
or maliciously” (AP 4/2/04).

AAPS Challenges Arizona “Clean Elections” Law

Together with Matt Salmon, Dean Martin, and Lori Daniels,
AAPS has sued in federal district court over the
constitutionality of an Arizona ballot initiative passed in 1998.
This requires candidates who choose to forgo government funding
of their campaigns to pay dollar-for-dollar matching funds to
their publicly funded opponent whenever an independent
expenditure is made on their behalf. The law imposes additional
stringent campaign financing reports on nonparticipating
candidates, another way of punishing them for not taking public
money. AAPS claims that the Act has a chilling and neutralizing
effect on the free speech of candidates and groups who wish to
speak independently in campaigns.

Read the Complaint (PDF)

---

Correspondence

Government a Net Winner? While physicians rejoice over
a paltry 1.5% Medicare fee increase, CMS announces that the
government netted $2 billion in payments for erroneous coding or
other violations in 2002. CMS plans to focus on practitioners
with a high percentage of improper claims. Internists are said to
submit 26.38% of claims improperly, and general physicians,
22.12%. What will the final sum of the equation be? This is like
watching a pickpocket play a shell game.

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

On “Best Practices.” So-called evidence-based medicine
came out of academia with very little scrutiny, and advocates are
reluctant to put their ideas to the test. In most cases, we don’t
know what the best practices are. Imposing a bureaucratized
process to define them would create a whole new culture of
medical rent-seeking, with parties invested in a certain protocol
resisting any change. We are moving to an era in which medicine
is customized to the unique needs of each individual. EBM would
kill off this revolution.

Greg Scandlen, Galen Institute

EBM is structurally flawed. The process of determining what
studies get funded is hardly random…. Perversely, EBM validates
insurer policies such as drive-by deliveries because “there is no
evidence that they cause harm.” EBM is the latest magical
solution to an intractable problem. The total imposition of this
“science,” overriding patients’ choices, would be a form of
fascism, which scientists would too willingly accept.

Philip Alper, M.D., Burlingame, CA

Those who push EBM want their recommendations, and only
theirs, to have regulatory force. A better approach would be to
have competing groups offer seals of approval.

Linda Gorman, Independence Institute

Conflicts. I remain stupefied by the fact that many
staunch conservatives and libertarians do not recognize managed
care’s inherent conflict of interest although as John Bogle
wrote with regard to the mutual fund industry, “it’s amazing how
difficult it is for a man to understand something if he’s paid a
small fortune not to understand it” (Wall St J 2/23/04).

How can a physician sign a contract promising to serve the
interest of the insurer (which profits from minimizing care),
while simultaneously entering into an implied contract with the
sick (who want to maximize treatment)?

Like fund shareholders, managed-care patients have had
severe constraints placed on their “right to choose.”

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

On Cash-Based Practice. You have a choice. All you have
to do is not sign the contracts, or give the insurers notice that
you are cancelling the contracts. If you don’t, some other
physician in your community might get a jump on you in starting a
practice like mine. You run the risk of encountering a buzz saw
by what Harvard Business School Professor Clay Christensen would
call a disruptive innovation a cheaper, more efficient way of
doing something directed at the low-end user that eventually
catches on in the mainstream and comes to dominate the market. If
consumer-driven products achieve a 75% market share in the next 5
years as some policy experts are predicting, cash-based clinics
will be strategically placed. Do you want to be left behind?

Robert Berry, M.D., Greeneville, TN

Wised Up, Opted Out. I accepted Medicare for 4 months,
and discovered that none of my claims were paid. I was doing
house calls and was told that the home is not an appropriate
place of service. The main reason I opted out was that there are
a lot of uninsured patients on the plains of northeast Colorado,
and it was illegal for me to charge them fair and reasonable fees
while tied up with Medicare. While not paying me a dime, Medicare
required me to charge everybody according to Medicare
regulations. Now people pay me $1.60 per minute, my collection
rate is 98%, my fees are less than half those of a typical
doctor, and I enjoy what I do. Get off the plantation, as the
good doctor from Mississippi says.

Jim Brook, D.O., Fleming, CO

Medicine Deteriorating. The best and brightest don’t
apply to medical school. Quality has plummeted, attitudes toward
patients are indifferent, and malpractice suits are epidemic. The
coarsening and commoditization of our once noble profession
impels us to return to the free market as fast as we can, before
the House of Medicine looks like the South Bronx, another example
of the effects of price controls.

Herb Rubin, M.D., UCLA School of Medicine

Cost Shifting Must Stop. I’m looking forward to the day
that a public hospital announces that it can no longer treat
Medicare patients because it has determined that getting $0.75 on
the dollar for half its patient base is not a viable business
practice.

Sean Parnell, Heartland Institute

The Proper Mandate. Our legal system says that a buyer
must pay for what he buys. All we need to do is enforce this
mandate rather than trying to force people to pay for other
buyers’ purchases. Direct out-of-pocket payment is the only
rational method. For the poor, there are special programs.

Joseph Lee Pugh, Diamondhead, MS

---

Legislative Alert

Aftershocks

Medicare won’t leave the national headlines. It doesn’t get
any better. It just keeps on getting worse. With the release of
the 2004 Medicare Trustees Report, the full impact of the fiscal
disaster is unfolding. And the failure of Congress to address the
problem effectively is becoming clearer, day by day.

It is rare that a large number of conservative health policy
analysts and the editors of The Washington Post see eye
to eye. But consider this: “When Medicare Reform again became a
serious possibility last year, we argued that cost control had to
lie at its center. We were not alone: Many in Congress on both
sides of the aisle also wanted to use a new prescription drug
benefit as a `carrot’ to convince politicians and the public of
the need to make deeper changes in the program itself. In the
event, neither Congress nor the White House had the nerve or the
sense of responsibility. They passed hugely expensive legislation
with only a few experiments in cost cutting” (Wash Post
3/25/04). The editorialist got that right.

The Post’s editors note that the release of the 2004
Medicare Trustees Report, which details the deterioration of
Medicare’s financial condition, comes at the same time that a
controversy has exploded over the apparent decision of top
Administration officials to keep Congressmen who were considering
the bill from seeing internal White House cost estimates that
were far higher than those prepared by the Congressional Budget
Office (CBO). The CBO cost estimate for the first ten years was
$395 billion, and the OMB cost estimate was $534 billion. The CMS
(Center for Medicare and Medicaid Services) actuaries were
undertaking several analyses of the legislation during its
consideration through the summer of 2003. “All our estimates
showed that the cost of the drug benefit, through 2013, would be
in the range of $500 billion to $600 billion.” That is what
Richard S. Foster, Chief Actuary of the Medicare program, told
The New York Times on March 14, 2004. For the record,
Mr. Foster recently told the House Ways and Means Committee that
he was threatened with losing his job if he revealed that
information to members of Congress during the debate on the
Medicare Modernization Act.

So The Post editors go on to observe: “That
incident provided more proof that no one is prepared to discuss
Medicare costs truthfully. Republicans who claim to care about
high spending were willing to cover up the costs for political
advantage. Democrats who want to revisit the recent prescription
drug bull conveniently forget that their proposal an ever larger
prescription drug benefit was hardly going to be cheaper. Real
reform will require not just bipartisan cooperation but
bipartisan honesty.” They got that right, too.

Day by day, the politics gets worse. Tom Scully, former
chief of CMS and Rick Foster’s boss, has left the government and
taken a private sector job. Because of traveling, he told the
House Ways and Means Committee, meeting on April 1st, that he
will be unable to appear. Scully told the Committee in a two-page
letter that he did not allow Foster to communicate directly with
members of Congress without his permission. Meanwhile, Doug
Badger, the President’s adviser on health policy, also declined
to appear. Badger is a solid conservative, well known as a first-
rate health policy analyst and “stand up” guy in Washington
circles. The White House, not Badger, made the decision (NY
Times 4/02/04). In declining the invitation for Badger to
testify, the White House cited the long-standing principle of
executive privilege. Traditionally, White House aides, who are
not subject to Senate confirmation, are expected to be able to
give confidential advice to the President and are exempt from
requirements to testify before the Congress. Ways and Means
Committee Democrats sought and failed to get a subpoena to get
both men to testify and are thus playing the Administration
response as a “cover-up.”

On another front, House Democrats, led by Rep. Steny Hoyer
(D-MD), are turning up the heat on the case of Rep. Nick Smith
(R-MI), who stated that he had been subject to strong-arm
tactics, including what appears to be bribery, during the
legendary 3-hour House vote on the Medicare bill last Nov. 22,
2003. This matter is before the House Ethics Committee, and will
soon see the light of day, one way or another.

Meanwhile, the polls are going south on the drug benefit.
For months, the polls registered widespread confusion,
skepticism, and hostility, with stronger opposition among those
most familiar with the details of the Medicare drug benefit. Now
comes the latest USA/CNN/Gallup poll, which says that only 36% of
seniors view the drug provisions favorably. So, the November
Medicare political triumph has yielded bitter controversy over
cost estimates, a deepening financial crisis in Medicare, a
series of public investigations and bad publicity, and declining
public support.

Diagnosing a Deepening Mess

How did Congress and the Administration get into this
mess? Let us count the ways.

First, the fundamental mistake of Congressional
Republicans was stealing Senator Ted Kennedy’s Medicare
playbook. Congressional leftists have long wanted a
universal drug entitlement in Medicare. That was their policy;
that was the key piece of the agenda fully compatible with their
broader objective of nationalizing American medicine on the
installment plan. Congressional Leftists, we repeat, basically
won, courtesy of the Congressional Republicans, and with the
acquiescence of the Bush Administration. Recall that the original
Bush proposal of a targeted drug benefit was rational,
responsible, simple, and affordable. The target was low-income
seniors without drug coverage.

Because Bush wanted to tie drug coverage to private plans,
his proposal ran into opposition from Democrats in the winter of
2003, and then top Republicans, namely Speaker Dennis Hastert and
Senate Finance Committee Chairman Charles Grassley, also undercut
the White House. They insisted on a universal drug entitlement.
The Bush team backed down. So now the Republicans are paying the
price for a left-wing policy that was only temporarily and
superficially popular.

Second big mistake: The substitution of bumper sticker
health policy for solid analysis. The better policy all
along was to target the minority of seniors 22 to 25% without
drug coverage, be generous with that assistance, and add a
catastrophic provision to cover high-end drug costs. But the
bumper sticker was too attractive to resist. The sound bite of
universal coverage was seemingly irresistible; everybody would be
covered; everybody would be treated the same. Affordable drugs
for all. Sounded great. So, with the acquiescence of the White
House for political reasons, more or less shameless, we have a
bipartisan exercise in bad public policy.

The policy analysis was simply ignored. For example, there
was never a shred of evidence for a universal access problem
among seniors to prescription drug coverage. The professional
literature, as well as government studies, showed just the
opposite. The CBO said that 75% of seniors have drug coverage;
CMS said 76%; the Joint Economic Committee said 78%. In their
report last year the responsible adults at the Joint Economic
Committee warned Congress not to disrupt or displace the drug
coverage that already exists, but to learn from private sector
examples, and to build on these examples, not tear them down,
directly or indirectly.

Third big mistake: taking the short-term Medicare cost
estimates seriously. CBO’s predictions almost never come
true. We have many examples of this. But the most glaring is the
drug benefit provided under the Medicare Catastrophic Act of
1988. CBO’s projections made during the debate on that first big
Medicare drug bill doubled in less than one year.

In this far-from-exact science, everything depends on the
technical assumptions that the government actuaries use. You have
to consider the behavior of the beneficiaries, the behavior of
the providers, and the behavior of the firms that are vending
services. In this case, CMS assumed that 94% of the Medicare
population would be enrolled in the drug program, and CBO
estimated that number to be 87%. One of the reasons for this 7%
difference was that CBO assumed that Medicare enrollees who did
not sign up for Medicare Part B, which covers physicians’
services, would not be likely to sign up for the new Medicare
part D. Will they or won’t they? Who knows?

The truth is, as conservative analysts pointed out
repeatedly, the creation of an universal entitlement is the
creation of a program of unknown costs. Unknown, but
surely huge. Leftists in Congress who are suddenly concerned
about the cost estimates of the drug bill are transparently
incredible.

While this is certainly a serious business, it is
nonetheless an entertaining spectacle. The Democrats backed
proposals that would have doubled spending on Medicare drugs in
the first ten years, ranging anywhere from $800 billion to nearly
$1 trillion. Senator Kennedy said that he was much happier with
an $800 billion drug benefit. The AARP said, last year, that they
would consider nothing less than $750 billion over ten years to
be a “meaningful” drug benefit. No matter how you calculate,
these dwarfed the proposals advanced by the Administration and
Congressional Republicans. So, if the Republicans are guilty of a
momentary fit of fiscal irresponsibility and they are then the
Democrats would plunge America into fiscal madness.

In either case, we are talking about big taxes. Medicare
Trustees say that the drug benefit alone will impose $8.1
trillion in unfunded liabilities over the next 75 years.
“Unfunded liabilities” is a fancy phrase for the current and
future promises that we are making to seniors that are not paid
for; taxes will have to be raised by that amount, or benefits
will have to be cut. Today, based on the CBO estimate, the
“smaller number” if you please, the Heritage Foundation’s Center
for Data Analysis estimates that a 40-year-old person working
today will pay an extra $16,000 in taxes until he reaches age 65,
just to cover the additional costs of the Medicare drug
benefit. Of course, the actual levels of taxation could be
much higher, and Heritage does have a well-earned reputation for
conservative estimates, in every sense of the word.

Next: Gov’t Control of the Pharmaceutical Market?

While the cost estimates are being debated, and the
Medicare Trustees are predicting big tax increases for the drug
benefit, the Republicans, on the defensive over the latest
developments, may be confused as to what to do next. But not
Senator Edward M. Kennedy. He does not have any time to be
confused. He has a goal, and he knows exactly what role he and
his Senate allies will play in this unfolding drama.

Senator Kennedy’s bill, S.1992, would give the Secretary of
HHS the authority to purchase prescription drugs in bulk and
negotiate directly with drug manufacturers over price. This
approach has broad appeal among Democrats, and is their main
response to rising Medicare drug costs. It’s a fair question:
Would not Medicare secure greater bargains for seniors if the
government purchased all of the drugs?

A CBO analysis, as stated in a March 3 letter to Senate
Majority Leader Bill Frist, concluded that striking the Medicare
law’s current restriction of government “negotiation” would have
“a negligible effect on federal spending.” CBO pointed out that
risk-bearing private plans would have powerful incentives to
negotiate the price discounts and secure savings for seniors.

The common assumption is that Medicare’s market clout would
be superior to that of private sector entities. But this is not
accurate. Currently, some private-sector networks are even larger
than Medicare. For example, Advance PCS covers 75 million
Americans; Medco Health Solutions, 65 million; and Express
Scripts, 57 million. Every one of these prescription drug
networks, already serving numerous private health plans, is
larger than the Medicare program, which has no experience
whatsoever in managing drug benefits. So, the best option would
simply be to allow seniors to enroll in such networks, if they
wished to do so, and get the benefit of the discounts that are
already being provided in the private sector.

Meanwhile, it is clear that Congress will have to revisit
the Medicare law, sooner or later. They should follow the advice
of David Walker, Comptroller General of the United States. In his
September 17, 2003, speech at the National Press Club, Mr. Walker
said: “With regard to existing policies and programs, it is time
to restructure existing entitlement programs to make them secure,
sustainable and aligned with 21st Century economic, demographic
and other realities. It is also time that we took steps to review
and rationalize our promises in order to help ensure that we can
deliver on the promises that we make.” Good idea.

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