AAPS News – Oct 1998


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of American Physicians and Surgeons, Inc.
A Voice for Private Physicians Since 1943
Omnia pro aegroto

Volume 54, No. 1 October 1998


Doctors are becoming well aware that the hospital
administration often considers them to be the Enemy, and may
resort to abusive peer review in violation of their own medical
staff bylaws (see p. 3). But the targeting of physicians through
a hospital alliance with the federal prosecutor, a new public-
private partnership bypassing administrative or civil
proceedings, was a tactic unknown to us before the summer of

In a Presentence Investigation Report in United States
vs. Raymond Keith Gailey
(case no. 98-05001-01-CR-SW-4), we
read that: “On January 21, 1998, the Federal Grand Jury sitting
in Springfield, Missouri, returned a 1-count Indictment which
charged that … Raymond Keith Gailey devised a scheme and
artifice to defraud St. John’s Regional Medical Center by causing
a letter containing a check in the amount of $9,277.31 to be
placed in an authorized depository for mail matter belonging to
the U.S. Postal Service, in violation of 18 U.S.C. 1341.” In
other words, the hospital mailed the doctor one check, to which
they later claimed he was not entitled, and their action
was the basis of his conviction for mail fraud.

St. John’s recruited Dr. Gailey to relocate to Joplin, MO,
by an agreement under which the hospital guaranteed him a certain
net monthly income for a period of time. Included in the
reimbursable expenses was an office manager’s salary of
$25,000 per year. The contract did not stipulate the number of
hours to be worked. Dr. Gailey never attempted to conceal the
fact that the second office manager he hired (Carol Hill), after
losing his first, was also working full time at a physical
therapy facility; the hospital was aware of this.

It was alleged at trial that Dr. Gailey was “pre-paying” Ms.
Hill, at the hospital’s expense, for work she was to do after the
income guarantee lapsed. [Such an arrangement is rather common
for hospitals: it may be called “prospective payment” or

As defense attorney Dean Price argued at trial, mail fraud
is a crime because “people are easy prey when things are sent in
the mail and they can’t ask questions face to face.” St. John’s
was never in that position. Moreover, the Eighth Circuit Court of
Appeals has stated that the statute requires that the defendant
“cause” the use of the mails, “for the purposes of executing” a
deceptive scheme. The use of the mail was quite incidental in
this case and was decided upon by the hospital; the physician
usually picked up his check in person.

Judge Gary Fenner overruled the defense motion for a
directed verdict of “not guilty,” and Dr. Gailey was convicted of
mail fraud, a federal felony, by the jury.

The “victim impact” (the loss to St. John’s Hospital) was
calculated in the Presentence Investigation Report to be
$6,680.11. The probable impact on Dr. Gailey, who just completed
residency training in 1992, is: loss of his medical license; up
to 12 months in federal prison; up to 3 years of supervised
release; up to 5 years of probation; a fine of up to $20,000,
plus an additional amount to cover the government’s cost of
imprisonment ($1,910.17/month in prison or $1,186.25 for
community confinement); and restitution to the hospital. His
total net worth would be wiped out very quickly.

After Dr. Gailey’s conviction, the hospital demanded
immediate repayment of $11,327 ($9,227 plus interest), plus
monthly payments of $5,144.56 on his Income Guarantee loan, which
is no longer eligible for forgiveness as he is no longer a member
in good standing of the medical staff.

The hospital attorney argues that, because of the
conviction, Dr. Gailey is estopped from denying the allegation
that he defrauded St. John’s, even though St. John’s never proved
the elements of fraud.

In the view of AAPS General Counsel Andrew Schlafly, the
situation between Dr. Gailey and St. John’s Hospital should be
described as a contract dispute. However, to bring a civil suit,
the hospital would have had to pay an attorney. [The federal
prosecutor, of course, did his work at taxpayer’s expense.] Moreover, the hospital would have had to prove the “five fingers
of fraud.” The solitary alleged misrepresentation was Dr.
Gailey’s purportedly telling a hospital administrator that Ms.
Hill was working full-time when she was only working part-time-a
non-material statement because the contract did not require full-
time work by the office manager. Otherwise, the evidence showed
that Dr. Gailey fully honored the contract, the dispute arising
only during its final months.

When asked how paying for work not done harmed St. John’s,
hospital administrator Jane Obert testified: “Well, in this case
the practice had a below average revenue stream.”

Dr. Gailey told AAPS that his practice generated $5,000 to
$9,000 in profit for the hospital every week or two. He stated
that attempts to speak with the CEO about settling the dispute
had brought no reply. Dr. Gailey remarked that he had been
outspoken in the community about the dangers of corporate
medicine. In addition, he was the only person to voice his
opinion in a medical staff meeting (although 49% of the doctors
voted with him) that proposed bylaws changes were for the benefit
of the hospital and not the medical staff.

The AAPS Executive Committee has voted to file a brief
amicus curiae supporting Dr. Gailey’s appeal.

“Unless reversed, this case would establish a terrible
precedent for hospital-physician relationships. Any hospital
could intimidate physicians by threatening to refer contractual
disputes to the local prosecutor. Investigators seeking jobs from
insurance carriers or hospitals would recommend prosecution of a
physician for the benefit of their current or future employers,
as may have happened in the Gailey case itself,” wrote Mr.
Schlafly. “Although mail fraud statutes have been misapplied for
decades, this case is especially outrageous.”

AMA Protective Order Being Challenged

Oral arguments concerning the AAPS motion to lift the
protective order in the case of Sunbeam Products v. American
Medical Association
were heard on August 12 before Judge
Harry D. Leinenweber in U.S. District Court for the Northern
District of Illinois (see AAPS News, Sept. 1998).

Arguing for AAPS, attorney Ed Clinton noted that the
Protective Order is explicitly stated to survive termination of
the litigation.

In response to the Judge’s query about allowing AAPS access
to materials under the confidentiality order, Jack Bierig,
attorney representing the AMA, stated that that would be “totally
inappropriate,” as “[t]he parties relied upon the confidentiality
order…that caused us to produce documents that we wouldn’t have
otherwise produced.”

AAPS has a major interest as “publisher of a newsletter that
informs members of the medical community of things that
happened,” stated Mr. Clinton. As to the interest of AMA members,
Mr. Bierig stated: “Every AMA member has been sent a letter which
totally informs them of what went on.”

The Court directed the AMA to file a brief within 30 days,
by September 11. The Court is to rule on October 9.

AAPS Helps Defeat Census “Sampling”

The U.S. District Court for the District of Columbia issued
a ruling on August 25, prohibiting the Census Bureau from
implementing its plan to adjust results of the 2000 Census by
boosting population totals in areas thought to contain
disproportionate numbers of undercounted minority group members
(see AAPS News, June 1998). AAPS had argued against the
plan by joining the amicus brief filed by the Washington Legal

The Clinton Administration plans to appeal the decision to
the U.S. Supreme Court.

Medicare HMOs are “Federal Actors”

In an Aug. 12 ruling, the U.S. Circuit Court of Appeals for
the Ninth Circuit affirmed a 1996 decision (Grijalva v.
, 9th Cir., No. 97-15877), holding that “[t]he
government cannot avoid the due process requirements of the
Constitution merely by delegating its duty to determine Medicare
coverage to private entities.” Medicare HMOs are to be required
to give adequate notice when they deny care, and Medicare is to
provide expedited hearings in critical cases.

The complaint was filed in 1993 and certified as a class
action in 1995. The named plaintiffs were Arizona residents
enrolled in FHP, which has since merged with PacifiCare Health
Systems. FHP was not a defendant in the lawsuit.

U.S. District Judge Alfredo Marquez handed down an
injunction in 1996, preventing the Department of HHS from
contracting with an HMO that doesn’t provide adequate notice and
appeal rights; the injunction was stayed pending appeal.

HHS Secretary Donna Shalala complained that Judge Marquez
had “usurped her authority and gone further than necessary in
protecting patients’ rights.” The Clinton Administration and the
HMO industry argued that HMOs serving Medicare patients were
private entities and the federal government should not be held
responsible for their decisions, stated Robert Pear, writing in
the Washington Post.

The appeals court also rejected the government’s contention
that “because Medicare is not a need-based program, the
recipients don’t have the same rights to benefits as, say, a
welfare recipient” (J. Erickson, AZ Daily Star 8/13/98).

While calling the 9th Circuit decision a victory, Carol
Jiminez, co-counsel for the plaintiffs, stated that the problem
of lax enforcement by HCFA remains. “HCFA had never done
enforcement against HMOs,” and had never pulled a contract
despite noncompliance (BNA’s HCPR 8/17/98).

“We are beginning to get the picture about public-private
partnerships,” commented Robert Gervais, M.D., President of the
Arizona chapter of AAPS.

“This is the same Administration that claims to be the
champion of patients’ rights in pending legislation,” stated Jane
Orient, M.D., AAPS Executive Director.

Canadian Doctors Revolt

Canadian physicians have three options: leave the country,
engage in traditional lobbying, or “get in governments’ face.”

Canada suffered a net loss of 513 doctors in 1996, the last
year for which figures are available. According to Dr. Victor
Dirnfeld, president of the Canadian Medical Association, this
includes “not only our best and brightest, but often our most
committed physicians.” Moreover, “the brain drain is not confined
to physicians. Doctors represent only one-quarter of the health
workers that leave for the U.S. each year.” Canada’s health
minister is also concerned about a serious shortage of nurses
(Wall Street J, 6/17/98).

The public “seems to be fed up too.” According to pollster
Angus Reid, 63% of Canadians rated the quality of health care as
excellent or very good at the start of the decade, compared with
only 37% now (Sibbald, CMAJ 158(11):1505-1509, 1998).

The government is playing hardball, and doctors are
responding in kind: walkouts in British Columbia (“Fund us or
free us,” says the BCMA); withdrawal of certain services in
Alberta; strikes in Quebec; and a lawsuit against the government
for breach of promise in Manitoba. Dr. Jacques Chaoulli has filed
litigation to establish the right to buy private medical services
from nonparticipating doctors in Quebec.

“It sounds radical but it comes down to whether you believe
in collective or individual freedom as the primary goal,” stated
Dr. Edward Coffey, past president of the Quebec Medical
Association (ibid.), concerning the lawsuit.

Canadian physicians are also unhappy with organized
medicine: “The only reason … that the AMA [Alberta Medical
Association] has the sole right to negotiate on behalf of doctors
is that they have a cosy deal with the government, which, in
fact, simply allows the government to hide behind that screen,
and claim they are not responsible for individual fees,” writes
Dr. James Currie (Calgary Sun 6/24/98). He joined the
AMA because it was the only way to recoup the $30,000 cost of his
malpractice insurance. The Ontario Medical Association has been
sued by the Ontario Association of Radiologists, who complain
they will have to carry the burden of a $120 million clawback in
fees, which will mean half a million fewer imaging procedures for
Ontario patients (Forum, Aug 1998).

AAPS Calendar

Sept. 21. AAPS Arizona chapter, MSA meeting, Phoenix.

Oct. 9-11. AAPS 55th annual meeting, Raleigh, NC.

Oct. 31. SEPP: MSA Summit in Pittsburgh.

Oct. 12-16, 1999. 56th annual meeting, Coeur D’Alene, ID.

Are Medical Staff Bylaws Meaningless?

Protection against arbitrary and capricious termination of a
physician’s hospital staff privileges is a critical feature of
the medical staff bylaws. With the very broad immunities accorded
to persons engaged in “peer review,” charges that the hospital
violated the medical staff bylaws may be the only legal recourse
of a physician terminated for anticompetitive reasons, even if
the action was taken maliciously and in bad faith.

In a worrisome case in Missouri, a Court of Appeals ruled
that medical staff bylaws do not constitute a contract. An
AAPS member has filed pro se an Application for Transfer
to the Supreme Court in his case, captioned Ronald Zipper,
D.O., vs Health Midwest
(No. WD 51357).

Dr. Zipper argues that the Court of Appeals decision
ignores, misconstrues, and is contrary to previous decisions
rendered in Missouri and in the U.S., and is a case of first
impression that involves strong public policy principles.

The decision is expressly based on erroneous assertions from
outside the record, specifically a bar journal article written by
counsel for the hospital, which states:

Dr. Zipper did not have input in the bylaws nor did he
have the power to change the bylaws. MCI had the right
to unilaterally change the procedures set forth in the
bylaws without consultation with anyone on the medical
staff and to impose those bylaws on its medical staff.

The Court held, based on this “factual finding,” that
“[b]ecause no consideration existed, the hospital bylaws do not
constitute a contract between Dr. Zipper and MCI.”

The truth is that the physician did have input into the
bylaws, both personally and through his representatives, as
required by Missouri law, which also prohibits the hospital from
making unilateral changes. There was no basis in the record for
the contrary finding: “Of what real worth is the right to present
evidence…if the one who decides the case may stray at will from
the record in reaching his decision?”

The Court also erroneously treated Dr. Zipper as though he
were an employee of the hospital, thereby implicating employment-
at-will doctrine.

In interpreting a Missouri regulation, the Court relied
heavily on the statutory scheme in Georgia, where the governing
statute requires hospitals to unilaterally install procedures for
reviewing medical staff privileges (O.C.G.A.31-7-15(1991). This
delegation of unfettered authority to hospitals in Georgia formed
the basis for the Robles decision, which denied
contractual force to hospital bylaws with respect to privileges.
However, the applicable regulation in Missouri is the diametric
opposite: a hospital can only agree to bylaws that have already
been developed and adopted by the medical staff. 19 CSR 30-

Section 537.035(5), R.S. Mo. 1994, reinforces Missouri
public policy that physicians are entitled to full judicial
redress for any infringement of their hospital privileges, as all
Missouri courts have assumed until now. This section provides
that limitations on discovery and admissibility of peer review
proceedings do not apply when any member of a peer review
committee or the entity itself “is sued for actions taken by such
committee which operate to deny, restrict, or revoke the hospital
privileges or license to practice of a physician.”

As Dr. Zipper points out, the “General Assembly thereby
reiterated the Missouri public policy that the interests arising
from a physician’s practice-including the interests of all the
physician’s patients-are too important to justify shielding a
hospital’s termination of privileges.”

Dr. Zipper cites extensive case law to show that the Court’s
holding contradicts dozens of precedents. With the exception of
Georgia’s statutory limitation on the effects of bylaws, all
other jurisdictions have held that hospital bylaws can constitute
a contract.

In contrast, the Court expressly found that the hospital
utilized contractual language in its bylaws but nonetheless held
that the intent to be bound by the bylaws is insufficient for
contractual formation. It issued the unprecedented ruling that
two sophisticated parties-a hospital and a physician-are legally
prohibited in Missouri from binding themselves contractually
through a set of mutually agreed bylaws and must instead use “a
separate document that is not the bylaws.”

AAPS and, later, the AMA have informed Appellants that they
will move to file amicus curiae submissions before the Missouri
Supreme Court in this case because of its enormous importance and
the decision’s conflict with existing law.

Dr. Zipper’s brief can be downloaded from http://www. primenet.com/~snavely/

Opting Out of Medicare

Increasing numbers of physicians have expressed an interest
in withdrawing from Medicare. Some may not be using the precise
language needed to be within the safe harbor protection of 4507.
The requirements may be downloaded from http://www.primenet.com/~snavely/optout.htm

AAPS Director Michael Schlitt, M.D., will discuss opting out
at a quarterly staff meeting of Valley Medical Center in Renton,
WA, on September 16.

Appeals Court Acquits Physician of Murder

In an extremely unusual action, the Court of Appeals for the
State of Kansas issued a verdict of acquittal in the case of
State of Kansas v. L. Stan Naramore, D.O.

In 1994, Dr. Naramore was convicted of one count of
attempted murder and one count of malicious second-degree murder
and sentenced to 5 to 20 years in prison. After serving two years
in the county jail awaiting trial and six months in state prison,
he was released on parole. (See August 1998 issue of

The first case concerned the use of narcotics in an attempt
to ease the pain of a terminal cancer patient. The second
concerned terminating resuscitation efforts after 3 hours on a
patient admitted in extremis; at this point, the patient had no
pulse despite a pacemaker-generated rhythm.

Amicus curiae briefs submitted by the Kansas Association of
Osteopathic Medicine, the American Osteopathic Association, and
the Kansas Medical Society noted that “if criminal responsibility
can be assessed based solely on the opinions of a portion of the
medical community which are strongly challenged by an opposing
and authoritative medical consensus, we have criminalized
malpractice, and even the possibility of malpractice.” Defense
witnesses testified that Dr. Naramore’s treatment did not fall
below the standard of care and showed no evidence of an intent to
kill the patients.

The Court concluded that “no rational jury could find
criminal intent and guilt beyond a reasonable doubt based on the
record here.” The opinion is posted here.

Members’ Page

Educational Mandates. The State Government is placing
more and more “educational mandates” on my time. We must take a
“hand-washing” course every four years. Anyone who is 5 minutes
late is locked out. The first 10 or 15 minutes are spent
explaining the punishments for not attending the course or for
not washing your hands correctly. If one leaves the room without
permission, say to use the restroom, the required certificate is
withheld. Reading anything not directly related to the course,
and talking while class is in session, are strictly forbidden. I
was going to ask if there was any penalty for gum chewing, such
as having to stick the gum on your forehead and stand in the
corner, but I was afraid to give them any ideas. I suspect that
if you nod off while listening to the same material every 4
years, you will have to write “I will not fall asleep in class”
on the blackboard 100 times and then clean all the blackboard
erasers after class.

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

A Better Alternative. The GOP response to the
Democrats’ HMO bashing is playing into the hands of the Clinton
Care program for universal coverage: a single-payer system
controlled by the government. I urge Republicans to adopt Sense
of the House and Senate resolutions based on a comment made by
Senator Harkin (D-IA): no legislation that would increase the
number of uninsured Americans.

Ernest J. White, War Report 28-1998

A Letter to Senator Graham: I write as a physician
representative of the Florida Wellcare Alliance and also
represent the opinion of the majority of the members of the
Citrus County Medical Society. Despite what you are hearing from
the AMA, the majority of all physicians are opposed to opening up
insurance companies to the risk of malpractice suits. Denial of
payment for a service does not amount to the practice of
medicine. Establishing a whole new class of torts would require
defining a completely new type of medical practice that would
require a new set of regulations and a new regulatory body….
Just as malpractice suits have not led to the practice of better
medicine (defensive medicine is practiced instead), this type of
legislation cannot accomplish what you desire for your
constituents….[We support tax equity and free-market
solutions]. We apologize for the AMA. Apparently, none of the
executives ever took Economics 101.

William L. Dixon, M.D., M.B.A., Inverness, FL

Hurting the Poor. Years ago, I was in the office of the
late Dr. Stanley Tanz as a patient. He was as angry as I have
ever seen him to be-much out of character for him. Medicare had
threatened him with a fine because he did not charge a patient
according to their rules. The patient was a widow with very
limited income, who was too proud to accept free care. Dr. Tanz
charged her $5 per visit, much below the approved rate.

David Eisenberg, Tucson, AZ

Medicare and the Power of Administrators. One of the
things people don’t recall is that the guaranteed pay of Medicare
in the 1970s cut hospital administrators free of their boards;
they no longer needed community support and could do pretty much
what they wanted. The situation [has largely remained the same],
and so the one who makes decisions at the hospital is the
administrator, plus the board, whom she “lets know just enough to
agree with her.” Some of the horror stories are too big to be
filtered out by the administration, and the board is increasingly
being informed, but 20 years too late.

You may be interested to know that I dropped my membership
in the AMA, not so much because they were making clammy-handed
agreements with the Washington leftists, but because…they hired
some feminist lawyers who accused the Right-to-Life people of
being a “Racketeer-Influenced Corrupt Organization,” and got away
with it.

James W. Wiggs, M.D., Yankton, SD

Orwellian Bonuses. I received a letter from Alliance
Blue Cross Blue Shield about a Physician Bonus Program. A
computer system would track utilization, charges, and patient
satisfaction. I told the company Vice President that I saw a very
savvy business strategy to criticize physicians and collect
ammunition for plans to decrease payments. By comparing us with
our “peers,” she would attempt to show that some physicians are
different and need to be “disciplined.” Her dishonest response
stated that she was going to use that program only to inform us
of our differences and that the Bonus Program was not tied to
lower medical activities….

Are we physicians all a bunch of neuropathic masochists? A
friend told me he had just spent $750,000 on his daughter’s
medical education. Now all she has is debt and a profession
everyone insults. Had he put his money into the stock market and
let his daughter cook pies, she would be standing better.

James Durand, M.D., Mt. Vernon, IL

Controlling Access. The Clintonites, in true socialist
fashion, are using prohibitions, fraud-and-abuse statutes, and
any other jack-boot means at their disposal to make sure that
Americans are not allowed to purchase any more medical
care than the government determines they “need.” Unfortunately,
most Americans think that access to medical care is a “right” of
expropriation, rather than a responsibility of individuals.

T. Glendon Moody, M.D., Tempe, AZ

Legislative Alert

Anti-HMO Lawsuits: Politics at
Center Stage

The current preoccupation among politicos and media types
with the “Monica Lewinsky affair” is not likely to alter the
politics of federal health care policy. While the Senate
is expected to enact its own version of the “Patients’ Bill of
Rights” sometime after the Congressional recess, and try to
reconcile the legislative patchwork of provisions with the House-
passed bill, the President has made it clear that he will veto
legislation failing to meet his political and policy objectives.
Clinton is saying that the Republican Congressional bills are too
weak, don t cover as many people, and don t have real enforcement
mechanisms, such as the right of dissatisfied patients to sue
HMOs, a key feature of Democratic legislation.

Under current law, patients in medical insurance plans
governed by ERISA cannot sue insurers in state courts over
coverage decisions. The major reason why companies self- insure,
and thus qualify for the ERISA preemptions, is to escape state
government mandates and avoid payment of state premium taxes.
ERISA also effectively blocks the creation of single-payer
systems at the state level. Under the 1974 law, patients can sue
insurance plans in federal courts, and their damage recovery is

Congressional Democrats argue that the ERISA preemption
should be overridden, and patients should be able to sue health
plans, HMOs in particular, for death or disability that follows
their bureaucratic coverage decisions.

The key short-term objective of the Clinton Administration
and its allies on Capitol Hill is opening a new avenue of
litigation for the lawyers. The long-term objective, of course,
is summarized in the Health Security Act of 1993, bits of which,
in various bite-sized chunks, have already been enacted by
Congress. In the meantime, a veto strategy on health care solves
some immediate political problems for the White House.

For the President, this is another opportunity to use the
Bully Pulpit to talk about a big domestic policy issue, redefine
the health care debate on his terms, and possibly force yet
another Congressional capitulation to his agenda. If Congress
does not act at all-a real possibility in the short time left for
legislative business-rest assured that the Administration and its
allies will underscore the lack of action. The push for a
“tougher” anti-HMO bill gives the Administration the protective
mantle of trying “to do something” really serious about the HMO
mess, rather than just passing the political equivalent of a
Hallmark “We Care” Card to the electorate.

Trial lawyers, reliable political allies of the Clinton
Administration, are thrilled at the prospect of a whole new and
potentially explosive field of lucrative casework. Instead of the
reform of medical malpractice law, which seems to be receding as
a prime objective of Organized Medicine, this is the dramatic
expansion of medical malpractice in a new form.

For the doctors, patient suits against the dreaded HMOs hold
out the promise of a modicum of justice in this world and also a
delicious retaliation. The theme seems to be: if we can be sued
for malpractice and the malpractice laws remain unreformed to our
satisfaction, and the insurance plan bureaucrats want to
“practice medicine,” then they should be sued too. This is a
variation of the “spread the misery” offense, like poking holes
in the bottom of the lifeboat so that your opponents are
guaranteed to drown with you. It is the kind of ploy that
political actors usually resort to when they lose confidence in
their ability to better the situation.

For small employers, reliable political opponents of the
Clinton Administration, it is another blow, and yet another
disincentive to offer medical insurance to employees and their
families. The cost to small businesses has to increase,
even though it is inevitably to be shifted to workers and their
families, in the form of higher cost-sharing requirements or
lower wages. It is estimated that among all small firms,
approximately two-thirds of them don t offer insurance now.

In addition to higher premiums, employers fear that they
too will eventually targeted for expanded liability
politicians’ promises notwithstanding. Where insurance companies
are acting as agents of employers, employers fear a showdown with
plaintiff’s attorneys for not providing coverage to the
plaintiff’s satisfaction. Insurance companies, after all, are not
simply free agents; they have a contract with the employer.
Insurance chiefs will, when pressed, surely argue that they are
carrying out the terms and conditions of the contract. It’s a
compelling argument: the Devil made me do it, Judge, and I can
prove it. Look at the Devil’s (the employer’s) signature on this
contract. The logic of an idea will be ultimately pushed to its
final conclusion, despite provisions in today’s federal law.

It is also a mistake to think that litigation will be
confined to state courts and governed simply by state law. The
dynamism in health policy is all going in one direction: federal.
Some states will be less amenable to litigation than others, and
there will thus be “inequities,” as they say. Congress likes to
“fix” inequities. Consumer protection will be the rage. Insurance
companies and businesses, seeing such legislation as a new
protection or a “defense” against litigation, will of course
support remedial legislation. This, of course, will strengthen
the cause of the Policy Wonks and the politicians who are eager
to specify, in ever greater detail, what constitutes an
appropriate, Washington-certified level of quality care for
anyone on the receiving end of the more than 7000 medical
procedures in the CPT code book. Mandates will increase costs.
That s fine, too. After 40 centuries of dismal experience,
politicians always need another fresh argument to justify the
perennial experiment in Price Controls. That gets two health care
policy birds with one mandate.

For the increasingly visible academic fans of the
Canadian-style system, this entire process has the added
political benefit of undermining the private insurance
Which is, of course, the basic idea.

Choice and Satisfaction

Members of Congress and the Clinton Administration, now
Hell-bent (with good intentions) on enacting another set of
federal rules and regulations, seem desperate to avoid discussing
the obvious: the reason there is so much growing dissatisfaction
with employer-based health plans, particularly HMOs, is that
patients don t choose them.

Americans, heirs of the Declaration of Independence, are
normally bound to abide by the terms of contracts they enter into
of their own free will. But with regard to medical insurance,
Americans are, for all practical purposes, bound by contracts
they did not sign. Lack of top-flight customer satisfaction with
the managed-care contracts signed by 71% of small firms and 75%
of large firms is thus not too surprising, though it shocks the
delicate and sensitive souls in and out of Congress, who feel
duty bound to prescribe all sorts of ancient liberal folk
remedies for the symptoms of the condition, while studiously
ignoring the cause.

Instead of more rules, regulations, mandates, federal
grievance procedures, and new avenues of litigation, a better
answer is to let people pick and choose their own medical
insurance to suit the wants and needs of their families. But
Congress, and certainly not the Clinton Administration, is
clearly not interested in that solution.

A recent report from the Center for Studying Health System
Change shows just how constrained the options are: In 1996, 91%
of firms with fewer than 10 employees offered no choice at all
for health insurance. In 1988, 91% of such small firms had a
conventional insurance plan, but by 1996, only 40% did.
the same time period, the percentage of larger firms offering no
choice increased from 41% to 47%. Moreover, the percentage of
large firms offering a conventional plan option decreased from
89% in 1988 to 57% in 1996
. Declining choice of plans, and
declining choice of doctors. The impolite way of putting it is
that millions of Americans over the past few years have been
coerced into managed care plans by employers.

A 1997 analysis by Karen Davis and Cathy Schoen of The
Commonwealth Fund, hardly a nerve center of conservative policy,
confirmed these trends in broad outline and unveiled the basic
truth: With patient choice comes patient satisfaction. Based on
the 1997 Kaiser/Commonwealth National Health Insurance
, 17% of those enrolled in managed care plans are
“very or somewhat dissatisfied” with their plans, compared to 12%
of those enrolled in the conventional fee-for-service plans.
According to the Commonwealth Fund study, 22% of those enrolled
in managed-care plans who did not have a choice of plans were
“very or somewhat dissatisfied,” compared to 14% of those
enrolled in such plans who did have choice. This is a big gap.
The same patterns holds for employers fee-for-service plans: 14%
of those who had no choice expressed dissatisfaction, compared to
8% of those who did have choice.

The authors of the study note that persons enrolled in
managed care, with no choice, are also most likely to be
dissatisfied with their physicians: 18% of them, compared with
13% of those enrolled in managed care with a choice of plans and
just 3% of those enrolled in fee-for-service plans. Persons
enrolled in managed-care plans are less likely than other persons
to have a regular physician.

The Commonwealth Study also found that 17% of Americans have
no health insurance plans offered through their place of
work. They must purchase insurance on the individual market if
they want coverage for themselves and their families, and are
deliberately penalized by Congress through the federal tax code
for doing so, as well as by state legislators who insist that
they pay for expensive treatments and procedures that they don t
want or need.

The Latest on the Medicare Mess

Two more time bombs; two more explosions.

Explosion #1: Under the new law, HCFA was to impose a the
“prospective payment system” (PPS), Medicare s complex system of
administrative pricing, on hospital outpatient services. The
object of the measure is to bring Medicare copayments (which have
been rising for more than a decade and now amount to an average
of 50%) into line with the conventional copayments found in the
private sector (which normally amount to 20%)

On July 16, HCFA Administrator Nancy Ann Min DeParle
testified before the House Ways and Means Committee that the
Clinton Administration would have to delay the implementation of
the new PPS system for outpatient services for 15 months because
of the need to fix the Year 2000 bug that threatens HCFA s
computers. DeParle told Congress that government actuaries said
that the cost of the delay, “if any” would be “minimal”.

Congressman Bill Thomas, Chairman of the House Ways and
Means Health Subcommittee, obtained an internal HCFA memo,
dated August 7, that revised the “minimal” cost estimates upwards
to $570 million in higher coinsurance payments by senior
. Another lesson in the Medicare cost estimates.

“Frankly, I don’t consider half a billion dollars to be a
`minimal’ cost and I am outraged that the Administration’s
failure to manage its operations will be carried on the backs of
our seniors,” wrote Congressman Thomas in a letter to
Administrator DeParle.

Explosion #2: On August 24, the Bureau of National Affairs
Daily Report For Executives reported that thus far
only three companies are prepared to offer “private” plans to
compete for the business of Medicare enrollees
. HCFA got two
applications for participation as “provider sponsored
organizations” and one for a conventional “Preferred Provider
Organization” (PPO). HCFA got no applications from
companies wanting to market either a medical savings account
(MSA), or a private fee-for-service option.

The major reason: The language of the Balanced Budget Act of
1997 and the size and complexity of the regulations governing the
new program. In February, approximately 600 insurers attended a
HCFA briefing on the new program. And the new “Medicare Plus
Choice” regulations-numbering 833 additional pages of HCFA
-were published on June 26. With too many unanswered
questions, the message from private insurers to HCFA is thanks,
but no thanks.

HCFA, of course, does not enjoy a stellar reputation as a
“market friendly” institution. But HCFA officials will surely
point, in their defense, to the legislative language of the
Balanced Budget Act of 1997. Bet that when the scope of this
failure finally sinks in, the Congress will take a drubbing from
its left-wing critics, who never wanted to see a pluralistic
system of private plans for Medicare beneficiaries anyway. Bet
also that Congress will, in turn, start blaming HCFA for its
inability to establish the conditions for a competitive market.

Of course, Congress has had no problem creating a consumer-
driven system for itself and federal employees and retirees, with
literally hundreds of private plans participating nationwide,
with the 38-year-old Federal Employee Health Benefits Program.
But the principles governing the FEHBP and those ruling the new
Medicare Choice are quite different. Asking HCFA to establish the
conditions for a competitive market is like trying to get your
cat to go fetch.

But HCFA is going to do something. Desperate to save the
Medicare+Choice program-the centerpiece of a reform plan intended
to stretch the program’s life for a few years-it has applied to
OMB for emergency approval-of beneficiary surveys. It will
measure the customer satisfaction of Internet users who subscribe
to the nonexistent Choice plans.

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

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